What changed in this filing

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Item 1. Financial Statements

2021-07-15 compared with 2021-01-19 · 737 added, 848 removed, 184 unchanged (90% of the section changed)

FINANCIAL STATEMENTS

SYSTEMS, INC.

BALANCE SHEETS

Current assets

and cash equivalents

current assets

& Shareholders’

expense-related party

interest-notes payable-related party

interest-notes payable

payable, current portion

payable and accrued interest-related party

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

Cash and cash equivalents

Other current assets

Total current assets

Fixed Assets, net

Right-of-use asset

Liabilities & Shareholders’

Current liabilities

payable-related party

notes payable

and contingencies (note 7)

Accounts payable

Accrued expenses

Customer advances

Operating lease liability

Notes payable, current portion

Notes payable and accrued interest-related party

Total current liabilities

Convertible note payable-related party

Notes payable, non-current

Convertible notes payable

Operating lease liability, non-current

Total liabilities

Commitments and contingencies (Note 7)

Shareholders’

Common stock:

$0.0001 par value;

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

64,518,512 and 56,400,874

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

paid-in capital

150,000,000 shares

authorized at May 31, 2021 and February 28, 2021;

72,972,775 and 71,107,442 issued and outstanding at May 31, 2021 and February 28,

2021, respectively.

Additional paid-in capital

Accumulated deficit

(466,992,329 )

(465,883,499 )

shareholders’

Total shareholders’

(20,429,295 )

(19,749,750 )

liabilities and shareholders’

Total liabilities and shareholders’

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

SYSTEMS, INC.

STATEMENTS OF OPERATIONS

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three-Months Ended

Cost of goods sold

Gross profit (loss)

Operating expenses

Engineering, research &

general & administration

Engineering, research & development

Selling, general & administration

Total operating expenses

2 unchanged sentences

Interest expense, net

Gain on extinguishment of debt

(gains) losses from settlements

Income (loss) before income

tax provision

Gain on debt settlement

Forgiveness of PPP loan

Loss before tax provision

Income tax provision

Net income (loss)

$ (1,108,829 )

Basic income (loss) per share

Weighted average shares outstanding-basic

Dilutive income (loss) per share

Weighted average shares outstanding-dilutive

Basic and diluted loss per share

Basic and diluted weighted-average shares outstanding

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

income (loss)

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

Three-Months Ended

$ (1,108,829 )

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

settlement of debt

of fixed assets

compensation expense

write-off of expired liabilities

in working capital assets and liabilities:

current assets

interest on notes payable

payable, customer deposits and accrued expenses

used in operating activities

flows from investing activities:

of property, plant and equipment

flows from financing activities:

of common stock

on notes payable

from Federal PPP & SBA notes

provided by financing activities

in cash and cash equivalents

paid in the period for:

schedule of non-cash transactions:

converted into shares of common stock

notes converted into shares of common stock

Adjustments to reconcile net loss to cash used in operating activities

Gain on write-off of liabilities

Forgiveness of PPP loan

Stock-based compensation expense

Changes in working capital assets and liabilities:

Other current assets

Accounts payable and accrued expenses

Accrued interest on notes payable

Operating lease liability

Cash used in operating activities

Cash used in investing activities:

Purchase of property, plant and equipment

Cash flows from financing activities:

Issuance of common stock

Payments of notes payable

Proceeds from Federal PPP loans

Cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Beginning cash

Cash paid in the period for:

accompanying notes to these unaudited financial statements.

STATEMENTS OF SHAREHOLDERS’

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’

Shareholders’

February 28, 2019

$ 442,519,092

$ (464,119,162 )

$ (21,594,699 )

issued for cash

$ 442,569,077

$ (464,794,483 )

$ (22,220,020 )

issued for cash

issued for settlement

August 31, 2019

$ 442,998,999

$ (465,005,822 )

Balance, February 29, 2020

$ 443,417,452

issued for cash

Shares cancelled

issued for debt

loss (restated)

November 30, 2019 (restated)

$ (466,726,027 )

$ (23,302,937 )

Shares issued for cash

Stock-based compensation expense

Balance, May 31, 2020

$ 443,729,916

February 29, 2020

$ (467,332,029 )

$ (23,596,339 )

issued for cash

compensation expense

Balance, February 28, 2021

$ 446,126,638

$ (465,883,499 )

issued for cash

issued for settlement

compensation expense

August 31, 2020

$ (19,749,750 )

Shares issued for cash

Stock-based compensation expense

Balance, May 31, 2021

$ 446,555,737

issued for cash

compensation expense

November 30, 2020

$ (466,992,328 )

6 unchanged sentences

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

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 markets.

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

mobile power generation markets.

of Presentation

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

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

However, the results of operations

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

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

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

However, the results of operations included

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

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

Certain information and footnote

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

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

Certain information and footnote disclosures

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

States of America (“U.S.

GAAP”) have been condensed or omitted.

These unaudited condensed financial

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

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

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

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

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

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

however, to ensure comparability in year-to-year

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

The condensed financial statements in his Quarterly

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

These unaudited condensed financial statements should be

read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report

on Form 10-K for the year ended February 28, 2021 (“Fiscal 2021”) filed with the Securities and Exchange Commission (“SEC”)

on June 1, 2021 (“2021 Form 10-K.”).

fiscal year ends on the last day of February.

