What changed in this filing

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Item 1. Financial Statements

2022-01-18 compared with 2021-10-14 · 528 added, 460 removed, 144 unchanged (87% of the section changed)

FINANCIAL STATEMENTS

SYSTEMS, INC.

BALANCE SHEETS

and cash equivalents

current assets

& Shareholders’ Deficit

lease liability

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’ Deficit

Current liabilities

note payable-related party

payable, non-current

notes payable

lease liability, non-current

and contingencies (Note 7)

Shareholders’

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’ deficit

Common stock:

$ 0.0001 par value;

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

150,000,000 shares authorized at November 30, 2021 and February 28, 2021;

80,539,202 and 71,107,442 issued and outstanding at November 30, 2021 and February 28, 2021, respectively.

Additional paid-in capital

Accumulated deficit

( 469,252,691 )

( 465,883,499 )

shareholders’ deficit

Total shareholders’ deficit

( 20,291,421 )

( 19,749,750 )

liabilities and shareholders’ deficit

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF OPERATIONS

Total liabilities and shareholders’ deficit

See accompanying notes to these unaudited

financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

Three-Months Ended

Nine-Months Ended

Cost of goods sold

Gross profit (loss)

Operating expenses:

Engineering, research

& development

general & administration

Engineering, research & development

Selling, general & administration

Total operating expenses

1 unchanged sentence

( 2,515,725 )

( 1,189,411 )

Other (income) expense:

1 unchanged sentence

Gain on debt settlement

Gain on extinguishment

Gain on extinguishment of debt

Forgiveness of PPP loan

( 2,683,805 )

Gain (loss) before tax provision

( 1,245,965 )

Loss before tax provision

( 3,369,192 )

Income tax provision

Net income (loss)

$ ( 1,245,836 )

tax provision

$ ( 589,829 )

1 unchanged sentence

Basic income (loss) per share

Basic weighted-average

shares outstanding

Basic weighted-average shares outstanding

Diluted income (loss) per share

Diluted weighted-average

shares outstanding

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

Six-Months Ended

Net (loss) income

Diluted weighted-average shares outstanding

See accompanying notes to these

unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

Nine-Months Ended

Net income (loss)

$ ( 3,369,192 )

Adjustments to reconcile net (loss) income to cash used

in operating activities

Adjustments to reconcile net loss to cash used in operating activities

Gain on write-off of liabilities

9 unchanged sentences

( 1,966,781 )

( 1,246,498 )

Cash used in investing activities:

2 unchanged sentences

Issuance of common stock

Payments of notes payable

Principal payments of notes payable

Proceeds from Federal PPP loans

7 unchanged sentences

Notes payable converted into shares of common stock

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

STATEMENTS OF SHAREHOLDERS’ DEFICIT

Additional Paid-In Capital

Accumulated Deficit

Total Shareholders’ Deficit

Acquire fixed asset with note payable

See accompanying notes to these

unaudited financial statements.

AURA SYSTEMS INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT

Shareholders’

Balance, February 29, 2020

14 unchanged sentences

( 19,929,470 )

Shares issued for cash

Stock-based compensation expense

Balance, November 30, 2020

( 465,198,466 )

( 20,094,625 )

Balance, February 28, 2021

19 unchanged sentences

$ ( 20,093,322 )

accompanying notes to these unaudited financial statements.

SYSTEMS, INC.

Shares issued for cash

Shares issued for service

Stock-based compensation expense

( 1,245,836 )

Balance, November 30, 2021

$ 448,953,216

$ ( 469,252,691 )

$ ( 20,291,421 )

See accompanying notes to these

unaudited financial statements.

AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Operations

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

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

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

mobile power generation markets.

of Presentation

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

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

However, the results of operations included

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

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

Certain information and footnote disclosures

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

States of America (“U.S.

GAAP”) have been condensed or omitted.

These unaudited condensed financial statements should be

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

Form 10-K for the year ended February 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.

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING

Nature of Operations

Aura Systems, Inc., (“Aura”, “We”

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

systems, and components, using its patented and proprietary electromagnetic technology.

Aura develops and sells AuraGen ® axial

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

Basis of Presentation

In the opinion of management, the unaudited interim

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

results for the interim periods presented.

However, the results of operations included in such financial statements may not necessary

be indicative of annual results.

The Company uses the same accounting policies

in preparing quarterly and annual financial statements.

Certain information and footnote disclosures normally included in the annual financial

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

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.”).

