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Item 9A. Controls and Procedures

2021-06-01 compared with 2020-07-13 · 1192 added, 1411 removed, 323 unchanged (89% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls

and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act

of 1934, is recorded, processed, summarized and reported within the specified time periods.

Disclosure controls and procedures

include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company

in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management,

including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to

allow timely decisions regarding required disclosure.

Our President and our Chief Financial

Officer concluded that, as a result of the material weakness in internal control over financial reporting described below, our

disclosure controls and procedures were not effective as of February 28, 2019, as amended, for the reasons described below.

has concluded that during the fiscal year ended February 29, 2020, actions taken by the Company to remediate the material weakness

were successful such that our disclosure controls and procedures were effective as of February 29, 2020.

Management’s Annual Report on Internal Control Over

Financial Reporting

The Company’s management is responsible

for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities

Exchange Act of 1934.

The Company’s internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

accordance with United States generally accepted accounting principles.

Internal control over financial reporting includes policies

and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded

as necessary to permit preparation of financial statements in accordance with United States generally accepted accounting principles,

and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors

of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions,

use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, both prior and current, have

assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2019.

of Disclosure Controls and Procedures

Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed

under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the specified time periods.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required

to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated

and communicated to its management, including its principal executive and principal financial officers, or persons performing

similar functions, as appropriate to allow timely decisions regarding required disclosure.

President and our Chief Financial Officer concluded that, as a result of the material weakness in internal control over financial

reporting described below, our disclosure controls and procedures were effective as of February 28, 2021.

Management has concluded

that during the Fiscal year ended February 28, 2021, actions taken by the Company to maintain effectiveness were successful such

that our disclosure controls and procedures were effective as of February 28, 2021.

Management’s

Annual Report on Internal Control Over Financial Reporting

Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting

as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934.

The Company’s internal control over financial reporting

is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with United States generally accepted accounting principles.

control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in

reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with

United States generally accepted accounting principles, and that receipts and expenditures of the Company are being made only

in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have

a material effect on the financial statements.

has assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2021.

these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission

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Based on these assessments, and on those criteria, the Company’s

management concluded that the Company’s internal control over financial reporting was not effective as of February 28, 2019.

Following July 1, 2019, our current management concluded that there was a material weakness in internal control that existed as

of February 28, 2019.

A “material weakness”

is a deficiency, or a combination of deficiencies, in internal control

over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial

statements would not be prevented or detected on a timely basis.

Specifically, current management identified

that certain former individuals associated with the Company misapplied certain equity transactions among other misstatements described

below, all with the intent to manipulate the shareholder proxy contest commenced in March 2019 seeking to remove Messrs.

Anderson and Yu from the Company’s Board of Directors.

These activities resulted in certain mischaracterizations in the

descriptions of various events, the improper recording of approximately $2.0 million related to stock issuances, and other misstatements.

(the “Misstatements”).

As a result, we have concluded that we did not maintain effective internal control over financial

reporting as of February 28, 2019 based on the criteria in Internal Control-Integrated Framework issued by COSO.

Accordingly, in October 2019 management

restated the Company’s financial statements and related notes to the financial statements in the Annual Report on Form 10-K

for the fiscal year ended February 28, 2019, as amended, to reflect (i) approximately $2.0 million erroneously recorded as additional

paid in capital (ii) an unrecorded adjustment of $100,000 in relation to an overstated accounts payable amount (iii) other unrecorded

accruals of approximately $40,000 in relation to unrecorded expenses incurred in fiscal 2019;

(iv) understating the number of

common shares held by shareholders seeking the removal of Messrs.

Buschur, Anderson and Yu through the proxy contest commenced

in March 2019 by approximately 1.5 million shares;

(v) overstating basic and diluted loss per share for the fiscal year ended

February 28, 2019 by approximately $0.05 per common share and (vi) classifying cash receipts of approximately $68,000 related

to the issuance of a fixed number of shares as a current liability and not additional paid-in capital.

The Company has concluded that the financial

impact of the Misstatements is not material to any of its previously issued financial statements.

Remediation Plan

During fiscal year 2020, we carried out

the following actions to remediate this material weakness with the oversight of the Audit Committee of the Board of Directors

(i) we issued amended and restated Form 10-K for the fiscal year ended February 28, 2019 on October 13, 2019 containing restated

financial statements and related notes thereto (ii) we filed with the United States Securities and Exchange Commission (“SEC”)

the Quarterly Reports on Form 10-Q for each of the quarterly reporting periods of fiscal 2020 (iii) we filed the Quarterly Report

on Form 10-Q for the third quarter ended November 30, 2019 within the prescribed 45-day filing period and (iv) we issued a Current

Report on Form 8-K on May 29, 2020 requesting an extension of the prescribed filing period for this Annual Report on Form 10-K

to July 13, 2020.

As a result of these actions, the management team has concluded that the material weakness described above with

respect to material misstatements in the initial filing of the Form 10-K for the year ended February 28, 2019 and the history

of the Company failing to file Forms 10-K and 10-Q on a timely basis have been remediated as of February 29, 2020.

The new management

has committed to (i) upgrade the existing financial systems to newer technology and (ii) recruit and retain qualified accounting

professionals to ensure compliance with general accepted accounting standards as established in the United States (“GAAP”)

and the SEC rules and regulations.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s

internal control over financial reporting that occurred during the Company’s fiscal quarter ended February 29, 2020, that

have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The Company does not expect that its disclosure

controls and procedures or its internal control over financial reporting will prevent all errors and all fraud.

A control procedure,

no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control

procedure are met.

Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute

assurance that all control issues and instances of fraud, if any, within the Company have been detected.

These inherent limitations

include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,

or by management override of the control.

The design of any control procedure also is based in part upon certain assumptions about

the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under

all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or the degree of

compliance with the policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control procedure,

misstatements due to error or fraud may occur and not be detected.

management concluded that the Company’s internal control over financial reporting was effective as of February 28, 2021.

in Internal Control Over Financial Reporting

was a significant change in the Company’s internal control over financial reporting that occurred during the Company’s

Fiscal year ended February 28, 2021, that has materially affected, or are reasonably likely to materially affect, the Company’s

internal control over financial reporting.

During the fiscal year ended February 28, 2021, the Company implemented QuickBooks

Solutions-Wholesale and Manufacturing software as its primary accounting and operations environment.

Limitations on Effectiveness of Controls

Company does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent

all errors and all fraud.

A control procedure, no matter how well conceived and operated, can provide only reasonable not absolute

assurance that the objectives of the control procedure are met.

Because of the inherent limitations in all control procedures,

no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company

have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that

breakdowns can occur because of simple error or mistake.

Additionally, controls can be circumvented by the individual acts of

some persons, by collusion of two or more people, or by management override of the control.

The design of any control procedure

also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design

will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because

of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Because of the inherent

limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

OTHER INFORMATION

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE

Directors and Executive Officers

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 in his stead.

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.

As a result of Aura’s refused to recognize the legal

effectiveness of the consents, on April 8, 2019, 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.

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 provisions.

no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

On July 9, 2019

the employment of Melvin Gagerman was terminated.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

and Executive Officers

March 2019, stockholders of the Company controlling a majority of the outstanding shares of the Company’s common stock delivered

signed written consents to the Company removing Ronald Buschur, William Anderson, and Si Ryong Yu as members of the Company’s

Board and electing Ms.

Cipora Lavut, Mr.

David Mann, and Dr.

Robert Lempert as directors of the Company in their stead.

As a result of Aura’s refused to recognize the legal effectiveness of the consents, in April 2019, 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.

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.

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 stockholder action filed in the

Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s

corporate benefit doctrine and/or other legal provisions.

To-date, no final determination has been made as to the amount of recoupment,

if any, to which such stockholders may be entitled.

July 2019 the employment of Melvin Gagerman was terminated.

See Item 3, Legal Proceedings for more information.

The following table sets forth the names,

ages, and offices of all our current directors and executive officers.

Our officers are appointed by, and serve at the pleasure

of, the Board of Directors.

The stockholders at the annual meeting elect our directors to serve until the next meeting.

Melvin Gagerman (1)

Former Chief Executive Officer, Former

Chief Financial Officer and Secretary

Kevin Michaels (2)

Former Treasury Officer

William Anderson (3)

Former Director,

Chairman of the Compensation Committee and former member of the Nominating Committee

Gary Douglas (4)

Also in July 2019,

the Board of Directors appointed Ms.

Lavut to succeed Mr.

Gagerman as President of Aura, appointed Mr.

Mann to succeed Mr.

as Chief Financial Officer of the Company, and appointed Dr.

Lempert secretary of Aura.

following table sets forth the names, ages, and offices of all our current directors and executive officers.

Our officers are

appointed by, and serve at the pleasure of, the Board of Directors.

The stockholders at the annual meeting elect our directors

to serve until the next meeting.

Director, Member

of the Audit Committee

Salvador Diaz-Verson, Jr.

Salvador Diaz-Verson,

Director, Chairman

of the Audit Committee

Former Chairman of the Board and former

Member of the Nominating Committee

Si Ryong Yu (5)

Former Director

David Mann (2)

Chief Financial Officer, Director, Chairman

of the Compensation Committee, Member of the Nominating Committee and Member of the Audit Committee

Cipora Lavut (6)

President, Chairman of the Board, Member

of Nominating Committee and Member of the Compensation Committee

Chief Financial

Officer, Director, Chairman of the Compensation Committee, Member of the Nominating Committee and Member of the Audit Committee

President, Chairman

of the Board, Member of Nominating Committee and Member of the Compensation Committee

Robert Lempert

Secretary, Director, Chairman of the Nominating

Committee and Member of the Compensation Committee

On March 30, 2018, the Board re-appointed Mr.

as Chief Executive Officer, Chief Financial Officer and Secretary on an interim basis after he had been terminated by the

immediate previous Board.

Gagerman was terminated again on July 9, 2019.

Michaels began serving as the Company’s

Treasury Officer on or about February 2019;

he was terminated in July 2019.

Anderson was appointed to the Board of Directors on March

29, 2018 by a written consent executed by stockholders.

On March 27, 2019, stockholders of the Company controlling a combined

total of more than 27.5 million shares delivered a signed written consent to the Company removing Mr.

Anderson from the Company’s

Board of Directors.

Because of Aura’s refusal to recognize the legal effectiveness of the consent, on April 8,

2019 the stockholders filed suit in the Court of Chancery of the State of Delaware seeking an order confirming the validity

of the removal.

On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming

Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by

written consent.

Secretary, Director,

Chairman of the Nominating Committee and Member of the Compensation Committee

Douglas and Mr.

Diaz-Verson, Jr.

were appointed to the Board

of Directors on March 29, 2018 by the written consent of stockholders holding a majority of the Company’s shares.

On July 3, 2018, the Board of Directors appointed Mr.

Buschur and Mr.

Si Ryong Yu to fill two vacancies on the Board of Directors of the Company.

On March 26, 2019, stockholders

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

Buschur from the Company’s Board of Directors and on March 27, 2019 those same stockholders delivered a

signed written consent to the Company removing Mr.

Yu from the Company’s Board of Directors.

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 seeking an order confirming the validity of the removals.

On July 8, 2019 the Court of

Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that Mr.

Buschur and Mr.

Yu had been validly

removed by the holders of a majority of the Company’s outstanding stock acting by written consent.

On March 26, 2019, stockholders of the Company controlling a

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

Company’s Board of Directors and on March 27, 2019 those same stockholders delivered a signed written consent to the

Company electing Mr.

were appointed to the Board of Directors on March 29, 2018 by the written consent of stockholders holding

a majority of the Company’s shares.

March 2019, stockholders of the Company controlling a combined total of more than 27.5 million shares delivered signed written consents

to the Company electing Ms.

Lempert to the Company’s Board of Directors.

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

Because of Aura’s refusal

to recognize the legal effectiveness of the consents, in April 2019 the stockholders filed suit in the Court of Chancery of the

State of Delaware seeking an order confirming the validity of the elections.

On July 8, 2019 the Court of Chancery entered

final judgment in favor of the stockholder plaintiffs, confirming that Ms.

