What changed in this filing

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Item 1. Financial Statements

2021-01-19 compared with 2020-10-23 · 883 added, 951 removed, 149 unchanged (92% of the section changed)

FINANCIAL STATEMENTS

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

SYSTEMS, INC.

BALANCE SHEETS

Current assets

Cash and cash equivalents

Other current assets

Total current assets

Non-Current Assets

Liabilities & Shareholders’

and cash equivalents

current assets

& Shareholders’

expense-related party

interest-notes payable-related party

interest-notes payable

payable, current portion

payable and accrued interest-related party

current liabilities

Accounts payable

Accrued expenses

Customer advances

Accrued expense-related party

Accrued interest-notes payable-related party

Accrued interest-notes payable

Notes payable, current portion

Notes payable and accrued interest-related party

Total current liabilities

Notes payable-related party

payable-related party

notes payable

Convertible notes payable

Total liabilities

Commitments and contingencies (note 7)

and contingencies (note 7)

Shareholders’

Common stock:

$0.0001 par value;

150,000,000 shares authorized at August 31 and February 29, 2020;

61,818,512 and 56,400,874 issued and outstanding at August 31 and February 29, 2020, respectively

Additional paid-in capital

Accumulated deficit

150,000,000 shares authorized at November 30 and February 29, 2020;

64,518,512 and 56,400,874

issued and outstanding at November 30 and February 29, 2020, respectively

paid-in capital

(465,198,465 )

(466,726,027 )

Total shareholders’

shareholders’

(20,094,625 )

(23,302,937 )

Total liabilities and shareholders’

The accompanying notes are an integral part

of these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three-Months Ended

Six-months Ended

liabilities and shareholders’

accompanying notes are an integral part of these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF OPERATIONS

Cost of goods sold

Operating expenses

Engineering, research & development

Selling, general & administration

Engineering, research &

general & administration

Total operating expenses

Profit (loss) from operations

Loss from operations

Other (income) expense:

1 unchanged sentence

Gain on extinguishment of debt

Gain on legal settlement

Income (loss) before income tax provision

(gains) losses from settlements

Income (loss) before income

tax provision

Income tax provision

Net income (loss)

$ (1,660,997 )

Basic income (loss) per share

2 unchanged sentences

Weighted average shares outstanding-dilutive

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH

Six-Months Ended

Net income (loss)

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

Fair Market Value of warrants issued for services

Stock-based compensation expense

Gain on write-off of expired liabilities

Changes in working capital assets and liabilities:

Other current assets

Accrued interest on notes payable

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 Federal PPP & SBA notes

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:

Note payable converted into shares of common stock

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

income (loss)

$ (1,660,996 )

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

settlement of debt

of fixed assets

compensation expense

write-off of expired liabilities

in working capital assets and liabilities:

current assets

interest on notes payable

payable, customer deposits and accrued expenses

used in operating activities

flows from investing activities:

of property, plant and equipment

flows from financing activities:

of common stock

on notes payable

from Federal PPP & SBA notes

provided by financing activities

in cash and cash equivalents

paid in the period for:

schedule of non-cash transactions:

converted into shares of common stock

notes converted into shares of common stock

accompanying notes to these unaudited financial statements.

STATEMENTS OF SHAREHOLDERS’

Shareholders’

Balance, February 28, 2019

February 28, 2019

$ 442,519,092

1 unchanged sentence

$ (21,594,699 )

Shares issued for cash

Balance, May 31, 2019

issued for cash

$ 442,569,077

1 unchanged sentence

$ (22,220,020 )

Shares issued for cash

Shares issued for settlement

Balance, August 31, 2019

issued for cash

issued for settlement

August 31, 2019

$ 442,998,999

1 unchanged sentence

$ (22,001,283 )

Balance, February 29, 2020

issued for cash

Shares cancelled

issued for debt

loss (restated)

November 30, 2019 (restated)

$ 443,177,569

$ (465,780,159 )

Shares issued for cash

Stock-based compensation expense

Balance, May 31, 2020

$ (22,597,068 )

February 29, 2020

(466,726,027 )

Shares issued for cash

Shares issued for settlement

Stock-based compensation expense

Balance, August 31, 2020

(23,302,938 )

issued for cash

compensation expense

(467,332,029 )

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS, INC.

(23,596,340 )

issued for cash

issued for settlement

compensation expense

August 31, 2020

(464,608,637 )

(19,929,472 )

issued for cash

compensation expense

November 30, 2020

(465,198,466 )

(20,094,627 )

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 –

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Nature of 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.

Basis of Presentation

In the opinion of management, the unaudited

interim condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation

of the results for the interim periods presented.

However, the results of operations included in such financial statements may

not necessary be indicative of annual results.

The Company uses the same accounting policies

in preparing quarterly and annual financial statements.

Certain information and footnote disclosures normally included in the annual

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

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Operations

Systems, Inc., (“Aura”, “We”

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

in the development, commercialization, and sale of products, systems, and components, using its patented and proprietary electromagnetic

Aura develops and sells AuraGen ®

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

and defense mobile power generation markets.

of Presentation

the opinion of management, the unaudited interim condensed financial statements reflect all adjustments of a normal recurring

nature that are necessary for a fair presentation of the results for the interim periods presented.

However, the results of operations

included in such financial statements may not necessary be indicative of annual results.

Company uses the same accounting policies in preparing quarterly and annual financial statements.

Certain information and footnote

disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted

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

GAAP”) have been condensed or omitted.

These unaudited condensed financial statements should be read in conjunction with

the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the

year ended February 29, 2020 (“Fiscal 2020”) filed with the Securities and Exchange Commission (“SEC”)

on July 13, 2020 (“2020 Form 10-K.”).

Our fiscal year ends on the last day of

These unaudited condensed financial

statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the

Company’s Annual Report on Form 10-K for the year ended February 29, 2020 (“Fiscal 2020”) filed with the Securities

and Exchange Commission (“SEC”) on July 13, 2020 (“2020 Form 10-K.”).

Company amended its Quarterly Report on Form 10-Q for the period ended November 30, 2019, filed with the SEC on January 14, 2020,

solely for the purpose of restating the financial statements (unaudited) and the accompanying notes to the financials due to certain

adjustments that were recorded in the fourth quarter ended February 29, 2020;

however, to ensure comparability in year-to-year

comparisons, these adjustments were restated to the third quarter of Fiscal 2020.

The condensed financial statements in his Quarterly

Report for the three and nine-months ended November 30, 2020 include the effect of the restatements.

fiscal year ends on the last day of February.

Accordingly, the current fiscal year is ending on February 28, 2021;

we refer to the current fiscal as (“Fiscal

2021”).

the current fiscal as (“Fiscal 2021”).

The prior fiscal year is Fiscal 2020.

Significant Accounting Policies

For a detailed discussion about the Company’s

significant accounting policies, refer to Note 2 —

“Summary of Significant Accounting Policies,”

in our financial

statements included in Company’s 2020 Form 10-K.

During the three and six-months ended August 31, 2020, the Company recognized

aggregate gains of approximately $2.7 million in connection with the cancellation of certain accounts payable balances and accrued

payroll related to unpaid wages and salaries and approximately $0.9 million in connection with demand promissory notes with three

persons for which the respective statute of limitations periods have expired.

Earnings Per Share

The following table sets forth the basic and dilutive earnings

per share for the three and six-months ended August 31, 2020.

The dilutive earning per share includes only the dilutive incremental

effect of additional shares issued on an “as if converted basis”

in relation to the convertible notes payable principle

amounts outstanding as of August 31, 2020 (see Notes 3 and 6).

Three-Months Ended August 31, 2020

Accounting Policies

a detailed discussion about the Company’s significant accounting policies, refer to Note 2 —

“Summary of Significant

Accounting Policies,”

in our financial statements included in Company’s 2020 Form 10-K.

During the three and nine-months

ended November 30, 2020, the Company recognized aggregate gains of approximately $2.7 million in connection with the cancellation

of certain accounts payable balances and accrued payroll related to unpaid wages and salaries and approximately $0.9 million in

connection with demand promissory notes with three persons for which the respective statute of limitations periods have expired.

following table sets forth the basic and dilutive earnings per share for the nine-months ended November 30, 2020.

earning per share includes only the dilutive incremental effect of additional shares issued on an “as if converted basis”

in relation to the convertible notes payable principal amounts outstanding as of November 30, 2020 (see Notes 3 and 6).

The three-months

ended November 30, 2020 was not included in the following table as the effect is anti-dilutive.

Ended November 30, 2020

(denominator)

2 unchanged sentences

Convertible notes payable

Income available to common stockholders plus assumed conversions

Six-Months Ended August 31, 2020

(denominator)

Income available to common stockholders

Effect of Dilutive Securities

Convertible notes payable

Income available to common stockholders plus assumed conversions

Use of Estimates

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.

plus assumed conversions

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.

Reclassifications

Certain prior period amounts have been

reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting

Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instrument.

to the issuance of ASU 2016-13, the FASB clarified the guidance through several ASUs.

The collective new guidance (ASC 326) generally

requires entities to use a current expected credit loss model, which is a new impairment model based on expected losses rather

than incurred losses.

Under this model, an entity would recognize an impairment allowance equal to its current estimate of all

contractual cash flows that the entity does not expect to collect.

The entity’s estimate would consider relevant information

about past events, current conditions, and reasonable and supportable forecasts.

ASC 326 is effective for annual and interim fiscal

reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after

December 15, 2018.

The Company is continuing to evaluate the expected impact of this ASC 326 but does not expect it to have a material

impact on its financial statements upon adoption.

