What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-01-19 compared with 2019-02-01 · 1003 added, 635 removed, 108 unchanged (94% of the section changed)

FINANCIAL STATEMENTS

SYSTEMS, INC.

BALANCE SHEETS

As of February 28,

AURA SYSTEMS, INC.

and Restated)

Current assets

3 unchanged sentences

Investment in joint venture

LIABILITIES AND STOCKHOLDERS’

Liabilities & Shareholders’

Current liabilities

2 unchanged sentences

Customer advances

Shares to be issued

Notes payable

Convertible note payable and accrued interest-related party, net of discount

Convertible notes payable, net of discount

Accrued expense-related party

Notes payable, current portion

Convertible notes payable and accrued interest-related party, net of discount

Notes payable and accrued interest-related party

Total current liabilities

Note payable-related party

Notes payable-related party

Convertible notes payable

1 unchanged sentence

Commitments and contingencies

Stockholders’

Common stock, $0.0001 par value;

Shareholders’

Common stock:

$0.0001 par value;

shares authorized at November 30 and February 28, 2019;

48,801,770 and 41,437,035 issued and outstanding at November 30 and February 28, 2018, respectively

Subscription receivable

55,230,787 and 53,714,145 issued and outstanding at November 30

and February 28, 2019, respectively

Additional paid-in capital

2 unchanged sentences

(464,119,161 )

Total stockholders’

Total shareholders’

(22,597,068 )

(21,594,699 )

Total liabilities and stockholders’

accompanying notes are an integral part of these financial statements.

Total liabilities and shareholders’

The accompanying notes are an integral part

of these financial statements.

SYSTEMS, INC.

OF OPERATIONS

THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2018 AND 2017

STATEMENTS OF OPERATIONS

(Unaudited and Restated)

Three-months ended

1 unchanged sentence

Cost of goods sold

Engineering, research and development expenses

Selling, general and administrative expenses

Total costs and expenses

Gross profit (loss)

Operating expenses

Engineering, research & development

Selling, general & administration

Total operating expenses

Loss from operations

Other (income) and expense

Other expense:

Interest expense, net

Other (income) expense, net

Other (inome) expense

Total other (income) expense

2 unchanged sentences

$ (3,715,207 )

$ (5,215,524 )

Total basic and diluted loss per share

Weighted average shares used to compute basic and diluted income (loss) per share

Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of the

dilutive securities is anti-dilutive.

SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2018 AND 2017

Nine Months Ended

Cash flow from operating activities:

Net loss per share

Basic weighted average shares outstanding

Diluted loss per share

Dilutive weighted average shares outstanding

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS, INC.

STATEMENTS OF CASH

(Unaudited and Restated)

$ (1,660,996 )

$ (3,715,207 )

Adjustments to reconcile Net loss to net cash used in operating activities

Amortization of debt discount

FMV of warrants issued for services

Adjustments to reconcile net loss to cash used in operating activities

Fair Market Value of warrants issued for services

Gain on settlement of debt

Stock issued for services

(Increase) decrease in:

Accounts receivable

Other current assets and deposit

Increase (decrease) in:

Accounts payable, customer deposit and accrued expenses

Net cash used in operations

Investing Activities:

Investment in Joint Venture

Net cash used in investing activities

Financing activities:

Other current assets

Accts payable, customer deposits and accrued expenses

Cash used in operating activities

Cash flows from financing activities

Issuance of common stock

Proceeds from subscription receivable

Proceeds from convertible notes payable

Payment on notes payable

Investor Advance

Net cash provided by financing activities:

Net increase (decrease) in cash & cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosures of cash flow information

Cash paid during the period for:

supplemental disclosure of non-cash investing and financing activities:

SYSTEMS, INC.

Proceeds from subscription receivable

Cash provided by financing activities

Net decrease in cash and cash equivalents

Beginning cash

Cash paid in the period for:

Supplemental schedule of non-cash transactions:

Notes payable converted into shares of common stock

Convertible notes converted into shares of common stock

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS, INC.

STATEMENTS OF SHAREHOLDERS’

(Unaudited and Restated)

Shareholders’

Balance, February 28, 2018

$ 438,247,091

$ (1,300,000 )

$ (461,616,731 )

$ (24,665,496 )

Proceeds from subscription receivable

Balance, May 31, 2018

(462,653,113 )

$ (25,201,878 )

Proceeds from subscription receivable

Shares issued for settlement (restated)

Prior year shares to be issued

Warrant expense

Balance, August 31, 2018

(464,066,316 )

$ (23,269,782 )

Proceeds from subscription receivable

Net loss (restated)

Balance, November 30, 2018 (restated)

$ 440,966,654

$ (465,331,938 )

$ (24,435,404 )

Shareholders’

Balance, February 28, 2019

$ 442,519,092

$ (464,119,161 )

$ (21,594,699 )

Shares issued for cash

Balance, May 31, 2019

$ 442,569,077

$ (464,794,482 )

$ (22,220,020 )

Shares issued for cash

Shares issued for debt

Balance, August 31, 2019

$ 442,998,999

$ (465,005,821 )

$ (22,001,283 )

Shares issued for cash

Shares cancelled

Shares issued for debt

Net loss (restated)

Balance, November 30, 2019 (restated)

$ 443,177,569

$ (465,780,158 )

$ (22,597,068 )

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

ACCOUNTING POLICIES

the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income,

and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity

with accounting principles generally accepted in the United States of America (“U.S.

(Unaudited and restated)

NOTE 1 –

ORGANIZATION AND OPERATIONS

Aura Systems, Inc., (“Aura”,

“We”

or the “Company”) a Delaware corporation, was founded to engage in the development, commercialization,

and sales of products, systems, and components, using its patented and proprietary electromagnetic technology.

Aura develops and

sells AuraGen ®

axial flux mobile induction power systems to the industrial, commercial, and defense mobile power

generation markets.

In addition, the Company has also developed and patented High Force Electromagnetic Linear Actuators which

it has sold in prior years.

NOTE 2 –

ACCOUNTING POLICIES (restated)

Accounting principles

In the opinion of management, the accompanying

balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting

only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted

in the United States of America (“U.S.

GAAP”).

Interim results are not

necessarily indicative of results for a full year.

The information included in this Form 10-Q should be read in conjunction with

information included in the Company’s annual report on Form 10-K for the year ended February 28, 2018 filed on June 13,

2018 with the U.S.

Securities and Exchange Commission.

preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenue and expenses during the reporting period.

Interim results are not necessarily indicative of results for a full

The information included in this Amended Form 10-Q/A, should be read in conjunction with information included in the Company’s

Amended Annual Report on Form 10-K/A for the year ended February 28, 2019 filed on October 24, 2019 with the United States Securities

and Exchange Commission (“SEC”).

The preparation of financial statements

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during

the reporting period.

Actual results could differ from those estimates.

Issued Accounting Pronouncements

April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation

of debt issuance costs in financial statements.

ASU 2015-03 requires an entity to present such costs in the balance sheet as a

direct deduction from the related debt liability rather than as an asset.

Amortization of the costs will continue to be reported

as interest expense.

It is effective for annual reporting periods beginning after December 15, 2016.

Early adoption is permitted.

The new guidance will be applied retrospectively to each prior period presented.

The Company is currently in the process of evaluating

the impact of adoption of ASU 2015-03 on its balance sheets.

January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01,

which amends the guidance in U.S.

GAAP on the classification and measurement of financial instruments.

Changes to the current

guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation

and disclosure requirements for financial instruments.

In addition, the ASU clarifies guidance related to the valuation allowance

assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.

standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should

apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period

in which the guidance is effective.

Early adoption is not permitted except for the provision to record fair value changes for

financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income.

The Company is currently evaluating the impact of adopting this guidance.

February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) to increase transparency and comparability among organizations

by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

Topic 842 affects any entity that enters into a lease, with some specified scope exemptions.

The guidance in this Update supersedes

Topic 840, Leases.

The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from

A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)

and a right-of-use asset representing its right to use the underlying asset for the lease term.

For public companies, the amendments

in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal

We are currently evaluating the impact of adopting ASU No.

2016-02 on our financial statements.

March 2016, the FASB issued ASU No.

2016-09, Compensation –

Stock Compensation, or ASU No.

The areas for simplification

in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences,

classification of awards as either equity or liabilities, and classification on the statement of cash flows.

For public entities,

the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those

annual periods.

Early adoption is permitted in any interim or annual period.

If an entity early adopts the amendments in an interim

period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

that elects early adoption must adopt all of the amendments in the same period.

Amendments related to the timing of when excess

tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using

a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period

in which the guidance is adopted.

Amendments related to the presentation of employee taxes paid on the statement of cash flows

when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively.

requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating

expected term should be applied prospectively.

An entity may elect to apply the amendments related to the presentation of excess

tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method.

We are currently evaluating the impact of adopting ASU No.

2016-09 on our financial statements.

June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Statements,”

which requires companies

to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader

range of reasonable and supportable information to inform credit loss estimates.

ASU 2016-13 is effective for annual reporting

periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company).

The Company has not

yet determined the potential effects of the adoption of ASU 2016-13 on its Financial Statements.

Reclassifications

reclassifications have been made to the comparative financial statements to conform to the current period presentation.

GOING CONCERN

accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

During the nine

months ended November 30, 2018 and November 30, 2017, the Company incurred losses of $5,706,947 and $5,215,524, respectively and

had negative cash flows from operating activities of $1,902,151 and $2,064,340, respectively.

the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements,

it may have to curtail its business sharply or cease business altogether.

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.

accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted

in the United States of America, which contemplate continuation of the Company as a going concern.

The consolidated financial

statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts

and classification of liabilities that could result from the outcome of this uncertainty.

the next twelve months we intend to restart operations of our AuraGen/VIPER business both domestically and internationally.

the next annual meeting the shareholders will vote for five board candidates.