Lempert had been validly

elected by the holders of a majority of the Company’s outstanding stock acting by written consent.

In July 2018, the

Board of Directors appointed Ms.

Lavut President and Chairman of the Board, appointed Mr.

Mann as Chief Financial Officer

and appointed Dr.

On July 8, 2019 the Court of Chancery entered final judgment

in favor of the stockholder plaintiffs, confirming that Ms.

Lempert had been validly elected by the holders of

a majority of the Company’s outstanding stock acting by written consent.

In July 2019, the Board of Directors appointed Ms.

President and Chairman of the Board, appointed Mr.

Mann as Chief Financial Officer and appointed Dr.

Lempert as Secretary.

Biographical information with respect to our current directors

and executive officer is provided below.

Salvador Diaz-Versón, Jr .

information with respect to our current directors and executive officer is provided below.

Diaz-Versón, Jr .

Diaz-Versón, Jr.

was elected as a director on March 29, 2018.

Previously, he served as a director of the Company from 1997-2005

and again from June 2007 until January 2018.

Previously, he served

as a director of the Company from 1997-2005 and again from June 2007 until January 2018.

Diaz-Versón, Jr.

is the founder, Chairman and President of Diaz-Verson

Capital Investments, Inc., and was a registered investment advisor with the Securities and Exchange Commission until 2009.

is the founder,

Chairman and President of Diaz-Verson Capital Investments, Inc., and was a registered investment advisor with the Securities

and Exchange Commission until 2009.

Diaz-Versón, Jr.

served as President and member of the board of directors of American Family Corporation (AFLAC, INC.)

from 1976 until 1992.

served as President and member of the board of directors of American

Family Corporation (AFLAC, INC.) from 1976 until 1992.

Diaz-Versón, Jr.

served as President and Chief Investment Officer of American Family Life

Assurance Company, a subsidiary of AFLAC, Inc.

served as President and Chief Investment Officer

of American Family Life Assurance Company, a subsidiary of AFLAC, Inc.

He is currently Chairman of Miramar Securities.

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has received two presidential appointments to the Christopher Columbus Fellowship Foundation;

first by President George H.W.

in 1992 and subsequently by President Clinton in 2000.

by President George H.W.

Bush in 1992 and subsequently by President Clinton in 2000.

Diaz-Versón, Jr.

is a trustee of the Florida State University

Foundation and is a national trustee of the Boys and Girls Club of America.

He also serves as a trustee of Clark Atlanta

of the Florida State University Foundation and is a national trustee of the Boys and Girls Club of America.

serves as a trustee of Clark Atlanta University.

Diaz-Versón, Jr.

is a graduate of Florida State University and was selected as a director in view

of his lengthy experience in managing companies and his knowledge of capital investments.

Gary Douglas .

was elected as a director on March 29, 2018.

Gary Douglas has a BBA in Management degree, with extensive experience in cooperate

communication and investment banking.

He is a principal in Douglas Strategic Communications LLC, a marketing strategy and communications

consultancy, and Ex officio Chairman of Picture Marketing, Inc., a digital marketing company.

Douglas also formally served

as Chief Marketing Officer of O’Melveny Consulting LLP, a unit of a global law firm.

He also served as President of SP/Hambros

America and Division President of Geneva Learning Systems and Group Vice President of Business Development for the five Geneva

Companies, both SP/Hambros and The Geneva companies were middle market investment bankers.

Douglas brings to the Board extensive

experience in cooperate communication and investment banking.

Cipora Lavut .

was one of Aura’s original founding members.

is a graduate of Florida State University and was

selected as a director in view of his lengthy experience in managing companies and his knowledge of capital investments.

Douglas was elected as a director on March 29, 2018.

Gary Douglas has a BBA in Management degree, with

extensive experience in cooperate communication and investment banking.

He is a principal in Douglas Strategic Communications

LLC, a marketing strategy and communications consultancy, and Ex officio Chairman of Picture Marketing, Inc., a digital marketing

Douglas also formally served as Chief Marketing Officer of O’Melveny Consulting LLP, a unit of a global law

He also served as President of SP/Hambros America and Division President of Geneva Learning Systems and Group Vice President

of Business Development for the five Geneva Companies, both SP/Hambros and The Geneva companies were middle market investment

Douglas brings to the Board extensive experience in cooperate communication and investment banking.

Lavut was one of Aura’s original founding members.

From 1987 to 2002 Ms.

Lavut served on Aura’s Board and as a Senior

Vice President.

Lavut served on Aura’s

Board and as a Senior Vice President.

During this period, Ms.

Lavut was instrumental to Aura receiving large contracts from The Boeing Company,

Litton Industries and the United States Air Force.

Lavut also provided critical investor relations and marketing support

during this time.

Lavut was instrumental to Aura receiving large contracts from

The Boeing Company, Litton Industries and the United States Air Force.

Lavut also provided critical investor relations

and marketing support during this time.

Lavut left Aura in 2002.

At the request of Aura’s then Board of Directors and management, in

At the request of Aura’s then Board of Directors

and management, in 2006 Ms.

Lavut returned to Aura as Vice President in charge of investors relations and corporate communication.

In January 2016,

In January 2016, Ms.

Lavut left the Company to pursue other business ventures.

Lavut presently provides marketing and business consulting

to a variety of retail and service-oriented businesses.

She holds a degree from California State University, Northridge.

Robert Lempert .

graduated from the University of Pennsylvania and conducted his residency at the Albert Einstein Medical Center in Philadelphia.

Lavut presently provides marketing

and business consulting to a variety of retail and service-oriented businesses.

She holds a degree from California State University,

Lempert graduated from the University of Pennsylvania and conducted his residency at the Albert Einstein

Medical Center in Philadelphia.

Lempert also served as a Captain in the U.S.

Army and previously served on the Company’s Board from November 28,

2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018.

has been a significant investor, shareholder and an active advocate of Aura’s technology for more than 20 years.

been Vice President of Marketing for Mann Marketing, a manufacturing and import company, since 1990 and the Vice President of

Sales of that company since 2007.

Army and previously served on the Company’s

Board from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11,

Lempert has been a significant investor, shareholder and an active advocate of Aura’s technology for more

than 20 years.

Mann has been Vice President of Marketing for Mann Marketing, a manufacturing and import company, since 1990

and the Vice President of Sales of that company since 2007.

From 2000 until 2007, Mr.

Mann also served as Vice President of Operations.

has extensive experience dealing with all aspects of marketing and sales, as well as suppliers in both North America and China.

Mann has been an investor in the Aura since 2007 and previously served as a director of the Company from November 28,

2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018.

holds a degree in Business Administration from College St.

Mann also served as Vice President

of Operations.

Mann has extensive experience dealing with all aspects of marketing and sales, as well as suppliers in

both North America and China.

Mann has been an investor in the Aura since 2007 and previously served as a director of

the Company from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until

January 11, 2018.

Mann holds a degree in Business Administration from College St.

Laurent, Montreal, Canada.

Delinquent Section 16(a) Reports

Our shares of common stock are registered

under the Securities Exchange Act of 1934, and therefore our executive officers and directors and persons who beneficially own

more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership,

reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities,

on Forms 3, 4 and 5 respectively.

Executive officers, directors and greater than 10% stockholders are required by the Securities

and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file.

Based on our review of the

copies of such forms received by us, and to the best of our knowledge, no executive officers, directors and persons holding greater

than 10% of our issued and outstanding stock have filed the required reports during the year ended February 29, 2020.

Code of Ethics

We have adopted a Code of Ethics applicable

to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department.

This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.aurasystems.com

in the Investor Relations section.

We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment

to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial

officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of

such provision of our Code of Ethics by posting such information on our website within four business days of the date of such

amendment or waiver.

In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted

and the date of the waiver will also be disclosed.

Family Relationships

None of our directors or executive officers is related to one

Committees of the Board of Directors

The Board maintains the following committees to assist it in

discharging its oversight responsibilities.

Audit Committee .

The Audit Committee

does not have a formal charter but is responsible primarily for overseeing the services performed by our independent registered

public accounting firm, evaluating our accounting policies and system of internal controls, and reviewing our annual and quarterly

reports before filing with the Securities and Exchange Commission.

The current members of the Audit Committee are Mr.

Diaz Versón Jr., Mr.

Section 16(a) Reports

shares of common stock are registered under the Securities Exchange Act of 1934, and therefore our executive officers and directors

and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements

of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and

other equity securities, on Forms 3, 4 and 5 respectively.

Executive officers, directors and greater than 10% stockholders are

required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file.

Based on our review of the copies of such forms received by us, and to the best of our knowledge, no executive officers, directors

and persons holding greater than 10% of our issued and outstanding stock have filed the required reports during the year ended

February 28, 2021.

have adopted a Code of Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other

members of the Company’s Finance Department.

This Code of Ethics is posted on the Company’s website within a broader

Code of Business Conduct and Ethics at www.aurasystems.com in the Investor Relations section.

We intend to satisfy the disclosure

requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, the provision of our Code of Ethics that applies

to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing

similar functions and that relates to any element of such provision of our Code of Ethics by posting such information on our website

within four business days of the date of such amendment or waiver.

In the case of a waiver, the nature of the waiver, the name

of the person to whom the waiver was granted and the date of the waiver will also be disclosed.

Relationships

of our directors or executive officers is related to one another.

of the Board of Directors

Board maintains the following committees to assist it in discharging its oversight responsibilities.

The Audit Committee does not have a formal charter but is responsible primarily for overseeing the services performed

by our independent registered public accounting firm, evaluating our accounting policies and system of internal controls, and

reviewing our annual and quarterly reports before filing with the Securities and Exchange Commission.

The current members of the

Audit Committee are Mr.

Salvador Diaz Versón Jr., Mr.

David Mann and Mr.

Gary Douglas.

The Board of Directors has determined that the

Audit Committee does not have a member who is an “audit committee financial expert”

as such term is defined by the

rules and regulations of the Securities and Exchange Commission.

While the Board recognizes that the Board members serving on

the Audit Committee do not meet the qualifications required of an “audit committee financial expert,”

the Board believes

that the appointment of a new director to the Board of Directors and to the Audit Committee at this time is not necessary as the

level of financial knowledge and experience of the current member of the Audit Committee, including such member’s ability

to read and understand fundamental financial statements, is sufficient to adequately discharge the Audit Committee’s responsibilities

Compensation Committee .

The Compensation

Committee does not have a formal charter but reviews and recommends to the full Board the amounts and types of compensation to

be paid to the Chairman and Chief Executive Officer;

reviews and approves the amounts and types of compensation to be paid to

our other executive officers and the non-employee directors;

reviews and approves, on behalf of the Board, salary, bonus and equity

guidelines for our other employees;

The Board of Directors has determined

that the Audit Committee does not have a member who is an “audit committee financial expert”

as such term is defined

by the rules and regulations of the Securities and Exchange Commission.

While the Board recognizes that the Board members serving

on the Audit Committee do not meet the qualifications required of an “audit committee financial expert,”

believes that the appointment of a new director to the Board of Directors and to the Audit Committee at this time is not necessary

as the level of financial knowledge and experience of the current member of the Audit Committee, including such member’s

ability to read and understand fundamental financial statements, is sufficient to adequately discharge the Audit Committee’s

responsibilities

The Compensation Committee does not have a formal charter but reviews and recommends to the full Board the amounts

and types of compensation to be paid to the Chairman and Chief Executive Officer;

reviews and approves the amounts and types of

compensation to be paid to our other executive officers and the non-employee directors;

reviews and approves, on behalf of the

Board, salary, bonus and equity guidelines for our other employees;

and administers our equity plans.

The Compensation Committee is currently comprised of Mr.

The Compensation Committee

is currently comprised of Mr.

David Mann, Ms.

1 unchanged sentence

Robert Lempert.

Nominating Committee .

The Nominating

Committee does not have a formal charter but assists the Board in identifying qualified individuals to become directors, determines

the composition of the Board and its committees, monitors the process to assess the Board’s effectiveness and helps develop

and implement our corporate governance guidelines.

The Nominating Committee also considers nominees proposed by stockholders.