NOTE 2 –

prior period amounts have been reclassified to conform to the current year presentation.

Issued Accounting Pronouncements

June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326):

of Credit Losses on Financial Instrument.

Subsequent to the issuance of ASU 2016-13, the FASB clarified the guidance

through several ASUs.

The collective new guidance (ASC 326) generally requires entities to use a current expected credit loss

model, which is a new impairment model based on expected losses rather than incurred losses.

Under this model, an entity would

recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect

The entity’s estimate would consider relevant information about past events, current conditions, and reasonable

and supportable forecasts.

ASC 326 is effective for annual and interim fiscal reporting periods beginning after December 15, 2022,

with early adoption permitted for annual reporting periods beginning after December 15, 2018.

The Company is continuing to evaluate

the expected impact of this ASC 326 but does not expect it to have a material impact on its financial statements upon adoption.

GOING CONCERN

The accompanying financial statements have

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

The unaudited condensed financial statements of the Company

do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications

of liabilities that might be necessary should the Company be unable to continue as a going concern.

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.

Beginning with the second quarter of fiscal

year 2020, we increased operations of our AuraGen ®

/VIPER business and revenue for the three and six-months ended

August 31, 2020 was $5,000 and $53,633, respectively, as compared to $348,075 of revenue in the comparable periods of Fiscal 2020.

NOTE 3 –

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

The Company is

reporting in this Quarterly Report operating losses of approximately $326,000 and $1,189,000 for the three and nine-months ended

November 30, 2020, respectively, and negative cash flow from operating activities of approximately $1,246,000 for the nine-months

ended November 30, 2020;

such factors raise substantial doubt about the Company’s ability to continue as a going concern.

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.

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.

with the second quarter of Fiscal 2020, we increased operations of our AuraGen ®

/VIPER business and revenue for

the three and nine-months ended November 30, 2020 of Fiscal 2021 was approximately $7,800 and $61,000, respectively, as compared

to approximately $397,000 and $745,000 of revenue in the comparable periods of Fiscal 2020.

NOTES PAYABLE

Non-related party and related party notes payable transaction

consisted of the following:

Non-Related Party Promissory Notes (see below)

Demand promissory notes payable with 1 and 4 individuals as of August 31, 2020 and February 29, 2020, respectively, carrying an interest rate of 10% (see Demand Promissory Notes below)

party and related party notes payable principal and accrued interest amounts consisted of the following:

Party Promissory Notes (see below)

promissory notes payable with 1 and 4 individuals as of November 30, 2020 and February 29, 2020, respectively, carrying an

interest rate of 10% (see Demand Promissory Notes below)

Abdou notes payable

1 unchanged sentence

Small Business Administration-Economic Injury Disaster Loan

Total Demand and Notes Payable

Convertible Promissory Note originally dated August 10, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%.

Demand and Notes Payable

Promissory Note originally dated August 10, 2012, due January 11, 2023, convertible into shares of our common stock at a price

of $0.76 per share, carrying interest rate of 5%.

See Convertible Promissory Notes –

Dalrymple August 2012 for further details.

Convertible Promissory Note originally dated October 2, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%.

Dalrymple August 2012 for further

Promissory Note originally dated October 2, 2012, due January 11, 2023, convertible into shares of our common stock at a price

of $0.76 per share, carrying interest rate of 5%.

See Convertible Promissory Notes –

Dalrymple October 2012 for further details.

Senior secured convertible notes originally dated May 7, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.75 per share, carrying interest rate of 5%.

Dalrymple October 2012 for further

secured convertible notes originally dated May 7, 2013, due January 11, 2023, convertible into shares of our common stock

at a price of $0.75 per share, carrying interest rate of 5%.

See Convertible Debt –

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

Senior secured convertible notes originally dated June 20, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.50 per share, carrying interest rate of 5%.

Kenmont Capital Partners, LPD Investments

and Guenther for further details.

secured convertible notes originally dated June 20, 2013, due January 11, 2023, convertible into shares of our common stock

at a price of $0.50 per share, carrying interest rate of 5%.

See Convertible Debt –

Dresner and Lempert for further details.

Total Convertible Promissory Notes

Accrued Interest - notes payable

Total Non-Related Party

Notes Payable -Related Party (see

Convertible Note payable –

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

Kopple Notes Payable-related party , see Kopple Notes, Note 6:

Mel Gagerman Notes Payable, see Gagerman, Note 6:

On November 20, 2019, the Company entered into a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture.

Payment terms consist 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.

Accrued Interest - notes payable- related party

Total Related Party

Total notes payable and accrued interest

Dresner and Lempert for further

Convertible Promissory Notes

Interest - convertible, demand and notes payable

Non-Related Party

Payable-Related Party (see Note 6)

Note payable and accrued interest –

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

Notes Payable-related party, see Kopple Notes, Note 6:

Gagerman Notes Payable, see Gagerman, Note 6:

November 20, 2019, the Company entered into a preliminary agreement with Jiangsu Shengfeng, the Company’s

Chinese joint venture.

Payment terms consist 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.

Related Party

notes payable and accrued interest

Current portion

1 unchanged sentence

$ (12,816,376 )

Long-term portion

Demand Promissory Notes and Notes Payable

The Demand Promissory

Notes at August 31 and February 29, 2020 are for one and four individuals, respectively, issued in September 2015 that are payable

on demand with an interest rate of 10% per annum.

As of August 31,

2020, the principle amount owed to the Mr.

Zeitlin, a former director of the Company, was $10,000.

In the second quarter of fiscal year 2021,

liabilities with respect to $758,537 in principal plus $385,349 in accrued interest were reversed as the related statute of limitations

were determined to have expired.

This reversal resulted in an aggregate reduction of current liabilities of $1,143,886, the recording

of an issuance of 192,641 shares of common stock on the Condensed Balance Sheet as of August 31, 2020, and the recognition of $871,887

as gain on extinguishment of debt on the Condensed Statements of Operations for the three and six-months ended August 31, 2020 .

Abdou and Abdou

On June 20, 2013, the Company entered into

an agreement with two individuals, Mr.

Promissory Notes and Notes Payable

promissory notes as of November 30 and February 29, 2020 are for one and four individuals, respectively, issued in September 2015

that are payable on demand with an interest rate of 10% per annum.

As of November 30, 2020, the one individual is for the principal

amount owed to the Mr.

Zeitlin, a former director of the Company, of $10,000.

the nine-months ended November 30, 2020, $758,537 of demand notes principal and $385,349 of accrued interest were reversed as

the related statute of limitations were determined to have expired.

This reversal resulted in an aggregate reduction of current

liabilities of $1,143,886, the recording of an issuance of 192,641 shares of common stock on the Condensed Balance Sheet as of

November 30, 2020, and the recognition of $871,887 as gain on extinguishment of debt on the Condensed Statements of Operations

for the nine-months ended November 30, 2020.

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.

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 $24,470 as a discount,

which has been fully amortized.

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

There is a remaining balance of $125,000 as of February 28, 2019.

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

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 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.

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

Abdou and Mr.

In September 2018, the court

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

The Company subsequently appealed

this judgment and, in September 2019, reached a settlement agreement with these creditors for a principal amount of $325,000, of

which approximately $180,000 and $215,000 were outstanding as of August 31 and February 29, 2020, respectively.

Paycheck Protection Plan Loan

During April 2020, the Company ceased operations

for approximately 6 weeks in compliance with State of California and the County of Orange public health pronouncements associated

with the COVID-19 pandemic.

On April 23, 2020, we obtained a Paycheck Protection Program (“PPP”) loan in the amount

of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable

in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the

Company in connection with the loan.

The promissory note contains events of default and other

provisions customary for a loan of this type.

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

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

amount of $325,000, of which approximately $150,000 and $215,000 were outstanding as of November 30 and February 29, 2020, respectively.

Protection Plan Loan

April 2020, the Company ceased operations for approximately 6 weeks in compliance with State of California and the County of Orange

public health pronouncements associated with the COVID-19 pandemic.

On April 23, 2020, we obtained a Paycheck Protection Program

(“PPP”) loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security

Act (the “CARES Act”).

Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for

six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and

the terms of the promissory note executed by the Company in connection with the loan.

The promissory note contains events of default

and other provisions customary for a loan of this type.

As required, the Company intends to use the PPP loan proceeds for payroll,

healthcare benefits, rent and other qualifying expenses.

The program provides that the use

of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the

requirements set forth in the CARES Act.

While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that

we will obtain forgiveness of the PPP Loan in whole or in part.

As of August 31, 2020, $37,202 was classified as notes payable,

non-current and $37,203 was classified as part of notes payable, current portion.

The program provides that the use of PPP Loan amount shall be limited

to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES

While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the

PPP Loan in whole or in part.

As of November 30, 2020, $24,802 was classified as notes payable, non-current and $49,603 was classified

as part of notes payable, current portion.

Injury Disaster Loan

Entities negatively impacted by the COVID-19

pandemic were eligible to apply for loans sponsored by the United States Small Business Administration (“SBA”) Economic

Injury Disaster Loan (“EIDL Loan”) program.

On July 1, 2020, the Company received cash proceeds of $149,900 under this

The proceeds can be used to fund payroll, healthcare benefits, rent and other qualifying expenses, and the loan is not

subject to a loan forgiveness provision.

The standard EIDL Loan repayment terms include:

interest accrues at 3.75% per annum effective

July 1, 2020;

the payment schedule contains a one-year deferral period on initial principle and interest payments;

the loan term

is thirty years;

negatively impacted by the COVID-19 pandemic were eligible to apply for loans sponsored by the United States Small Business Administration

(“SBA”) Economic Injury Disaster Loan (“EIDL Loan”) program.