Accordingly, the current fiscal year is ending on February 28, 2022;

the current fiscal as (“Fiscal 2021”).

we refer to the current

fiscal as Fiscal 2022.

The prior fiscal year is Fiscal 2021.

4 unchanged sentences

in our financial statements included in Company’s 2021 Form 10-K.

During the three and nine-months

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

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

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

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

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

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

The three-months

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

Ended November 30, 2020

(denominator)

Income available to common stockholders

Effect of Dilutive Securities

Convertible notes payable

Income available to common stockholders

plus assumed conversions

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

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

amounts of revenue and expenses during the reporting period.

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

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

Issued Accounting Pronouncements

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

of Credit Losses on Financial Instrument.

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

through several ASUs.

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

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

Under this model, an entity would

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

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

and supportable forecasts.

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

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

The Company is continuing to evaluate

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

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

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”).

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

GOING CONCERN

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

The Company is

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

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

ended November 30, 2020;

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

the Company is unable to generate profits on a sustained basis and is unable to continue to obtain financing for its working capital

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

additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing

and business development activities.

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

sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing,

and ultimately to attain profitability.

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

/VIPER business and revenue for

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

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

three-month period ended May 31, 2021, the Company reported a net loss of approximately $1.1 million and negative cash flows from

operating activities of $0.5 million, respectively.

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.

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.

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 complete the move to our 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.

NOTES PAYABLE

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

Party Promissory Notes (see below)

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

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

Abdou notes payable

Non-Related Party Promissory Notes (see below)

Demand promissory notes payable with Mr.

Zeitlen as of May 31, 2021 and February 22, 2021, respectively, carrying an interest rate of 10% (see Demand Promissory Notes below)

Abdou note payable

Payroll Protection Plan loan program

1 unchanged sentence

Demand and Notes Payable

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

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

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

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

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

Dalrymple August 2012 for further details.

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

See Convertible Promissory Notes –

Dalrymple October 2012 for further

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

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

Dalrymple October 2012 for further details.

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

See Convertible Debt –

Kenmont Capital Partners, LPD Investments

and Guenther for further details.

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

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

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

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

See Convertible Debt –

Dresner and Lempert for further

Convertible Promissory Notes

Interest - convertible, demand and notes payable

Non-Related Party

Payable-Related Party (see Note 6)

Note payable and accrued interest –

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

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

Gagerman Notes Payable, see Gagerman, Note 6:

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

Chinese joint venture.

Payment terms consist of a non-interest bearing promissory note and a payment plan pursuant to which

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

Related Party

notes payable and accrued interest

Dresner and Lempert for further details.

Total Convertible Promissory Notes

Accrued Interest - convertible, demand and notes payable

Total Non-Related Party

Notes Payable-Related Party

Convertible Note payable and accrued interest –

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

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

Mel Gagerman Note Payable, see Gagerman, Note 6:

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

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

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

Total Related Party

Total notes payable and accrued interest

Current portion

1 unchanged sentence

$ (13,015,295 )

Promissory Notes and Notes Payable

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

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

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

amount owed to the Mr.

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

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

the related statute of limitations were determined to have expired.

This reversal resulted in an aggregate reduction of current

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

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

for the nine-months ended November 30, 2020.

Long-term portion

Promissory Note

promissory note in the amount of $10,000 as of May 31, 2021 and February 28, 2021 is for Mr.

Zeitlen, a former director of the Company,

issued in September 2015, with an interest rate of 10% per annum.

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.

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

The Company 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 Messrs.

In 2016, the Company

and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed

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.

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

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

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

Protection Plan Loan

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

public health pronouncements associated with the COVID-19 pandemic.

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

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

Act (the “CARES Act”).

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

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

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

The promissory note contains events of default

and other provisions customary for a loan of this type.

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

healthcare benefits, rent and other qualifying expenses.

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

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

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

PPP Loan in whole or in part.

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

as part of notes payable, current portion.

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

$90,000 and $120,000 were outstanding as of May 31 and February 28, 2021, respectively.

Protection Plan Loans

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

health pronouncements associated with the COVID-19 pandemic.

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

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

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

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

in connection with the loan.

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

required, the Company used 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.

On April 1, 2021, the company received notification that the principal amount of $74,400

and accrued interest of approximately $700 were forgiven under the terms of the loan program and were recorded as a forgiveness of debt

on the Condensed Statements of Operations for the three-months ended May 31, 2021.

March 3, 2021, the Company received $91,235 pursuant to Paycheck Protection Program Second Draw (“PPP2”) in accordance with

legislation approved in December 2020.

The terms and conditions of this loan is the same as PPP with the principal amount of $91,325

recognized as part of notes payable, non-current on the balance sheet as of May 31, 2021.

Injury Disaster Loan

1 unchanged sentence

(“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;

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;

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

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

and there is no prepayment penalty

As of May 31 and February 28, 2021, the amounts outstanding, including accrued interest of $5,224 and $3,768, respectively,

are $155,125 and $153,668, respectively, and are classified as part of notes payable, non-current on the May 31 and February 28, 2021

balance sheets.