The Nominating Committee does not have a formal charter but assists the Board in identifying qualified individuals

to become directors, determines the composition of the Board and its committees, monitors the process to assess the Board’s

effectiveness and helps develop and implement our corporate governance guidelines.

The Nominating Committee also considers nominees

proposed by stockholders.

The Nominating Committee currently consists of Mr.

2 unchanged sentences

Robert Lempert.

Director Compensation

Although we do not currently compensate

our directors in cash for their service as members of our Board of Directors, the Board may, in its discretion, elect to compensate

directors for attending Board and Committee meetings and to reimburse directors for out-of-pocket expenses incurred in connection

with attending such meetings.

Additionally, our directors are eligible to receive stock options under the 2011 Directors and Executive

Officer Stock Option Plan.

During fiscal 2020, none of the Directors received any stock options.

There are no payments due to

any directors upon their resignation or retirement as members of the Board.

On March 19, 2020, (fiscal year 2021) each Director

received options under the 2011 Directors and Executive Officer Stock Option Plan to acquire 250,000 shares of the Company’s

common stock at an exercise price of $0.25.

we do not currently compensate our directors in cash for their service as members of our Board of Directors, the Board may, in

its discretion, elect to compensate directors for attending Board and Committee meetings and to reimburse directors for out-of-pocket

expenses incurred in connection with attending such meetings.

Additionally, our directors are eligible to receive stock options

under the 2011 Directors and Executive Officer Stock Option Plan.

During Fiscal 2021, each Director received options under the

2011 Directors and Executive Officer Stock Option Plan to acquire 250,000 shares of the Company’s common stock at an exercise

price of $0.25.

On the date of grant the shares were traded at $0.16 per share.

None of the Directors received any stock options

during the prior Fiscal year (Fiscal 2020).

There are no payments due to any directors upon their resignation or retirement as

members of the Board.

EXECUTIVE COMPENSATION

The following table sets forth the compensation

earned by or paid to the principal executive officer and the two most highly compensated executive officers, other than the principal

executive officer, (the “named executive officers”) during the fiscal years ended February 29, 2020 and February 28,

following table sets forth the compensation earned by or paid to the principal executive officer and the two most highly compensated

executive officers, other than the principal executive officer, (the “named executive officers”) during the Fiscal

years ended February 28, 2021 and February 29, 2020.

Summary Compensation Table

Name and Principal Position

Option Awards

1 unchanged sentence

All Other Compensation

Name and Principal Position

Melvin Gagerman (1)

3 unchanged sentences

Treasury Officer

Gagerman was elected Chairman

and Chief Financial Officer effective February 1, 2006 and was elected President and

Chief Executive Officer effective May 25, 2006.

elected Chairman and Chief Financial Officer effective February 1, 2006 and was elected President and Chief Executive Officer

effective May 25, 2006.

On March 28, 2018, Mr.

Gagerman was terminated

by the then-seated Board of Directors but was subsequently re-appointed.

was permanently terminated on July 8, 2019.

On January 11, 2018 the Board of Directors

authorized the Company to pay Mr.

Gagerman a monthly salary of $16,000, including a monthly

car allowance of $1000, and to provide Mr.

Gagerman with health and life insurance benefits

commensurate with those given to all other employees.

No other benefits or compensation

were authorized by the Board of Directors.

Michaels began serving as Treasury

Officer in February 2019;

Gagerman was terminated by the then-seated Board of Directors but was subsequently

re-appointed.

Gagerman was permanently terminated on July 8, 2019.

On January 11, 2018 the Board of Directors authorized

the Company to pay Mr.

Gagerman a monthly salary of $16,000, including a monthly car allowance of $1000, and to provide Mr.

Gagerman with health and life insurance benefits commensurate with those given to all other employees.

No other benefits or

compensation were authorized by the Board of Directors.

Michaels began

serving as Treasury Officer in February 2019;

he was terminated in July 2019.

Lavut was elected President effective

July 9, 2019 and on March 19, 2020, the Board of Directors authorized an annual salary

of $250,000, retroactively effective to January 1, 2020.

From January through February

Lavut was elected

President effective July 9, 2019 and on March 19, 2020, the Board of Directors authorized an annual salary of $250,000, retroactively

effective to January 1, 2020.

From January through February 2020, Ms.

Lavut’s salary was accrued but was not paid.

(4) From July 2019 through December 31,

March 2020 to February 2021, Ms.

Lavut has been accruing an annual salary of $250,000 and has been paid 140,000 over the same

From July 2019 through

December 31, 2019, Ms.

Lavut received $42,300 in compensation.

In March 2020, the Board of Directors

authorized an annual salary of $250,000, retroactively effective January 1, 2020.

January through February 2020, Ms.

Lavut’s salary was accrued but was not paid.

Outstanding Equity Awards at 2020 Fiscal Year-End

In March 2020, the Board of Directors authorized an annual

salary of $250,000, retroactively effective January 1, 2020.

From January through February 2020, Ms.

Lavut’s salary

was accrued but was not paid.

Equity Awards at 2021 Fiscal Year-End

Gagerman nor Mr.

Michaels have any outstanding

stock option awards as of February 29, 2020.

Option Exercises and Stock Vesting During Fiscal 2020

No stock options were exercised during fiscal 2020 by the individuals

named in the Summary Compensation Table.

No stock awards were issued during fiscal 2020.

Option Exercises and Stock Vesting During Fiscal 2021

On March 19, 2020, the Board of Directors approved the grant

of a total of 1,250,000 options to acquire the Company’s common stock to each of the five current board members in equal

amounts of 250,000 per person under the Company’s Directors and Executive Officers Stock Option Plan.

Per the terms of the

2011 D&O Option Plan, vesting occurs after a six-month period plus one day from the date of grant, with a five-year expiration

term, and with an exercise price of $0.25 per warrant

Employment Contracts, Termination of Employment Contracts

and Change in Control Arrangements

We do not currently have any employment

agreements with any of our Named Executive Officers.

As previously reported, on January 11, 2018, the Board of Directors authorized

the Company to pay Melvin Gagerman, our former CEO and CFO, a monthly salary of $16,000 and to provide Mr.

Gagerman with health

and life insurance benefits commensurate with those given to all other employees.

No other benefits or compensation to Mr.

was authorized by the Board of Directors.

In March 2020, the Board of Directors approved an annual salary for Ms.

Lavut of $250,000,

retroactively effective from January 1, 2020.

Potential Payments to the Named Executive

Officers Upon Termination or Change in Control

None of the named executive officers is entitled to any payments

or benefits upon termination, whether by change in control or otherwise, other than benefits available generally to all employees.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT

The following table sets forth, to the

extent of our knowledge, certain information regarding our common stock owned as of June 30, 2020 (i) by each person who is known

to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each of our Directors and the named executive

officers in the Summary Compensation Table, and (iii) by all Directors and current executive officers as a group:

Michaels have any outstanding stock option awards as of February 28, 2021.

On March 19, 2020, the Board of

Directors approved the grant of a total of 1,250,000 options to acquire the Company’s common stock to each of the five current

board members in equal amounts of 250,000 per person under the Company’s Directors and Executive Officers Stock Option Plan.

All of these options were outstanding as of February 28, 2021.

Exercises and Stock Vesting During Fiscal 2020

stock options were exercised during Fiscal 2020 by the individuals named in the Summary Compensation Table.

Exercises and Stock Vesting During Fiscal 2021

March 19, 2020, the Board of Directors approved the grant of a total of 1,250,000 options to acquire the Company’s common

stock to each of the five current board members in equal amounts of 250,000 per person under the Company’s Directors and

Executive Officers Stock Option Plan.

Per the terms of the 2011 D&O Option Plan, vesting occurs after a six-month period plus

one day from the date of grant, with a five-year expiration term, and with an exercise price of $0.25 per warrant

Contracts, Termination of Employment Contracts and Change in Control Arrangements

do not currently have any employment agreements with any of our Named Executive Officers.

In March 2020, the Board of Directors

approved an annual salary for Ms.

Lavut of $250,000, retroactively effective from January 1, 2020.

Payments to the Named Executive Officers Upon Termination or Change in Control

of the named executive officers is entitled to any payments or benefits upon termination, whether by change in control or otherwise,

other than benefits available generally to all employees.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

following table sets forth, to the extent of our knowledge, certain information regarding our common stock owned as of May 20,

2021 (i) by each person who is known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each

of our Directors and the named executive officers in the Summary Compensation Table, and (iii) by all Directors and current executive

officers as a group:

Ownership Table

of Shares of Common

Beneficial Owner (1)

Melvin Gagerman

Kevin Michaels

William Anderson

Salvador Diaz-Verson,

Salvador Diaz-Verson, Jr.

Gary Douglas (3)

2 unchanged sentences

Robert Lempert (6)

All current executive

officers and Directors as a group (five) (2) (3) (4) (5) (6)

All current executive officers and Directors as a group (five) (2) (3) (4) (5) (6)

5% Stockholders

● Less than 1% of outstanding shares

Beneficial ownership is determined in accordance

with rules of the Securities and Exchange Commission.

The calculation of the percentage of beneficial ownership is based upon

57,759,207 shares of common stock outstanding on June 30, 2020.

In computing the number of shares beneficially owned by any

stockholder and the percentage ownership of such stockholder, shares of common stock which may be acquired by a such stockholder

upon exercise or conversion of warrants or options which are currently exercisable or exercisable within 60 days of June 30,

2020, are deemed to be exercised and outstanding.

Such shares, however, are not deemed outstanding for purposes of computing

the beneficial ownership percentage of any other person.

Shares issuable upon exercise of warrants and options which are subject

to stockholder approval are not deemed outstanding for purposes of determining beneficial ownership.

Except as indicated by

footnote, to our knowledge, the persons named in the table above have the sole voting and investment power with respect to

all shares of common stock shown as beneficially owned by them.

The mailing address for each of the officers and directors

is c/o Aura Systems, Inc., 10541 Ashdale St., Stanton, CA 90680.

Includes 687,428 warrants exercisable within

60 days of June 30, 2020.

Including 450,000 warrants exercisable within

60 days of June 30, 2020.

301,666 warrants exercisable within 60 days

of June 30, 2020.

On August 28, 2019, the Board of Directors approved 1,030,625 shares for issuance to Ms.

Lavut in settlement

of amounts previously lent by Ms.

Lavut to the Company and certain unpaid amounts owed to Ms.

Lavut for services performed

prior to February 2016.

Includes warrants to purchase 500,912 shares

exercisable within 60 days of June 30, 2020 as well as 1,343,115 shares, 891,204 of which Mr.

Mann has sole dispositive power

and approximately 272,320 of which, Mr.

Warren Breslow (7)

Elimelech Lowy (8)

BetterSea LLC

Less than 1% of

outstanding shares

Beneficial ownership

is determined in accordance with rules of the Securities and Exchange Commission.

The calculation of the percentage of beneficial

ownership is based upon 71,107,442 shares of common stock outstanding on February 28, 2021.

In computing the number of shares

beneficially owned by any stockholder and the percentage ownership of such stockholder, shares of common stock which may be

acquired by a such stockholder upon exercise or conversion of warrants or options which are currently exercisable or exercisable

within 60 days of February 28, 2021, are deemed to be exercised and outstanding.

Such shares, however, are not deemed outstanding

for purposes of computing the beneficial ownership percentage of any other person.

Shares issuable upon exercise of warrants

and options which are subject to stockholder approval are not deemed outstanding for purposes of determining beneficial ownership.

Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting and investment

power with respect to all shares of common stock shown as beneficially owned by them.

The mailing address for each of the

officers and directors is c/o Aura Systems, Inc., 20431 North Sea, Lake Forest, CA 92630.

Includes 687,428

warrants exercisable within 60 days of February 28, 2021.

Including 450,000

warrants exercisable within 60 days of February 28, 2021.

301,666 warrants

exercisable within 60 days of February 28, 2021.

On August 28, 2019, the Board of Directors approved 1,030,625 shares for

issuance to Ms.

Lavut in settlement of amounts previously lent by Ms.

Lavut to the Company and certain unpaid amounts owed

Lavut for services performed prior to February 2016.