On July 1, 2020, the Company received cash

proceeds of $149,900 under this program.

The proceeds can be used to fund payroll, healthcare benefits, rent and other qualifying

expenses, and the loan is not subject to a loan forgiveness provision.

The standard EIDL Loan repayment terms include interest

accrues at 3.75% per annum effective July 1, 2020;

the payment schedule contains a one-year deferral period on initial principal

and interest payments;

the loan term is thirty years;

The Company pledged the assets of the Company as collateral for the loan;

and there is no prepayment penalty or fees.

As of August 31, 2020, the amount outstanding including accrued interest of $941 is

$150,841 and is classified as part of notes payable, non-current on the August 31, 2020 balance sheet.

Convertible Notes Payable

Kenmont Capital Partners

On 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

$0.75 per share.

As of November 30, 2020, the amount outstanding including accrued interest of $2,356

is $152,256 and is classified as part of notes payable, non-current on the November 30, 2020 balance sheet.

Notes Payable

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 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 has been fully amortized.

There was a remaining balance of $549,954 as of August 31 and February 29, 2020, respectively.

LPD Investments

On May 7, 2013, the Company transferred

2 note payables with a total principal value of $550,000 together with accrued interest to a senior secured convertible note with

a principal value of $558,700 (“New LPD Note”) and warrants to LPD Investments, Ltd.

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 per share.

The warrants were subsequently

The Company recorded $342,020

as a discount, which has been fully amortized.

There was a remaining balance of $549,954 as of November 30 and February 29, 2020,

respectively.

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

a senior secured convertible note with a principal value of $558,700 (“New LPD Note”) and warrants to LPD Investments,

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

The warrants were subsequently exercised.

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

There is a remaining balance of $163,677

as of August 31 and February 29, 2020, respectively.

On 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

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.

There is a remaining balance of $163,677 as of November 30 and February 29, 2020, respectively.

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 balance of

$232,194 as of August 31 and February 29, 2020, respectively.

Dresner and Lempert

On June 20, 2013, the Company entered into

an agreement with two individuals, Mr.

There is a remaining balance of $232,194 as of November 30 and February 29, 2020, respectively.

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

Dresner and Dr.

Lempert, 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.

Lempert, 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 exercised.

The Company recorded $39,152 as a discount, which

has been fully amortized.

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

During Fiscal 2020, Dr.

Lempert converted his share of the amount outstanding into common shares and

the balance outstanding of $59,506 as of August 31 and February 29, 2020, respectively, is for Dresner exclusively.

Dalrymple –

On 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 date.

On January 11, 2018, the note

was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%.

The Company recorded $310,723

as a debt discount, which will be amortized over the life of the note .

There is a remaining balance of $264,462 as

of August 31 and February 29, 2020, respectively.

Dalrymple –

On 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.

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 date.

On January 11, 2018, the note was renegotiated

with a final payment date of January 11, 2023 with an annual interest rate of 5%.

The Company recorded $137,583 as a debt

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

There is a remaining balance of $133,178 as of August

31 and February 29, 2020, respectively.

On 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.

All of the creditors entered into

the January 30, 2017 agreement with the exception of Mr.

Lempert converted his share of the amount

outstanding into common shares and the balance outstanding of $59,506 as of November 30 and February 29, 2020, respectively, is

for Dresner exclusively.

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

On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest

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

is a remaining balance of $264,462 as of November 30 and February 29, 2020, respectively.

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

On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest

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

is a remaining balance of $133,178 as of November 30 and February 29, 2020, respectively.

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.

All of the creditors entered into the January 30, 2017 agreement with the exception of Mr.

Abdou and Mr.

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

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 approval was obtained in January 2018.

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 approximately $1,005,000 as of August 31 and February 29,

2020, respectively, plus any outstanding accrued interest.

NOTE 4 –

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

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.

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 approval

was obtained in January 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 approximately $1,005,000

as of November 30 and February 29, 2020, respectively, plus any outstanding accrued interest.

ACCRUED EXPENSES

Accrued expenses consisted of the following as of the period

referenced below:

expenses consisted of the following as of the period referenced below:

payroll and related expenses

legal expenses

taxes payable

accrued expenses

Accrued payroll and related expenses consist

primarily of salaries and vacation time accrued but not paid to employees due to our lack of financial resources.

In the second

quarter of fiscal year 2021, liabilities with respect to approximately $1.3 million in accrued payroll and related expenses were

reversed as the related statute of limitation periods were determined to have expired.

NOTE 5 –

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

of financial resources.

In the second quarter of fiscal year 2021, liabilities with respect to approximately $1.3 million in accrued

payroll and related expenses were reversed as the related statute of limitation periods were determined to have expired.

SHAREHOLDERS’

During the three and six-months ended August

31, 2020, the Company issued 3,866,664 and 5,224,997 shares of common stock, respectively, for $580,000 and $815,000 in cash, respectively.

During the three and six-months ended August 31, 2019, the Company issued 501,765 and 658,015 shares of common stock, respectively,

for $100,353 and $150,353 in cash, respectively.

During August 2019, 1,030,385 shares were issued for a settlement valued at $329,723

and during August 2020, 192,641 shares were issued in connection with the Veen settlement (see Note 3).

Employee Options and Warrants

The 2006 Employee Stock Option Plan

In 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

Under the 2006 Plan, the Company may grant options for up to the greater of three million or 10% of the number of shares

of the Common Stock of Aura from time to time outstanding.

As of February 29, 2020, and August 31, 2020, there were no stock options

The 2011 Director and Executive Officers

Stock Option Plan

In 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, with a contractual

option term of five-years, and a vesting period not less than six-months and one day following date of grant.

In the six-months

ended August 31, 2020, the Board of Directors approved grants of 250,000 stock options to each board member for an aggregate of

1,250,000 options, with an exercise price of $0.25 per option and at a market price of $0.16 on March 19, 2020, the date of grant.

The following table provides the assumptions required to apply the Black-Scholes Merton option model to determine the fair value

of the stock options as of the grant date:

the three and nine-months ended November 30, 2020, the Company issued approximately 2,700,000 and 7,925,000 shares of common stock,

respectively, for $405,000 and $1,220,000 in cash, respectively.

During the three and nine-months ended November 30, 2019, the

Company issued approximately 725,000 and 1,383,015 shares of common stock, respectively, for $144,980 and $295,333 in cash, respectively.

During August 2019, 1,030,385 shares were issued for a settlement valued at $329,723 and during August 2020, 192,641 shares were

issued in connection with the Veen settlement (see Note 3).

In November 2019, 168,380 shares of common stock were issued to investors

in settlement of debt and accrued interest valued at approximately $34,000.

Options and Warrants

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 or 10% of the number of shares of the Common Stock of Aura from time to time outstanding.

As of February 29, 2020,

and November 30, 2020, there were no stock options outstanding.

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, with a contractual option term of five-years, and a vesting period not less than six-months and one day following

date of grant.

In the nine-months ended November 30, 2020, the Board of Directors approved grants of 250,000 stock options to

each board member for an aggregate of 1,250,000 options, with an exercise price of $0.25 per option and at a market price of $0.16

on March 19, 2020, the date of grant.

The following table provides the assumptions required to apply the Black-Scholes Merton

option model to determine the fair value of the stock options as of the grant date:

Issued During the

Exercise Price

1 unchanged sentence

Expected term (yrs.)

The aggregate fair value of the 1,250,000

options granted in March 2020 is $194,000, or $0.155 per option, with $96,477 and $174,076 recorded as part of sales, general and

administration expense during the three and six-months ended August 31, 2020, respectively.

No stock-based compensation expense

was recorded during Fiscal 2020.

The following tables provide additional

information regarding stock options outstanding and exercisable under the 2011 Director and Executive Officers Stock Option Plan:

Number of Shares

aggregate fair value of the 1,250,000 options granted in March 2020 is approximately $194,000, or $0.155 per option, with $18,875

and $193,750 recorded as part of sales, general and administration expense during the three and nine-months ended November 30,

2020, respectively.

No stock-based compensation expense was recorded during Fiscal 2020.

following tables provide additional information regarding stock options outstanding and exercisable under the 2011 Director and

Executive Officers Stock Option Plan:

Average Intrinsic Value

Outstanding, February

Outstanding, August 31, 2020

Range of Exercise

Options Outstanding

Average Remaining Contractual Life

Outstanding, November 30, 2020

Exercise Price

Weighted Average

Contractual Life

Price of Options

0.25 to $1.40

Historically, warrants have been issued to investors and others

for services and enticements to invest funds with the Company.

Generally, these warrants fully vest immediately or within a 90-day

period from the date of grant and have an expiration date of five-years from the date of grant.

With grants dated prior to Fiscal

2021, an exercise price of $1.40 has been used with all warrants.

No warrants were issued in the six-months ended August 31, 2020.

Activity in issued and outstanding warrants is as follows for

the six-months ended August 31, 2020:

Outstanding, February 29, 2020

Outstanding, August 31, 2020

Other information related to the warrants outstanding and exercisable

as of August 31, 2020 follows:

Range of Exercise

Warrants Outstanding

Warrants Exercisable

Average Remaining Contractual Life

Warrants Outstanding

Warrants Exercisable

NOTE 6 –

Historically,

warrants have been issued to investors and others for services and enticements to invest funds with the Company.