On January 6, 2021, the SBA announced a one-year extension of the deferral period for loans that commenced in 2020 delaying

payments of principal and interest to July 2022.

Notes Payable

Capital Partners

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

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

and warrants to Kenmont Capital Partners LP.

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

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

The warrants were subsequently exercised.

The Company recorded $342,020

as a discount, which has been fully amortized.

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

respectively.

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

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

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

The warrants were subsequently exercised.

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.

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 May 31 and

February 28, 2021, 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, Ltd.

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.

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 November 30 and February 29, 2020, respectively.

There is a remaining balance

of $163,677 as of May 31 and February 28, 2021, respectively.

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

1 unchanged sentence

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 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 November 30 and February 29, 2020, respectively.

a remaining balance of $232,194 as of May 31 and February 28, 2021, 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.

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

The Company 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 November 30 and February 29, 2020, respectively, is

for Dresner exclusively.

Lempert converted his share of the amount outstanding into common

shares and the balance outstanding of $59,506 as of May 31 and February 28, 2021, respectively, is for Dresner exclusively.

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

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

of unsecured Convertible Promissory Note.

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

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

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

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

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

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.

11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%.

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 May 31 and February 28, 2021, respectively.

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

Dalrymple, for the sale of $500,000 of

unsecured Convertible Promissory Note.

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

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

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

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

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

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 date.

11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%.

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

There is a remaining balance of

$133,178 as of May 31 and February 28, 2021, respectively.

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

2 unchanged sentences

Abdou and Mr.

agreement dated May 7, 2013 provided that if at least 75% of the stock issuable upon conversion of the convertible notes votes

to amend the agreement and/or waive any conditions or defaults, then any such amendments or waivers shall be binding on all secured

The five secured creditors signing the amendment total in excess of 95% of the issuable stock upon conversion and,

therefore the agreement is binding on all seven of the secured creditors.

The agreement provided that all accrued and unpaid interest

will be added to the principal amount.

The amended note provided for no interest from November 1, 2016 to February 14, 2018, the

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

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

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

The five creditors and the Company

entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment to Transaction Documents on April

8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7 reverse stock split, which approval

was obtained in January 2018.

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

Cash Payment”

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

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

transactions.

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

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

ACCRUED EXPENSES

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

payroll and related expenses

legal expenses

taxes payable

The original agreement

dated May 7, 2013 provided that if at least 75% of the stock issuable upon conversion of the convertible notes votes to amend the agreement

and/or waive any conditions or defaults, then any such amendments or waivers shall be binding on all secured creditors.

The five secured

creditors signing the amendment total in excess of 95% of the issuable stock upon conversion and, therefore the agreement is binding

on all seven of the secured creditors.

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

The amended note provided for no interest from November 1, 2016 to February 14, 2018, the date at which the 1-for-7 reverse stock split

became effective at which time 80% of the total debt including accrued interest was converted into shares of common stock and a new five

year 5% per annum convertible note was issued for the remainder.

The new amended and restated senior convertible notes have a maturity

date of January 30, 2022.

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

and a Third Amendment to Transaction Documents on April 8, 2017, both of which extended the required date of the stockholder approval

of the 1-for-7 reverse stock split, which 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 May 31 and February 28, 2021, respectively, plus any outstanding accrued interest.

ACCRUED EXPENSES

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

of financial resources.

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

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

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

Accrued payroll and related expenses

Accrued interest

Accrued interest-related party

Other accrued expenses

payroll and related expenses consist primarily of salaries and vacation time accrued in prior years but not paid to employees due to

our lack of financial resources (see Note 7).

Accrued interest consists of amounts due (see Note 3) to holders of convertible promissory

notes of $1.4 million and for demand and other promissory notes of approximately $0.3 million at May 31, 2021.

The accrued interest-related

party is related to principal amount due to Mr.

Breslow of $3.0 million as of May 31 and February 28, 2021 (see Note 6).

SHAREHOLDERS’

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

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

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

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

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

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

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

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

the three-months ended May 31, 2021, the Company issued approximately 1,865,000 shares of common stock for $283,000 in cash, respectively.

During the three-months ended May 31, 2020 the Company issued approximately 1,358,000 shares of common stock for $235,000.

Options and Warrants

2006 Employee Stock Option Plan

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

obtained at a special shareholders meeting in 2009.

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

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

As of February 29, 2020,

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

2011 Director and Executive Officers Stock Option Plan

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

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

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

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

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

In the three-months ended May 31, 2020, the Board of Directors approved grants of 250,000 stock options to each board member

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

date of grant.

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

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

on March 19, 2020, the date of grant.

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

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

Issued During the

February 25, 2021 and during the fourth quarter of Fiscal 2021, the Board approved the grant of 500,000 stock options to our president

with an exercise price of $0.50, vesting in equal increments over a twelve-month period and a five-year contractual term.

10, 2020 and during the fourth quarter of Fiscal 2021, the Board approved aggregate grants of 1,000,000 stock options to the four other

board members with an exercise price of $0.25, vesting in equal increments over a twelve-month period and a five-year contractual term.

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

stock options as of the grant date:

Options Issued

Three-Months Ended

Options Issued

Three-Months Ended

Exercise Price

1 unchanged sentence

Expected Term (yrs)

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

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

2020, respectively.