Includes warrants

to purchase 500,912 shares exercisable within 60 days of June 30, 2020 as well as 1,323,931 shares, 891,204 of which Mr.

has sole dispositive power and approximately 432,727 of which, Mr.

Mann holds a power of attorney to vote such shares.

Includes warrants to purchase

350,000 shares exercisable within 60 days of June 30, 2020.

Includes warrants to purchase 666,000 shares

exercisable within 60 days of June 30, 2020 and the right to convert $3,000,000 convertible note payable to 2,142,857 common

shares at a conversion price of $1.40.

Includes warrants to purchase 4,092,877 shares exercisable within

60 days of June 30, 2020, and 3,519,768 shares, which Mr.

Lowy has sole dispositive power.

Securities Authorized for Issuance Under Equity Compensation

Plans as of February 29, 2020

Equity Compensation Plan Information as of February 29,

Securities For

Includes warrants

to purchase 350,000 shares exercisable within 60 days of February 28, 2021.

Includes warrants

to purchase 666,000 shares exercisable within 60 days of February 28, 2021.and the right to convert $3,000,000 and accrued

interest of $412,911 convertible note payable to 2,437,794 common shares at a conversion price of $1.40.

Includes warrants

to purchase 4,092,877 shares exercisable within 60 days of February 28, 2021.

and 3,519,768 shares, which Mr.

Lowy has sole

dispositive power.

Authorized for Issuance Under Equity Compensation Plans as of February 28, 2021

Compensation Plan Information as of February 28, 2021

Plan Category

in Column (a.)

Securities to be

Options, Warrants

Exercise Price

Number of Securities

For Future Issuances

Compensation Plans

(Excluding Securities Reflected in Column (a.)

Equity compensation plans approved by equity holders

Equity compensation plans not approved by equity holders

(1) Reflects options under the

2006 Stock Option Plan and the 2011 Stock Option Plan, of which both were approved by Company shareholders.

The 2006 Stock Option

Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to

the greater of (i) 10,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time

The 2011 Stock Option Plan authorizes the Company to grant stock options or warrants to executive officers and directors

exercisable for up to an aggregate number of shares equivalent to 15% of the number of shares of common stock outstanding from

time to time.

The numbers in this table are as of February 29, 2020 (See Note 9 to the Financial Statements).

For additional information regarding options and warrants,

see Note 10 to our financial statements appearing elsewhere in this report.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE

Review and Approval of Related Party Transactions

Our Audit Committee is responsible for

the review and approval of all related party transactions required to be disclosed to the public under SEC rules.

This procedure,

which is contained in the written charter of our Audit Committee, has been established by our Board of Directors in order to serve

the interests of our shareholders.

Related party transactions are reviewed and approved by the Audit Committee on a case-by-case

Under existing, unwritten policy no related party transaction can be approved by the Audit Committee unless it is first

determined that the terms of such transaction is on terms no less favorable to us than could be obtained from an unaffiliated

third party on an arms-length basis and is otherwise in our best interest.

Director Independence

Using the definition of “independence”

included in the listing rules of The Nasdaq Stock Market, our Board has determined that Salvador Diaz-Versón, Jr.

Douglas are both independent directors.

Reflects options

under the 2006 Stock Option Plan and the 2011 Stock Option Plan, of which both were approved by Company shareholders.

2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of

common stock equal to the greater of (i) 10,000,000 shares of common stock, or (ii) 10% of the number of shares of common

stock outstanding from time to time.

The 2011 Stock Option Plan authorizes the Company to grant stock options or warrants

to executive officers and directors exercisable for up to an aggregate number of shares equivalent to 15% of the number of

shares of common stock outstanding from time to time.

The numbers in this table are as of February 28, 2021 (See Note 9 to

the Financial Statements).

additional information regarding options and warrants, see Note 10 to our financial statements appearing elsewhere in this report.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

and Approval of Related Party Transactions

Audit Committee is responsible for the review and approval of all related party transactions required to be disclosed to the public

under SEC rules.

This procedure, which is contained in the written charter of our Audit Committee, has been established by our

Board of Directors in order to serve the interests of our shareholders.

Related party transactions are reviewed and approved by

the Audit Committee on a case-by-case basis.

Under existing, unwritten policy no related party transaction can be approved by

the Audit Committee unless it is first determined that the terms of such transaction is on terms no less favorable to us than

could be obtained from an unaffiliated third party on an arms-length basis and is otherwise in our best interest.

the definition of “independence”

included in the listing rules of The Nasdaq Stock Market, our Board has determined

that Salvador Diaz-Versón, Jr.

and Gary Douglas are both independent directors.

PRINCIPAL ACCOUNTING FEES AND DISCLOSURES

The following table sets forth the aggregate fees billed to

us by KSP Group, Inc., merged with BF Borgers, CPA, PC (“BFB CPA”) in 2019, for the years ended February 29, 2020,

and February 28, 2019:

following table sets forth the aggregate fees billed to us by BF Borgers, CPA, PC (“BFB CPA”) for the years ended

February 28, 2021, and February 29, 2020:

Audit-related fees

All other fees

As defined by the SEC, (i) “audit

are fees for professional services rendered by our principal accountant for the audit of our annual financial statements

and review of financial statements included in our Form 10-K, or for services that are normally provided by the accountant in

connection with statutory and regulatory filings or engagements for those fiscal years;

defined by the SEC, (i) “audit fees”

are fees for professional services rendered by our principal accountant for the

audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are

normally provided by the accountant in connection with statutory and regulatory filings or engagements for those Fiscal years;

(ii) “audit-related fees”

are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the

audit or review of our financial statements and are not reported under “audit fees;”

are fees for assurance and related services by our principal accountant that are reasonably

related to the performance of the audit or review of our financial statements and are not reported under “audit fees;”

(iii) “tax fees”

are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning;

(iv) “all other fees”

are fees for products and services provided by our principal accountant, other than the services

reported under “audit fees,”

are fees for professional services rendered by our principal accountant for tax compliance, tax advice,

and tax planning;

and (iv) “all other fees”

are fees for products and services provided by our principal accountant,

other than the services reported under “audit fees,”

“audit-related fees,”

and “tax fees.”

Services provided to us by KSP, Group, In.

and BFB CPA, Inc.

with respect the audit of our annual financial statements and review of our annual reports on Form 10-K and for

reviews of the financial statements are included in our quarterly reports on Form 10-Q for the first three quarters of the year

ended February 29, 2020 and February 28, 2019.

Audit Related Fees

KSP, Group, In.

did not provide

any professional services to us during fiscal 2020 or fiscal 2019 which would constitute “audit related fees”.

KSP, Group, In.

and BFB CPA did not provide

any professional services to us during fiscal 2020 or fiscal 2019 which would constitute “tax fees”.

All Other Fees

KSP, Group, In.

and BFB CPA did not provide

any professional services to us during fiscal 2020 or fiscal 2019 which would constitute “other fees”.

Policy on Audit Committee Pre-Approval of Audit and Permissible

Non-Audit Services of Independent Auditors

Under the SEC’s rules, the Audit

Committee is required to pre-approve the audit and permissible non-audit services performed by the independent registered public

accounting firm in order to ensure that they do not impair the auditors’

provided to us by BFB CPA, Inc.

with respect the audit of our annual financial statements and review of our annual reports on

Form 10-K and for reviews of the financial statements are included in our quarterly reports on Form 10-Q for the first three quarters

of the years ended February 28, 2021 and February 29, 2020.

CPA did not provide any professional services to us during Fiscal 2021 or Fiscal 2020 which would constitute “audit related

CPA did not provide any professional services to us during Fiscal 2021 or Fiscal 2020 which would constitute “tax fees”.

CPA did not provide any professional services to us during Fiscal 2021 or Fiscal 2020 which would constitute “other fees”.

on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

the SEC’s rules, the Audit Committee is required to pre-approve the audit and permissible non-audit services performed by

the independent registered public accounting firm in order to ensure that they do not impair the auditors’

independence.

The SEC’s rules specify the

types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s

responsibility for administration of the engagement of the independent registered public accounting firm.

Consistent with the SEC’s rules,

the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent auditors.

These services

may include audit services, audit-related services, tax and other services.

Pre-approval is generally provided for up to one year,

and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.

The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services

provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date.

Audit Committee may also pre-approve particular services on a case-by-case basis.

During fiscal 2018 and 2017 all services provided

by BFB CPA were pre-approved by the Audit Committee in accordance with this policy.

There were no hours expended on the principal accountant’s

engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed

by persons other than the principal accountant’s full-time, permanent employees.

The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client

and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public

accounting firm.

with the SEC’s rules, the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent

These services may include audit services, audit-related services, tax and other services.

Pre-approval is generally

provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally

subject to a specific budget.

The independent auditors and management are required to periodically report to the Audit Committee

regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the

services performed to date.

The Audit Committee may also pre-approve particular services on a case-by-case basis.

During Fiscal

2018 and 2017 all services provided by BFB CPA were pre-approved by the Audit Committee in accordance with this policy.

were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for

the most recent Fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time,

permanent employees.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Documents filed as part of this Form 10-K:

Financial Statements

See Index to Financial Statements at page F-1

Financial Statement

See Index to Financial Statements at page F-1

See Exhibit Index

filed as part of this Form 10-K:

Index to Financial Statements at page F-1

Statement Schedules

Index to Financial Statements at page F-1

Exhibit Index

FORM 10-K SUMMARY

INDEX TO EXHIBITS

Description of Documents

Amended and Restated Certificate of Incorporation of Aura Systems, Inc.

(Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Form 10-K filed on June 15, 2009)

of Amendment to the Amended and Restated Certificate of Incorporation, dated February 14, 2018 (Incorporated by reference to

Exhibit 3.1 to Aura Systems, Inc.’s Current Report on Form 8-K filed on February 21, 2018)

Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated February 14, 2018 (Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Current Report on Form 8-K filed on February 21, 2018)

Amended and Restated Bylaws of Aura Systems, Inc.

29 unchanged sentences

XBRL Schema Document

XBRL Calculation Linkbase Document

XBRL Definition LinkbaseDocument

XBRL Label Linkbase Document

XBRL Presentation Linkbase Document

* Indicates a management contract

or compensatory plan or arrangement.

** See Item 3.

XBRL Calculation

Linkbase Document

XBRL Definition

Linkbase Document

XBRL Label Linkbase

XBRL Presentation

Linkbase Document

Indicates a management

contract or compensatory plan or arrangement.

Proceedings”

7 unchanged sentences

Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Pursuant to the requirements of Section

13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by

the undersigned, thereunto duly authorized.

AURA SYSTEMS, INC.

July 13, 2020

/s/ Cipora Lavut

Pursuant to the requirements of the Securities

Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities

and on the date indicated.

/s/ Cipora Lavut

President (Principal Executive Officer),

July 13, 2020

/s/ David Mann

Chief Financial Officer

(Principal Financial Officer, Principal Accounting Officer),

July 13, 2020

/s/ Robert Lempert

July 13, 2020

to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report

to be signed on its behalf by the undersigned, thereunto duly authorized.

SYSTEMS, INC.

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf

of the registrant and in the capacities and on the date indicated.

President (Principal

Executive Officer),

Chief Financial

(Principal Financial Officer,

Principal Accounting Officer),

Robert Lempert

/s/ Gary Douglas

July 13, 2020

/s/ Salvador Diaz-Verson, Jr.

July 13, 2020

Robert Lempert

Salvador Diaz-Verson, Jr.

Index to Financial Statements

Salvador Diaz-Verson,

to Financial Statements

Report of Independent Registered Public Accounting Firm

Financial Statements of Aura Systems, Inc.:

Financial Statements

of Aura Systems, Inc.:

Balance Sheets as of February 28, 2021 and February 29, 2020

4 unchanged sentences

Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Aura Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet

of Aura Systems, Inc.

(a Delaware corporation), (the “Company”) as of February 28, 2019, the related consolidated statements

of operations and comprehensive loss, shareholders' equity, and cash flows for the year then ended, and the related notes (collectively

referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material

respects, the financial position of the Company as of February 28, 2019 and the results of its operations and its cash flows for

the year then ended, in conformity with accounting principles generally accepted in the United States.