Generally, these

warrants fully vest immediately or within a 90-day period from the date of grant and have an expiration date of five-years from

the date of grant.

With grants dated prior to Fiscal 2021, an exercise price of $1.40 has been used with all warrants.

were issued in the nine-months ended November 30, 2020.

in issued and outstanding warrants is as follows for the nine-months ended November 30, 2020:

February 29, 2020

November 30, 2020

information related to the warrants outstanding and exercisable as of November 30, 2020 follows:

Exercise Price

Contractual Life

Price of Warrants

RELATED PARTIES TRANSACTIONS

Notes payable-related

party, non-current - $3,000,000 on the condensed balance sheets as of August 31 and February 29, 2020 consists of the Breslow

Note as described below:

On January 24, 2017, the Company entered

into a Debt Refinancing Agreement with Mr.

payable-related party, non-current - $3,000,000 on the condensed balance sheets as of November 30 and February 29, 2020

consists of the Breslow Note as described below:

January 24, 2017, the Company entered into a Debt Refinancing Agreement with Mr.

Breslow, a former Director of the Company.

Pursuant to the agreement, both Mr.

and the Company acknowledged that total debt owed to Mr.

Breslow was $23,872,614 including $8,890,574 of accrued interest.

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 annum thereafter payable monthly in arrears.

to the agreement, both Mr.

Breslow and the Company acknowledged that total debt owed to Mr.

Breslow was $23,872,614 including

$8,890,574 of accrued interest.

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

annum thereafter payable monthly in arrears.

The note also provides various default provisions.

In accordance with the agreement, on February 14, 2018, the effective date of

the 1-for-7 reverse stock split, $11,982,041 of the note was converted into 7,403,705 shares of common stock and the then accrued

interest of $9,388,338 was forgiven.

A new $3,000,000 convertible five-year note representing the remaining balance was entered

into at a conversion rate of $1.40.

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

of $338,527 and $262,911 recorded as accrued interest-related party (see Note 4) as of August 31 and February 29, 2020, respectively.

Notes payable and accrued interest-related

party, current - $11,752,402 on the condensed balance sheet as of August 31 and $11,333,960 as of February 29, 2020 consists

of the Kopple Notes, the Gagerman Note and the Jiangsu Shengfeng Note as set forth below:

As of August 31,

and February 29, 2020, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $5,607,323 was unchanged.

As of August 31, 2020, accrued interest of $5,302,419 was owed to Mr.

In accordance with the agreement,

on February 14, 2018, the effective date of the 1-for-7 reverse stock split, $11,982,041 of the note was converted into 7,403,705

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

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

the remaining balance was entered into at a conversion rate of $1.40.

The note bears interest at a rate of 5% per annum payable

monthly in arrears with accrued interest of $375,925 and $262,911 recorded as accrued interest-related party (see Note 4) as of

November 30 and February 29, 2020, respectively.

payable and accrued interest-related party, current - $11,960,097 on the condensed balance sheet as of November 30 and

$11,333,960 as of February 29, 2020 consists of the Kopple Notes, the Gagerman Note and the Jiangsu Shengfeng Note as set forth

of November 30, and February 29, 2020, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $5,607,323

was unchanged.

As of November 30, 2020, accrued interest of $5,507,569 was owed to Mr.

Kopple for a total balance of $11,114,892.

As of February

29, 2020, accrued interest of $4,887,610 was owed to Mr.

As of February 29, 2020, accrued interest of $4,887,610 was owed to Mr.

Kopple for a total balance of $10,494,933.

On 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”) and warrants.

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

date and were convertible into shares of common stock at the conversion price of $3.50 per share (conversion feature expired in

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”) and warrants.

The Kopple Notes carried a base interest

rate of 9.5%, have a 4-year maturity date and were convertible into shares of common stock at the conversion price of $3.50 per

share (conversion feature expired in 2017).

The warrants were subsequently exercised.

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

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% per annum.

Gagerman Note

On August 31,

2020, the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $60,660 for a total owed to Melvin

Gagerman of $142,660, the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5, 2014.

accrues at 10% per annum.

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% per annum.

November 30, 2020, the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $62,628 for a total

owed to Melvin Gagerman of $144,628, the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5,

Interest accrues at 10% per annum.

On February 29, 2020, the amount owed to Gagerman was $139,026.

Jiangsu Shengfeng Note

On November 20, 2019, the Company entered

into a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture, 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.

this agreement which would consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000

would be paid over a 12-month period.

Principal loan amount on August 31, 2020 and February 29, 2020 was $700,000, respectively,

and is classified as part of notes payable and accrued interest-related party, current on the balance sheets as of August 31, 2020.

Shengfeng Note

November 20, 2019, the Company entered into a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint

venture, 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 would consists of a non-interest-bearing promissory note

and a payment plan pursuant to which the $700,000 would be paid over a 12-month period.

Principal loan amount on November 30,

2020 and February 29, 2020 was $700,000, respectively, and is classified as part of notes payable and accrued interest-related

party, current on the balance sheets as of November 30, 2020.

expense-related party –

In the second quarter of fiscal year 2021, liabilities with respect to approximately $1,008,000

In the second quarter of Fiscal 2021, liabilities with respect to approximately $1,008,000

in accrued payroll and related expenses to former officers of the Company were reversed to other income in the Condensed Statement

of Operations for the three and six-months ended August 31, 2020 as the related statute of limitation periods were determined to

have expired.

NOTE 7 –

of Operations for the nine-months ended November 30, 2020 as the related statute of limitation periods were determined to have

COMMITMENTS & CONTINGENCIES

Our facilities consist of approximately

20,000 square feet in Stanton, California and, prior to July 31, 2020, an additional storage facility in Santa Clarita, California.

The Stanton facility is used for assembly and testing of AuraGen®/VIPER systems and is rented on a month-to-month basis at

$10,000 per month.

Prior to July 2020, the Company paid $5,000 per month, on a month-to-month basis, for the Santa Clarita storage

Following the closure of this facility, the Company is currently renting on a month-to-month basis approximately 1,000

square feet of temporary offsite storage space at a monthly cost of approximately $2,500.

Commencing in February 2019 and ending

in July 2019, the Company rented approximately 300 square feet of office space in Irvine, California at a cost of $ 2,350 per month

on a month-to-month basis.

Following the adoption of Topic 842, Leases,

as of the start of Fiscal 2020, the Company determined that there was no impact on its Condensed Financial Statements during the

fiscal year ended February 29, 2020, and as of August 31, 2020, it is management’s intention to vacate the existing facilities

and consolidate operations at a different location as soon as practical.

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 to be recorded on the balance sheet in the period in which a lease commences.

facilities consist of approximately 20,000 square feet in Stanton, California and, prior to July 31, 2020, an additional storage

facility in Santa Clarita, California.

The Stanton facility is used for assembly and testing of AuraGen®/VIPER systems and

is rented on a month-to-month basis at $10,000 per month.

Prior to July 2020, the Company paid $5,000 per month, also on a month-to-month

basis, for the Santa Clarita storage facility.

Following the closure of this facility, the Company is currently renting on a month-to-month

basis approximately 1,000 square feet of temporary offsite storage space at a monthly cost of approximately $2,500.

in February 2019 and ending in July 2019, the Company rented approximately 300 square feet of office space in Irvine, California

at a cost of $ 2,350 per month on a month-to-month basis.

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

Financial Statements during the fiscal year ended February 29, 2020, and as of November 30, 2020, it is management’s intention

to vacate the existing facilities and consolidate operations at a different location as soon as practical.

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 to be recorded on the balance sheet in the period in which

a lease commences.

Contingencies

We are subject to the legal proceedings

and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have

arisen in the ordinary course of business.

Our management evaluates our exposure to these claims and proceedings individually and

in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable.

However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty.

management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against

the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting

period could be materially adversely affected.

In 2017, the Company’s former COO

was awarded approximately $238,000 in accrued salary and related charges by the California labor board.

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.

The Company is presently engaged in a

dispute with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4

million loaned to the Company over the course of 2013 to 2016;

are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have

not been fully resolved and that have arisen in the ordinary course of business.

Our management evaluates our exposure to these

claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the

loss is estimable and the loss is probable.

However, the outcome of legal proceedings and claims brought against the Company is

subject to significant uncertainty.

Although management considers the likelihood of such an outcome to be remote, if one or more

of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s

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

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 $11.1 million

(representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016;

approximately $170,000 Mr.

Kopple claims to have advanced or paid

to third parties on Aura’s behalf;

claims to have advanced or paid to third parties on Aura’s behalf;

and approximately $5 million Mr.

Kopple claims to be owed for interest, loan fees and

late payment charges) and approximately 3.33 million warrants which Mr.

Kopple claims to be owed to him and his affiliates by

Kopple claims to be

owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr.

Kopple claims to be owed

to him and his affiliates by the Company.

In July 2017, Mr.

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

Diaz-Verson and former

directors Mr.

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

Diaz-Verson and former directors Mr.

Breslow and Mr.

Howsmon, as well as Mr.

Gagerman, our former CEO and a former director, in connection with these

Gagerman, our former CEO and a former director,

in connection with these allegations.

In 2018, the Court dismissed Mr.

1 unchanged sentence

Howsmon and Mr.

Gagerman from the suit.

Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with

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.

However, to-date, no settlement has been reached in large part because Mr.

Kopple continues to demand that as

part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial and management

functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and

requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s

Kopple continues

to demand that as part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial

and management functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures

and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s

management team and stockholder-elected Board of Directors.

4 unchanged sentences

duties to shareholders and creditors as a whole.