The new board intends to hire a new management team.

In addition, we plan to acquire a new facility of approximately 45,000 square feet for operations, as well as rebuild the engineering,

QA, and sales teams to support the operations.

We anticipate being able to fund these additions in the upcoming fiscal year.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease

liabilities on the balance sheet and disclosing key information about leasing arrangements.

Topic 842 affects any entity that enters

into a lease, with some specified scope exemptions.

The guidance in this Update supersedes Topic 840, Leases.

The core principle

of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.

A lessee should recognize in

the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing

its right to use the underlying asset for the lease term.

For public companies, the amendments in this Update are effective for

fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company evaluated the

impact of the adoption of Topic 842 effective for the nine-months ended November 30, 2019 and the impact was none on the Condensed

Financial Statements.

The Company adopted Accounting Standards

Codification (“ASC”) 606.

ASC 606, Revenue from Contracts with Customers, establishes principles for reporting information

about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide

goods or services to customers.

The core principle requires an entity to recognize revenue to depict the transfer of goods or

services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those

goods or services recognized as performance obligations are satisfied.

The Company has assessed the impact of

the guidance by performing the following five steps analysis:

the performance obligations

the transaction price

Re-classifications

Certain reclassifications have been made

to the comparative financial statements to conform to the current period presentation.

The balance sheet as of February 28, 2019,

presented herein, includes a reclassification of $1,008,328 for accrued expense in relation to a related party obligation from

accrued expenses to a separate caption accrued expenses-related party.

NOTE 3 –

GOING CONCERN (restated)

The accompanying financial statements have

been prepared assuming that the Company will continue as a going concern.

During the nine months ended November 30, 2019 and 2018,

the Company reported net losses of $1,660,997 and $3,715,207, respectively, and had negative cash flows from operating activities

of $490,578 and $1,902,151, respectively.

The Company reclassified in the three-months ended November 30, 2019 approximately $0.3

million related to the shares issued to the Company’s president in August 2019 as other expense (see Note 5).

If the Company is unable to generate profits

on a sustained basis and is unable to continue to obtain financing for its working capital requirements, it may have to curtail

its business sharply 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.

The accompanying consolidated financial

statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which

contemplate continuation of the Company as a going concern.

The consolidated financial statements do not include any adjustments

relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that

could result from the outcome of this uncertainty.

Beginning with the second quarter of fiscal

year 2020, we increased operations of our AuraGen ®

/VIPER business and during the second and third quarters of fiscal

2020, the Company recognized approximately $745,000 in revenue as compared to approximately $39,000 of revenue in the nine-month

period ended November 30, 2018.

We plan to lease or acquire a new facility of approximately 50,000 square feet to support operations

during the remainder of fiscal 2020.

NOTE 4 –

NOTES PAYABLE

payable consisted of the following:

February 28, 2018

Notes payable, at 10% and 5%

Convertible Promissory Note dated August 10, 2012 with an interest rate of 5% per annum.

On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018.

Further details are provided below.

Convertible Promissory Note dated October 2, 2012 with an interest rate of 5% per annum.

Notes payable consisted of the following:

Demand promissory notes payable with six individuals, carrying an interest rate of 10% (see Demand Promissory Notes below)

Note payable –

related party, carrying an interest rate of 5% - see note 6, Breslow Note, for further details

Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares

of our common stock at a price of $0.76 per share.

The note carries an interest rate of 7% with interest only payments due on

the 10 th of each month with the principal payment due on the maturity date.

On January 30, 2017, this note was amended

providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per

share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018.

See 7% Convertible

Promissory Notes –

Dalrymple August 2012 for further details.

Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares

of our common stock at a price of $0.76 per share.

The note carries an interest rate of 7% with interest only payments due on

the 2 nd of each month with the principal payment due on the maturity date.

On January 30, 2017, this note was amended

providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per

share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018.

See 7% Convertible

Promissory Notes –

Dalrymple October 2012 for further details.

Senior secured convertible notes dated May 7, 2013, due May 7, 2014, convertible into shares of our common stock at a price of $0.75 per share.

The notes carry an interest rate of 12% with interest due on the last day of the month.

Further details are provided below.

Senior secured convertible notes dated May 7, 2013 with an interest rate of 5% per annum.

See Convertible Debt –

Kenmont Capital Partners, LPD Investments and Guenther for further details.

Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.50 per share.

Further details are provided below.

Senior secured convertible notes dated June 20, 2013 with an interest are of 5% per annum On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018.

Further details are provided below.

Convertible notes dated April 2016 thru February 2017 with an interest rate of 5% per annum.

Although the notes were required to be converted into shares of common stock upon shareholder approval of the 7:1 reverse stock split that occurred on February 14, 2018 per the terms of the note agreement, the company chose to allow the note holder not to convert and to have the note paid over an eleven-month period.

A single payment of $50,000 was made in April 2018.

See Convertible Debt –

Dresner and Lempert for further details.

In 2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed by two secured creditors demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages.

In January 2017, the Company entered into an agreement with all secured creditors other than the two plaintiffs.

In September 2018 the court entered a judgment of approximately $235,000 plus legal fees in favor of the two secured creditors.

The Company subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for an aggregate principal amount of $315,000, including $80,000 of plaintiff’s legal expenses, and initial payment of $20,000, a payment schedule for monthly repayments of $10,000 commencing on October 15, 2019 and continuing for 12 months, and a final payment due on November 15, 2020.

On November 20, 2019, the Company entered into a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture (see Note 9), to return $700,000 previously advanced to the Company in September 2018 and recorded as part of customer advance on the balance sheet as of February 28, 2019.

Following this agreement which consists of a non-interest bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021.

In the balance sheet as of November 30, 2019, the amount of $700,000 was reclassified to notes payable.

Current portion

Long-term portion

DEMAND PROMISSORY NOTES

The Demand Promissory Notes are six individual

notes issued in 2015 that are payable on demand with an interest rate of 10% per annum.

At February 28, 2019, the principal amount

of each note and the person/entity they are payable to are as follows:

Zeitlin, a former director of the Company;

Macleod, a former president of the Company;

Howsmon, a former director of the Company;

El Pais, an entity controlled by Salvador Diaz, a current director of the Company (see Note 8).

In November 2019, the principle

and accrued interest owed to Messrs.

Howsmon and Diaz, respectively, in the amounts of $4,500 and $2,079, respectively, were settled

by the issuance of 32,895 shares of common stock to each person by applying a price of $0.20 per share.

In February 2018, the Company issued 192,641

shares of its common stock to Steven Veen in satisfaction of $267,000 in debt.

Despite this issuance, Mr.

Veen claims to continue

to be entitled to repayment of the $267,000 debt.

Veen has, to-date, not surrendered the shares issued to him in fulfillment

of the debt he claims to be still owed and continues to own the 192,641 shares as of the date of this filing.

The Company’s

new management team is in the process of investigating the circumstances surrounding Mr.

Capital Partners

May 7, 2013, the Company transferred 4 notes payable with a total principal value of $1,000,000 together with accrued interest,

and consulting fees to a senior secured convertible note with a principal value of $1,087,000 (“New Kenmont Note”)

and warrants to Kenmont Capital Partners.

The New Kenmont Note had a 1-year maturity date and was convertible into shares of common

stock at the conversion price of $1.38per share.

As of the 1 for 7 reverse split 80% of this note was converted into stock at

a price of $1.38 per share.

and warrants to Kenmont Capital Partners LP.

The New Kenmont Note had a 1-year maturity date and was convertible into shares of

common stock at the conversion price of $0.75 per share.

The warrants were subsequently exercised.

The Company recorded $342,020 as a discount, which was amortized

over the life of the note.

There is a remaining principle and interest balance of $378,490 as of November 30, 2018.

The Company recorded $342,020

as a discount, which has been fully amortized.

There is a remaining principal balance of $549,954 as of November 30, 2019.

May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to

1 unchanged sentence

The New LPD Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75

As of the 1 for 7 reverse split 80% of this note was converted into stock at a price of $1.38 per share.

were subsequently exercised.

The Company recorded $175,793 as a discount, which will be amortized over the life of the note.

is a remaining principle and interest balance of $171,472 as of November 30, 2018.

May 7, 2013, the Company entered into an agreement with an individual for the sale of $750,000 of secured convertible note payable

(the “Note”) and warrants.

The Note had a 1-year maturity date and was convertible into shares of common stock at

the conversion price of $1.38 per share.

As of the 1 for 7 reverse split 80% of this note was converted into stock at a price

of $1.38 per share.

The warrants entitle the holder to acquire 1,000,000 shares and have an initial exercise price of $1.38 per

share and have a 7-year term.

The Company recorded $235,985 as a discount, which will be amortized over the life of the note.

There is a remaining principle and interest balance of $243,638 as of November 30, 2018.

January 30, 2017, the Company entered into an amendment to the agreements described immediately above with five of seven secured

creditors holding a security interest in all of the Company’s assets except for its patents and other intellectual properties.

The five secured creditors signing the amendment represented in excess of 95% of the total, secured debt.

The amendment provided

that all accrued and unpaid interest will be added to the principal amount.

The amended notes provided for no interest from November

1, 2016 to February 14, 2018, the date on which the 1-for-7 reverse stock split became effective and at which time 80% of the

total debt, including accrued interest, was converted into shares of common stock and a new five year 5% per annum convertible

note was issued for the remainder.

The amendment also provides that if the Company enters into a “Qualified Financing”

(defined as receipt by the Company of not less than $4,000,000 in aggregate gross proceeds from the sale of securities in one

or a series of related transactions after the execution date), then the Company shall remit to the holder the “Cash Payment

Amount”

as set forth in the amendment.