Going Concern Uncertainty

The accompanying financial statements have

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

As discussed in Note 1 to the financial statements, the

Company has incurred significant operating losses since inception and has a working capital deficit which raises substantial doubt

about its ability to continue as a going concern.

The financial statements do not include any adjustments that might result from

the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility

of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to

assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable

basis for our opinion.

/s/ KSP Group, Inc.

Certified Public Accountants

We have served as the Company's auditor

As discussed in note 13, the Company restated

its financial statements for the year ended February 28, 2019

Los Angeles, California

June 12, 2019 except

for Notes 2, 5,6,7,8,910,11, and 14 which are as of October 23, 2019

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Aura Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance

sheet of Aura Systems, Inc.

(a Delaware corporation), (the “Company”) as of February 29, 2020, the related consolidated

statements of operations and comprehensive loss, shareholders’

equity, and cash flows for the year then ended, and the related

notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of February 29, 2020 and the results of its operations and its

cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

Going Concern Uncertainty

The accompanying financial statements have

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

As discussed in Note 1 to the financial statements, the

Company has incurred significant operating losses since inception and has a working capital deficit which raises substantial doubt

about its ability to continue as a going concern.

The financial statements do not include any adjustments that might result from

the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

the Board of Directors and Stockholders

Systems, Inc.

on the Financial Statements

have audited the accompanying balance sheets of Aura Systems, Inc.

(a Delaware corporation), (the “Company”) as of

February 28, 2021 and February 29, 2020, the related statements of operations and comprehensive loss, shareholders’

and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of

February 28, 2021 and February 29, 2020 and the results of its operations and its cash flows for the years then ended, in conformity

with accounting principles generally accepted in the United States.

Concern Uncertainty

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

in Note 1 to the financial statements, the Company has incurred significant operating losses since inception and has a working

capital deficit which raises substantial doubt about its ability to continue as a going concern.

The financial statements do not

include any adjustments that might result from the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company

in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Audit Matters

critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of

critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by

communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or

disclosures to which it relates.

Audit Matter Description

Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the

consideration the Company expects to receive in exchange for those products or services.

Significant judgment is exercised by

the Company in determining revenue recognition for these customer agreements, and includes the following:

pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance

● Identification

and treatment of contract terms that may impact the timing and amount of revenue recognized

(e.g., variable consideration, optional purchases, and free services).

the Critical Audit Matter Was Addressed in the Audit

selected a sample of sales and performed the following procedures:

invoices, receipts, shipping documents for each selection.

the terms in the customer invoices and evaluated the appropriateness of management’s

application of their accounting policies, along with their use of estimates, in the determination

of revenue recognition conclusions.

evaluated management’s significant accounting policies related to these customer agreements for reasonableness

tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized

in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable

basis for our opinion.

/s/ BF Borgers CPA PC

We have served as the Company’s auditor

July 13, 2020

BF Borgers CPA PC

Public Accountants

have served as the Company’s auditor since 2020.

AURA SYSTEMS, INC.

BALANCE SHEETS

Current assets

Cash and cash equivalents

1 unchanged sentence

Total current assets

Investment in joint venture

Fixed Assets, net

Right-of-use asset

Liabilities & Shareholders’

3 unchanged sentences

Customer advances

Operating lease liability

Accrued expense-related party

4 unchanged sentences

Convertible notes payable

Operating lease liability, non-current

Total liabilities

2 unchanged sentences

Common stock:

$0.0001 par value;

150,000,000 shares authorized at February 28, 2021 and February 29, 2020;

56,400,874 and 53,714,145 issued and outstanding at February 29, 2020 and February 28, 2019, respectively

71,107,442 and 56,400,874 issued and

outstanding at February 28, 2021 and February 29, 2020, respectively

Additional paid-in capital

6 unchanged sentences

Total liabilities and shareholders’

The accompanying notes are an integral

part of these financial statements

accompanying notes to these financial statements.

AURA SYSTEMS, INC.

STATEMENTS OF OPERATIONS

STATEMENTS OF

Fiscal Years Ended

Cost of goods sold

Gross profit (loss)

Operating expenses

6 unchanged sentences

Interest expense, net

(Gain) on debt settlement

(Gain) loss on debt settlement

Gain on extinguishment of debt

Income (loss) before tax provision

Income tax provision

$ (2,606,866 )

Net Income (loss)

$ (2,606,866 )

Basic and diluted loss per share

Weighted average shares outstanding

The accompanying notes are an integral

part of these financial statements

Basic income (loss) per share

Basic weighted-average shares outstanding

Diluted income (loss) per share

Dilutive weighted-average shares outstanding

accompanying notes to these financial statements.

AURA SYSTEMS, INC.

STATEMENTS OF SHAREHOLDERS’

for February 28, 2019)

Additional Paid-In

Subscription Receivable

Accumulated Deficit

Total Shareholders’

3 unchanged sentences

$ (21,594,699 )

$ (24,665,496 )

Shares issued for cash

Shares issued for

Prior year shares to be issued

Shares issued for debt settlement

Shares issued for accounts payable

Warrant expense

Shares cancelled

Shares issued for settlement

Shares issued for services

Warrants issued to equity investors

Balance, February 29, 2020

3 unchanged sentences

Shares issued for cash

Shares cancelled

Shares issued for settlement

Shares issued for services

Warrants issued to equity investors

Stock-based compensation

Balance, February 28, 2021

2 unchanged sentences

$ (19,749,750 )

The accompanying notes are an integral

part of these financial statements

accompanying notes to these financial statements.

AURA SYSTEMS, INC.

1 unchanged sentence

Fiscal Years Ended

$ (2,606,866 )

Net income (loss)

$ (2,606,866 )

Adjustments to reconcile net loss to cash used in operating activities

Fair market value of warrants issued for services

Gain on debt settlement

Stock issued for services

Adjustments to reconcile net

income (loss) to cash used in operating activities

Gain on write-off of liabilities

Loss on settlement of debt

Impairment of joint venture

Decrease (increase) in

Stock-based compensation expense

Changes in working capital assets and liabilities:

Other current assets

Deposit on leased facility

Accounts payable and accrued expenses

Accrued interest on notes payable

Operating lease liability

Customer advances

Cash used in operating activities

Cash used in investing activities:

Purchase of property, plant and equipment

Cash flows from financing activities:

1 unchanged sentence

Payment on notes payable

Proceeds from subscription receivable

Proceeds from Federal PPP & SBA notes

Cash provided by financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Beginning cash

Cash paid in the period for:

Supplemental schedule of non-cash transactions:

4 unchanged sentences

Customer advance reclassified as note payable

The accompanying notes are an integral

part of these financial statements

AURA SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2020

NOTE 1 –

accompanying notes to these financial statements.

SYSTEMS, INC.

TO FINANCIAL STATEMENTS

ORGANIZATION AND OPERATIONS

Aura 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 technology.

Aura develops and

sells AuraGen ®

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

Going Concern

The accompanying financial statements have

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

During the fiscal years ended February 29, 2020

and February 28, 2019, the Company incurred losses of $2,606,866 and $2,502,431, respectively, and had negative cash flows from

operating activities of $793,755 and $2,458,085, respectively.

The financial statements for the fiscal year ended February 28,

2019 were restated on Form 10-K/A, filed on October 24, 2019.

In the event the Company is unable to generate

profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or

cease business altogether.

Substantial additional capital resources

will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities.

The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its

obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

During the next twelve months we intend

to continue to attempt to increase the Company’s operations and focus on the sale of our AuraGen ®®

/VIPER products

both domestically and internationally and to add to our existing management team.

In addition, we plan to relocate to a new facility

for operations, rebuild the engineering and sales teams, and to the extent appropriate, utilize third party contractors to support

the operation.

We anticipate being able to obtain new sources of funding to support these actions in the upcoming fiscal year.

NOTE 2 –

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.

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

the fiscal years ended February 28, 2021 and February 29, 2020, the Company incurred net profit of approximately $0.8 million

and a loss of approximately $2.6 million, respectively, and had negative cash flows from operating activities of $1.9 million

and $0.8 million, respectively.

The net profit of $0.8 million in Fiscal 2021 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

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

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

These factors raise substantial doubts about the Company’s

ability to continue as a going concern.

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.

During the next twelve

months we expect to increase the Company’s operations and focus on the sale of our AuraGen®®/VIPER products both domestically

and internationally and to add to our existing management team.

In Fiscal 2021, we completed our relocation of our operations and administrative

offices to a new location (see Note 8, Leases), rebuild the engineering and sales teams, and to the extent appropriate, utilize third

party contractors to support the operation.

We anticipate being able to obtain new sources of funding to support these actions in the

upcoming Fiscal year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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 generator sets used primarily in mobile power applications, which represented 100% of our revenues of approximately $822,000

and $39,000 for the fiscal years ended February 29, 2020 and February 28, 2019, respectively.

Our 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 generator sets at time of product delivery to the domestic

distributor (i.e.

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

of our performance obligations to the customer.

Our payment terms are cash payment due upon delivery and typically includes a

2% price discount off the selling price 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 an eighteen-month assurance-type warranty

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

limited history of shipments, and, as such, we have not recorded a warranty liability on our balance sheets at February 29,

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

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 generator sets used primarily in mobile power applications, which represented 100%

of our revenues of approximately $0.1 million and $0.8 million for the fiscal years ended February 28, 2021 and February 29,

2020, respectively.

Our principal sales channel is sales to a domestic distributor.

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

delivery to the domestic distributor (i.e.

point-in-time), which also corresponds to the passage of legal title to the customer

and the satisfaction of our performance obligations to the customer.

Our payment terms are cash payment due upon delivery and

typically includes a 2% price discount off the selling price 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 an eighteen-month assurance-type

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

have a limited history of shipments, and, as such, we have not recorded a warranty liability on our balance sheets at February

28, 2021 and February 29, 2020, respectively;

1 unchanged sentence

delayed the recognition of revenue during Fiscal years 2021 and 2020.

Cash and Cash Equivalents

Cash and equivalents include cash on hand

and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months

We have not experienced any losses in such accounts and believe we are not exposed to any significant risk on cash and

cash equivalents.

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

its demand and market value, we fully reserved it as of February 28, 2019

Stock-Based Compensation

The Company accounts 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.

The Company accounts 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, the Company has 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.

Fair Value of Financial Instruments

The Company determines the fair values

of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs

and minimize the use of unobservable inputs when measuring fair value.

The classification of a financial asset or liability within

the hierarchy is based upon the lowest level input that is significant to the fair value measurement.

Under ASC Topic 820, Fair

Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels

that may be used to measure fair value:

and Cash Equivalents

and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments

with original maturities of three months or less.

We have not experienced any losses in such accounts and believe we are not exposed

to any significant risk on cash and cash equivalents.

are valued at the lower of cost (first-in, first-out) or market, on an average cost basis.

We review the components of inventory

on a regular basis for excess or obsolete inventory based on estimated future usage and sales.

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 its demand and market value, we fully reserved it as of February 28, 2019

Company accounts for stock-based compensation under the provisions of FASB ASC 718, Compensation –

Stock Compensation

(“ASC 718”), 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.

Company accounts for stock option and warrant grants issued and vesting to non-employees, such as consultants and third parties,

in accordance with ASC 718, 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, the Company has 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.

Company adopted ASC Topic 842, Leases (“ASC 842”), in Fiscal 2020, which required that public companies evaluate

all operating leases in accordance with ASC 842 and recognize a lease liability on the balance sheet by determining the present

value of the remaining lease payments for each lease using a discount rate based on the Company’s incremental borrowing

A corresponding right-of-use (“ROU”) asset is also recognized that is subject to amortization over the remaining

term of the lease.

Throughout Fiscal 2020 and the majority of Fiscal 2021, we did not implement the new guidance to our existing

leases because the guidance does not require application of the standard for leases that are less than 12 months with lease renewal

All of the facility leases were month-to-month with management’s intention of exiting the leases and facilities

as soon as practical.