In 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.

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.

Moving & 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

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.

In April 2020, Aura and Scholnick entered into a Confidential

Settlement and Release Agreement wherein (i) the 2018 action initiated by Scholnick against Aura was resolved with no amounts owing

by Aura and the complaint and cross-complaint were subsequently dismissed with prejudice;

and (ii) the amount owing to Aura pursuant

to the judgment against J.B.

Moving and Delivery was compromised and resolved through a single lump-sum payment to Aura.

On March 26, 2019, various stockholders

of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company

removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company.

On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson

and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company.

These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26,

2019 and March 27, 2019, respectively.

Because of Aura’s refusal to recognize the legal effectiveness of the consents,

on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225

of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s

Board consists of Ms.

In April 2020, Aura and Scholnick entered into a Confidential Settlement and Release Agreement wherein (i) the 2018 action initiated

by Scholnick against Aura was resolved with no amounts owing by Aura and the complaint and cross-complaint were subsequently dismissed

with prejudice;

and (ii) the amount owing to Aura pursuant to the judgment against J.B.

Moving and Delivery was compromised and

resolved through a single lump-sum payment to Aura.

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.

Douglas and Mr.

Diaz-Versón, Jr.

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, Jr.

As a result of prior management’s unsuccessful

opposition to this stockholders’

action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup

their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions.

final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

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,”

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, Jr.

As a result of prior management’s

unsuccessful opposition to this stockholders’

action filed in the Court of Chancery, such stockholders may be potentially

entitled to recoup their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal

To-date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may

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,”

regarding future events or prospects are forward-looking statements.

12 unchanged sentences

“may,”

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 for the year ended February 29, 2020, issued on July 13, 2020 (as the same may be updated from time to time in subsequent quarterly reports), which discussion is incorporated herein by this reference.

We do not intend to update or revise any

forward-looking statements, whether because of new information, future events or otherwise except to the extent required by law.

You should interpret all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf

as being expressly qualified by the cautionary statements in this Report.

As a result, you should not place undue reliance on these

forward-looking statements.

Our fiscal year ends on the last day of

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:

ability to generate positive cash flow from operations;

ability to obtain additional financing to fund our operations;

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

impact of unfavorable results of legal proceedings;

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;

ability to compete effectively against competitors offering different technologies;

business development and operating development;

expectations of growth in demand for our products;

risks described under the heading “Risk Factors”

in Part II, Item 1A of this

Quarterly Report on Form 10-Q and those risks discussed in our other filings with the

Securities and Exchange Commission, including those risks discussed under the caption

“Risk Factors”

in our Annual Report on Form 10-K for the year ended

February 29, 2020, issued on July 13, 2020 (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 because of new information, future events or otherwise

except to the extent required by law.

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

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

As a result, you

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

fiscal year ends on the last day of February.

We refer to our fiscal years in this Quarterly Report on Form 10-Q as “Fiscal”

and the calendar year in which

the fiscal year ends.

As such, the current fiscal year ending on February 28, 2021 is designated as Fiscal 2021.

The prior fiscal

year ended on February 29, 2020 is referred to as Fiscal 2020.

During 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 $30.8 million of debt.

In the second quarter of fiscal year 2021 approximately $3.8 million of unpaid salaries,

accounts payables and demand notes was extinguished, representing a gain of approximately $3.5 million on the Condensed Statement

of Operations for the three and six-months ended August 31, 2020, as the respective statute of limitation periods were deemed to

have expired.

The Company is presently engaged in a dispute

with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4 million

loaned to the Company over the course of 2013 to 2016;

and the calendar year in which the fiscal year ends.

As such, the current fiscal year ending on February 28, 2021 is designated

as Fiscal 2021.

The prior fiscal year ended on February 29, 2020 is referred to as Fiscal 2020.

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.

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.

during Fiscal 2018, we eliminated a total of approximately $30.8 million of debt.

In the second quarter of fiscal year 2021 approximately

$3.8 million of unpaid salaries, accounts payables and demand notes were extinguished, representing a gain of approximately $3.5

million on the Condensed Statement of Operations for the three and nine-months ended November 30, 2020, as the respective statute

of limitation periods were deemed to have expired.

Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $11.1 million

(representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016;

approximately $170,000 Mr.

Kopple claims to have advanced or paid to third

parties on Aura’s behalf;

claims to have advanced or paid to third parties on Aura’s behalf;

and approximately $5 million Mr.

Kopple claims to be owed for interest, loan fees and late payment

charges) and approximately 3.33 million warrants which Mr.

Kopple claims to be owed to him and his affiliates by the Company.

July 2017, Mr.

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

Kopple claims to be

owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr.

Kopple claims to be owed

to him and his affiliates by the Company.

In July 2017, Mr.

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

Diaz-Verson and former directors Mr.

1 unchanged sentence

Howsmon, as well as Mr.

Gagerman, our former CEO and a former director, in connection with these allegations.

2018, the Court sustained demurrers by Mr.

Gagerman, our former CEO and a former 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

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.

However, to-date, no settlement

has been reached in large part because Mr.

Kopple continues to demand that as part of any such settlement, he receive unilateral

control over significant aspects of the Company’s financial and management functions such as, but not limited to, the right

to unilaterally direct the Company’s ordinary business expenditures and requiring the Company to seek his approval for the

hiring of nearly all personnel, all to the exclusion of the Company’s management team and stockholder-elected Board of Directors.

the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with

However, to-date, no settlement has been reached in large part because Mr.

Kopple continues to demand that as

part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial and management

functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and

requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s

management team and stockholder-elected Board of Directors.

The Company believes that allowing Mr.

Kopple such level of operational control over the Company without any accountability would

be highly detrimental to the Company and is incompatible with the Board of Directors’

duties to shareholders and creditors

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 under our new management team, we began significantly increasing our

sales, engineering, manufacturing and marketing activities.

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.

Kopple such level of operational

control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board

of Directors’

duties to shareholders and creditors as a whole.

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

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 under our new management team, we

began significantly increasing our sales, engineering, manufacturing and marketing activities.

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.

In North America, our primary focus is in (a)

mobile exportable power applications, and (c) U.S.

(i) sales and marketing,

(ii) design and engineering.

Our sales and marketing approaches are composed of direct sales in North America and the use of agents, distributors.

America, our primary focus is in (a) mobile exportable power applications, and (c) U.S.

Military 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®/VIPER 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 the majority of our engineering, manufacturing, sales, and marketing activities to focus on renegotiating

numerous financial obligations in Fiscal 2018 and 2019, we incurred modest engineering expenses of approximately $50,000 and $84,000

during the three and six-months ended August 31 2020, respectively, and approximately $34,000 and $93,000 during the three and

six-months ended August 31, 2019, respectively.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis

of our financial conditions and results of operations are based upon our financial statements, which have been prepared in accordance

with accounting principles generally accepted in the United States of America.

The preparation of financial statements requires

management to make estimates and disclosures on the date of the financial statements.

In preparing our financial statements, we

have made our best estimates and judgments of certain amounts included in the financial statements.

We use authoritative pronouncements,

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

The full impact of the COVID-19 pandemic is unknown

and cannot be reasonably estimated for these key estimates and assumptions.

However, we made appropriate accounting estimates based

on the facts and circumstances available as of the reporting date.

To the extent that there are differences between these estimates

and actual results, our financial statements may be materially affected.

Revenue Recognition

The core principle of ASC 606, Revenue

from Contracts with Customers (“ASC 606”), is that an entity recognizes revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange

for those goods or services.

In applying ASC 606, all revenue transactions must be evaluated using a five-step approach to determine

the amount and timing of revenue to be recognized.

The five-step approach requires (1) identifying the contract with the customer,

(2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction

price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied.

Our primary source of revenue is the manufacture

and delivery of AuraGen/VIPER sets used primarily in mobile power applications, which represented 100% of our revenues of approximately

$5,000 and $54,000 for the three and six-months ended August 31, 2020, respectively, and $354,000 for the three and six-months

ended August 31, 2019, respectively.

Our current principle sales channel is sales to a domestic distributor.

In accordance with ASC 606, we recognize

the entirety of the revenue, net of discounts, for our AuraGen/VIPER sets at time of product delivery to the distributor (i.e.

point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligations

to the customer.

Our payment terms are cash payment due upon delivery and typically includes a 2.5% price discount in accordance

with this policy.

Our commercial terms and conditions do not include a right of return for reasons other than a defect in performance

We offer 18 months assurance-type warranty covering material and manufacturing defects, which we account for under

the guidance of ASC 460, Guarantees.

We have a limited history of shipments, and, as such, we have not recorded a warranty

liability on our balance sheets at August 31, 2020 and February 29, 2020, respectively;

however, we expect warranty claims to eventually

be nil, therefore, we have not delayed the recognition of revenue during Fiscal 2021 and 2020.

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.

From Fiscal 2015 through 2019 we minimally operated and therefore

only produced minimal product.

As a result, while we believed that a portion of the inventory had value, we were unable to substantiate

demand and fully reserved all inventory in Fiscal 2019.

Beginning with Fiscal 2020, production has increased, and fully reserved

inventory has been used in current production.

We classify all of our inventory as raw material and work-in-process.

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 statements of operations.

We account for stock option and warrant

grants issued and vesting to non-employees, such as consultants and third parties, in accordance with FASB ASC 718, “Compensation

Stock Compensation”, where appropriate, 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.

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.

The 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.

During the six-month period ended August 31, 2020, our Board of Directors awarded

a total of 1,250,000 stock options to the five members of the board, with a five-year term, an exercise price of $0.25 per option,

and a vesting period of not less than six-months and one day.