Our fiscal year ends on the last day of February.

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

we refer to the current

fiscal as Fiscal 2022.

The prior fiscal year is Fiscal 2021.

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.

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.

we refer to the current fiscal as Fiscal 2022.

The prior fiscal year

is Fiscal 2021.

Significant Accounting Policies

For a detailed discussion about the Company’s

significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in our financial statements

included in Company’s 2021 Form 10-K.

Use of Estimates

The preparation of financial statements requires

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

and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

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;

Recently Issued Accounting Pronouncements

In 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

early adoption is permitted.

The Company is evaluating the

impact of this amendment on its financial statements.

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

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

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

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

ASU 2020-01 is effective for the Company

beginning January 1, 2021.

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

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

to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

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

Standards Update No.

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

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

2 – GOING CONCERN

accompanying financial statements have been prepared assuming that the Company will 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

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.

3 – NOTES PAYABLE

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

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

In 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.

In 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

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842) which

amends the effective date of the original pronouncement for smaller reporting companies.

ASU 2016-13 and its amendments will be effective

for the Company for interim and annual periods in fiscal years beginning after December 15, 2022.

The Company believes the adoption will

modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations.

Company is in the process of determining the effects adoption will have on its financial statements.

In 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.

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

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared assuming that

the Company will continue as a going concern.

During the twelve-month period ended February 28, 2021 and the nine-month period ended

November 30, 2021, the Company reported net loss of approximately $ 3.4 million and had negative cash flows from operating activities of

approximately $ 2.0 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.

Substantial additional capital resources will

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

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

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

During the next twelve months we intend to 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 rebuild the engineering and sales teams, and to the extent appropriate,

utilize third party contractors to support the operation.

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

in the upcoming fiscal year.

NOTE 3 – NOTES PAYABLE

Non-related party and related party notes payable principal and accrued

interest amounts consisted of the following:

Non-Related Party Promissory Notes (see below)

3 unchanged sentences

Payroll Protection Plan loan program

CNC Associates note payable

Small Business Administration-Economic Injury Disaster Loan

Total Demand and Notes Payable

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

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, amended in 2017 providing for the conversion of 80 % of the principal and accrued interest into common stock at $ 1.386 , carrying interest rate of 5 %.

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

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

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, amended in 2017 providing for the conversion of 80 % of the principal and accrued interest into common stock at $ 1.386 , carrying interest rate of 5 %.

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

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

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, amended in 2017 providing for the conversion of 80 % of the principal and accrued interest into common stock at $ 1.386 , carrying interest rate of 5 %.

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

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

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, amended in 2017 providing for the conversion of 80 % of the principal and accrued interest into common stock at $ 1.386 , carrying interest rate of 5 %.

See Convertible Debt – Dresner and Lempert for further details.

6 unchanged sentences

Mel Gagerman Note Payable, see Gagerman, Note 6:

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

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

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

5 unchanged sentences

Long-term portion

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.

Demand Promissory Note and Notes Payable

Demand promissory

note in the amount of $ 10,000 as of November 30 and February 28, 2021 is for Mr.

Zeitlin, a former director of the Company, with an interest

rate of 10 % per annum.

Abdou and Abdou

On 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

The warrants were subsequently exercised.

The Company recorded $ 24,470

as a discount, which has been fully amortized.

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.

In January 2017, the Company

entered into an agreement with all secured creditors other than Mr.

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

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.

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

Abdou and Mr.

In September 2018, the court entered a

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

The Company subsequently appealed this judgment

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

$ 60,000 and $ 120,000 were outstanding as of August 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.

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

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

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 $ 30,000 and $ 120,000 , plus accrued interest, were outstanding as of November 30 and February

28, 2021, respectively.

Paycheck Protection Plan Loans

During April 2020, the Company ceased operations

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

the COVID-19 pandemic.

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

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

Interest on the loan is at the

rate of 1% per year, and all loan payments were deferred for nine-months, at which time the balance was 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.

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 nine-months ended November 30, 2021.

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 November 30, 2021.

Injury Disaster Loan

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

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

On July 1, 2020, the Company received cash proceeds

of $149,900 under this program.

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

the loan is not subject to a loan forgiveness provision.

The standard EIDL Loan repayment terms include interest accrues at 3.75% per

annum effective July 1, 2020;

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

loan term is thirty years;

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

Entities negatively impacted by the COVID-19 pandemic

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

Loan (“EIDL Loan”) program.