June 20, 2013, the Company entered into an agreement with four individuals for the sale of $325,000 of secured convertible notes

payable (the “Notes”) and warrants.

The Notes had a 1-year maturity date and were convertible into shares of common

The warrants were subsequently exercised.

The Company recorded $175,793 as a discount, which has been fully amortized.

There is a remaining principal balance of $163,677 as of November 30, 2019.

May 7, 2013, the Company entered into an agreement with an individual, Mr.

Guenther, for the sale of $750,000 of secured convertible

note payable (the “Note”) and warrants.

The Note had a 1-year maturity date and was convertible into shares of common

stock at the conversion price of $0.75 per share.

The warrants entitle the holder to acquire 1,000,000 shares and have an initial

exercise price of $0.75 per share and have a 7-year term.

The Company recorded $235,985 as a discount, which has been fully amortized.

There is a remaining principal balance of $232,194 as of November 30, 2019.

June 20, 2013, the Company entered into an agreement with two individuals, Mr.

Dresner and Mr.

Lempert, a current board member,

for the sale of $200,000 of secured convertible notes payable (the “Notes”) and warrants.

The Notes had a 1-year maturity

date and were convertible into shares of common stock at the conversion price of $0.50 per share.

The warrants were subsequently

The Company recorded $39,152 as a discount, which has been fully amortized.

There is a remaining principal balance

of $59,506 as of November 30, 2019.

On November 27, 2019, the principal amount owed to Mr.

Lempert of $18,676 and accrued interest

of $1,825 were settled by the issuance of 102,503 shares of common stock to Mr.

Lempert at the price of $0.20 per share (see Note

June 20, 2013, the Company entered into an agreement with two individuals, Mr.

Abdou and Mr.

Abdou, for the sale of $125,000

of secured convertible notes payable (the “Notes”) and warrants.

The Notes had a 1-year maturity date and were convertible

into shares of common stock at the conversion price of $0.50 per share.

The warrants were subsequently exercised.

The Company recorded $63,622 as a

discount, which will be amortized over the life of the notes.

There is a remaining principle and interest balance of $278,638

as of November 30, 2018.

On August 19, 2013, the Company entered

into an agreement with a member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the “BOD

Notes”) and warrants.

The BOD Notes carry a base interest rate of 9.5%, had a 4-year maturity date and are convertible into

shares of common stock at the conversion price of $3.50 per share.

recorded $24,470 as a discount, which has been fully amortized.

There is a remaining balance of $125,000 as of February 28, 2018.

In 2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants

in a lawsuit filed by the Messrs.

Abdou demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages.

In January 2017, the Company entered into an agreement with all secured creditors other than Mr.

Abdou and Mr.

September 2018 the court entered a judgment of approximately $235,000 plus legal fees in favor of the Messrs.

subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for an aggregate

principal amount of approximately $315,000.

There is a remaining principal balance of approximately $245,000 as of November 30,

2019 following principal payments of aggregate $40,000 during the third quarter of fiscal 2020 and the proceeds from the November

2019 sales of approximately 111,000 shares held by Messrs.

Abdou in the amount of $30,000 applied to the principle amount of the

August 19, 2013, the Company entered into an agreement with Robert Kopple, a former member of its Board of Directors for the sale

of $2,500,000 of convertible notes payable (the “Kopple Notes”) that were subsequently adjusted in 2014 to $2,000,000

of convertible notes and related warrants.

The Kopple Notes carry a base interest rate of 9.5%, have a 4-year maturity date and

are convertible into shares of common stock at the conversion price of $3.50 per share.

The warrants were subsequently exercised.

The Company recorded

$667,118 as a discount, which will be amortized over the life of the note.

There is a remaining principle and interest balance

of $3,546,354 as of November 30, 2018.

February 21, 2017, the Company entered into several Refinancing Agreements with a debt holder totaling $2,237,456 including interest

The agreements waived all events of default and provided for new five-year 5% convertible notes with no interest

for the first six months.

Upon the effective date of February 14, 2018 of the 1 for 7 reverse stock split the notes were converted

into 1,164,555 shares of common stock.

ACCRUED EXPENSES

The Company recorded $667,118 as a discount, which has been fully amortized.

The Company also entered into a demand note payable

with this individual in the amount of $20,000, which bears interest at a rate of 5%.

As of November 30, 2019, the balance of the

$2,000,000 note including interest is $3,849,978, and the balance of the demand note payable including interest is $23,173.

total owed under these two notes is $3,873,151.

Convertible Promissory Notes:

August 10, 2012 the Company entered into an agreement with an individual, Mr.

Dalrymple, for the sale of $1,000,000

of unsecured Convertible Promissory Note.

The Convertible Promissory Note balance together with all accrued interest thereon was

due and payable on August 10, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing

The Company recorded $310,723 as a debt discount, which will be amortized over the life of the note .

is a remaining principal balance of $264,462 as of November 30, 2019

October 2, 2012 the Company entered into an agreement with an individual, Mr.

Dalrymple, for the sale of $500,000 of

unsecured Convertible Promissory Note.

This Convertible Promissory Note balance together with all accrued interest thereon was

due and payable on October 2, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing

The Company recorded $137,583 as a debt discount, which will be amortized over the life of the note .

There is a remaining

principal balance of $133,178 as of November 30, 2019.

January 30, 2017 the Company entered into an agreement entitled First Amendment to Transaction Documents with five of seven secured

creditors holding a security interest in all of the Company’s assets except for its patents and other intellectual properties.

These creditors are the seven listed above under Convertible Debt and include the following:

Kenmont Capital Partners, LPD Investments,

Guenther, Dresner, Lempert and Mr.

Abdou and Mr.

All of the creditors entered into the January 30, 2017 agreement

with the exception of the Messrs.

The original agreement dated May 7, 2013 provided that if at least 75% of the stock issuable

upon conversion of the convertible notes votes to amend the agreement and/or waive any conditions or defaults, then any such amendments

or waivers shall be binding on all secured creditors.

The five secured creditors signing the amendment total in excess of 95%

of the issuable stock upon conversion and, therefore the agreement is binding on all seven of the secured creditors.

The agreement

provided that all accrued and unpaid interest will be added to the principal amount.

The amended note provided for no interest

from November 1, 2016 to February 14, 2018, the date at which the 1-for-7 reverse stock split became effective at which time 80%

of the total debt including accrued interest was converted into shares of common stock and a new five year 5% per annum convertible

note was issued for the remainder.

The new amended and restated senior convertible notes have a maturity date of January 30, 2022.

The five creditors and the Company entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment

to Transaction Documents on April 8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7

reverse stock split, which was completed on February 14, 2018.

The amended and restated senior convertible notes also require

the Company to make a “Required Cash Payment”

as defined in the agreement if the Company receives at least $4,000,000

in aggregate gross proceeds from the sale of equity securities (including securities convertible into equity securities) of the

Company in one or a series of related transactions.

The Required Cash Payment is equal to the current outstanding balance of the

notes, which was $1,092,542 at November 30, 2019, plus any outstanding accrued interest.

ACCRUED EXPENSES (restated)

expenses consisted of the following:

Accrued payroll and related expenses

payroll and related expenses

Accrued interest

payroll and related expenses consists of salaries and vacation time accrued but not paid to employees due to our lack of financial

payroll and related expenses consist primarily of salaries and vacation time accrued but not paid to employees due to our lack

of financial resources.

Also, on August 28, 2019, the board approved a stock issuance of 1,030,385 to Cipora Lavut, the Company’s

President, at a fair value of $329,723, for full satisfaction of prior amounts owed to her up to August 28, 2019.

was recorded as a reduction of accrued payroll expense in the second quarter but determined in the third quarter of 2020 to be

accounted for as other expense.

fiscal 2019 and at February 28, 2019, the Company fully reserved its usable inventory on the basis that production and revenues

during the fiscal years 2017 to 2019 were nil and future production requirements were uncertain.

During fiscal 2020, the Company

has increased production of its AuraGen product and has generated approximately $745,000 in current year revenues.

the Company recognized approximately $53,000 of inventory on its balance sheet as of November 30, 2019 consisting of $44,500 of

raw materials, $4,600 of work in process and $3,900 of finished goods inventory.

SHAREHOLDERS’

the nine months ended November 30, 2018, we issued 2,256,444 shares of common stock, valued at $2,280,964 to Harry Kurtzman on

behalf of BetterSea LLC, a greater than 15% shareholder as part of the restructuring agreement.

We issued an additional 5,108,291

shares of common stock valued at $1,992,251 to Harry Kurtzman on behalf of BetterSea LLC as a settlement for disputes.

the nine months ended November 30, 2018, we issued 742,857 warrants to members of our board of directors.

The warrants have a

term of five years and an exercise price of $1.40.

The company recorded an expense of $312,072 for the issuance of these warrants.

During the nine months ended November 30, 2018, we re-priced to $1.40 all outstanding employee options and warrants that had a

previous exercise price greater than $1.40.

The company recorded an expense of $105,352 as a result of the re-pricing.

the nine months ended November 30, 2017, we issued 5,000,000 (714,268 shares post reverse split) shares of common stock for $1,000,000

in conjunction with our Chinese Joint Venture, we issued 5,116,959 (730,995 shares post reverse split) shares of common stock

valued at $665,204 as part of a settlement agreement, and we issued 2,500,000 (357,142 shares post reverse split) shares of common

stock valued at $325,000 in connection with a consulting agreement.

EQUITY (restated)

the nine months ended November 30, 2019, the Company issued 2,581,875 shares of common stock for $658,737, of which 1,030,385

was issued in satisfaction of amounts owed to Cipora Lavut of $329,723, 168,475 shares were issued to three persons in settlement

of $33,660 of debt principle and accrued interest, and 1,383,015 shares and 10,000 warrants were issued for cash in the amount

The aggregate 10,000 warrants were issued to three investors with immediate vesting, an exercise price of $1.40,

and a 5-year term.

