What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-10-14 compared with 2021-07-15 · 247 added, 564 removed, 357 unchanged (69% of the section changed)

FINANCIAL STATEMENTS

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’

SYSTEMS, INC.

BALANCE SHEETS

and cash equivalents

current assets

& Shareholders’ Deficit

lease liability

payable, current portion

payable and accrued interest-related party

current liabilities

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’

note payable-related party

payable, non-current

notes payable

lease liability, non-current

and contingencies (Note 7)

Shareholders’

Common stock:

$ 0.0001 par value;

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

150,000,000 shares authorized at August 31, 2021 and February 28, 2021;

77,330,871 and 71,107,442 issued and outstanding at August 31, 2021 and February 28, 2021, respectively.

paid-in capital

( 468,006,856 )

( 465,883,499 )

Total shareholders’

shareholders’ deficit

( 20,093,322 )

( 19,749,750 )

Total liabilities and shareholders’

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

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three-Months Ended

liabilities and shareholders’ deficit

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF OPERATIONS

Cost of goods sold

Gross profit (loss)

Operating expenses

Engineering, research & development

Selling, general & administration

Engineering, research

& development

general & administration

Total operating expenses

Loss from operations

( 1,540,680 )

Other (income) expense:

1 unchanged sentence

Gain on debt settlement

Gain on extinguishment

Forgiveness of PPP loan

( 2,672,414 )

( 3,551,301 )

Loss before tax provision

Income tax provision

( 1,014,398 )

Basic and diluted loss per share

Basic and diluted weighted-average shares outstanding

( 2,123,227 )

tax provision

$ ( 1,014,527 )

$ ( 2,123,356 )

Basic income (loss) per share

Basic weighted-average

shares outstanding

Diluted income (loss) per share

Diluted weighted-average

shares outstanding

accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

Three-Months Ended

SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

Six-Months Ended

Net (loss) income

$ ( 2,123,356 )

Adjustments to reconcile net loss to cash used in operating activities

Adjustments to reconcile net (loss) income to cash used

in operating activities

Gain on write-off of liabilities

( 3,540,826 )

Forgiveness of PPP loan

6 unchanged sentences

Cash used in operating activities

( 1,287,409 )

Cash used in investing activities:

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Cash paid in the period for:

Supplemental schedule of non-cash transactions:

Accounts payable converted into shares of common stock

Accrued expenses converted into shares of common stock

Notes payable converted into shares of common stock

accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’

Shareholders’

SYSTEMS, INC.

STATEMENTS OF SHAREHOLDERS’ DEFICIT

Additional Paid-In Capital

Accumulated Deficit

Total Shareholders’ Deficit

Balance, February 29, 2020

8 unchanged sentences

$ ( 23,596,339 )

Shares issued for cash

Shares issued for settlement

Stock-based compensation expense

Balance, August 31, 2020

( 464,608,637 )

( 19,929,470 )

Balance, February 28, 2021

4 unchanged sentences

Stock-based compensation expense

( 1,108,829 )

Balance, May 31, 2021

2 unchanged sentences

$ ( 20,429,295 )

Shares issued for cash

Shares issued for settlement

Stock-based compensation expense

( 1,014,527 )

Balance, August 31, 2021

$ 447,905,801

$ ( 468,006,855 )

$ ( 20,093,322 )

accompanying notes to these unaudited financial statements.

3 unchanged sentences

of Operations

Systems, Inc., (“Aura”, “We”

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

Systems, Inc., (“Aura”, “We” or the “Company”) a Delaware corporation, was founded to engage in the

development, commercialization, and sale of products, systems, and components, using its patented and proprietary electromagnetic technology.

Aura develops and sells AuraGen ®

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

Aura develops and sells AuraGen ® axial flux mobile induction power systems to the industrial, commercial, and defense

mobile power generation markets.

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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.

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 28, 2021 (“Fiscal 2021”) filed with the Securities and Exchange Commission (“SEC”)

on June 1, 2021 (“2021 Form 10-K.”).

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.

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Accounting Policies

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

“Summary of Significant

Accounting Policies,”

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

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

Accounting Policies,” in our financial statements included in Company’s 2021 Form 10-K.

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

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Issued Accounting Pronouncements

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

tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business

combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

The amendment will be effective

for public companies with fiscal years beginning after December 15, 2020;

early adoption is permitted.

The Company is evaluating the

impact of this amendment on its financial statements.

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

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

accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and

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

ASU 2020-01 is effective for the Company

beginning January 1, 2021.