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

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

Executive Officers Stock Option Plan:

Average Intrinsic Value

Dividend Rate

aggregate fair value of the 1,250,000 options granted in March 2020 is approximately $194,000, or $0.155 per option, with $77,599 recorded

as part of sales, general and administration expense during the three months ended May 31, 2020.

aggregate fair value of the 1,500,000 options granted in December 2020 and February 2021 is approximately $382,500, or $0.255 per option,

with $146,300 recorded as part of sales, general and administration expense during the three months ended May 31, 2021.

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

Officers Stock Option Plan for the three-months ended May 31, 2021:

and Officers 2011 plan

Outstanding, February 28, 2021

Outstanding, November 30, 2020

Outstanding, May 31, 2021

Exercise Price

Weighted Average

Stock Options

Contractual Life

Price of Options

$ 0.25 to $1.40

1 unchanged sentence

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

Generally, these

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

the date of grant.

Generally, these warrants

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

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

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

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

February 29, 2020

November 30, 2020

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

No warrants were issued in the three-months

ended May 31, 2021.

in issued and outstanding warrants is as follows for the three-months ended May 31, 2021:

Outstanding, February 28, 2021

Outstanding, May 31, 2021

information related to the warrants outstanding and exercisable as of May 31, 2021 follows:

Exercise Price

Stock Warrants

Contractual Life

Price of Warrants

RELATED PARTIES TRANSACTIONS

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

consists of the Breslow Note as described below:

payable-related party, non-current - $3,000,000 on the condensed balance sheets as of May 31 and February 28, 2021 consists of

the Breslow Note as described below:

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

4 unchanged sentences

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

November 30 and February 29, 2020, respectively.

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

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

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

was unchanged.

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

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

$450,719 and $412,911 recorded as accrued interest-related party (see Note 4) as of May 31 and February 28, 2021, respectively.

payable and accrued interest-related party, current - $12,374,486 on the condensed balance sheet as of May 31, 2021 and $12,165,015

as of February 28, 2021 consists of the Kopple Notes, the Gagerman Note and the Jiangsu Shengfeng Note as set forth below:

of May 31 and February 28, 2021, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $5,607,323 was unchanged.

As of May 31, 2021, accrued interest of $5,917,869 was owed to Mr.

Kopple for a total balance of $11,525,192.

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

As of February 28, 2021,

accrued interest of $5,710,464 was owed to Mr.

Kopple for a total balance of $11,317,787.

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).

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.

The Company also entered into a demand note payable with this individual in the amount of $20,000,

which bears interest at a rate of 5% per annum.

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

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

Interest accrues at 10% per annum.

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

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.

May 31, 2021, the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $67,294 for a total owed to Melvin

Gagerman of $149,294, 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 28, 2021, the amount owed to Gagerman was $147,227.

Shengfeng Note

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

venture, to return $700,000 previously advanced to the Company in September 2018 and recorded as part of customer advance on the

balance sheet as of February 28, 2019.

Following this agreement which would consists of a non-interest-bearing promissory note

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

Principal loan amount on November 30,

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

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

expense-related party –

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

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

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

Jiangsu Shengfeng non-interest-bearing promissory note of $700,000 was issued in connection with a return of a customer advance.

promissory note, dated November 20, 2019, is with the Company’s Chinese joint venture and consists of a payment plan pursuant to

which the $700,000 would be paid over a 12-month period.

The principal amount is classified as part of notes payable and accrued interest-related

party, current, on the condensed balance sheets as of May 31 and February 28, 2021.

COMMITMENTS & CONTINGENCIES

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

facility in Santa Clarita, California.

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

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

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

basis, for the Santa Clarita storage facility.

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

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

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

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

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

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

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

The standard requires

entities to evaluate all lease transactions including leases previously classified as operating leases, and, if required under

Topic 842, a right-to-use asset and a corresponding lease liability to be recorded on the balance sheet in the period in which

a lease commences.

to Fiscal 2022, our facilities consisted primarily of approximately 20,000 square feet in Stanton, California and a storage facility

in Santa Clarita, California.

Effective February 28, 2021, we vacated both facilities 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.

At February 28, 2021, in accordance with ASC Topic 842, we recognized a right of use (“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 determine 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.

At May 31, 2021, the ROU

asset balance was approximately $1,128,000 and the total lease liability was approximately $1,165,000, of which approximately $161,000

was classified as a current liability.

Contingencies

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

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

Our management evaluates our exposure to these

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

loss is estimable and the loss is probable.

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

subject to significant uncertainty.

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

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

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

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

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

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

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

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

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

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

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

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

could be materially adversely affected.

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

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.

This amount is part of accrued expenses in the condensed

balance sheets as of May 31 and February 28, 2021.

Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $11.5 million (representing

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

approximately $170,000 Mr.

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

Kopple claims to have advanced

or paid to third parties on Aura’s behalf;

and approximately $5.9 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.

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

In July 2017, Mr.

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

Diaz-Verson and former directors Mr.

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

Diaz-Verson and former directors

Breslow and Mr.

Howsmon, as well as Mr.

Gagerman, our former CEO and a former director,

in connection with these allegations.

In 2018, the Court dismissed Mr.