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

can be used to fund payroll, healthcare benefits, rent and other qualifying expenses, and the loan is not subject to a loan forgiveness

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;

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

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

Capital Partners

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

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

The New Kenmont Notes had

a 1-year maturity date and were convertible into shares of common stock at the conversion price of $ 0.75 per share.

The warrants were

subsequently exercised.

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 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.

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 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

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.

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.

As of November

30 and February 28, 2021, the amounts outstanding, including accrued interest of $8,164 and $3,768, respectively, are $158,064 and $153,668,

respectively, and are classified as part of notes payable, non-current on the November 30 and February 28, 2021 balance sheets.

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.

CNC Associates Note Payable

In October 2021, the Company purchased two CNC machines for approximately

$233,000 and financed the acquisition with a vendor-sourced note payable in the initial principal amount of $209,700 with payment terms

consisting of 36 equal monthly installments of approximately $6,100, a 10% down payment of $23,300, and a 2.9% interest rate per annum.

On November 30, 2021, the outstanding loan balance was approximately $204,000 of which approximately $68,000 was classified as a current

Convertible Notes Payable

Kenmont Capital Partners

On May 7 and September 25, 2013, the Company entered

into Securities Purchase Agreements for senior convertible notes in the aggregate amount of approximately $ 1,087,000 (“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 $ 1.40 per share.

There was a remaining principal balance of $ 549,954 as of November 30 and February 28, 2021, respectively.

LPD Investments

On May 7, 2013, the Company transferred 2 note

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

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

The New LPD Note had a 1-year maturity date and was

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

The warrants were subsequently exercised.

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

In 2017, this note was amended providing, among other things, for the

conversion of 80 % of the principal and accrued interest into common stock at $ 1.386 per share conditioned on the occurrence of certain

future events the last of which was completed in February 2018.

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

February 28, 2021, respectively.

On May 7, 2013, the Company entered into an agreement

with an individual, Mr.

Guenther, for the sale of $ 750,000 of secured convertible note payable (the “Note”) and warrants.

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

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.

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

In 2017, this note was amended providing, among other things, for the

conversion of 80 % of the principal and accrued interest into common stock at $ 1.386 per share conditioned on the occurrence of certain

future events the last of which was completed in February 2018.

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

February 28, 2021, respectively.

Dresner and Lempert

On 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

The warrants were subsequently exercised.

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 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.

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 August 31 and February 28, 2021, respectively.

– October 2012

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 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 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.

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

this note was amended providing, among other things, for the conversion of 80 % of the principal and accrued interest into common stock

at $ 1.386 per share conditioned on the occurrence of certain future events the last of which was completed in February 2018.

During Fiscal

Lempert converted his share of the amount outstanding into common shares and the principal balance outstanding of $ 59,506 as

of November 30 and February 28, 2021, respectively, is for Dresner exclusively.

Dalrymple – August 2012

On August 10, 2012, the Company entered into

an agreement with an individual, Mr.

Dalrymple, for the sale of $ 1,000,000 of unsecured Convertible Promissory Note.

The Convertible

Promissory Note balance together with all accrued interest thereon was due and payable on August 10, 2017 and the annual interest rate

was 7 % per annum and was due to be repaid 5 years from the closing date.

On January 11, 2018, the note was renegotiated with a final

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

The Company recorded $ 310,723 as a debt discount, which has

been fully amortized .

In 2017, this note was amended providing, among other things, for the conversion of 80 % of the principal

and accrued interest into common stock at $ 1.386 per share conditioned on the occurrence of certain future events the last of which was

completed in February 2018.

There is a remaining principal balance of $ 264,462 as of November 30 and February 28, 2021, respectively.

Dalrymple – October 2012

On October 2, 2012, the Company entered into

an agreement with an individual, Mr.

Dalrymple, for the sale of $ 500,000 of unsecured Convertible Promissory Note.

This Convertible

Promissory Note balance together with all accrued interest thereon was due and payable on October 2, 2017 and the annual interest rate

was 7 % per annum and was due to be repaid 5 years from the closing date.

On January 11, 2018, the note was renegotiated with a final

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

The Company recorded $ 137,583 as a debt discount, which has

been fully amortized .

In 2017, this note was amended providing, among other things, for the conversion of 80 % of the principal

and accrued interest into common stock at $ 1.386 per share conditioned on the occurrence of certain future events the last of which was

completed in February 2018.

There is a remaining principal balance of $ 133,178 as of November 30 and February 28, 2021, respectively.