The Company is currently evaluating the effect of adopting this ASU on its consolidated financial statements.

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

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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”).

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,

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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.

twelve-month period ended February 28, 2021 and the six-month period ended August 31, 2021, the Company reported net loss of

approximately $ 2.1 million, had negative cash flows from operating activities of approximately $ 1.3 million, and at August 31, 2021

had a working capital deficit of approximately $ 15.8 million.

In the event the Company is unable to generate profits and is unable

to obtain financing for its working capital requirements, it may have to curtail its business further or cease business altogether.

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

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

business development activities.

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

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

to attain profitability.

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

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.

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Small Business Administration-Economic Injury Disaster Loan

Demand and Notes Payable

Total Demand and Notes Payable

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

See Convertible Promissory Notes –

Dalrymple August 2012 for further details.

See Convertible Promissory Notes – Dalrymple August 2012 for further details.

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

See Convertible Promissory Notes –

Dalrymple October 2012 for further details.

See Convertible Promissory Notes – Dalrymple October 2012 for further details.

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

See Convertible Debt –

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

See Convertible Debt – Kenmont Capital Partners, LPD Investments and Guenther for further details.

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

See Convertible Debt –

Dresner and Lempert for further details.

See Convertible Debt – Dresner and Lempert for further details.

Total Convertible Promissory Notes

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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

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.

On November 20, 2019, the Company entered into an 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

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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.

Promissory Note and Notes Payable

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

Zeitlin, a former director of the Company,

with an interest rate of 10 % per annum.

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

1 unchanged sentence

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

3 unchanged sentences

as a discount, which has been fully amortized.

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

There was 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

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

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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.

$ 60,000 and $ 120,000 were outstanding as of August 31 and February 28, 2021, respectively.

Protection Plan Loans

1 unchanged sentence

health pronouncements associated with the COVID-19 pandemic.

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

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

On 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

1 unchanged sentence

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.

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.

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 forgiveness of debt on the Condensed Statements of Operations for the

three and six-months ended August 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 $91,235 recognized as part of notes payable, non-current on the balance sheet as of August

Injury Disaster Loan

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

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

On July 1, 2020, the Company received cash proceeds

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loan term is thirty years;

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

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.

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

and there is no prepayment penalty or fees.

As of August 31 and February 28, 2021, the amounts outstanding, including accrued

interest of $6,696 and $3,768, respectively, are $156,596 and $153,668, respectively, and are classified as part of notes payable, non-current

on the August 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

1 unchanged sentence

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.

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

The New Kenmont Notes had

5 unchanged sentences

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.

There was a remaining balance of $ 549,954 as of August 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.

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.

2 unchanged sentences

There is a remaining balance

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

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

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

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

note payable (the “Note”) and warrants.

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

3 unchanged sentences

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

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

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

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

1 unchanged sentence

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

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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.

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

– August 2012

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

6 unchanged sentences

There is a remaining balance of

$264,462 as of May 31 and February 28, 2021, respectively.

$ 264,462 as of August 31 and February 28, 2021, respectively.

– October 2012

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

6 unchanged sentences

There is a remaining balance of

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

$ 133,178 as of August 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

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

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

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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

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

1 unchanged sentence

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.

was approximately $1,005,000 as of August 31 and February 28, 2021, respectively, plus any outstanding accrued interest.

– ACCRUED EXPENSES

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

expenses and other current liabilities consisted of the following as of the periods referenced below:

Accrued payroll and related expenses

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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.

notes of $ 1.4 million and for demand and other promissory notes of approximately $ 0.3 million at August 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-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

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

Other accrued

expenses consists primarily of unbilled professional fees of $ 98,000 .

5 – SHAREHOLDERS’ EQUITY

the three and six-months ended August 31, 2021, the Company issued approximately 2,787,000 and 4,653,000 shares of common stock for $ 705,000

and $ 988,000 in cash, respectively.

Also, issued in the three-months ended August 31, 2021, approximately 1,571,400 shares of common

stock were issued for settlement of outstanding liabilities of $ 550,000 .

the three and six-months ended August 31, 2020, the Company issued approximately 3,867,000 and 5,225,000 shares of common stock for $ 580,000

and $ 815,000 in cash, respectively.

Also, issued in the three-months ended August 31, 2020, approximately 267,000 shares of common stock

were issued for settlement of outstanding liabilities of approximately $ 192,600 .