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

2018, the Court dismissed Mr.

Diaz-Verson, Mr.

Howsmon and Mr.

from the suit.

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

discussions with Mr.

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

Kopple continues

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

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

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

management team and stockholder-elected Board of Directors.

The Company believes that 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’

Gagerman 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.

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 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.

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.

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.

March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed

written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a

director of the Company.

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

removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as

directors of the Company.

These written consents represented a majority of the outstanding shares of the Company’s common

stock as of March 26, 2019 and March 27, 2019, respectively.

Because of Aura’s refusal to recognize the legal

effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware

pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and

declaring that Aura’s Board consists of Ms.

Diaz-Versón, Jr.

On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald

Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding

stock acting by written consent (b) Ms.

Lempert had been validly elected by the holders of a majority

of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists

of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, 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

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.

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

any, to which such stockholders may be entitled.

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

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Report contains forward-looking statements within the meaning of the federal securities laws.

Statements other than statements

of historical fact included in this Report, including the statements under the heading “Management’s Discussion and

Analysis of Financial Condition and Results of Operations,”

Statements other than statements of historical

fact included in this Report, including the statements under the heading “Management’s Discussion and Analysis of Financial

Condition and Results of Operations,”

regarding future events or prospects are forward-looking statements.

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“may,”

or other similar expressions in this Report, as well as other statements regarding matters

that are not historical fact, constitute forward-looking statements.

We caution investors that any forward-looking statements

presented in this Report are based on the beliefs of, assumptions made by, and information currently available to, us.

Such statements

are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors

that are beyond our control or ability to predict.

Although we believe that our assumptions are reasonable, they are not guarantees

of future performance and some will inevitably prove to be incorrect.

As a result, our actual future results may differ from our

expectations, and those differences may be material.

Accordingly, investors should use caution in relying on forward-looking statements

to anticipate future results or trends.

of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those

expressed or implied by forward-looking statements include the following:

or other similar

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

We caution investors that any forward-looking statements presented in this Report are based on the beliefs of, assumptions made by, and

information currently available to, us.

Such statements are based on assumptions and the actual outcome will be affected by known and

unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict.

Although we believe that our assumptions

are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect.

As a result, our actual

future results may differ from our expectations, and those differences may be material.

Accordingly, investors should use caution in

relying on forward-looking statements to anticipate future results or trends.

of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed

or implied by forward-looking statements include the following:

ability to generate positive cash flow from operations;

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impact of unfavorable results of legal proceedings;

exposure to potential liability arising from possible errors and omissions, breach of

fiduciary duty, breach of duty of care, waste of corporate assets and/or similar claims

that may be asserted against us;

exposure to potential liability arising from possible errors and omissions, breach of fiduciary duty, breach of duty of care, waste of

corporate assets and/or similar claims that may be asserted against us;

ability to compete effectively against competitors offering different technologies;

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risks described under the heading “Risk Factors”

in Part II, Item 1A of this

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

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

“Risk Factors”

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

February 29, 2020, issued on July 13, 2020 (as the same may be updated from time to time

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

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

except to the extent required by law.

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

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

As a result, you

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

fiscal year ends on the last day of February.

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

and the calendar year in which the fiscal year ends.

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

as Fiscal 2021.

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

Fiscal 2017 through 2018, we reduced our engineering, manufacturing, sales, and marketing activities to focus on renegotiating

numerous financial obligations and minimizing expenditures while we attempted to raise additional funding and pursue some initial

engineering activities.

Fiscal 2018, we successfully eliminated approximately 68% of our total indebtedness.

Specifically, our secured creditors converted

approximately $5.73 million of secured debt into approximately 4.1 million shares of our common stock.

The converted debt represented

approximately 80% of the total secured debt of the Company.

The balance of the secured debt (approximately $960,000) is to be

paid to the secured creditors in cash if we raise at least $4.0 million in proceeds through new equity offerings in one or a series

of related offerings.

Additionally, in Fiscal 2018, approximately $12.77 million of unsecured debt was converted into approximately

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

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

In the second quarter of fiscal year 2021 approximately

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

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

of limitation periods were deemed to have expired.

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

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

approximately $170,000 Mr.

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

and approximately $5 million Mr.

Kopple claims to be

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

Kopple claims to be owed

to him and his affiliates by the Company.

In July 2017, Mr.

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

Diaz-Verson and former directors Mr.

Breslow and Mr.

Howsmon, as well as Mr.

Gagerman, our former CEO and a former director,

in connection with these allegations.

In 2018, the Court sustained demurrers by Mr.

Diaz-Verson, Mr.

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 as a whole.

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

Fiscal 2019, we began increasing our engineering and manufacturing activities.

We utilized contractors for these services in order

to minimize our expense while we continued to pursue new sources of financing.

In July 2019 under our new management team, we

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

business is based on the exploitation of our patented mobile power solution known as the AuraGen®

in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks

discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk

Factors”

in our Annual Report on Form 10-K for the year ended February 28, 2021, issued on June 1, 2021 (as the same may

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

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

to the extent required by law.

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

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

As a result, you should not place undue

reliance on these forward-looking statements.

business is based on the exploitation of our Axial Flux Induction solution known as the AuraGen ®

for commercial and industrial

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Our business model consists of two major components:

(i) sales and marketing,

(ii) design and engineering.