In October 2019, 1,065,051 shares previously issued in error to a former debtholder were cancelled.

the six months ended August 31, 2018 (restated), the Company issued 7,364,735 shares of common stock, valued at $2,280,964, in

fulfillment of a contractual obligation owed to BetterSea, LLC.

The number of shares issued was based on the then-outstanding

closing quote of the stock.

The issuance of the shares was previously reported by the Company.

The Company also paid $20,000 in

legal fees related to legal expense associated with the Company’s delays in the issuance of the stock.

the nine months ended November 30, 2018, the Company issued 742,857 warrants to a member of its board of directors.

have a term of five years and an exercise price of $1.40.

The Company recorded an expense of $312,072 for the issuance of these

During the nine months ended November 30, 2018, the Company re-priced to $1.40 all outstanding employee stock options

and warrants that had a previous exercise price greater than $1.40.

The Company recorded an expense of $105,352 as a result of

the re-pricing.

Stock Options

the nine months ended November 30, 2018, there were no stock options granted to employees and 742,857 stock options with an exercise

price of $1.40 per share granted to directors, which are set forth below under “Warrants.”

September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan.

Activity in this plan is as follows:

Outstanding, February 28, 2018

Outstanding, November 30, 2018

exercise prices for the options outstanding at November 30, 2018, and information relating to these options is as follows:

Options Outstanding

Exercisable Options

Range of Exercise

2006 Employee Stock Option Plan

September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan, subject to shareholder approval, which was

obtained at a special shareholders meeting in 2009.

Under the 2006 Plan, the Company may grant options for up to the greater of

Three Million (3,000,000) or 10% of the number of shares of the Common Stock of Aura from time to time outstanding.

of Common Stock available under the 2006 Plan was increased to the greater of Ten Million shares (10,000,000) or 15% of the number

of shares of Common Stock of Aura from time to time outstanding at the October 2011 shareholders meeting.

The exercise price of

each option shall be at least equal to the fair market value of such shares on the date of grant.

The term of the options may

not be greater than ten years, and they typically vest over a three-year period.

No options were issued during the nine-month

period ended November 30, 2019.

Activity in the plan for the nine-month period ended November 30, 2019 is as follows:

February 28, 2019

November 30, 2019

regarding the options outstanding and exercisable as of November 30, 2019 follows:

Exercise Price

2011 Director and Executive Officers Stock Option Plan

October 2011 shareholders approved the 2011 Director and Executive Officers Stock Option Plan at the Company’s annual meeting.

Under the 2011 Plan, the Company may grant options for up to 15% of the number of shares of Common Stock of the Company from time

to time outstanding.

Pursuant to this plan, the Board or a committee of the Board may grant an option to any person who is elected

or appointed a director or executive officer of the Company.

The exercise price of each option shall be at least equal to the

fair market value of such shares on the date of grant.

The term of the options may not be greater than five years.

the plan for the nine-month period ended November 30, 2019 is as follows:

in issued and outstanding warrants is as follows:

Number of Shares

Exercise Prices

Outstanding, February 28, 2018

Outstanding, November 30, 2018

exercise prices for the warrants outstanding at November 30, 2018, and information relating to these warrants is as follows:

Range of Exercise

Stock Warrants

February 28, 2019

November 30, 2019

regarding the warrants outstanding and exercisable as of November 30, 2019 follows

RELATED PARTIES TRANSACTIONS

6 unchanged sentences

Breslow agreed to cancel and forgive all interest due, waive all events of default and sign

a new five-year convertible note in the amount of $14,982,041 providing for no interest for six months and interest of 5% per

a new five-year convertible note in the amount of $14,982,041 providing for no interest for nine months and interest of 5% per

annum thereafter payable monthly in arrears.

3 unchanged sentences

shares of common stock and the then accrued interest of $9,388,338 was forgiven.

A new $3,000,000 note representing the remaining

balance was entered into due and payable in five years bearing interest at 5% per annum payable monthly in arrears.

November 30, 2018, the balance in Notes Payable and accrued interest-related party, current, includes $3,268,081 plus accrued

interest of $2,319,357 to Mr.

Kopple (a former Board member), a 10% shareholder.

Related Parties Transactions also includes $82,000

of unsecured notes payable plus accrued interest of $46,231 to our CEO pursuant to a demand note entered into on April 5, 2014.

At November 30, 2018, the balance in Convertible note payable and accrued interest-related party, long term, includes $2,000,000

of unsecured convertible notes payable plus accrued interest of $1,546,354 and an unsecured convertible note of $20,000 plus accrued

interest of $2,160 to Mr.

Subscriptions receivable at November 30, 2018 includes $175,000 for the issuance of 357,143

shares which were previously issued.

The balance in notes payable - long term, includes $3,000,000 to Mr.

Breslow, a 20% shareholder.

During the nine months ended November 30,

2018, we issued 2,256,444 shares of common stock, valued at $2,280,964 to Harry Kurtzman on behalf of BetterSea LLC, a greater

than 15% shareholder as part of the restructuring agreement.

We issued an additional 5,108,291 shares of common stock valued at

$1,992,251 to Harry Kurtzman on behalf of BetterSea LLC as a settlement for disputes.

During the nine months ended November 30,

2018, BetterSea LLC billed the company $314,645 for services rendered and was paid $316,963.

During the nine months ended November

30, 2018, the company paid Mr.

Si Ryong Yu $80,000 for consulting services.

During the nine months ended November 30, 2018, the

company received $1,000,000 from Elimelech Lowy, an approximate current 7% shareholder from funds held in escrow since 2017 and

an additional $225,000 to fulfill a 2017 commitment.

facilities consist of approximately 20,000 rented square feet in Stanton, California.

The Stanton facility is currently being

used for small quantity assembly and testing using components that are produced by various suppliers as well as for general offices,

engineering and warehousing.

The rent for the Stanton facility is $10,000 per month.

The facility is not sufficient for our near

term anticipated needs and the Company is actively looking for a new facility.

The Company arrangements for the Stanton facility

are on a month-per-month rent.

March 2017, the Company entered into a joint venture with a Chinese partner to form Jiangsu Shengfeng Mobile Power Technology

A new $3,000,000 five-year note representing

the remaining balance was entered into.

The note bears interest at a rate of 5% per annum payable monthly in arrears.

November 30, 2019, the balance in notes payable and accrued interest-related party, current of $6,551,591, consists primarily

of the Kopple (a former Board member) note of $6,415,109 and the Gagerman note of $136,482 (see below).

The Kopple note has a

principal balance of $3,587,322 plus accrued interest of $2,827,787.

At November 30, 2019, the balance in convertible notes payable

and accrued interest-related party consists of $2,000,000 of unsecured convertible notes payable plus accrued interest of $1,849,978

and an unsecured convertible note of $20,000 plus accrued interest of $3,173 to Mr.

notes payable and accrued interest-related party, currrent balance also includes $82,000 of unsecured notes payable plus accrued

interest of $54,482 owed to Melvin Gagerman, the Company’s former CEO and CFO, pursuant to a demand note entered into on

April 5, 2014.

Related Party Transactions

November 2019, two members of the board of directors, Messrs.

Diaz-Verson and Lempert, agreed to cancel their outstanding debt

with the Company in the amounts of $6,579 and $20,500, respectively, in exchange for 32,895 and 102,503 shares of common stock

at a conversion price of $0.20 per share.

On the dates of the exchange, November 26 and November 27, 2019, respectively, the closing

prices of the Company’s common stock was $0.21 and $0.22 per share, respectively (see Note 4).

The loss on extinguishment

of debt of approximately $2,700 was recorded as part of additional paid-in-capital.

COMMITMENTS & CONTINGENCIES

facilities consist of approximately 20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita,

The Stanton facility is used for some assembly and testing of AuraGen ®

/VIPER systems and is rented

on a month-to-month basis.

The rent for the Stanton facility is $10,000 per month and the storage facility is an additional $5,000

per month, both on a month-to-month basis.

Our current Stanton facility is not sufficient to support the expected operations and

the Company is evaluating new facility options to be used for limited production, testing, warehousing and engineering, as well

as needed office space for support staff.

The Company also rents temporary storage space on a month-to-month basis.

in February 2019, the Company began renting approximately 300 square feet of office space in Irvine, California at a cost of $

2,350 per month on a month-to-month basis.

In July 2019, the Company ceased renting this office space.

the adoption of Topic 842, Leases, as of the start of fiscal year 2020, the Company determined that there was no impact on its

Condensed Financial Statements during the nine-month period ended November 30, 2019.

The standard requires entities to evaluate

all lease transactions including leases previously classified as operating leases, and, if required under Topic 842, a right-to-use

asset and a corresponding lease liability may be recorded on the balance sheet in the period in which a lease commences.

March 2017 the Company entered into a joint venture with a Chinese partner to form Jiangsu Shengfeng Mobile Power Technology Co.,

(“Jiangsu Shengfeng”) to address the Chinese market.

Under the Jiangsu Shengfeng joint venture agreement,

Aura owns 49% of the venture and our Chinese partner owns 51%.

The Chinese partner contributed approximately $9.25 million to

Under the Jiangsu Shengfeng joint venture agreement, Aura

owns 49% of the venture and our Chinese partner owns 51%.

The Chinese partner is to contribute approximately $9.25 million to

the venture ––

3 unchanged sentences

products within China.

The limited license contributed to the Jiangsu Shengfeng joint

venture, however, does not permit Jiangsu Shengfeng to manufacture the AuraGen ®

rather, the joint venture

is required to purchase all rotor subassemblies as well as certain software elements directly from the Company.