In February 2021, we entered into a 66-month facility lease in Lake Forest, CA that began on March 1, 2021,

which resulted in the application of ASC 842 for the fiscal year ended February 28, 2021.

As of February 28, 2020, we recognized

a lease liability and a right-of-use asset of $1.2 million, respectively.

During Fiscal 2022 and beyond, we will be applying ASC

842 to this lease and any other operating leases we enter into in the future.

Value of Financial Instruments

Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize

the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The classification of a financial

asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement.

Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the

inputs into three levels that may be used to measure fair value:

Level 1 –

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Level 2 –

Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly;

Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly

or indirectly;

Level 3 –

Unobservable inputs.

The Company measures our financial assets

and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”.

The carrying values of

accounts payable, current notes payable, accrued expenses and other liabilities approximate fair value due to the short-term maturities

of these instruments.

The carrying amounts of long-term convertible notes payable approximate their respective fair values because

of their current interest rates payable and other features of such debt in relation to current market conditions.

The Company accounts for income taxes in

accordance with FASB ASC 740, “Income Taxes”.

Under FASB ASC 740, deferred income taxes are recognized for the tax

consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reporting

amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences

are expected to affect taxable income.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the

amount expected to be realized.

The provision for income taxes represents the tax expense for the period, if any, and the change

during the period in deferred tax assets and liabilities.

The Company has significant income tax

net operating losses;

however, due to the uncertainty of the realizability of the related deferred tax asset and other deferred

tax assets, a valuation allowance equal to the amount of deferred tax assets has been established at February 29, 2020 and February

FASB ASC 740 also provides criteria for

the recognition, measurement, presentation and disclosure of uncertain tax positions.

A tax benefit from an uncertain position

may be recognized only if it is “more likely than not”

that the position is sustainable based on its technical merit.

Loss per Share

The Company utilize FASB ASC 260, “Earnings

per Share.”

Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the

weighted-average number of common shares outstanding.

Diluted earnings (loss) per share is computed similar to basic earnings (loss)

per share except that the denominator is increased to include additional common shares available upon exercise of stock options

and warrants using the treasury stock method, except for periods of operating loss for which no common share equivalents are included

because their effect would be anti-dilutive.

Company measures our financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”.

The carrying values of accounts payable, current notes payable, accrued expenses and other liabilities approximate fair value

due to the short-term maturities of these instruments.

The carrying amounts of long-term convertible notes payable approximate

their respective fair values because of their current interest rates payable and other features of such debt in relation to current

market conditions.

Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”).

Under ASC 740,

deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and

liabilities and their financial statement reporting amounts at each period end based on enacted tax laws and statutory tax rates

applicable to the periods in which the differences are expected to affect taxable income.

Valuation allowances are established,

when necessary, to reduce deferred tax assets to the amount expected to be realized.

The provision for income taxes represents

the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities.

Company has significant income tax net operating losses;

however, due to the uncertainty of the realizability of the related deferred

tax asset and other deferred tax assets, a valuation allowance equal to the amount of deferred tax assets has been established

at February 28, 2021 and February 29, 2020.

740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions.

A tax benefit

from an uncertain position may be recognized only if it is “more likely than not”

that the position is sustainable

based on its technical merit.

Earnings (Loss) per

Company applies FASB ASC 260, Earnings per Share (“ASC 260”).

Basic earnings (loss) per share is computed by

dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding.

earnings per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include

additional common shares available upon exercise of outstanding warrants using the treasury stock method, except for periods of

operating loss for which no common share equivalents are included because their effect would be anti-dilutive.

Diluted earnings per

share also includes the dilutive effect of assuming the convertible securities that are outstanding are converted into common shares

by applying the conversion rate to the securities’

amounts outstanding and determining which, if any, convertible securities

are dilutive.

This assumption will add additional shares to the denominator for the diluted number of shares outstanding.

numerator is affected by assuming the accrued interest due to the holders of the convertible securities is no longer applicable,

which increases the amount of income in the numerator.

The Company determined that all of the convertible securities outstanding at

February 28, 2021 were antidilutive to the basic earnings per share and 4,631,500 shares were excluded from the calculation.

addition, 1,040,000 stock options granted under the 2011 Plan (See note 9) and warrants of 5,662,272 were excluded from the

calculation of diluted earning per share at February 28, 2021 because they were antidilutive.

The following table sets forth the

basic and diluted income (loss) per share for the fiscal years ended February 28, 2021 and February 29, 2020:

Fiscal Year Ended February

(Denominator)

Income available to common stockholders

Effect of Dilutive Securities

Stock Options-2011 Plan

Income available to common stockholders plus assumed conversions

Fiscal Year Ended February

(Denominator)

Loss available to common stockholders

$ (2,606,866 )

Loss available to common stockholders

$ (2,606,866 )

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.

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, 2019, 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 consolidated financial statements upon adoption.

In January 2017, FASB issued 2017-04, on Simplifying

the Test for Goodwill Impairment .

The updated guidance eliminated step 2 from the goodwill impairment test.

entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its

carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting

unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting

Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the

reporting unit when measuring the goodwill impairment loss, if applicable.

The guidance is effective for fiscal years beginning

after December 9, 2019.

The guidance is not expected to have a material effect on the Company’s financial statements.

NOTE 3 –

Inventories on February 29, 2020 and February 28, 2019 consisted

of the following:

Raw materials and work-in-process

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

Issued Accounting Pronouncements

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) which enhances and simplifies various aspects of

the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that

is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

The amendment will be effective for public companies with fiscal years beginning after December 15, 2020;

early adoption is permitted.

The Company is evaluating the impact of this amendment on its financial statements.

January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint

Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction

of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in

Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

ASU 2020-01 is

effective for the Company beginning January 1, 2021.

The Company is currently evaluating the effect of adopting this ASU on its

consolidated financial statements.

February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments

to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting

Standards Update No.

2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller

reporting companies.

ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal

years beginning after December 15, 2022.

The Company believes the adoption will modify the way the Company analyzes financial

instruments, but it does not anticipate a material impact on results of operations.

The Company is in the process of determining

the effects adoption will have on its financial statements.

August 2020, the FASB issued ASU 2020-06, Debt –

Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives

and Hedging –

Contracts in Entity’s Own Equity (Subtopic 815 –

40), (“ASU 2020-06”).

simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible

instruments and contracts on an entity’s own equity.

The ASU2020-06 amendments are effective for fiscal years beginning

after December 15, 2023, and interim periods within those fiscal years.

Early adoption is permitted, but no earlier than

fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is evaluating

the impact of this guidance on its financial statements.

on February 28, 2021 and February 29, 2020 consisted of the following:

Raw materials

Finished goods

Total inventory

Inventories consist primarily of components

required for the manufacture of the Company’s AuraGen ®

consist primarily of components required for the manufacture of the Company’s AuraGen ®

/VIPER product.

NOTE 4 –

OTHER CURRENT ASSETS

AND INVESTMENT IN JOINT VENTURE

Other current assets of $1,487 and $59,849

are comprised primarily of unamortized prepaid expenses of $1,487 and vendor advances of $57,777 as of February 29, 2020 and February

28, 2019, respectively.

In March 2017, we entered into a joint venture agreement with

a Chinese partner, Jiangsu Shengfeng Mobile Power Technology Co., Ltd.

(“Jiangsu Shengfeng”), to address the Chinese

Under the Jiangsu Shengfeng joint venture agreement, the Company owns 49% of the venture and our Chinese partner owns 51%.

The Chinese partner agreed to contribute a total of approximately $9.25 million to the venture ––

principally in the

form of facilities and equipment as wells as approximately $500,000 in cash.

The Company contributed $250,000 in cash as well as

a limited license to the joint venture to manufacture, sell and service the AuraGen ®

OTHER CURRENT ASSETS AND INVESTMENT IN JOINT VENTURE

current assets of approximately $115,000 on February 28, 2021 consist of vendor advances of $37,400, employee salary draws of

$63,500 and prepaid expenses of $14,300.

On February 29, 2020, other current assets consisted of unamortized prepaid expense of

March 2017, we entered into a joint venture agreement with a Chinese partner, Jiangsu Shengfeng Mobile Power Technology Co., Ltd.

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

Under the Jiangsu Shengfeng joint venture agreement, the Company

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

The Chinese partner agreed to contribute a total of approximately $9.25

million to the venture ––

principally in the form of facilities and equipment as wells as approximately $500,000 in

The Company contributed $250,000 in cash as well as a limited license to the joint venture to manufacture, sell and service

the AuraGen ®

products within China.

The limited license

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

rather, the joint venture is required to purchase all rotor subassemblies as well as certain software elements directly from the

During fiscal 2020, the Company recorded an impairment expense of $250,000 to write-off the joint venture investment due

to operational and future cash-flow uncertainties associated with AuraGen ®

The limited license sold to the Jiangsu Shengfeng joint venture, however, does

not permit Jiangsu Shengfeng to manufacture the AuraGen ®

rather, the joint venture is required to purchase

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

During Fiscal 2020, the Company recorded

an impairment expense of $250,000 to write-off the joint venture investment due to operational and future cash-flow uncertainties

associated with AuraGen ®

/VIPER market development prospects in China.

NOTE 5 –

NOTES PAYABLE

Notes payable as of February 29, 2020 and February 28, 2019

consisted of the following:

payable as of February 28, 2021 and February 29, 2020 consisted of the following:

Non-Related Party Promissory Notes

Demand promissory notes payable with 5 individuals, carrying an interest rate of 10% (see Demand Promissory Notes below)

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

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

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

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

Total Demand and Notes Payable

Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share.

The note carries an interest rate of 7% with interest only payments due on the 10 th of each month with the principal payment due on the maturity date.

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

Demand promissory notes payable with 1 individual, carrying an interest rate of 10% (see Demand Promissory Notes below)

Abdou notes payable

Payroll Protection Plan loan program

Small Business Administration-Economic Injury Disaster Loan

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%.

See Convertible Promissory Notes –

Dalrymple August 2012 for further details.

Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share.

The note carries an interest rate of 7% with interest only payments due on the 2 nd of each month with the principal payment due on the maturity date.

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%.

See Convertible Promissory Notes –

Dalrymple October 2012 for further details.

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

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

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%.

See Convertible Debt –

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

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

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%.

See Convertible Debt –

1 unchanged sentence

Total Convertible Promissory Notes

Accrued Interest - notes payable- see Note 7

Accrued Interest - notes payable

Total Non-Related Party

4 unchanged sentences

Mel Gagerman Notes Payable, see Gagerman, Note 6 below:

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.

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

In the balance sheet as of February 29, 2020, the amount of $700,000 was reclassified to notes payable, related party.

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

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.

5 unchanged sentences

Long-term portion

Demand Promissory Notes

The Demand Promissory

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

As of February

28, 2019 the aggregate principal amount owed to these persons is $777,537;

the principal amount of each note and the person/entity

to whom they are payable are as follows:

Zeitlin, a former director of the Company;

Macleod, a former president of the Company;

Howsmon, a former director of the Company;

$4,500 El Pais, an entity controlled

by Salvador Diaz, a current director of the Company.

In February 2018, the Company issued 192,641 shares of its common stock to

Steven Veen in satisfaction of $267,000 in debt.

Despite this issuance, Mr.

Veen claims to continue to be entitled to repayment

of the $267,000 debt.

Veen has to-date, not surrendered the shares issued to him in fulfillment of the debt he claims to be

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

As of February

29, 2020 the aggregate principal amount owed to these persons is $768,537;

the principal amount of each note and the person/entity

payable to are as follows:

Zeitlin, a former director of the Company;

Macleod, a former

president of the Company;

and $267,000 Mr.

In November 2019,

Howsmon and Salvador Diaz (el Pais) exchanged their principal debt of $4,500 and accrued interest of $2,079 to the Company,

respectively, for 22,500 shares of the Company’s common stock, respectively.

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 February 28, 2021 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 February 28, 2021, the one individual is for the

principal amount owed to the Mr.

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

the year ended February 28, 2021, $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 Balance Sheet as of February 28, 2021, and

the recognition of $871,887 as gain on extinguishment of debt on the Statements of Operations for the year ended February 28,

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

$285,000 and $215,000 were outstanding as of February 28, 2019 and February 29, 2020, respectively.