(i) sales and marketing, (ii)

design and engineering.

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

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

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

Military applications.

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described above.

The engineering support consists of the introduction of new features for our AuraGen®/VIPER solution

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

kits for different platforms.

After suspending the majority of our engineering, manufacturing, sales, and marketing activities

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

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

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

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

/VIPER solution

such as higher power/torque solutions, and different input and output voltages (DC and AC input and output versions)

Fiscal 2018 and Fiscal 2019, the Company’s engineering, manufacturing, sales, and marketing activities were reduced while we focused

on renegotiating numerous financial obligations.

During this time, the Company’s agreements with numerous customers, third party

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

Fiscal 2018, the Company successfully restructured in excess of $30 million of debt.

Robert Kopple, our former Vice Chairman of the Board,

was the only significant unsecured note holder that did not executed formal agreements regarding the restructure of his debt.

claims that he and his affiliates are presently owed approximately $11.5 million.

We dispute Mr.

Kopple’s claims.

See “Item

Legal Proceedings”

included in our Annual Report on Form 10-K for Fiscal 2021 and Part II, Other Information, contained in this

Quarterly Report for information regarding the dispute with Mr.

Kopple regarding these transactions.

As of the filing of this Quarterly

Kopple has not accepted our numerous offers to settle this debt and continues to demand that as part of any such resolution,

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 n of the Company’s management team and stockholder-elected Board of

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

Fiscal 2019, we effectuated a one-for-seven reverse stock split and began increasing our engineering and manufacturing activities.

Fiscal 2020 stockholders of the Company successfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s

Board of Directors and elected Ms.

Cipora Lavut, Mr.

David Mann and Dr.

Robert Lempert as directors of the Company in their stead.

Item 3, Legal Proceedings for more information.

Also, in Fiscal 2020, Melvin Gagerman ––

Aura’s CEO and CFO since 2006

––

was replaced.

In July 2019 Ms.

Lavut succeeded Mr.

Gagerman as President and Mr.

Mann succeeded Mr.

Gagerman as CFO.

Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019.

In the second half of Fiscal 2020, the

Company began significantly increasing its engineering, manufacturing and marketing activities.

From July 8, 2019 through the end of

Fiscal year 2021 (February 28, 2021), we shipped more than 140 units to customers (more than a ten-fold increase over Fiscal 2019).

our operations were impacted in Fiscal 2021 by the COVID-19 pandemic, during Fiscal 2021 we continued to expand our engineering and manufacturing

capabilities.

Our engineering, research and development costs for the three months ended May 31, 2020 was approximately $34,000 as compared

to $81,000 for the same period of Fiscal 2022.

Subsequent to the end of Fiscal 2021, we relocated all administrative offices and operations

to a new state-of-the-art facility consisting of approximately 18,000 square feet in Lake Forest, California.

This new facility is wholly

occupied by Aura.

Accounting Policies and Estimates

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

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

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

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

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

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

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

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

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

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

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

In applying ASC 606, all revenue transactions must

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

The five-step approach

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

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

revenue when performance obligations are satisfied.

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

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

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

Our current principle sales channel

is sales to a domestic distributor.

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

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

the satisfaction of our single performance obligation to the customer.

Our payment terms are cash payment due upon delivery and

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

Our commercial terms and conditions do not include a

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

We offer 18 months assurance-type warranty covering

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

We have a limited history

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

29, 2020, respectively;

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

of revenue during Fiscal 2021 and 2020.

Valuation and Classification

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

We review the components of inventory

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

From Fiscal 2015 through 2019 we

minimally operated and therefore only produced minimal product.

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

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

Beginning with Fiscal 2020,

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

We classify all of our inventory as

raw material and work-in-process.

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

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

The preparation

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

In preparing our

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

We use authoritative

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

The full impact of the COVID-19 pandemic

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

However, we made appropriate accounting estimates

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

To the extent that there are differences between these estimates

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

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

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

to be entitled in exchange for those goods or services.

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

approach to determine the amount and timing of revenue to be recognized.

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

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

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

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

100% of our revenues of approximately $24,000 and $49,000 for the three-months ended May 31, 2021 and 2020, respectively.

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

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

of our single performance obligation to the customer.

Our payment terms are cash payment due upon delivery and typically includes a 2.5%

price discount in accordance with this policy.

Our commercial terms and conditions do not include a right of return for reasons other

than a defect in performance or quality.

We offer 18 months assurance-type warranty covering material and manufacturing defects, which

we account for under the guidance of ASC 460, Guarantees.

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

a warranty liability on our balance sheets as of May 31 and February 28, 2021, respectively;

however, we expect warranty claims to eventually

be nil, therefore, we have not delayed the recognition of revenue during Fiscal 2022 and 2021.

account for stock-based compensation under the provisions of FASB ASC 718, “Compensation –

Stock Compensation”,

which requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair

value-based method and the recording of such expense in the statements of operations.

Stock Compensation”, which

requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair value-based

method and the recording of such expense in the statements of operations.

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

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Stock Compensation”, where appropriate, whereas the fair value of the equity-based

compensation is based upon the measurement date as determined at the earlier of either (a) the date at which a performance

commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete.