2011 Director and Executive Officers Stock Option Plan

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

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

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

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

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

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

date of grant.

aggregate fair value of the 1,250,000 options granted in March 2020 is approximately $ 194,000 , or $ 0.155 per option, with $ 96,500 and

$ 174,000 recorded as part of sales, general and administration expense during the three and six-months ended August 31, 2020.

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

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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

Risk-Free Rate

Expected Term (yrs)

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.

with $ 95,600 and $ 246,300 recorded as part of sales, general and administration expense during the three and six-months ended August

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:

Officers Stock Option Plan for the six-months ended August 31, 2021:

and Officers 2011 plan

Outstanding, February 28, 2021

Outstanding, May 31, 2021

Exercise Price

Stock Options

Contractual Life

Outstanding, August 31, 2021

of Exercise Price

Average Remaining Contractual Life

Average Exercise Price of Options Outstanding

Average Exercise Price of Optipons Exercisable

$ 0.25 to $ 1.40

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

No warrants were issued in the 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

No warrants were issued in the three

and six-months ended August 31, 2021.

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

Outstanding and exercisable, February 28,

Outstanding and exercisable, August 31, 2021

average remaining contractual life was 1.46 years as of August 31, 2021.

6 – RELATED PARTIES TRANSACTIONS

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:

payable-related party, non-current - $ 3,000,000 on the condensed balance sheets as of August 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.

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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

$ 488,527 and $ 412,911 recorded as accrued interest-related party (see Note 4) as of August 31 and February 28, 2021, respectively.

payable and accrued interest-related party, current - $ 12,583,957 on the condensed balance sheet as of August 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.

of November 30, and February 28, 2021, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $ 5,607,323 was

As of August 31, 2021, accrued interest of $ 6,125,274 was owed to Mr.

Kopple for a total balance of $ 11,732,597 .

3 unchanged sentences

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

5 unchanged sentences

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.

August 31, 2021, the Gagerman note consisted of $ 82,000 of unsecured note payable plus accrued interest of $ 69,360 for a total owed to

Melvin Gagerman of $ 151,360 , the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5, 2014.

accrues at 10 % per annum.

On February 28, 2021, the amount owed to Gagerman was $ 147,227 .

Shengfeng Note

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.

November 20, 2019, the Company entered into an 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 August 31, 2021 and February 28, 2021 was $ 700,000 ,

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

7 – COMMITMENTS & CONTINGENCIES

5 unchanged sentences

$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

7 unchanged sentences

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

At August 31, 2021, the ROU

asset balance was approximately $ 1,087,000 and the total lease liability was approximately $ 1,114,000 , of which approximately $ 154,000

7 unchanged sentences

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.

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

In August 2021, the Company reached a settlement by which the Company agreed to pay approximately $ 330,000 , representing the principal

award plus accrued interest.

As of the time of this filing, the Company has paid approximately $ 79,000 toward the settlement amount.

The remaining balance of approximately $ 251,000 is to be paid no later than September 1, 2022 and accrues interest of 10 % per

annum until paid.

Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $11.7 million (representing

2 unchanged sentences

Kopple claims to have advanced

or paid to third parties on Aura’s behalf;

and approximately $6.1 million Mr.

17 unchanged sentences

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.

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.

detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole.

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

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

of the Company.

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

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

These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019

and March 27, 2019, respectively.

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

2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General

Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms.

Douglas and Mr.

Diaz-Versón, Jr.

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

Looking Statements

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

Statements other than statements of historical

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

Condition and Results of Operations,”

regarding future events or prospects are forward-looking statements.

The words “approximates,”

“believes,”

“forecasts,”

“expects,”

“anticipates,”

“estimates,”

“intends,”

“plans”

“would,”

“could,”

“should,”

“seek,”

“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:

ability to generate positive cash flow from operations;

ability to obtain additional financing to fund our operations;

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

impact of unfavorable results of legal proceedings;

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

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

ability to compete effectively against competitors offering different technologies;

business development and operating development;

expectations of growth in demand for our products;

risks described under the heading “Risk Factors”

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

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

Factors”

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

applications and the VIPER for military applications.

Our business model consists of two major components:

(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.

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

Military applications.

The second component of our business model is focused on the design of new products and engineering support for the sales activities

described above.

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

/VIPER solution

such as higher power/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 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.

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

with FASB ASC 718, “Compensation –

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

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

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

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

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

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 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 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) $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 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 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 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.

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

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

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

to which such stockholders may be entitled.

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

What changed 10-Q

Item 1. Financial Statements