Convertible Debt

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.

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 $120,000 and $215,000 were outstanding as of February 28, 2021 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.

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

As required, the Company

used the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses.

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 (See Note 13 in which we were

notified of PPP loan forgiveness in April 2021).

As of February 28, 2021, $8,166 was classified as notes payable, non-current

and $66,239 was classified as part of notes payable, current portion.

Injury Disaster Loan

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 February 28, 2021, the amount

outstanding including accrued interest of $3,768 is $153,668 and is classified as part of notes payable, non-current on the February

28, 2021 balance sheet.

Notes Payable

Capital Partners

May 7 and September 25, 2013, the Company entered into Securities Purchase Agreements for senior convertible notes in the aggregate

amount of approximately $1,807,000 (“New Kenmont Notes”) and warrants to Kenmont Capital Partners LP.

The New Kenmont

Notes had a 1-year maturity date and were 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 February 28, 2019 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

On October 31, 2016, the Securities Purchase Agreements were amended and restated to

include a provision for mandatory redemption in which 80% of the principal and accrued interest amount of approximately $2,750,000,

or approximately $2,200,000, was converted into common shares at a conversion price of $0.75 per share.

There was a remaining

balance of $549,954 as of February 28, 2021 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 February 28, 2019 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 February 28, 2021 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 February 28, 2019 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 February 28, 2021 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.

There is a remaining balance of $78,182 as of February 28, 2019 and $59,506 as of February 29, 2020.

In November 2019, Dr.

Lempert exchanged his principal debt of $18,676 and accrued interest of $1,825 for 93,380 shares of common

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 February 28, 2019

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.

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 rate of 5%.

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

There is a remaining balance of $133,178 as of February 28, 2019 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.

These creditors are the seven listed

above under Convertible Debt and include the following:

Kenmont Capital Partners, LPD Investments, Guenther, Dresner, Lempert and

Abdou and Abdou.

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 February 28, 2021 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 February 28, 2021 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 February 28, 2021 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 amount.

The amended note provided for no interest from November 1, 2016 to February 14,

2018, the date at which the 1-for-7 reverse stock split became effective at which time 80% of the total debt including accrued

interest was converted into shares of common stock and a new five year 5% per annum convertible note was issued for the remainder.

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

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 was completed

on February 14, 2018.

The amended and restated senior convertible notes also require the Company to make a “Required Cash

Payment”

as defined in the agreement if the Company receives at least $4,000,000 in aggregate gross proceeds from the sale

of equity securities (including securities convertible into equity securities) of the Company in one or a series of related transactions.

The Required Cash Payment is equal to the current outstanding balance of the notes, which was approximately $1,005,000 at February

29, 2020, plus any outstanding accrued interest.

NOTE 6 –

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 February 28, 2021 and February 29, 2020, respectively, plus any outstanding accrued interest.

RELATED PARTIES TRANSACTIONS

On January 24,

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

payable-related party, non-current - $3,000,000 on the balance sheets as of February 28, 2021 and February 29, 2020, respectively,

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.

to the agreement, both Mr.

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

1 unchanged sentence

$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.

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 $262,911 recorded as part of accrued expenses and other current liabilities (see Note 7).

On February 29,

2020, the balance in Notes Payable and accrued interest-related party, current of $11,333,960, includes principal amounts totaling

$5,607,323 plus accrued interest of $4,887,610, or a total balance of $10,494,933 to Mr.

Kopple (former Vice-Chairman of our Board).

On February 28, 2019, the balance included principal of $5,607,323 and accrued interest of $4,062,502, or a total of $9,669,824.

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

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 $412,911 and $262,911 recorded as accrued interest-related party (see Note 4) as of

February 28, 2021 and February 29, 2020, respectively.

payable and accrued interest-related party, current - $12,165,015 and $11,333,960 on the balance sheets as of February 28,

2021 and February 29, 2020, respectively, consists of the Kopple Notes, the Gagerman Note and the Jiangsu Shengfeng Note as set

of February 28, 2021, 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 February 28, 2021, accrued interest of $5,710,465 was owed to Mr.

Kopple for a total balance of

As of February 29, 2020, accrued interest of $4,887,611 was owed to Mr.

Kopple for a total balance of $10,494,934.

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

Notes payable

and accrued interest-related party at February 29, 2020 also includes $82,000 of unsecured notes payable plus accrued interest

of $56,526 owed to Melvin Gagerman, the Company’s former CEO, pursuant to a demand note entered into on April 5, 2014.

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

over a 12-month period beginning March 15, 2020 through February 15, 2021.

Principal loan amount at February 29, 2020 was $700,000

and is included as part of notes payable and accrued interest-related party

Other Related

Party Transactions

In November 2019,

two members of the board of directors, Messrs.

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

in the amounts of $6,579 and $20,500, respectively, in exchange for 32,895 and 102,503 shares of common stock at a conversion price

of $0.20 per share.

On the dates of the exchange, November 26 and November 27, 2019, respectively, the closing prices of the Company’s

common stock was $0.21 and $0.22 per share, respectively (see Note 4).

NOTE 7 –

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.

February 28, 2021, the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $65,226 for a total

owed to Gagerman of $147,226, the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5, 2014.

Interest accrues at 10% per annum.

On February 29, 2020, the amount owed to Gagerman was $138,526.

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 February 28,

2021 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 February 28, 2021 and February 29, 2020.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities on February 29,

2020 and February 28, 2019 consisted of the following:

expenses and other current liabilities on February 28, 2021 and February 29, 2020 consisted of the following:

Accrued payroll and related expenses

3 unchanged sentences

Accrued interest-related party

Operating lease liability

Other 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.

Customer advances,

which represent advanced payments received by the Company in connection with future product deliveries in the amount of approximately

$440,000 and $1.1 million at February 29, 2020 and February 28, 2019, respectively.

Accrued interest consists of amounts due (see

Note 5) as of February 29, 2020 to holders of demand promissory notes payable with the principal amount due of $768,537, the convertible

notes payable with the principal amount due of $1,402,971 and the notes payable due to Messrs.

Abdou of $215,181.

The accrued interest-related

party is related to principal amount due to Mr.

Breslow of $3,000,000 as of February 29, 2020 (see Note 6).

NOTE 8 –

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

of financial resources.

Customer advances, which represent advanced payments received by the Company in connection with future

product deliveries in the amount of approximately $440,000 at February 28, 2021 and February 29, 2020, respectively.

Accrued interest

consists of amounts due (see Note 5) to holders of convertible promissory notes of $1.4 million and for demand and other promissory

notes of approximately $0.4 million.

The accrued interest-related party is related to principal amount due to Mr.

Breslow of $3.0

million as of February 28, 2021 (see Note 6).

The operating lease liability of approximately $111,000 is the current portion of

the lease liability recognized in accordance with ASC 842 (see Note 8).

COMMITMENTS & CONTINGENCIES

Our facilities consist of approximately

20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita, California.

The Stanton facility

is used for some assembly and testing of AuraGen ®

/VIPER systems and is rented on a month-to-month basis.

The rent for the Stanton

facility is $10,000 per month and the storage facility is $5,000 per month.

In May 2020, the Company provided notice of its intention

to vacate this storage facility in Santa Clarita by July 31, 2020.

Our current Stanton facility is not sufficient to support the

expected operations and the Company is searching for a new facility to be used for limited production, testing, warehousing and

engineering and office space for support staff.

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.

In February 2016, the FASB issued ASU No.

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

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

Topic 842 affects any entity that enters

into a lease, with some specified scope exemptions.

The guidance in this Update supersedes Topic 840, Leases.

The core principle

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

A lessee should recognize in

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

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

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

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

Our assessment of the impact

of adopting ASU No.

2016-02 as of the first interim period following December 15, 2018, or fiscal 2020, is none with respect to

a retrospective adjustment to accumulated deficit as of February 29, 2019 and amounts to be recorded as a right-of-use asset or

lease liability for the fiscal year ended February 29, 2020, respectively.

Fiscal 2020 and 2021, our facilities consisted primarily of approximately 20,000 square feet in Stanton, California and an additional

storage facility in Santa Clarita, California.

Effective February 28, 2021, we vacated the Stanton facility and consolidated our

administrative offices, operations including warehousing within a 17,700 square foot facility in Lake Forest, California under

a 66-month rental agreement covering March 1, 2021 through August 31, 2026, with an initial monthly rental rate of approximately

$22,000 increasing to a monthly rate of approximately $26,000 in 2026.

The Stanton facility previously was used for final assembly

and testing of AuraGen ®

/VIPER systems under a month-to-month rental agreement for $10,000 per month.

rent for the Santa Clara storage facility that was terminated effective July 31, 2020 was also under a month-to-month rental agreement

for $5,000 per month.

Following the exit from the Santa Clarita facility to February 28, 2021, we rented temporary storage space

through February 28, 2021 for approximately $2,500 per month.

At February 28, 2021, in accordance with ASC Topic 842, we recognized

a ROU asset and an operating lease liability of approximately $1.2 million, respectively, of which approximately $0.1 million

was classified as a current liability and $1.1 million as non-current liability at February 28, 2021.

The lease liability is determined

by discounting the future lease payments under the lease terms and applying a 10% per annum discount rate to arrive at the current

lease liability.

Operating expenses estimated to be approximately $4,000 per month are considered a variable lease component and

excluded from the determination of the ROU asset and the lease liability.

Other operating expenses, such as utilities and property

taxes, are similarly excluded in the calculation of the ROU as they do not represent goods and services provided by the lessor

under the terms of the lease.

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.

The Company settled certain matters subsequent to year end that did not individually

or in the aggregate have a material impact on the Company’s financial condition or operating results.

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.

The Company settled certain matters subsequent

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

operating results.

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

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

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

Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $11.3 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 $5.7 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

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.

Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit.

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

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.

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.

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.

To-date, no final determination has been made as to the amount

of recoupment, if any, to which such stockholders may be entitled.

NOTE 9 –

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

STOCKHOLDERS’

On February 29, 2020 and 2019, the Company

had 150,000,000 shares of $0.0001 par value common stock authorized for issuance.

During the year ended February 29, 2020, the

Company issued 2.5 million shares of common stock for cash totaling $525,000, 1.2 million shares for settlement of debt of $366,000,

$50,000 shares of common stock for services rendered to the Company of $10,000 and a cancellation of 1.1 million shares outstanding

upon execution in October 2019 of the 2018 B&H Tel LLC settlement agreement.

For the year ended February 28, 2019, the Company

issued 3.3 million shares of common stock for cash totaling $1.0 million and 9.0 million shares of common stock in settlement of

$2.9 million of debt.

As of February

28, 2018, the Company had a subscription receivable that consisted of a $1.3 million receivable for 2,653,061 shares of the Company’s

common stock.

Following resolution of a dispute regarding the Company’s failure to issue certain shares due to the investor

from a previous investment, $1.3 million was delivered in fiscal 2019.

In February 2018, the Company failed to

issue shares of stock contractually owed to BetterSea, LLC (“BetterSea”), one of the Company’s technical consultants.

On August 15, 2018, 7,364,735 restricted shares were issued in fulfillment of this contractual obligation based on the then-outstanding

closing quote of the stock.

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

The Company also paid $20,000 in

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

Employee Stock Options

The 2006 Employee Stock Option Plan

In September 2006, our Board of Directors

adopted the 2006 Employee Stock Option Plan (“2006 Plan”), subject to shareholder approval, which was obtained at a

special shareholders meeting in 2009.

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

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

At the October 2011 shareholder

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

or 15% of the number of shares of Common Stock of Aura outstanding from time to time.

The exercise price of each option shall be

at least equal to the fair market value of such shares on the date of grant.

The term of the options may not be greater than ten

years, and they typically vest over a three-year period.

No options under the 2006 Plan have been issued since 2016.

The 2011 Director and Executive Officers

Stock Option Plan

In October 2011 shareholders approved the

2011 Director and Executive Officers Stock Option Plan (“2011 Plan”) at the Company’s annual meeting.

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

time to time outstanding.