Using the Black-Scholes option model, we determined an aggregate

fair value of $194,000 of which $96,000 and $174,000 were recorded in the three and six-months ended August 31, 2020, respectively.

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®/VIPER 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 suspending the majority of our engineering, manufacturing, sales, and marketing activities

to focus on renegotiating numerous financial obligations in Fiscal 2018 and 2019, we incurred modest engineering expenses of approximately

$70,000 and $169,000 during the three and nine-months ended November 30, 2020, respectively, and approximately $30,000 and $123,000

during the three and nine-months ended November 30, 2019, respectively.

Accounting Policies and Estimates

management’s discussion and analysis of our financial conditions and results of operations are based upon our financial

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

The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements.

In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial

We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments.

The full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated for these key estimates and assumptions.

However, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date.

the extent that there are differences between these estimates and actual results, our financial statements may be materially affected.

core principle of ASC 606, Revenue from Contracts with Customers (“ASC 606”), is that an entity recognizes

revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which

the entity expects to be entitled in exchange for those goods or services.

In applying ASC 606, all revenue transactions must

be evaluated using a five-step approach to determine the amount and timing of revenue to be recognized.

The five-step approach

requires (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining

the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing

revenue when performance obligations are satisfied.

primary source of revenue is the manufacture and delivery of AuraGen/VIPER sets used primarily in mobile power applications, which

represented 100% of our revenues of approximately $7,800 and $61,500 for the three and nine-months ended November 30, 2020, respectively,

and $397,000 and $745,000 for the three and nine-months ended November 30, 2019, respectively.

Our current principle sales channel

is sales to a domestic distributor.

accordance with ASC 606, we recognize the entirety of the revenue, net of discounts, for our AuraGen/VIPER sets at time of product

delivery to the distributor (i.e., point-in-time sale), which also corresponds to the passage of legal title to the customer and

the satisfaction of our single performance obligation to the customer.

Our payment terms are cash payment due upon delivery and

typically includes a 2.5% price discount in accordance with this policy.

Our commercial terms and conditions do not include a

right of return for reasons other than a defect in performance or quality.

We offer 18 months assurance-type warranty covering

material and manufacturing defects, which we account for under the guidance of ASC 460, Guarantees.

We have a limited history

of shipments, and, as such, we have not recorded a warranty liability on our balance sheets as of November 30, 2020 and February

29, 2020, respectively;

however, we expect warranty claims to eventually be nil, therefore, we have not delayed the recognition

of revenue during Fiscal 2021 and 2020.

Valuation and Classification

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.

From Fiscal 2015 through 2019 we

minimally operated and therefore only produced minimal product.

As a result, while we believed that a portion of the inventory

had value, we were unable to substantiate demand and fully reserved all inventory in Fiscal 2019.

Beginning with Fiscal 2020,

production has increased, and fully reserved inventory has been used in current production.

We classify all of our inventory as

raw material and work-in-process.

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 statements of operations.

account for stock option and warrant grants issued and vesting to non-employees, such as consultants and third parties, in accordance

with FASB ASC 718, “Compensation –

Stock Compensation”, where appropriate, 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.

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

The 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.

During the nine-month period

ended November 30, 2020, our Board of Directors awarded a total of 1,250,000 stock options to the five members of the board, with

a five-year term, an exercise price of $0.25 per option, and a vesting period of not less than six-months and one day.

Black-Scholes option model, we determined an aggregate fair value of $194,000 of which $20,000 and $194,000 were recorded in the

three and nine-months ended November 30, 2020, respectively.

No stock-based compensation expense was recorded during Fiscal 2020.

Impact of COVID-19

The COVID-19 global pandemic has negatively

affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit

markets in the global financial markets.

We began to see the impact of COVID-19 during our fourth quarter of Fiscal 2020 with our

Chinese joint venture’s manufacturing facilities being required to close and many of our customers suspending their own operations

due to the COVID-19 pandemic.

As a result, net sales and production levels during the fourth quarter of Fiscal 2020 and the first

two quarters of Fiscal 2021 were significantly reduced, thus impacting our results of operations during these quarters.

In response to the COVID-19 pandemic and business disruption,

we implemented certain measures to manage costs, preserve liquidity and enhance employee safety.

amended our Quarterly Report on Form 10-Q for the period ended November 30, 2019, filed with the SEC on January 14, 2020, solely

for the purpose of restating the financial statements (unaudited) and the accompanying notes to the financials due to certain

adjustments that were recorded in the fourth quarter ended February 29, 2020;

however, to ensure comparability in year-to-year

comparisons, these adjustments were restated to the third quarter of Fiscal 2020.

The condensed financial statements in his Quarterly

Report for the three and nine-months ended November 30, 2020 include the effect of the restatements.

COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility

and disruptions to capital and credit markets in the global financial markets.

We began to see the impact of COVID-19 during our

fourth quarter of Fiscal 2020 with our Chinese joint venture’s manufacturing facilities being required to close and many

of our customers suspending their own operations due to the COVID-19 pandemic.

As a result, net sales and production levels during

the fourth quarter of Fiscal 2020 and the first three quarters of Fiscal 2021 were significantly reduced, thus impacting our results

of operations during these quarters.

response to the COVID-19 pandemic and business disruption, we implemented certain measures to manage costs, preserve liquidity

and enhance employee safety.

These measures included the following:

Enhanced cleaning and disinfection procedures at our facility, promotion of social distancing at our facility and requirements for employees to work from home where possible;

Reduction of capital expenditures;

Deferral of discretionary spending.

The extent of the impact of the COVID-19

pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of

the spread of the COVID-19 outbreak within the U.S.

and globally, the impact on capital and financial markets and the related impact

on our customers, especially in the commercial vehicle markets.

These future developments are outside of our control, are highly

uncertain and cannot be predicted.

If the impact is prolonged, then it can further increase the difficulty of planning for operations

and may require us to take further actions as it relates to costs and liquidity.

These and other potential impacts of the COVID-19

pandemic will adversely impact our results for the first two quarters of Fiscal 2021, as well as the full fiscal year, and that

impact could be material.

Going Concern

The financial statements contained herein

cleaning and disinfection procedures at our facility, promotion of social distancing

at our facility and requirements for employees to work from home where possible;

of capital expenditures;

of discretionary spending.

extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on future developments,

including the duration of the spread of the COVID-19 outbreak within the U.S.

and globally, the timing and effectiveness of vaccine

development and rollout, and the impact on capital and financial markets and the related impact on our customers, especially in

the commercial vehicle markets.

These future developments are outside of our control, are highly uncertain and cannot be predicted.

If the impact is prolonged, then it can further increase the difficulty of planning for operations and may require us to take

further actions as it relates to costs and liquidity.

These and other potential impacts of the COVID-19 pandemic have adversely

impacted our results for the first three quarters of Fiscal 2021, as well as the full fiscal year 2021, and that impact could

financial statements contained herein in Item I.

Financial Statement have been prepared assuming we will continue as a going concern.

During the three and six-months

ended August 31, 2020, we reported net profit of approximately $2.7 million and $2.1 million, respectively, and had negative cash

flows from operating activities of approximately $832,000 for the six-month period ended August 31, 2020.

The profits in the current

year are attributed to the recognizable non-operating income associated with the cancellation of certain liabilities due the expiration

of the statute of limitations.

This reduction is due to the debt being cancelled based

on a cancellation of indebtedness due, supported by a statute of limitations.

If we are unable to generate operating

profits on a sustained basis and is unable to continue to obtain financing for its working capital requirements, we 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.

Our 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 our current financing, to obtain additional financing, and ultimately to attain profitability.

Results of Operations

Three months ended August 31, 2020 compared

to three months ended August 31, 2019

Net revenue was $5,000 for the three-months

ended August 31, 2020 (the “Three-Months FY2021”) compared to $348,000 for the three-months ended August 31, 2019 (the

“Three-Months FY2020”).

During the current quarter of 2021, we delivered 1 generator unit to a foreign customer as

compared to 52 units delivered in the same quarter in the prior year.

Revenue year-on-year has been negatively impacted by the

COVID-19 pandemic.

We cannot project with confidence the timing or amount of revenue that we can expect until the pandemic is under

control or until an effective vaccine becomes widely available.

Cost of goods sold was approximately $3,500

in the Three-Months FY2021 compared to approximately $29,000 in the Three-Months FY2020 resulting in a gross profit of $1,500,

or a gross margin of 30%, and a $319,000 gross profit in the Three-Months FY2020 and a gross margin of 91%.

Gross profit and related

gross margin for the Three-Months FY2021 shipments were largely influenced by the low volume of shipments in the quarter which

reduced our ability to fully absorb fixed operating costs.

The gross margin of 91% in the Three-Months FY2020 was achieved by taking

advantage of inventory on-hand, previously fully reserved due to lack of estimable demand, to offset the unit cost of 52 units

sold in that quarter.

We do not expect gross margins above 90% to occur regularly 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 approximately $63,000 in the Three-Months FY2021, compared to approximately $34,000 in the Three-Months FY2020, or an increase

Selling, general and administrative (“SG&A”)

expense increased approximately $221,000 (105%) to approximately $432,000 in the Three-Months FY2021 from approximately $211,000

in the Three-Months FY2020.