The limited license sold to the Jiangsu Shengfeng joint venture,

however, does not permit Jiangsu Shengfeng to manufacture the AuraGen ®

rather, the joint venture is required

to purchase all rotor subassemblies as well as certain software elements directly from the Company.

Jiangsu Shengfeng’s

2 unchanged sentences

CEO is appointed by our Chinese partner while its CFO and director for quality assurance and control are appointed by Aura.

addition, our Chinese partner invested $2,000,000 in Aura common stock at $1.40 per share for a total of 1,428,571 shares of common

stock and is required to purchase a minimum of $1,250,000 of product from the Company supported by letters of credit for distribution

until their factory is built, equipment installed, and staff hired and properly trained by Aura personnel.

Aura has also committed

to supply personnel for six months at no cost other than to reimburse for travel, room and board.

This commitment has been fulfilled

and Aura is under no further obligation to supply personnel at no cost.

The agreement was subject to the approval of the Chinese

Government which was received in April 2017.

addition, Jiangsu Shengfeng is required to purchase a minimum of $1,250,000 of product from the Company supported by letters of

credit for distribution until their factory is built, equipment installed, and staff hired and properly trained by Aura personnel.

During fiscal 2019, Jiangsu Shengfeng placed a $1,000,000 order with the Company including a $700,000 advance payment.

also committed to supply personnel for nine months at no cost other than to be reimbursed for travel, room and board.

This commitment

has been fulfilled and Aura is under no further obligation to supply personnel at no cost.

The agreement was subject to the approval

of the Chinese Government which was received in April 2017.

Song, the majority shareholder of the Chinese partner of the joint

venture, invested $2,000,000 in Aura’s common shares at a price of $1.40 per share.

On November 20, 2019, the Company reached

a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture regarding the return of $700,000 previously

advanced to the Company in September 2018 and previously recorded as a customer advance on the balance sheet as of February 28,

The preliminary agreement reached consists of a non-interest-bearing promissory note and a payment plan pursuant to which

the $700,000 is paid over a 12-month period beginning March 15, 2020 and February 15, 2021.

In the balance sheet as of November

30, 2019, the amount of $700,000 was reclassified to notes payable.

Contingencies

4 unchanged sentences

loss is estimable and the loss is probable.

June 2016, the Company became one of several defendants named in a lawsuit filed by two of seven secured creditors demanding repayment

of loans totaling $125,000 plus accrued interest and exemplary damages.

The Company entered into an amended agreement with the

five other secured creditors representing in excess of 95% of the total secured debt.

In August 2018 the two secured creditors

who brought suit against the Company were awarded approximately $240,000 at trial.

The Company intends to appeal this award.

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

consolidated financial statements for that reporting period could be materially adversely affected.

The Company settled certain

matters subsequent to year end that did not individually or in the aggregate have a material impact on the Company’s financial

condition or operating results.

2017, the Company’s former COO was awarded approximately $238,000 in accrued salary and related charges by the California

The Company believes that this award does not reflect the amount owed which is significantly lower and is exploring

all its options and available remedies and is working toward an offer to settle this matter.

Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10 million

2 unchanged sentences

In July 2017,

Kopple filed suit against the Company as well as against Mr.

Gagerman (currently not a director) and director Mr.

together with former directors Mr.

Breslow and Mr.

Howsmon in connection with these allegations.

Diaz-Verson, Jr.,

Breslow and Howsmon have each been dismissed from this suit.

The Company believes that it has valid defenses in these matters

and intends to vigorously defend against these claims.

April 2018, the Company filed suit against its former counsel, Kilpatrick Townsend &Stockton LLP relating to various acts

of malpractice and breach of fiduciary duty committed by the firm in connection with its representation of Aura.

In June 2018,

Kilpatrick Townsend &Stockton LLP filed a cross-complaint against the Company claiming approximately $400,000 in allegedly

unpaid legal fees.

The Company believes that it has valid defenses to these claims and intends to vigorously defend against these

Company has a dispute with its former landlord and vacated its former premises prior to the end of its lease.

The premises have

been released to a third party and no action has been filed against the Company, nor does the Company believe it has any liability.

Further while the Company believes it has claims against the landlord based on their actions, the Company has nonetheless elected

to accrue the amount due for unpaid rent.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Looking Statements

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,”

Kopple filed suit against the Company as well as against current director Mr.

Diaz-Verson and former directors Mr.

Howsmon, as well as Mr.

Gagerman, the former CEO (not a director) in connection with these allegations.

In 2018, the Court

sustained demurrers by Mr.

Diaz-Verson, Mr.

Howsmon and Mr.

Gagerman and as a result of these successful demurrers,

all four of these defendants have been dismissed from the suit.

While the Company believes that it has certain valid defenses

in these matters, the Company is currently in settlement discussions with Mr.

April 2018, the Company filed suit against its former counsel, Kilpatrick Townsend & Stockton LLP alleging various acts of

malpractice and breach of fiduciary duty committed by the firm in connection with its representation of Aura.

In June 2018, Kilpatrick

Townsend & Stockton LLP filed a cross-complaint against the Company claiming in excess of $400,000 in allegedly unpaid legal

In January 2019, the Company reached a settlement with Kilpatrick Townsend & Stockton LLP, pursuant to which, among

other things, Kilpatrick Townsend & Stockton LLP agreed to dismiss its cross-complaint and waive all unpaid legal fees.

action and the cross-complaint were both subsequently dismissed.

February 2018, the Company failed to issue shares of stock contractually owed to BetterSea, LLC.

On August 15, 2018, 7,364,735

restricted shares were issued in fulfillment of this contractual obligation based on the then-outstanding closing quote of the

The issuance of the shares was previously reported by the Company.

The Company also paid $20,000 in legal fees related

to legal expense associated with the Company’s delays in the issuance of the stock.

May 2018, Shelley Scholnick dba JB Transporters brought suit against the Company claiming ongoing fees in excess of $52,000 owed

for the storage of the Company’s property.

Notably, in June 2017, the Company had brought suit against J.B.

Delivery, a business operated and controlled by a relative of Scholnick, Jacob Binstok, for damages suffered by the Company as

a result of the defendant’s improper storage of the Company’s property and improper refusal to return such property.

In 2018, the Company successfully received a judgment against J.B.

Moving & Delivery in the amount of approximately $114,000.

The Company disputes that any amount is now owed to Scholnick.

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.

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.

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,

FINANCIAL STATEMENT RESTATEMENTS (Restated)

of the Annual Report for the Fiscal Year Ended February 28, 2019

Company issued an amended report on Form 10-K/A on October 24, 2019 for the fiscal year ended February 28, 2019 that corrected

misstatements of its financial statements as of February 28, 2019.

The following tables describe one of those misstatements, which

should have been recorded in the nine-months ended November 30, 2018.

general & administrative expense was overstated by $1,991,740 in the statement of

operations for the three and nine-months ended November 30, 2108 due to an incorrect

fair value associated with common shares issued during August 2018 to BetterSea.

basic and diluted loss per share was also overstated by $0.05 per share for the nine-months

ended November 30, 2018.

SYSTEMS, INC.

STATEMENT OF OPERATIONS (RESTATED)

FOR THE NINE-MONTHS ENDED NOVEMBER 30, 2018

ended November 30, 2018

of goods sold

research & development

general & administration

operating expenses

(loss) from operations

other expense

income (loss)

$ (5,706,947 )

$ (3,715,207 )

income (loss) per share

weighted average shares outstanding

income (loss) per share

weighted average shares outstanding

SYSTEMS, INC.

STATEMENT OF CASH FLOWS (RESTATED)

FOR THE NINE-MONTHS ENDED NOVEMBER 30, 2018

ended November 30, 2018

$ (5,706,947 )

$ (3,715,207 )

to reconcile net loss to cash used in operating activities

of warrants issued for services

on settlement of debt

issued for services

current assets

(decrease) in

Accts payable, customer deposits and accrued expen

used in operating activities

flows from financing activities

of common stock

on notes payable

from subscription receivable

provided by financing activities

incr (decr) in cash and cash equivalents

paid in the period for:

of the Quarterly Report on Form 10-Q for the Three and Nine-Months Ended November 30, 2019

the three and nine-month period ended November 30, 2019, the Company reported on its Quarterly Report on Form 10-Q net income

of approximately $1.5 million and $0.6 million, respectively, attributed to $2.2 million of other income in connection with the

cancellation of liabilities.

These adjustments, all of which were booked in the third quarter, were related to the cancellation

of the following liabilities:

accounts payable ($0.3 million), unpaid wages and salaries ($1.5 million) and customer advances

($0.4 million).

Also booked in the same quarter was a cancellation of approximately $1.0 million of unpaid wages and salaries

owed to a former chief executive officer, a related party, that was accounted for as a capital transaction resulting in an adjustment

to additional paid in capital of the same amount.

following tabular presentations set forth the effect of the restatements on the original amounts reported on the Quarterly Report

on Form 10-Q for the three and nine-months ended November 30, 2019, filed on January 14, 2020, and the restated amounts contained

herein on this Amended Quarterly Report.

payable was understated by $296,255 and net income was overstated by the same amount

with respect to trade payables that were initially cancelled in the financial statements

for the three and nine-months ended November 30, 2019 as a result of a lapse of the statute

of limitations.

This cancellation was reversed in the Annual Report for the fiscal year

ended February 29, 2020.

expenses was understated by $1,508,067 and net income was overstated by the same amount

with respect to unpaid wages and salaries that were initially cancelled in the financial

statements for the three and nine-months ended November 30, 2019 as a result of a lapse

of the statute of limitations.

This cancellation was reversed in the Annual Report for

the fiscal year ended February 29, 2020.

advances was understated by $440,331 and net income was overstated by the same amount

with respect to cash received from customers that were initially cancelled in the financial

statements for the three and nine-months ended November 30, 2019 as a result of a lapse

of the statute of limitations.