On January 30, 2017, the Company entered into

an agreement entitled First Amendment to Transaction Documents with five of seven secured creditors holding a security interest in all

of the Company’s assets except for its patents and other intellectual properties.

All of the creditors entered into the January

30, 2017 agreement with the exception of Mr.

Abdou and Mr.

The original agreement

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

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

The five secured

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

on all seven of the secured creditors.

The 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 August 31 and February 28, 2021, respectively, plus any outstanding accrued interest.

– ACCRUED EXPENSES

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

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.

Cash Payment is equal to the current outstanding balance of the notes, which was approximately $1,005,000 as of November 30 and February

28, 2021, respectively, plus any outstanding accrued interest.

NOTE 4 – ACCRUED EXPENSES

Accrued expenses and other current liabilities consisted of the following

as of the periods referenced below:

Accrued payroll and related expenses

1 unchanged sentence

Accrued interest-related party

Accrued professional fees

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 August 31, 2021.

The accrued interest-related

party is related to principal amount due to Mr.

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 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

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.

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 $ 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 six-months ended August 31, 2021:

and Officers 2011 plan

Accrued 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 Notes 6 and

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 $ 0.5 million at November 30, 2021.

The accrued interest-related party is related to principal

amount due to Mr.

Breslow of $ 3.0 million as of November 30 and February 28, 2021 (see Note 6).

NOTE 5 – SHAREHOLDERS’ EQUITY

During the three and nine-months ended November 30, 2021, the Company

issued approximately 2,963,000 and 7,615,000 shares of common stock for approximately $ 880,000 and $ 1,868,000 in cash, respectively.

in the three-months ended November 30, 2021, were approximately 245,000 shares of common stock in exchange for services provided of $ 73,500 .

Issued in the nine-months ended November 30, 2021, were approximately 1,571,000 shares of common stock in exchange for settlement of liabilities

of $ 550,000 (See Note 6).

The 2011 Director and Executive Officers Stock

In October 2011, shareholders approved the 2011

Director and Executive Officers Stock Option Plan (“2011 Plan”) at the Company’s annual meeting.

Under the 2011 Plan,

the Company may grant options for up to 15 % of the number of shares of Common Stock of the Company from time to time outstanding, with

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

No stock options

were granted under the 2011 Plan during Fiscal 2022.

The following tables provide additional information

regarding stock options outstanding and exercisable under the 2011 Plan for the nine-months ended November 30, 2021:

Directors and Officers 2011 plan

Outstanding, February 28, 2021

Outstanding, August 31, 2021

of Exercise Price

Average Remaining Contractual Life

Average Exercise Price of Options Outstanding

Average Exercise Price of Optipons Exercisable

Outstanding, November 30, 2021

Contractual Life

Price of Options

$ 0.25 to $ 1.40

Historically,

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

Generally, these warrants

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

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

No warrants were issued in the 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 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.

Historically, warrants have been issued to investors and others for

services and enticements to invest funds with the Company.

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

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

With grants dated prior to Fiscal 2021, an exercise

price of $ 1.40 has been used with all warrants.

No warrants were issued in the three and nine-months ended November 30, 2021.

Activity in issued and outstanding warrants is as follows for the nine-months

ended November 30, 2021:

Warrants outstanding

Number of Warrants

Exercise Price

Aggregate Intrinsic Value

Outstanding, February 28, 2021

Outstanding, November 30, 2021

Other information related to the warrants outstanding and exercisable

as of November 30, 2021 follows:

Contractual Life

Price of Warrants

Price of Warrants Exercisable

NOTE 6 – RELATED PARTIES TRANSACTIONS

Notes payable-related

party, non-current - $ 3,000,000 on the condensed balance sheets as of November 30 and February 28, 2021 consists of the Breslow

Note as described below:

On January 24, 2017, the Company entered into

a Debt Refinancing Agreement with Mr.

Breslow, a former Director of the Company.

to the agreement, both Mr.

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

Breslow was $ 23,872,614 including $ 8,890,574

of accrued interest.

Breslow agreed to cancel and forgive all interest due, waive all events of default and sign a new five-year

convertible note in the amount of $ 14,982,041 providing for no interest for six-months and interest of 5 % per annum thereafter payable

monthly in arrears.

The note also provides various default provisions.

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

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

interest of $ 9,388,338 was forgiven.

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

at a conversion rate of $ 1.40 .

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

$ 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 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 .

As of February

Pursuant to the agreement, both Mr.