During Three-Months FY2021, we recorded (i) $96,000 of stock-based compensation expense related to

the grant of 1,250,000 options to our five board members, (ii) incurred approximately $64,000 in one-time costs to physically close

our offsite storage facility in Santa Clarita, CA and consolidate usable inventory into temporary storage facilities (iii) incurred

additional salaries and consulting costs of approximately $80,000 due to change in executive management that occurred in the Three-Months

FY2020, (iv) higher accounting fees of $38,000 due to the timing of the fiscal year end audit occurring in the second quarter of

Fiscal 2021 due to COVID-19 delays, offset partially by (v) reduced travel expenses of $33,000.

Net interest expense in the Three-Months

FY2021 increased approximately $42,000 or 15%, to approximately $327,000 from approximately $285,000 in the Three-Months FY2020

due largely to interest costs related to past due payables of $38,000.

During the three and nine-months ended November 30, 2020, we reported net loss of approximately $0.6 million and net profit of

$1.5 million, respectively, and had negative cash flows from operating activities of approximately $1.2 million for the nine-month

period ended November 30, 2020.

The profit in the current year is attributed to recognizing non-operating income associated with

the cancellation of certain liabilities due the expiration of the statute of limitations of approximately $3.6 million in the

second quarter of Fiscal 2021.

we are unable to generate operating profits on a sustained basis and are unable to continue to obtain financing for our working

capital requirements, we may have to curtail our 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.

Our continuation as a going concern is dependent upon our ability to generate sufficient

cash flow to meet our obligations on a timely basis, to retain our current financing, to obtain additional financing, and ultimately

to attain profitability.

of Operations

months ended November 30, 2020 compared to three months ended November 30, 2019

revenue was approximately $7,800 for the three-months ended November 30, 2020 (the “Three-Months FY2021”) compared

to approximately $397,000 for the three-months ended November 30, 2019 (the “Three-Months FY2020”).

During the current

quarter of 2021, we delivered 1 generator unit as compared to 64 units delivered in the same quarter in the prior year.

year-on-year has been negatively impacted by the COVID-19 pandemic.

We cannot project with confidence the timing or amount of

revenue that we can expect until the pandemic is under control following a successful rollout of the vaccine programs now underway.

of goods sold was approximately $5,300 in the Three-Months FY2021 compared to approximately $116,000 in the Three-Months FY2020

resulting in a gross profit of $2,500, or a gross margin of 32%, and a $281,000 gross profit in the Three-Months FY2020 and a

gross margin of 71%.

Gross profit and related gross margin for the Three-Months FY2021 shipments were largely influenced by the

low volume of shipments in the quarter which reduced our ability to fully absorb fixed operating costs.

The gross margin of 71%

in the Three-Months FY2020 was achieved by taking advantage of inventory on-hand, previously fully reserved due to lack of estimable

demand, to offset the unit cost of 64 units sold in the current quarter.

We do not expect gross margins above 70% to occur regularly

for shipments of generator units in future quarters as the availability of usable parts from fully reserved inventory will decline

research and development expenses were approximately $70,000 in the Three-Months FY2021, compared to approximately $31,000 in

the Three-Months FY2020, or an increase of 130%.

general and administrative (“SG&A”) expense declined by approximately $149,000 (37%) to approximately $268,000

in the Three-Months FY2021 from approximately $407,000 in the Three-Months FY2020.

During Three-Months FY2021, we recorded increased

expense for (i) $20,000 of stock-based compensation expense related to the grant of 1,250,000 options to our five board members,

(ii) $24,000 in one-time costs to physically close our offsite storage facility in Santa Clarita, CA and consolidate usable inventory

into temporary storage facilities (iii) incurred additional salaries and consulting costs of approximately $38,000;

by reductions of (i) $32,000 for building rent due to consolidation of storage facilities, (ii) reduced legal and accounting fees

of $142,000, and (iii) reduced travel expenses of $57,000 due to Covid-19 restrictions.

expense in the Three-Months FY2021 decreased approximately $16,000 or 6%, to approximately $268,000 from approximately $284,000

in the Three-Months FY2020 due to $34,000 of notes payable settled for common stock in November 2019 and the extinguishment of

debt of $872,000 in the second quarter of Fiscal 2021.

income in the Three-Months FY2021 was approximately $4,000, as compared to nil in the same period of Fiscal 2020.

Other loss from

settlements of approximately $333,000 in the Three-Months FY2020 was attributed to the debt settlement in Fiscal 2020 of amounts

due to our president of approximately $330,000 through the issuance of 1,030,385 common shares.

loss for the Three-Months FY2021 improved by approximately $184,000, to approximately $590,000 from a loss of $774,000 in the

Three-Months FY2020 adversely attributed to reduced gross profit of $279,000 due to reduced sales of generator units fully offset

by (i) less interest expense of $16,000, (ii) reduced engineering, sales and general administrative expenses of $109,000, and

(iii) the non-recurring loss of 329,000 related to shares issued for debt settlement in Fiscal 2020.

months ended November 30, 2020 compared to nine months ended November 30, 2019

revenue was approximately $62,000 for the nine-months ended November 30, 2020 (the “Nine-Months FY2021”) compared

to $745,000 for the nine-months ended November 30, 2019 (the “Nine-Months FY2020”).

During Nine-Months FY2021, we

delivered 10 generator units as compared to 116 units delivered in Nine-Months FY2020.

Revenue year-on-year has been negatively

impacted by the COVID-19 pandemic.

We cannot project with confidence the timing or amount of revenue that we can expect until

the pandemic is under control or until an effective vaccine becomes widely available.

of goods sold was approximately $47,000 in the Nine-Months FY2021 compared to approximately $148,000 in the Nine-Months FY2020

resulting in a gross profit of $15,000, or a gross margin of 24%, and a $597,000 gross profit in the Nine-Months FY2020 and a

gross margin of 80%.

Gross profit and related gross margin for the Nine-Months FY2021 shipments were largely influenced by the

low volume of shipments in the period which reduced our ability to fully absorb fixed operating costs.

The gross margin of 80%

in the Nine-Months FY2020 was achieved by taking advantage of inventory on-hand, previously fully reserved due to lack of estimable

demand, to offset the unit cost of 116 units sold year-to-date.

We do not expect gross margins above 80% to occur regularly for

shipments of generator units in future periods as the availability of usable parts from fully reserved inventory will decline.

research and development expenses were approximately $169,000 in the Nine-Months FY2021, compared to approximately $123,000 in

the Nine-Months FY2020, or an increase of 37%

general and administrative (“SG&A”) expense increased approximately $119,000 (13%) to approximately $1,035,000

in the Nine-Months FY2021 from approximately $916,000 in the Nine-Months FY2020.

During Nine-Months FY2021, we recorded increased

expenses of (i) $194,000 of stock-based compensation expense related to the grant of 1,250,000 options to our five board members,

(ii) incurred approximately $85,000 in one-time costs to physically close our offsite storage facility in Santa Clarita, CA and

consolidate usable inventory into temporary storage facilities (iii) salaries and consulting costs of approximately $52,000;

partially by reduced expenses for (i) professional fees of $78,000, (ii) rent of $31,000, (iii) travel and entertainment of $82,000

due to restrictions under Covid-19 and (iv) other expenses of $21,000.

interest expense in the Nine-Months FY2021 decreased approximately $1,000 or 1%, to approximately $886,000 from approximately

$885,000 in the Nine-Months FY2020.

on other settlements was $46,000 in the Nine-Months FY2021 as compared to $0 in the same period of Fiscal 2020 due primarily to

the settlement of a legal issue.

Loss on other settlements of $333,000 in the Nine-Months FY2020 was attributed to a debt settlement

with our president of approximately $330,000 in exchange for 1,030,385 shares of common stock.

Other income and gain on extinguishment

of debt totals $3.5 million in the Three-Months FY2021, as compared to $0 in the same period of Fiscal 2020.

This amount was attributed

to the extinguishment of approximately $2.3 million in accrued payroll and related expenses, $0.4 million in accounts payable,

and three demand notes of approximately $0.8 million consisting of interest and principle, all of which represent liabilities with

respect to which the applicable statute of limitation periods have been deemed to have expired as of the effective date of this

Net profit for the Three-Months FY2021

increased by approximately $2.9 million, to approximately $2.7 million from a loss of $211,000 in the Three-Months FY2020 due primarily

to the $3.5 million in current liabilities extinguished partially offset by (i) lower gross profit on reduced number of shipments

of $318,000 (ii) $96,000 of stock-based compensation expense, (iii) higher salaries and consulting costs of $94,000, (iv) one-time

relocation of inventory costs of $64,000, and (v) higher interest costs and other expenses of $57,000.

Six months ended August 31, 2020 compared

to six months ended August 31, 2019

Net revenue was $54,000 for the Six-Months

ended August 31, 2020 (the “Six-Months FY2021”) compared to $348,000 for the Six-Months ended August 31, 2019 (the

“Six-Months FY2020”).

During Six-Months FY2021,

we delivered 9 generator units as compared

to 52 units delivered in Six-Months FY2020.

Revenue year-on-year has been negatively impacted by the COVID-19 pandemic.

project with confidence the timing or amount of revenue that we can expect until the pandemic is under control or until an effective

vaccine becomes widely available.

Cost of goods sold was approximately $44,000

in the Six-Months FY2021 compared to approximately $32,000 in the Six-Months FY2020 resulting in a gross profit of $10,000, or

a gross margin of 19%, and a $316,000 gross profit in the Six-Months FY2020 and a gross margin of 91%.

Gross profit and related

gross margin for the Six-Months FY2021 shipments were largely influenced by the low volume of shipments in the period which reduced

our ability to fully absorb fixed operating costs.