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

elected or appointed a director or executive officer of the Company.

The exercise price of each option shall be at least equal

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

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

Activity in the 2006 Plan is as follows

for the fiscal years ended February 29, 2020 and February 28, 2019:

February 28, 2021 and February 29, 2020, the Company had 150,000,000 shares of $0.0001 par value common stock authorized for issuance.

During the year ended February 28, 2021, the Company issued a total of approximately 14.7 million shares of common stock, of which

14.1 million shares were issued for cash totaling approximately $2.1 million and the remainder of 0.6 million shares for settlement

of debt totaling $371,000.

During the year ended February 29, 2020, the Company issued 2.5 million shares of common stock for

cash totaling $525,000, 1.2 million shares for settlement of debt of $366,000, $50,000 shares of common stock for services rendered

to the Company of $10,000 and a cancellation of 1.1 million shares outstanding in October 2019 in connection with a settlement

Stock Options

2006 Employee Stock Option Plan

September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan (“2006 Plan”), subject to shareholder

approval, which was obtained at a special shareholders meeting in 2009.

Under the 2006 Plan, the Company may grant options for

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

At the October 2011 shareholder meeting, the shares of Common Stock available under the 2006 Plan was increased to the

greater of Ten Million shares (10,000,000) or 15% of the number of shares of Common Stock of Aura outstanding from time to time.

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

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

No options under the 2006

Plan have been issued since 2016.

2011 Director and Executive Officers Stock Option Plan

October 2011 shareholders approved the 2011 Director and Executive Officers Stock Option Plan (“2011 Plan”) at the

Company’s annual meeting.

Under the 2011 Plan, the Company may grant options, or warrants, for up to 15% of the number of

shares of Common Stock of the Company from time to time outstanding.

Pursuant to this plan, the Board or a committee of the Board

may grant an option to any person who is elected or appointed a director or executive officer of the Company.

The exercise price

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

The term of the options may

not be greater than five years.

in the 2006 Plan is as follows for the fiscal years ended February 28, 2021 and February 29, 2020:

Number of Shares

Exercise Price

Average Intrinsic Value

Outstanding, February 28, 2018

Outstanding, February 28, 2019

Weighted Average

Intrinsic Value

Outstanding, February 28, 2019

During fiscal 2020, the remaining 647,000 stock options as of

February 28, 2019 expired unexercised at an exercise price of $1.40 per option.

Activity in the 2011 Plan for issued and outstanding options

during fiscal 2019 and 2020 is as follows:

February 29, 2020

February 28, 2021

Fiscal 2020, the remaining 647,000 stock options as of February 29, 2020 expired unexercised at an exercise price of $1.40 per

in the 2011 Plan for issued and outstanding options during Fiscal 2021 and 2020 is as follows:

Exercise Price

3 unchanged sentences

Outstanding, February 28, 2021

The exercise prices and information related to options under

the 2011 Plan outstanding on February 29, 2020 is as follows:

of Exercise Price

Options Outstanding

Options Exercisable

Average Remaining Contractual Life

Average Exercise Price of Warrants Outstanding

Average Exercise Price of Warrants Exercisable

exercise prices and information related to options under the 2011 Plan outstanding on February 28, 2021 is as follows:

Range of Exercise Price

Stock Options

Contractual Life

$0.25 to $1.40

March 19, 2020, the Board of Directors approved the grant of 250,000 options to each of the five current members of the Board

under the Company’s 2011 Director and Executive Officers Stock Option Plan, in the aggregate amount of 1,250,000 options.

These options bear an exercise price of $0.25 per option and are exercisable for a period of five years, subject to earlier termination

per the terms of the 2011 Director and Executive Officers Stock Option Plan.

The closing price of the Company’s common stock

on the date of grant was $0.16.

A fair value of $193,750, or $0.155 per option, was determined by applying the Black-Scholes-Merton

option valuation model using a volatility rate of 225%, a risk-free interest rate of 0.57%, expected term of 4 years and an equity

fair value on the date of grant of $0.16.

The fair value of $193,750 was recorded as selling, general and administrative expense

on the Statement of Operations for the year ended February 28, 2021.

Number of Shares

Exercise Price

Outstanding, February 28, 2019

Outstanding, February 29, 2020

The 10,000 warrants were granted, fully vested, with an exercise

price of $1.40, and expiring after five years, during fiscal 2020 to three investors who were issued 250,000 shares in exchange

for $50,000 of cash.

A fair value of $2,668 was determined by applying the Black-Scholes-Merton option valuation model using a

volatility rate of 246%, a risk-free interest rate of 1.76%, an expected term of 4 years and a range of equity fair values on the

dates of grant of $.258 to $0.30.

The exercise prices and information related to the warrants

under the 2011 Plan outstanding on February 29, 2020 is as follows:

Outstanding, February 28, 2021

10,000 warrants granted in Fiscal 2020, fully vested, with an exercise price of $1.40, and expiring after five years, to three

investors who were issued 250,000 shares in exchange for $50,000 of cash.

A fair value of $2,668 was determined by applying the

Black-Scholes-Merton option valuation model using a volatility rate of 246%, a risk-free interest rate of 1.76%, expected term

of 4 years and a range of equity fair values on the dates of grant of $0.258 to $0.30.

exercise prices and information related to the warrants under the 2011 Plan outstanding on February 28, 2021 is as follows:

Range of Exercise Price

Stock Warrants Outstanding

Stock Warrants Exercisable

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price of Warrants Outstanding

Weighted Average Exercise Price of Warrants Exercisable

On March 19, 2020, the Board of Directors

approved the grant of 250,000 options to each of the five current members of the Board under the Company’s 2011 Director

and Executive Officers Stock Option Plan, in the aggregate amount of 1,250,000 options.

These options bear an exercise price of

$0.25 per option and are exercisable for a period of five years, subject to earlier termination per the terms of the 2011 Director

and Executive Officers Stock Option Plan.

The closing price of the Company’s common stock on the date of grant was $0.16

(see Note 12).

NOTE 10 –

The Company recorded an income tax expense

of $9,880 attributable to prior years’

state franchise taxes being unpaid.

The actual tax benefit differs from the expected

tax benefit computed by applying the combined United States corporate tax rate and the State of California tax rate of 6% to loss

before income taxes as follows for the years ended February 29, 2020 and February 28, 2019:

Total Income Tax Provision

The provision for income tax is

included with other expense in the accompanying financial statements.

Company has provided full valuation allowance for the

deferred tax assets on the expected future tax benefits from the net operating loss carry forwards as the management believes

it is more likely than not that these assets will not be realized in the future.

Stock Warrants

Contractual Life

At February 28, 2021, the weighted average intrinsic value for the

stock warrants outstanding is zero.

Company recorded an income tax expense of $800 attributable to the Fiscal 2021 state franchise taxes being unpaid.

In Fiscal 2020,

the Company recorded a total of $4,000 in unpaid state franchise taxes for fiscal years 2016 to 2020.

Total Provision

Company has provided full valuation allowance for the deferred tax assets on the expected future tax benefits from the net operating

loss carry forwards as the management believes it is more likely than not that these assets will not be realized in the near future.

Expected tax benefit

State income taxes, net of federal benefit

State tax benefit, net of federal benefit

Changes in valuation allowance

The following table summarizes the significant

components of our deferred tax asset at February 29, 2020 and February 28, 2019:

following table summarizes the significant components of our deferred tax asset at February 28, 2021 and February 29, 2020:

Deferred tax asset

4 unchanged sentences

Net deferred tax asset

We recorded an allowance of 100% for deferred

tax assets due to the uncertainty of its realization.

At February 29, 2020, we had operating loss carry-forwards of approximately

$195,200,000,2 for federal purposes, which expire through 2039, and $43,612,000 for state purposes, which expire through

We follow FASB ASC 740 related to uncertain

tax positions.

Under FASB ASC 740, the impact of an uncertain tax position on the income tax return must be recognized at the largest

amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.

An uncertain income tax position

will not be recognized if it has less than a 50% likelihood of being sustained.

At February 29, 2020 and February 28, 2019, we

have no unrecognized tax benefits.

Our continuing practice is to recognize

interest and/or penalties related to income tax matters in income tax expense.

As of February 29, 2020, and February 28, 2019,

we have no accrued interest and penalties related to uncertain tax positions.

We are subject to taxation in the U.S.

recorded an allowance of 100% for deferred tax assets due to the uncertainty of its realization.

February 28, 2021, we had operating loss (NOL) carry-forwards of approximately $167,200,000 for federal purposes, of which $164,600,000

may be available to reduce future years’

taxable income through 2037, and $2,600,000 may be available to offset future taxable

income indefinitely.

There is approximately $42,800,000 for state purposes, which expire through 2039.

follow FASB ASC 740 related to uncertain tax positions.

Under FASB ASC 740, the impact of an uncertain tax position on the income

tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing

An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

February 28, 2021 and February 29, 2020, we have no unrecognized tax benefits.

continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

As of February

28, 2021, and February 29, 2020, we have no accrued interest and penalties related to uncertain tax positions.

are subject to taxation in the U.S.

and California.

Our tax years for 2014 and forward are subject to examination by our tax authorities.

We are not currently under

examination by any tax authority.

The Company has failed to file its California

tax returns for the years ended February 28, 2015 thru February 29, 2020 due to its inability to pay the minimum annual franchise

tax payment of $800.

The tax provision for fiscal 2020 includes an accrual for the California minimum franchise tax amounts for

five-years from 2016 to 2020, or $4,000.

NOTE 11 –

EMPLOYEE BENEFIT PLANS

The Company has previously sponsored two

We are not currently under examination by any tax authority.

Company has failed to file its California tax returns for the years ended February 28, 2015 thru February 28, 2021 due to its

inability to pay the minimum annual franchise tax payment of $800.

The tax provision for Fiscal 2020 includes an accrual for the

California minimum franchise tax amounts for five-years from 2016 to 2021, or $4,800.

EMPLOYEE BENEFIT PLANS

The Employee Stock Ownership Plan (the “ESOP”) and a 401(k) plan.

The ESOP was qualified discretionary employee

stock ownership plan that covers substantially all employees.

We have not made any contributions to the ESOP since fiscal year

2011 and there are no assets in the plan and the Company does not currently intent to restart the plan.

We sponsored a voluntary, defined contribution

The plan provided for salary reduction contributions by employees and matching contributions by us of 100% of the

first 4% of the employees’

pre-tax contributions.

The Company does not manage or hold any of the plan assets.

does not currently intend to fund this plan.

NOTE 12 –

Company had previously sponsored two employee benefit plans:

The Employee Stock Ownership Plan (the “ESOP”) and a

Neither of these plans is active nor being funded.

NON-RECURRING TRANSACTIONS

Fiscal 2021, the Company recorded non-recurring transactions due primarily to the cancellation of liabilities following the expiration

of the statute of limitations on such debt.

Notes payable and accrued interest of approximately $877,000 were cancelled on debt

previously reported as owed to McCleod ($692,000), Veen ($134,000) and Sook ($51,000) and recorded as a gain on extinguishment

of debt in the Statement of Operations for Fiscal 2021.

Other income for Fiscal 2021 of approximately $2,720,000 consists primarily

of the cancellation of accrued payroll of $2,345,000 and accounts payable of $339,000 due to the expiration of the statute of

limitations on such debt.

Included in other income was a legal settlement of $46,000.

SUBSEQUENT EVENTS

On March 19, 2020, the Board of Directors

approved the grant of 250,000 options to each of the five current members of the Board under the Company’s 2011 Director

and Executive Officers Stock Option Plan, in the aggregate amount of 1,250,000 options.

These options bear an exercise price of

$0.25 per option and are exercisable for a period of five years, subject to earlier termination per the terms of the 2011 Director

and Executive Officers Stock Option Plan.

The closing price of the Company’s common stock on the date of grant was $0.16

(see Note 12).

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 $81,000 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.

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.

April 2021, the Company received notification that the Payroll Protection Plan (“PPP”) loan in the principal amount

of $74,405 was forgiven.

On April 23, 2020, we obtained this PPP loan 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.

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-K

Item 9A. Controls and Procedures