Breslow and the Company

acknowledged that total debt owed to Mr.

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

Breslow agreed to cancel

and forgive all interest due, waive all events of default and sign a new five-year convertible note in the amount of $ 14,982,041 providing

for no interest for nine-months and interest of 5 % per annum thereafter payable monthly in arrears.

The note also provides various default

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 $ 525,925 and $ 412,911 recorded as accrued interest-related

party (see Note 4) as of November 30 and February 28, 2021, respectively.

Notes payable and accrued interest-related

party, current - $ 12,791,152 on the Condensed Balance Sheet as of November 30, 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:

As 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 unchanged.

As of November

30, 2021, accrued interest of $ 6,330,424 was owed to Mr.

Kopple for a total balance of $ 11,937,747 .

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

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.

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

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

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 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

was classified as a current liability.

As of February 28, 2021, accrued interest

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

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

On August 19, 2013, the Company entered into an

agreement with Robert Kopple, a former member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the “Kopple

Notes”) and warrants.

The Kopple Notes carried a base interest rate of 9.5%, have a 4-year maturity date and were convertible into

shares of common stock at the conversion price of $3.50 per share (conversion feature expired in 2017).

The warrants were subsequently

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.

Gagerman Note

On November 30, 2021,

the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $71,405 for a total owed to Melvin Gagerman

of $153,405, the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5, 2014.

Interest accrues at 10%

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

Jiangsu Shengfeng Note

On November 20, 2019, the Company entered into

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

Company in September 2018 and recorded as part of customer advance on the balance sheet as of February 28, 2019.

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, 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 November 30, 2021.

Unpaid Wages to Cipora Lavut

Since Fiscal 2021, the Company has accrued unpaid

wages owed to Cipora Lavut, the Company’s current President and Board Chair.

As of November 30 and February 28, 2021, the unpaid

amounts were approximately $ 158,000 and $ 167,000 , respectively, and were included as part of accrued expenses in the Condensed Balance

In July 2021, representing a partial settlement valued at $ 100,000 , 285,714 shares of the Company’s stock were issued to

Cipora Lavut, at a share price of $ 0.35 .

NOTE 7 – COMMITMENTS &

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

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

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.

Prior to Fiscal 2022,

our facilities consisted primarily of approximately 20,000 square feet in Stanton, California and a storage facility in Santa Clarita,

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

November 30, 2026, with an initial monthly rental rate of approximately $22,000 increasing to a monthly rate of approximately $26,000

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 November 30, 2021, the ROU asset

balance was approximately $ 1,044,000 and the total lease liability was approximately $ 1,087,000 , of which approximately $ 173,000 was classified

as a current liability.

Contingencies

We are subject to the legal proceedings and claims

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

course of business.

Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates

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

However, the outcome of legal proceedings

and claims brought against the Company is subject to significant uncertainty.

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.

In 2017, the Company’s

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

In September 2021,

the Company reached a settlement by which the Company agreed to pay approximately $ 330,000 , representing the principal award plus accrued

As of the time of this filing, the Company has paid approximately $ 109,000 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

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

The remaining balance

of approximately $ 228,000 , including accrued interest of $ 7,500 for the period September 1, 2021 to December 31, 2021, is to be paid

no later than September 1, 2022 and accrues interest of 10 % per annum until paid.

The Company is presently engaged in a dispute

with one of its former directors, Robert Kopple, relating to approximately $11.9 million (representing approximately $5.4 million loaned

to the Company over the course of 2013 to 2016;

approximately $170,000 Mr.

Kopple claims to have advanced

or paid to third parties on Aura’s behalf;

Kopple claims to have advanced or paid to third parties on

Aura’s behalf;

and approximately $6.3 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

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

approximately 3.33 million warrants which Mr.

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

In July 2017, Mr.

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

Diaz-Verson and former directors

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

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.

2018, the Court dismissed Mr.

Diaz-Verson, Mr.

In 2018, the Court dismissed Mr.

Howsmon and Mr.

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.

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

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

of the Company.

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

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

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

and March 27, 2019, respectively.

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

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

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

Douglas and Mr.

Diaz-Versón, Jr.

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

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

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.

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.

On March 26, 2019, various stockholders of the

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

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

On March 27, 2019, those

same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the

Company’s Board and electing Robert Lempert and David Mann as directors of the Company.

These written consents represented a majority

of the outstanding shares of the Company’s common stock as of March 26, 2019 and March 27, 2019, respectively.

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.

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.

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.

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