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

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

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

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

During the nine-month period

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

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

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

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

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

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

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

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

however, to ensure comparability in year-to-year

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

The condensed financial statements in his Quarterly

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

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

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

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

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

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

As a result, net sales and production levels during

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

of operations during these quarters.

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

and enhance employee safety.

compensation is based upon the measurement date as determined at the earlier of either (a) the date at which a performance commitment

is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete.

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

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

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

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

During the three-month period ended May 31, 2020, our Board

of Directors awarded a total of 1,250,000 stock options to the five members of the board, which resulted in an aggregate fair value of

$193,500 of which $77,600 was recorded as stock-based compensation in the three-months ended May 31, 2020.

During the three months ended

February 28, 2021, the board approved an aggregate grant of 1,500,000 stock options to board members, which resulted in an aggregate

fair value of $382,500, of which $146,300 was recorded as stock-based compensation cost in the three-months ended May 31, 2021.

adopted ASC 842 , Leases , 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 rate.

A corresponding right-of-use asset is also recognized

that is amortized 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 unlikely.

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

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

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

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

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

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

their own operations due to the COVID-19 pandemic.

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

the entirety of Fiscal 2021 and the first quarter of Fiscal 2022 were significantly reduced, thus impacting our results of operations

during these quarters.

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

employee safety.

These measures included the following:

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

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

of capital expenditures;

of discretionary spending.

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

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

and globally, the timing and effectiveness of vaccine

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

the commercial vehicle markets.

of payroll related expenses including temporary furloughs during the first quarter of Fiscal

of capital expenditures and other discretionary expenditures

programs including disinfecting activities in our facilities

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

developments, including the containment of COVID-19 within the U.S.

and globally, the timing and effectiveness of vaccine rollout, the

possible spread of Covid-19 variants and the impact on capital and financial markets and the related impact on our customers, especially

in the commercial vehicle markets.

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

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

further actions as it relates to costs and liquidity.

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

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

financial statements contained herein in Item I.

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

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

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

period ended November 30, 2020.

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

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

second quarter of Fiscal 2021.

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

capital requirements, we may have to curtail our business sharply or cease business altogether.

additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing

and business development activities.

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

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

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

actions as it relates to costs and liquidity.

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

results for the entirety of Fiscal 2021, the first quarter of fiscal year 2022, and could be impactful for the balance of Fiscal 2022.

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

three-month period ended May 31, 2021, the Company reported a net loss of approximately $1.1 million and negative cash flows from

operating activities of $0.5 million, respectively.

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.

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.

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 complete the move to our 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.

of Operations

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

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

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

During the current

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

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

We cannot project with confidence the timing or amount of

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

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

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

gross margin of 71%.

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

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

The gross margin of 71%

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

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

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

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

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

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

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

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

months ended May 31, 2021 compared to three months ended May 31, 2020

revenue was approximately $23,900 for the three-months ended May 31, 2021 (the “Three-Months FY2022”) compared to approximately

$49,000 for the three-months ended May 31, 2020 (the “Three-Months FY2020”).

During the current quarter of 2022, we delivered

3 generator unit as compared to 8 units delivered in the same quarter in the prior year.

Revenue year-on-year has been negatively impacted

by the COVID-19 pandemic.

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

under control globally including a successful rollout of the vaccine programs now underway.

of goods sold was approximately $49,300 in the Three-Months FY2022 compared to approximately $40,400 in the Three-Months FY2021 resulting

in a gross loss of $25,400, or a gross margin loss of 106%, and a $8,200 gross profit in the Three-Months FY2021 and a gross margin of

17%, respectively.

The gross loss and related gross margin loss for the Three-Months FY2022 were largely influenced by the low volume

of shipments in the quarter which reduced our ability to fully absorb fixed operating costs including higher operating costs related

to the new facility.

The gross margin of 17% in the Three-Months FY2021 was also influenced by the reduced demand for generator sets

caused by the onset of Covid-19.

research and development expenses were approximately $81,000 in the Three-Months FY2022, compared to approximately $34,000 in the Three-Months

FY2021, or an increase of 138%.

The higher costs are in relation to the development of a new electronic control unit (“ECU”).

Selling, general and

administration (“SG&A”) expense increased by approximately $469,100 (137%) to approximately $812,700 in the

Three-Months FY2022 from approximately $343,600 in the Three-Months FY2021.

During Three-Months FY2022, we recorded increased

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

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

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

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

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

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

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

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

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

Other loss from

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

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

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

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

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

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

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

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

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

During Nine-Months FY2021, we

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

Revenue year-on-year has been negatively

impacted by the COVID-19 pandemic.

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

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

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

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

gross margin of 80%.

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

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

The gross margin of 80%

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

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

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

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

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

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

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

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

During Nine-Months FY2021, we recorded increased

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

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

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

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

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

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

$885,000 in the Nine-Months FY2020.

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

the settlement of a legal issue.