This cancellation was reversed in the Annual Report for

the fiscal year ended February 29, 2020.

expense-related party was understated by $1,008,328 and additional paid-in-capital was

overstated by the same amount with respect to accrued expense-related party that was

initially cancelled in the financial statements for the three and nine-months ended November

30, 2019 as a result of a lapse of the statute of limitations.

This cancellation was

reversed in the Annual Report for the fiscal year ended February 29, 2020.

and dilutive earnings per share for the three and nine-months ended November 30, 2019

were overstated by $0.04 per common share, respectively, due to the aggregate overstatement

of net income of $2,244,654, respectively.

AURA SYSTEMS,

BALANCE SHEETS

Previously Reported as of November 30, 2019

Current assets

Cash and cash equivalents

Other current assets

Total current assets

Investment in joint venture

Liabilities &

Shareholders’

Current liabilities

Accounts payable

Accrued expenses

Customer advances

Accrued expense-related party

Notes payable, current portion

Convertible notes payable and accrued interest-related party, net of discount

Notes payable and accrued interest-related party

Total current liabilities

Notes payable-related party

Convertible notes payable

Total liabilities

Commitments and contingencies

Shareholders’

Common stock:

$0.0001 par value;

150,000,000 shares authorized at November 30 and February 28, 2019;

55,230,787 and 53,714,145 issued and outstanding at November 30 and February 28, 2019, respectively

Additional paid-in capital

Accumulated deficit

(463,535,504 )

(465,780,158 )

Total shareholders’

(19,344,086 )

(22,597,068 )

Total liabilities and shareholders’

AURA SYSTEMS, INC.

STATEMENTS OF OPERATIONS

Three-months ended

November 30, 2019

ended November 30, 2019

Cost of goods sold

Operating expenses

Engineering, research & development

Selling, general & administration

Total operating expenses

Loss from operations

Other expense:

Interest expense, net

Other (inome) expense

Total other (income) expense

Net income (loss)

$ (2,244,654 )

$ (1,660,997 )

Net income (loss) per share

Basic weighted average shares outstanding

Diluted income (loss) per share

Dilutive weighted average shares outstanding

AURA SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

Nine-Months Ended November 30, 2019

Net Income (loss)

$ (2,244,654 )

$ (1,660,997 )

Adjustments to reconcile net income (loss) to cash used in operating activities

Gain on settlement of debt

Other current assets

Accts payable, customer deposits and accrued expenses

Cash used in operating activities

Cash flows from financing activities

Issuance of common stock

Payment on notes payable

Proceeds from subscription receivable

Cash provided by financing activities

Net decrease in cash and cash equivalents

Beginning cash

Cash paid in the period for:

Supplemental schedule of non-cash transactions:

Notes payable converted into shares of common stock

Convertible notes converted into shares of common stock

Gain on cancellation of related party liability

$ (1,008,328 )

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

12 unchanged sentences

“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.

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;

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;

development and operating development;

Our expectations

of growth in demand for our products;

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, 2018 (as the same may be updated from time

to time in subsequent quarterly reports), which discussion is incorporated herein by this reference.

do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise

except to the extent required by law.

You should interpret all subsequent written or oral forward-looking statements attributable

to us or persons acting on our behalf as being expressly qualified by the cautionary statements in this Report.

As a result, you

should not place undue reliance on these forward-looking statements.

the first half of fiscal 2016, the Company significantly reduced operations due to lack of financial resources.

During the second

half of fiscal 2016, the Company’s operations were disrupted when the Company was forced to move from its facilities in

Redondo Beach, California to a smaller facility in Stanton, California.

Operations during the second half of fiscal 2016 were

During fiscal 2017 and fiscal 2018, the Company suspended its engineering, manufacturing, sales, and marketing activities

to focus on renegotiating numerous financial obligations.

fiscal 2018, the Company successfully eliminated approximately 68% of its total indebtedness.

Specifically,

in fiscal 2018, our secured creditors converted approximately $5.73 million of secured debt into approximately 4.1 million shares

of the Company’s common stock.

The converted debt represents approximately 80% of the total secured debt of the Company.

The balance of the secured debt (the remaining approximate 20%), is to be paid to the secured creditors in cash if the Company

raises at least $4.0 million in proceeds through new equity offerings.

Additionally, in fiscal 2018, approximately 12.77 million

of unsecured debt was converted into approximately 9.3 million shares of the Company’s common stock and approximately $12.3

million of unsecured debt was forgiven.

In total, during fiscal 2018, the Company therefore eliminated a total of approximately

$30.23 million of debt.

of the date of this Report, Robert Kopple, the Company’s former Vice Chairman of the Board, is the only significant unsecured

note holder that has not agreed to restructure his debt.

Kopple claims that he and his affiliates are owed approximately $5.35

million on terms significantly preferable to other similarly-situated unsecured creditors.

The Company disputes Mr.

Kopple’s

See “Item 3.

similar expressions in this Report, as well as other statements regarding matters that are not historical fact, constitute forward-looking

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;

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/A for the year ended February 28, 2019, issued on October 24, 2019 (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 as a result of new information, future events or otherwise except to the extent required by

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.

Beginning with fiscal 2017 through 2018,

we reduced our engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations

and minimizing expenditures while we attempted to raise additional funding and pursue some initial engineering activities

In fiscal 2018, we successfully eliminated

approximately 68% of our total indebtedness.

Specifically, our secured creditors converted approximately $5.73 million of secured

debt into approximately 4.1 million shares of our common stock.

The converted debt represented approximately 80% of the total secured

debt of the Company.

The balance of the secured debt (approximately $960,000) is to be paid to the secured creditors in cash if

we raise at least $4.0 million in proceeds through new equity offerings in one or a series of related offerings.

Additionally,

in fiscal 2018, approximately $12.77 million of unsecured debt was converted into approximately 9.3 million shares of the Company’s

common stock and approximately $12.3 million of unsecured debt was forgiven.

In total, during fiscal 2018, we eliminated a total

of approximately $30.23 million of debt.

As of the date of this filing, Robert Kopple,

our former Vice Chairman of the Board, is the only significant unsecured note holder that has not agreed to restructure his debt.

Kopple claims that he and his affiliates are owed approximately $10.3 million on terms significantly preferable to other similarly

situated unsecured creditors.

We dispute Mr.

Kopple’s claims.

See “Part II-Other Information, Item 1.

Legal Proceedings”

included in the Company’s Annual Report on Form 10-K for the year ended

February 28, 2018 for information regarding the dispute with Mr.

Kopple regarding these transactions.

Kopple has not accepted

the Company’s numerous offers to restructure this debt.

February 14, 2018, the Company effectuated a one-for-seven reverse stock split.

Company is planning to restart operations with a new management team and is presently in the process of identifying candidates

for Chief Financial Officer and Chief Executive Officer.

Currently, the Company has a contractual agreement for $1.25 million

of orders for the AuraGen ®

product to fill during the next eight months and anticipates that it may receive significant

additional orders once the Company is back in operation.

business is based on the exploitation of our patented mobile power solution known as the AuraGen for commercial and industrial

applications and the VIPER for military applications.

Our business model consists of three major components;

(i) sales and marketing,

(ii) engineering, and (iii) customer service and support.

Our sales and marketing approach is composed of direct sales in North America and the use of agents, distributors and joint ventures

for sales internationally.

In North America, our primary focus is in (a) transport refrigeration, and (b) U.S.

Military applications.

The second component of our business model is focused on the engineering support for the sales activities described above.

engineering support consists of the introduction of new features for our AuraGen ®

solution such as higher power,

different voltages, three phase options, shore power systems, higher current solutions as well as interface kits for different

After suspending engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial

obligations in fiscal 2017 and 2018, we expect modest engineering activities budgeted at approximately $750,000 during the fiscal

The third component of our business model is customer service.

In fiscal 2019, we expect to rehire several previously trained

field engineers to support our product in North America.

In addition, we are working closely with our Chinese Joint Venture partner

to train their staff to support our products overseas.

Accounting Policies and Estimates

discussion and analysis of our financial condition and results of operations are based upon our consolidated 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.

On an on-going

basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition.

We use authoritative pronouncements,

historical experience and other assumptions as the basis for making judgments.

included elsewhere in this Quarterly Report on Form 10-Q for information regarding the dispute with Mr.

Kopple regarding these

transactions.

Kopple has not accepted our numerous offers to restructure this debt.

On February 14, 2018, we effectuated a

one-for-seven reverse stock split.

In fiscal 2019, we began increasing our

engineering and manufacturing activities.

We utilized contractors for these services in order to minimize our expense while we

continued to pursue new sources of financing.

In July 2019, we began significantly increasing our sales, engineering, manufacturing

and marketing activities under our new management team.

Our business is based on the exploitation

of our patented mobile power solution known as the AuraGen ®

for commercial and industrial applications and the VIPER

for military applications.

Our business model consists of two major components:

(i) sales and marketing, (ii) design and engineering.

(i) Our sales and marketing approaches

are composed of direct sales in North America and the use of agents, distributors and joint ventures for sales internationally.

In North America, our primary focus is in (a) mobile exportable power applications, (b) transport refrigeration, and (c) U.S.

applications.

(ii) The second component of our business

model is focused on the design of new products and engineering support for the sales activities described above.

The engineering

support consists of the introduction of new features for our AuraGen ®

solution such as higher power, different

voltages, three phase options, shore power systems, higher current solutions as well as interface kits for different platforms.

After reducing our engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations

in fiscal 2018 and 2019, we expect modest engineering activities budgeted at approximately $200,000 during the fiscal 2020 year.

During the first half of fiscal 2016, we

significantly reduced operations due to lack of financial resources.