The gross margin of 91% in the Six-Months FY2020 was achieved by taking advantage

of inventory on-hand, previously fully reserved due to lack of estimable demand, to offset the unit cost of 52 units sold year-to-date.

We do not expect gross margins above 90% to occur regularly for shipments of generator units in future periods as the availability

of usable parts from fully reserved inventory will decline.

Engineering, research and development expenses

were approximately $97,000 in the Six-Months FY2021, compared to approximately $92,000 in the Six-Months FY2020, or a decrease

Selling, general and administrative (“SG&A”)

expense increased approximately $267,000 (53%) to approximately $775,000 in the Six-Months FY2021 from approximately $508,000 in

the Six-Months FY2020.

During Six-Months FY2021, we recorded (i) $174,000 of stock-based compensation expense related to the grant

of 1,250,000 options to our five board members, (ii) incurred approximately $64,000 in one-time costs to physically close our offsite

storage facility in Santa Clarita, CA and consolidate usable inventory into temporary storage facilities (iii) incurred additional

salaries and consulting costs of approximately $14,000, and (iv) higher accounting fees of $37,000 due to the timing of the fiscal

year end audit occurring in the second quarter of Fiscal 2021 due to COVID-19 delays.

Net interest expense in the Six-Months

FY2021 increased approximately $15,000 or 3%, to approximately $617,000 from approximately $602,000 in the Six-Months FY2020 due

largely to interest costs related to past due payables of $38,000.

Gain on debt settlement was $46,000 in

the Six-Months FY2021 as compared to $0 in the same period of Fiscal 2020 due primarily to the settlement of a legal issue.

income and gain on extinguishment of debt totals approximately $3.6 million in the Six-Months FY2021, as compared to $0 in the

same period of Fiscal 2020.

This amount was attributed to the extinguishment of approximately $2.3 million in accrued payroll and

related expenses, $0.4 million in accounts payable, and three demand notes of approximately $0.8 million consisting of interest

and principle, all of which represent liabilities with respect to which the applicable statute of limitation periods have been

deemed to have expired as of the effective date of this filing.

Net income for the Six-Months FY2021 increased

by approximately $3.0 million, to $2.1 million from a loss of $887,000 in the Six-Months FY2020 due primarily to the $3.5 million

in cancellations of current liabilities partially offset by (i) lower gross profit on reduced number of shipments of $306,000 (ii)

$174,000 of stock-based compensation expense, (iii) higher salaries and consulting costs of $31,000, (iv) one-time relocation of

inventory costs of $64,000, and (v) higher interest costs and other income/expenses of net $30,000.

Liquidity and Capital Resources

Net cash used in operations for the six-months

ended August 31, 2020, was approximately $832,000, an increase of $418,000 from the comparable period in the prior fiscal year.

Net cash provided by financing activities during the six-months ended August 31, 2020, was approximately $1,004,000 consisting

of (i) cash proceeds from issuance of common stock of $815,000, (ii) combined proceeds of $224,000 related to the U.S.

Paycheck Protection Program (“PPP”) loan program related to COVID-19 and the U.S.

Small Business Administration (“SBA”)

Economic Injury Disaster Loan (“EIDL”) loan program, and partially offset by (iii) a $35,000 principle payments on

a note payable;

compared to cash provided by financing of $150,000 in the same period of Fiscal 2020 consisting of cash proceeds

from the issuance of 658,015 common shares.

of debt totals approximately $3.6 million in the Nine-Months FY2021, as compared to nil in the same period of Fiscal 2020.

amount was attributed to the cancellation of approximately $2.4 million in accrued payroll and related expenses, $0.4 million

in accounts payable, and three demand notes of approximately $0.8 million consisting of interest and principal, all of which represent

liabilities with respect to which the applicable statute of limitation periods have been deemed to have expired.

income for the Nine-Months FY2021 improved by approximately $3.2 million, to net income of approximately $1.5 million from a loss

of $1.7 million in the Nine-Months FY2020 adversely attributed to (i) reduced gross profit of $0.6 million due to reduced sales

of generator units and (ii) increased engineering, sales and general administrative expenses of $0.2 million;

fully offset by

(i) other income and gain on extinguishment of debt of $3.6 million related to the cancellation of liabilities due to expiration

of statute of limitations and (ii) the non-recurring loss of $0.3 million related to shares issued for debt settlement in Fiscal

2020 and (iii) other income of $0.1 million.

and Capital Resources

cash used in operations for the nine-months ended November 30, 2020, was approximately $1,246,000, an increase of $755,000 from

the comparable period in the prior fiscal year.

Net cash provided by financing activities during the nine-months ended November

30, 2020, was approximately $1,379,000 consisting of (i) cash proceeds from issuance of common stock of $1,220,000, (ii) combined

proceeds of $224,000 related to the U.S.

federal Paycheck Protection Program (“PPP”) loan program related to COVID-19

Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EIDL”) loan program,

and partially offset by (iii) $65,000 principal payments on a note payable;

compared to cash provided by financing of $255,000

in the same period of Fiscal 2020 consisting of cash proceeds from the issuance common shares of $295,000, partially offset by

$40,000 principal payments 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 three-months ended August 31, 2020 and 2019.

The total of accrued expenses and

accrued expenses-related party as of August 31, 2020 decreased by approximately $1.3 million to $683,000 from approximately

$2,954,000 as of February 29, 2020 due to the cancellation of the unpaid salaries of $2.3 million.

During the same six-month

period in Fiscal 2021, accrued interest on all notes payable due to related parties and non-related parties, increased by

approximately $579,000 for recurring interest costs offset by approximately $386,000 of cancellations related to the three

demand notes as a result of statute of limitations expiration.

This reduction is due to

the debt being cancelled based on a cancellation of indebtedness due, supported by a statute of limitations.

The Company had a deficit of $19.9 million

in shareholders’

equity as of August 31, 2020, compared to $23.3 million as of February 29, 2020 with the net positive change

of $2.9 million attributed to (i) net profit year-to-date of approximately $2.1 million (ii) the issuance of approximately 5.2

million shares valued at approximately $0.8 million for cash and (ii) the granting to board members 1,250,000 options in March

2020 with an aggregate fair value of $194,000, of which approximately $174,000 was recognized as expense during the first two quarters

of Fiscal 2021.

On April 23, 2020, we obtained a PPP loan

in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance

is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed

by the Company in connection with the loan.

The promissory note contains events of default

and other provisions customary for a loan of this type.

As required, the Company intends to use the PPP loan proceeds for

payroll, healthcare benefits, rent and other qualifying expenses.

The program provides that

the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance

with the requirements set forth in the CARES Act.

While we intend to apply for the forgiveness of the PPP Loan, there is no assurance

that we will obtain forgiveness of the PPP Loan in whole or in part.

was a $9,000 acquisition of property and equipment during the three and nine-months ended November 30, 2020, respectively.

Fiscal 2020, there were no acquisitions of property and equipment.

total of accrued expenses and accrued expenses-related party as of November 30, 2020 decreased by approximately $2.3 million to

$686,000 from approximately $2,954,000 as of February 29, 2020 due to the cancellation of the unpaid salaries of $2.3 million.

During the same nine-month period in Fiscal 2021, accrued interest on all notes payable due to related parties and non-related

parties increased by approximately $848,000 for recurring interest costs offset by approximately $386,000 of debt extinguishment

related to the three demand notes because of statute of limitations expiration.

Company had a deficit of $20.0 million in shareholders’

equity as of November 30, 2020, compared to $23.3 million as of

February 29, 2020 with the net positive change of $3.3 million attributed to (i) net profit year-to-date of approximately $1.6

million (ii) the net issuance of approximately 8.1 million shares valued at approximately $1.5 million for cash and (ii) the granting

to board members 1,250,000 options in March 2020 with an aggregate fair value of approximately $0.2 million, all of which approximately

was recognized as expense during the nine-months ended November 30, 2020.

April 23, 2020, we obtained a PPP loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic

Security Act (the “CARES Act”).

Interest on the loan is at the rate of 1% per year, loan payments are deferred for

10 months following the last day of the covered period or June 23, 2020, balance is payable in 24 monthly installments if not

forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the

The promissory note contains events of default and other provisions customary for a loan of this type.

As required, the

Company intends to use the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses.

provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven

in accordance with the requirements set forth in the CARES Act.

While we intend to apply for the forgiveness of the PPP Loan,

there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part.

July 1, 2020, we obtained an EIDL loan in the amount of $149,900 administered by the SBA.

As required under this program, the proceeds

of the loan are to be used for payments of ordinary working capital needs negatively impacted by the COVID-19 pandemic.

accrues from the date of the loan of July 1, 2020 at a rate of 3.75% per annum, a loan term of 30 years, no prepayment penalties

or fees, and there is a one-year deferral period during which interest accrues but no payments are required to be made.

the deferral period for a period of 29 years, an estimated monthly payment of $734 is required to fully amortize the principle

and accrued interest over the term of the loan.

The Company pledged the assets of the Company as collateral for the loan.

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.

As required under this program, the

proceeds of the loan are to be used for payments of ordinary working capital needs negatively impacted by the COVID-19 pandemic.

Interest accrues from the date of the loan of July 1, 2020 at a rate of 3.75% per annum, a loan term of 30 years, no prepayment

penalties or fees, and there is a one-year deferral period during which interest accrues but no payments are required to be made.

Following the deferral period for a period of 29 years, an estimated monthly payment of $734 is required to fully amortize the

principal and accrued interest over the term of the loan.

The Company pledged the assets of the Company as collateral for the

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

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

Item 1. Financial Statements