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

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

Other income and gain on extinguishment

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

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

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

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

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

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

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

fully offset by

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

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

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

expense for (i) $146,300 of stock-based compensation expense related to the recent grant of 1,500,000 options to members

of the board of directors, (ii) $34,000 in one-time costs to physically consolidate our operations in Lake Forest, CA (iii) higher

recurring facilities rent costs of $51,000 due to move to new facility, (iii) higher legal costs of $101,000 due to ongoing

litigation costs (iv) $31,500 in higher accounting fees due to completion of the Fiscal 2021 annual audit in the first quarter of

this fiscal year as compared to the second quarter of Fiscal 2021 for the prior year’s annual audit, (v) write-off of $61,000

for deferred sales compensation costs determined not to be recoverable, (vi) additional salary expense for three advisors of

$92,600, and (vii) all other expense increases of approximately $29,000, partially offset by a reduction of $77,600 in

stock-based compensation costs related to 1,250,000 options granted in March 2020 fully amortized by February 28, 2021.

expense in the Three-Months FY2022 decreased approximately $20,000 or 7%, to approximately $270,000 from approximately $290,000 in the

Three-Months FY2021 due to the reduction of interest-bearing principal amounts outstanding of approximately $700,000 over the prior twelve-month

income in the Three-Months FY2022 was approximately $4,000, as compared to $53,000 in the same period of Fiscal 2021 consisting of a

legal matter settlement occurring last year of $46,000 and a $7,000 one-time benefit related to the procurement of the initial PPP loan

for $74,400 in April 2020.

In the Three-Months FY2022 period, we recorded a gain of approximately $75,000 in connection with the forgiveness

of the principal and accrued interest related to the initial PPP loan.

loss for the Three-Months FY2022 increased by approximately $503,000, to a loss of $1,109,000 from a loss of $606,000 in the Three-Months

FY2021 attributed to (i) increased operating loss of $549,000 and (ii) reduced other income of $49,000 partially offset by (i) less interest

expense of $20,000 and (ii) a $75,000 gain on forgiveness of debt.

and Capital Resources

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

the comparable period in the prior fiscal year.

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

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

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

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

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

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

compared to cash provided by financing of $255,000

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

$40,000 principal payments on a note payable.

The cash flow generated from our operations to date has not been sufficient to fund

our working capital needs, and we cannot predict when operating cash flow will be sufficient to fund working capital needs.

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

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

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

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

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

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

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

cash used in operations for the three-months ended May 31, 2021, was approximately $531,000, an increase of $350,000 from the comparable

period in the prior fiscal year.

Net cash provided by financing activities during the three-months ended May 31, 2021, was approximately

$344,000 consisting of (i) cash proceeds from issuance of common stock of $283,000, (ii) proceeds of $91,000 related to the U.S.

Paycheck Protection Program Second Draw (“PPP2”) loan program related to COVID-19, partially offset by $30,000 principal

payments on a note payable.

The cash flow generated from our operations to date has not been sufficient to fund our working capital needs,

and we cannot predict when operating cash flow will be sufficient to fund working capital needs.

was acquisition of property and equipment in the amount of $17,000 during the three-months ended May 31, 2021.

There was no acquisition

of property and equipment during the corresponding period of Fiscal 2021.

total of accrued expenses as of May 31, 2021 increased by approximately $0.2 million to $1.5 million from approximately $1.3 million

as of February 28, 2021 due to (i) accrued interest of $58,000 (ii) increase of accrued payroll of $93,000 and

(iii) higher accrued professional fees of $90,000.

Company had a deficit of $20.4 million in shareholders’

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

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

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

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

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

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

Security Act (the “CARES Act”).

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

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

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

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

As required, the

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

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

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

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

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

equity as of May 31, 2021, compared to $19.7 million as of February 28,

2021 with the net negative change of $0.7 million attributed to

(i) net loss year-to-date of approximately $1.1 million (ii) the net issuance of approximately 1.9 million shares valued at approximately

$0.3 million for cash and (iii) approximately $0.1 million was

recognized as expense during the three-months ended May 31, 2021.

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

Act (the “CARES Act”).

Interest on the loan is at the rate of 1% per year, loan payments are deferred for 10 months following

the last day of the covered period or June 23, 2020, balance is payable in 24 monthly installments if not forgiven in accordance with

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

The 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.

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.

1, 2021, we received notification that our application for loan forgiveness was accepted and approximately $75,100 of accrued interest

and principal was forgiven.

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

As required under this program, the

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

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

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

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

principal and accrued interest over the term of the loan.

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

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

private indebtedness.

As required under this program, the proceeds

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

Interest accrues

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

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

Following the deferral period

for a period of 29 years, an estimated monthly payment of $734 is required to fully amortize the principal and accrued interest over

the term of the loan.

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

In January 2021, the SBA announced that

the deferral period was being extended for another one-year period to July 2022.

No other terms were adjusted;

the monthly payment would

become $778 per month over the remaining term.

March 3, 2021, we received proceeds of $91,235 from a Second Draw PPP loan (“PPP2”) with the same terms and conditions that

were applicable to the April 2020 PPP loan.

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

indebtedness.

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

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

and such dilution could be substantial.

If we cannot raise needed funds, we would also be forced to make further substantial reductions

in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our

viability as a company.

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

dilution could be substantial.

If we cannot raise needed funds, we would also be forced to make further substantial reductions in our

operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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What changed 10-Q

Item 1. Financial Statements