During the second half of fiscal 2016, our operations were

further disrupted when we were forced to move from our facilities in Redondo Beach, California to a smaller facility in Stanton,

During fiscal years 2017 to 2019, the Company reduced its engineering, manufacturing, sales, and marketing activities

to focus on renegotiating numerous financial obligations.

During this time, our agreements with numerous customers, third party

vendors, and organizations and entities material to the operation of the Company business were canceled, delayed or terminated.

During fiscal 2018, we successfully restructured in excess of $30 million of debt.

During fiscal 2019, we continued to address

our financial needs, were able to ship a small quantity of product during fiscal 2019 and shipped a small amount to customers and

maintained a small inventory of finished product.

During the nine-months ended November 30, 2020, we increased production and recognized

approximately $745,000 of revenue.

Our marketing strategy during fiscal 2020 includes the following key activities:

(i) One element of our business plan is

focused on electric transport refrigeration.

The market is well understood and both social and economic forces are providing an

unprecedented opportunity to gain significant market share.

Our immediate focus is on 20-k BTU/hr.

midsize trucks and the 50-k

(ii) Another element of our business plan

is focused on our mobile power solution for military applications around the globe.

(iii) We also plan to seek joint venture

opportunities similar to the agreement we entered in China to explore other international opportunities.

Going Concern.

Our independent auditor has expressed doubt

about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business

plan, raise capital and generate revenues (see Note 3 to the Condensed Financial Statements).

See Report of Independent Registered

Public Accounting Firm on page F-1, together with the Company’s audited consolidated financial statements for the fiscal

year ended February 28, 2019 on Form 10-K/A issued on October 24, 2019.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis

of our financial conditions and results of operations are based upon our consolidated 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.

On an on-going basis, we evaluate

our estimates, including, but not limited to, those related to revenue recognition.

We use authoritative pronouncements, historical

experience and other assumptions as the basis for making judgments.

Actual results could differ from those estimates.

We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation

of our consolidated financial statements.

are required to make judgments based on historical experience and future expectations, as to the reliability of shipments made

to our customers.

These judgments are required to assess the propriety of the recognition of revenue based on Staff Accounting

Bulletin (“SAB”) No.

101, “Revenue Recognition,”

and related guidance.

Because sales are currently in

limited volume and many sales are for evaluative purposes, we have not booked a general reserve for returns.

We will consider

an appropriate level of reserve for product returns when our sales increase to commercial levels.

Valuation and Classification

consist primarily of components and completed units for our AuraGen ®

Inventories are valued at the lower

of cost (first-in, first-out) or market.

Provision is made for estimated amounts of current inventories that will ultimately become

obsolete due to changes in the product itself or vehicle engine types that go out of production.

Management believes that existing

inventories can, and will, be sold in the future without significant costs to upgrade it to current models and that the valuation

of the inventories accurately reflects the realizable values of these assets.

The AuraGen ®

product being sold currently

is not technologically different from those in current use.

Existing finished goods inventories can be upgraded to the current

model with only a small amount of materials and manpower.

We make these assessments based on the following factors:

orders, ii) age of the inventory, iii) historical experience and iv) our expectations as to future sales.

If expected sales volumes

do not materialize, there would be a material impact on our financial statements.

of Long-Lived Assets

assets, consisting primarily of property and equipment, and patents and trademarks, comprise a portion of our total assets.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values

August not be recoverable.

Recoverability of assets is measured by a comparison of the carrying value of an asset to the future

net cash flows expected to be generated by those assets.

Net cash flows are estimated based on expectations as to the realize-ability

of the asset.

Factors that could trigger a review include significant changes in the manner of an asset’s use or our overall

asset categories are treated as follows:

We record an allowance for doubtful accounts based on our expectation of collect-ability of current and past due accounts

Plant and Equipment:

We depreciate our property and equipment over various useful lives ranging from five to ten years.

are made as warranted when market conditions and values indicate that the current value of an asset is less than its net book

we determine that an asset is impaired, we measure any such impairment by discounting an asset’s realizable value to the

present using a discount rate appropriate to the perceived risk in realizing such value.

When we determine that an impaired asset

has no foreseeable realizable value, we write such asset down to zero.

of Operations

months ended November 30, 2018 compared to nine months ended November 30, 2017

revenues were $39,274 for the nine months ended November 30, 2018 (the “Nine Months FY2019”) compared to $0 for the

nine months ended November 30, 2017 (the “Nine Months FY2018”).

of goods were $110,026 in the Nine Months FY2019 compared to $0 for the Nine Months FY2018.

research and development expenses increased $277,043 (1,097%) to $302,293 in the Nine Months FY2019 from $25,250 in the Nine Months

All the expense in the current year period is due to the Company redesigning the ECU for the Auragen system.

general and administrative expense increased $3,036,032 (173%) to $4,789,451 in the Nine Months FY2019 from $1,753,419 in the

Nine Months FY2018.

The increase is primarily attributable to the value of the stock and warrants issued in the amount of $2,431,077

and an increase in legal expenses of approximately $260,000.

interest expense in the Nine Months FY2019 decreased $1,779,730 (68%) to $848,593 from $2,628,323 in the Nine Months FY2018 as

a result of the restructuring in the fourth quarter of the prior year that eliminated a substantial amount of debt.

net loss for the Nine Months FY2019 increased $491,423 to $5,706,947 from $5,215,524 in the Nine Months FY2018.

months ended November 30, 2018 compared to three months ended November 30, 2017

revenues were $0 for the three months ended November 30, 2018 (the “Third Quarter FY2019”) compared to $0 for the

three months ended November 30, 2017 (the “Third Quarter FY2018”).

of goods were $37,032 in the Third Quarter FY2019 compared to $0 for the Third Quarter FY2018.

research and development expenses increased $113,167 to $138,417 in the Third Quarter FY2019 from $25,250 in the Third Quarter

All the expense in the current year period is due to the Company redesigning the ECU for the Auragen system.

general and administrative expense decreased $121,287 (11%) to $790,985 in the Third Quarter FY2019 from $822,616 in the Third

Quarter FY2018.

interest expense in the Third Quarter FY2019 decreased $507,051 (63%) to $295,221 from $802,272 in the Third Quarter FY2018 as

a result of the restructuring in the fourth quarter of the prior year that eliminated a substantial amount of debt.

net loss for the Third Quarter FY2019 decreased $530,343 to $1,310,445 from $1,661,534 in the Third Quarter FY2018.

and Capital Resources

had cash of approximately $21,000 and $748,000 as of November 30, 2018, and February 28, 2018, respectively.

We had a working

capital deficit at November 30, 2018, and February 28, 2018 of $20,452,425 and $20,682,519, respectively.

The working capital

deficit includes notes payable and accrued interest to related parties of $9,284,183 and $8,696,665 as of November 30 and February

28, 2018, respectively.

cash used in operations for the nine months ended November 30, 2018, was $1,902,151, a decrease of $162,189 from the comparable

period in the prior fiscal year.

Net cash provided by financing activities during the nine months ended November 30, 2018, was

$1,175,000, resulting from net proceeds from subscriptions receivable of $1,225,000 partially offset by a payment of $50,000 on

a note payable.

were no acquisitions of property and equipment during the Nine months FY2019 or the Nine months FY2018.

expenses as of November 30, 2018 increased $111,863 to $3,323,498 from $3,211,635 as of February 28, 2018.

Approximately $2,225,000

of accrued expenses is salaries accrued but unpaid to certain current and former employees due to a lack of resources, and approximately

$500,000 is accrued but unused vacation earned by employees.

Company had a deficit of $24,435,402 in shareholders’

equity as of November 30, 2018, compared to $24,665,496 as of February

2002 substantially all of our revenues from operations have been derived from sales of the AuraGen ®

The cash flow

generated from our operations to date has not been sufficient to fund our working capital needs, and we cannot predict when operating

cash flow will be sufficient to fund working capital needs.

the past, in order to maintain liquidity, we have relied upon external sources of financing, principally equity financing and

private indebtedness.

We have no bank line of credit and require additional debt or equity financing to fund ongoing operations.

The issuance of additional shares of equity in connection with any such financing could dilute the interests of our existing stockholders,

and such dilution could be substantial.

If we cannot raise needed funds, we would 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.

the nine months ended November 30, 2018, we issued 2,256,444 shares of common stock, valued at $2,280,964 to Harry Kurtzman on

behalf of BetterSea LLC, a greater than 15% shareholder as part of the restructuring agreement.

We issued an additional 5,108,291

shares of common stock valued at $1,992,251 to Harry Kurtzman on behalf of BetterSea LLC as a settlement for disputes.

the nine months ended November 30, 2018, we issued 742,857 warrants to members of our board of directors.

The warrants have a

term of five years and an exercise price of $1.40.

The company recorded an expense of $312,072 for the issuance of these warrants.

the nine months ended November 30, 2017, we issued 5,000,000 (714,286 post split) shares of common stock for $1,000,000 in conjunction

with our Chinese Joint Venture, we issued 5,116,959(730,994 post split) shares of common stock valued at $665,204 as part of a

settlement agreement, and we issued 2,500,000 (357,143 post split) shares of common stock valued at $325,000 in connection with

a consulting agreement.

consist primarily of components and completed units of the Company’s AuraGen ®

in our AuraGen ®

program, we determined it was most cost-effective to outsource production of components and subassemblies

to volume-oriented manufacturers, rather than produce these parts in house.

As a result of this decision, and based on then anticipated

sales, we purchased, prior to fiscal 2001, a substantial inventory of components at volume prices.

Since sales did not meet such

expectations, we have been selling product from this inventory for several years.

of our inventory consists of a variety of (i) metallic, mechanical components, and (ii) electrical components including metallic

chassis to hold the assembled electrical systems.

The vast majority of mechanical components are not aged and most of the electrical

components are also not aged.

The components that are aged are related to the prime mover/Generator interface that may not be

in demand any longer.

the past we have offered and ship three different basic models of systems;

(i) a 5 kW based system, (ii) an 8.5 kW based system

and (iii) a 16 kW based systems (two 8.5 kW systems configured in tandem back-to-back).

Each of these systems can be configured

with different options such as 110 VAC only, 220 VAC only, 24 VDC only, 12 VDC only and AC/DC combinations of the same or different

In addition, the system can be configured with single phase, split phase or three-phase output.

number of the mechanical components are common to all three of the above configurations, while others are very specific.

the stators and rotors for the 5 kW systems are different from the 8.5 kW systems, but the housings are the same.

Similarly, the

electrical components consist of some parts that are geared for a specific configuration while others are generic and can be used

for all of the configurations.

The electrical chassis are also interchangeable between the 5 kW and 8.5 kW configurations.

to the nature and mix of the product being sold, frequently, the 5 kW electrical systems are upgraded to 8.5 kW systems by replacing

some components.

the above description one can understand that the inventory consists of numerous components and subassemblies but not finished

therefore, each system that is sold and shipped to a customer is built from some components that are in inventory and

others that need to be purchased to be able to configure the required system.

kW systems represent the majority of product previously shipped.

These systems are built by using existing inventory subassemblies

and parts, including some that can be used for both 5 kW and 8.5 kW systems, and additional parts that are purchased to provide

the required configuration.

Typically, such systems are built using approximately 20 to 25 percent of existing inventory and approximately

75% of additional parts that are purchased.

most of the systems sold to the Korean military consist of 5 kW systems.

They have been purchasing approximately 100 systems per

year and have indicated to us that they will continue to do so for the next five years.

To date we have shipped over 500 such

systems (in this case 100% of the rotors and stators are used from existing inventory and over 50% of the electrical parts are

also from inventory).

addition to the above, we have encountered demand for different and unique configurations that require the purchase of additional

Quantitative and Qualitative Disclosures About Market Risk

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

that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated

financial statements.

Revenue Recognition

We adopted Accounting Standards Codification

(“ASC”) 606.

ASC 606, Revenue from Contracts with Customers, establishes principles for reporting information about

the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods

or services to customers.

The core principle requires an entity to recognize revenue to depict the transfer of goods or services

to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods

or services recognized as performance obligations are satisfied.

We have assessed the impact of the guidance

by performing the following five steps analysis:

the performance obligations

the transaction price

Inventory Valuation and Classification

Inventories are valued at the lower of

cost (first-in, first-out) or market, on a standard cost basis.

We review the components of inventory on a regular basis for excess

or obsolete inventory based on estimated future usage and sales.

We have minimally operated and therefore have only produced minimal

product since late 2015.

As a result, while we believe that a portion of the inventory has value, we are unable to substantiate

its demand and market value and as a result we elected to fully reserve our inventory it in its entirety as of February 28, 2019.

During fiscal year 2020, we increased production and, accordingly, we have assigned a value of $53,000 to our physical and book

inventory as of November 30, 2019.

Stock-Based Compensation

We account for stock-based compensation

under the provisions of FASB ASC 718, “Compensation –

Stock Compensation”, which requires the measurement of

all share-based payments to employees, including grants of employee stock options, using a fair value-based method and the recording

of such expense in the consolidated statements of operations.

We account for stock option and warrant

grants issued and vesting to non-employees in accordance with FASB ASC 505-50, “Equity Based Payments to Non-Employees”,

whereas the fair value of the equity-based compensation is based upon the measurement date as determined at the earlier of either

(a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn

the equity instruments is complete.

For the past, several years and in accordance

with established public company accounting practice, we have consistently utilized the Black-Scholes option-pricing model to calculate

the fair value of stock options and warrants issued as compensation, primarily to management, employees, and directors.

Black-Scholes option-pricing model is a widely-accepted method of valuation that public companies typically utilize to calculate

the fair value of options and warrants that they issue in such circumstances.

Results of Operations

Nine-months ended November 30, 2019

compared to nine-months ended November 30, 2018

Net revenues were $744,850 for the nine-months

ended November 30, 2019 (the “Nine-Months FY2020”) compared to $39,274 for the nine-months ended November 30, 2018

(the “Nine-Months FY2019”), or an increase of 1,796% compared to the same period of fiscal 2019.

During the second

and third quarters of 2020, we delivered 116 generator units to a distribution customer as compared to 6 units in the same period

in the prior year for a military application.

Cost of goods sold were $147,752 in the

Nine-Months FY2020 compared to $110,026 in the Nine-Months FY2019 resulting in a gross profit of $597,097 and a loss of $70,752,

respectively, and gross margins of 80.0% and negative 180.2%, respectively.

Gross profit and related gross margin for the Nine-Months

FY2020 shipments were high due to the utilization of inventory previously fully reserved.

We do not expect gross margins above

80% to continue for shipments of generator units in future quarters as the availability of usable parts from fully reserved inventory

will decline.

Engineering, research and development expenses

were $123,024 in the Nine-Months FY2020, compared to $302,293 in the Nine-Months FY2019, or a decline of 59.3%.

Beginning fiscal

2021, we expect to increase spend of research and development to include additional technical personnel, test and evaluation components,

capital equipment, larger space allocation to an annualized spend of $700,000.

Selling, general and administrative expense

was $915,934 for the nine-months ended November 30, 2019 as compared to $2,797,711 during the comparable period of fiscal year

2019, or a decline of $1,881,777 (67%).

During Nine-Months FY2019, we incurred an expense of $417,000 related to the repricing

of warrants and options, $432,000 of higher legal expenses, higher consulting expense and administrative headcount cost.

Net interest expense in the Nine-Months

FY2020 increased $37,138 or 4%, to $885,731 from $848,593 in the Nine-Months FY2019.

Our net loss for the Nine-Months FY2020

was reduced by $2,054,210, or 55%, to a net loss of $1,660,997 from a net loss of $3,715, 207 in the Nine-Months FY2019 due primarily

to (i) increased gross profit contribution of $0.6 million on higher levels of shipments and (ii) reduced operating expenses of

$2.1 million, offset partially by an increase of $0.6 million in other expense

Three months ended November 30, 2019

compared to three months ended November 30, 2018

Net revenues were $396,775 for the three-months

ended November 30, 2019 (the “Three-Months FY2020”) compared to $0 for the three-months ended November 30, 2018 (the

“Three-Months FY2019”).

During the second quarter of 2020, we delivered 64 generator units to a distribution customer

as compared to 0 units in the same period in the prior year.

Cost of goods sold were $116,655 in the

Three-Months FY2020 compared to $37,032 in the Three-Months FY2019 resulting in a gross profit of $281,119 and a loss of $37,032,

respectively, and gross margins of 70.8% and a meaningless gross margin, respectively.

Gross profit and related gross margin for

the Three-Months FY2020 shipments were high due to the utilization of inventory previously fully reserved.

We do not expect gross

margins above 80% to continue for shipments of generator units in future quarters as the availability of usable parts from fully

reserved inventory will decline.

Engineering, research and development expenses

were $30,472 in the Three-Months FY2020, compared to $138,417 in the Three-Months FY2019, or a decrease of 78%

Selling, general and administrative expense

decreased $383,000 (48%) to $407,652 in the Three-Months FY2020 from $790,985 in the Three-Months FY2019.

During Three-Months FY2020,

we incurred less cost for administrative headcount and consultancy cost by $250,000 and $150,000 in reduced legal fees.

Net interest expense in the Three-Months

FY2020 decreased $11,293 or 4%, to $283,928 from $295,221 in the Three-Months FY2019.

Net loss for the Three-Months FY2020 was

reduced by $491,294, or 39%, to a net loss of $774,337 from a net loss of $1,265,631 in the Three-Months FY2019 due primarily to

(i) increased gross profit contribution of $0.3 million on higher levels of shipments (ii) reduced operating expenses of $0.5 million,

offset partially by increase in other expense of $0.3 million.

Liquidity and Capital Resources

Net cash used in operations for the nine

months ended November 30, 2019, was $490,578, a decrease of $1,411,573 from the comparable period in the prior fiscal year.

cash provided by financing activities during the nine-months ended November 30, 2019, was $255,245 consisting of (i) cash proceeds

from issuance of common stock of $295,245 partially and (ii) offset by $40,000 of principle payments on a note payable as compared

to cash provided by financing of $1,175,000 in the same period of fiscal 2019 consisting of (i) proceeds from a subscription receivable

of $1,225,000 and offset by (ii) principal payment of $50,000 on a note payable.

The cash flow generated from our operations to

date has not been sufficient to fund our working capital needs, and we cannot predict when operating cash flow will be sufficient

to fund working capital needs.

There were no acquisitions of property

and equipment during the Nine-Months FY2020 or the Nine-Months FY2019.

Accrued expenses as of November 30, 2019

increased $0.4 million to $2,574,328 from $2,197,129 due primarily to increase in accrued interest on notes payables outstanding

of $0.3 million and $0.1 million related to increased accrued payroll.

The Company had a deficit of $22.6 million

in shareholders’

equity as of November 30, 2019, compared to $21.6 million as of February 28, 2019 with the net change attributed

to net loss of approximately $1.7 million and the issuance of shares of $0.7 million.

In the past, in order to generate liquidity,

we have relied upon external sources of financing, principally equity financing and private indebtedness.

We have no bank line

of credit and require additional debt or equity financing to fund ongoing operations.

The issuance of additional shares of equity

in connection with any such financing could dilute the interests of our existing stockholders, and such dilution could be substantial.

If we cannot raise needed funds, we would 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.

Quantitative and Qualitative

Disclosures About Market Risk

As a smaller reporting company, we are

not required to provide disclosure under this Item 3.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 1. Financial Statements