AURA SYSTEMS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS AURA SYSTEMS, INC. CONDENSED BALANCE SHEETS (Unaudited) November 30, 2021 February 28, 2021 Assets Cash and cash equivalents $ 170,494 $ 390,702 Inventory 191,389 94,166 Other current assets 199,582 115,202 Total current assets 561,465 600,070 Fixed Assets, net 335,157 14,870 Right-of-use asset 1,044,143 1,168,053 Deposit 159,595 159,595 Total assets $ 2,100,361 $ 1,942,589 Liabilities & Shareholders’ Deficit Current liabilities Accounts payable $ 1,447,535 $ 1,880,172 Accrued expenses 1,728,775 1,288,107 Customer advances 440,331 440,331 Operating lease liability 173,109 110,587 Notes payable, current portion 108,222 198,331 Notes payable and accrued interest-related party 12,791,152 12,165,015 Total current liabilities 16,689,123 16,082,543 Convertible note payable-related party 3,000,000 3,000,000 Notes payable, non-current 385,353 159,922 Convertible notes payable 1,402,971 1,402,971 Operating lease liability, non-current 914,335 1,046,902 Total liabilities 22,391,782 21,692,339 Commitments and contingencies (Note 7) - - Shareholders’ deficit Common stock: $ 0.0001 par value; 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. 8,054 7,111 Additional paid-in capital 448,953,216 446,126,638 Accumulated deficit ( 469,252,691 ) ( 465,883,499 ) Total shareholders’ deficit ( 20,291,421 ) ( 19,749,750 ) Total liabilities and shareholders’ deficit $ 2,100,361 $ 1,942,589 See accompanying notes to these unaudited financial statements. 1 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three-Months Ended Nine-Months Ended November 30, November 30, 2021 2020 2021 2020 Net revenue $ 58,373 $ 7,829 $ 84,531 $ 61,462 Cost of goods sold 58,043 5,320 154,272 46,718 Gross profit (loss) 329 2,510 ( 69,741 ) 14,743 Operating expenses: Engineering, research & development 207,813 70,217 370,576 169,318 Selling, general & administration 767,561 258,528 2,075,408 1,034,836 Total operating expenses 975,375 328,744 2,445,984 1,204,154 Loss from operations ( 975,045 ) ( 326,235 ) ( 2,515,725 ) ( 1,189,411 ) Other (income) expense: Interest expense, net 270,920 268,017 932,863 884,751 Gain on debt settlement - ( 32 ) ( 4,292 ) ( 46,032 ) Gain on extinguishment of debt - - - ( 871,887 ) Forgiveness of PPP loan - - ( 75,104 ) - Other income - ( 4,391 ) - ( 2,683,805 ) Gain (loss) before tax provision ( 1,245,965 ) ( 589,829 ) ( 3,369,192 ) 1,527,562 Income tax provision ( 129 ) - - - Net income (loss) $ ( 1,245,836 ) $ ( 589,829 ) $ ( 3,369,192 ) $ 1,527,562 Basic income (loss) per share $ ( 0.02 ) $ ( 0.01 ) $ ( 0.04 ) $ 0.03 Basic weighted-average shares outstanding 79,013,160 62,664,666 75,246,750 59,803,498 Diluted income (loss) per share $ ( 0.02 ) $ ( 0.01 ) $ ( 0.04 ) $ 0.02 Diluted weighted-average shares outstanding 79,013,160 62,664,666 75,246,750 61,183,610 See accompanying notes to these unaudited financial statements. 2 AURA SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine-Months Ended November 30, 2021 2020 Net income (loss) $ ( 3,369,192 ) $ 1,527,562 Adjustments to reconcile net loss to cash used in operating activities Depreciation 6,224 297 Gain on write-off of liabilities ( 4,292 ) ( 3,585,639 ) Forgiveness of PPP loan ( 75,104 ) - Stock-based compensation expense 336,266 193,750 Changes in working capital assets and liabilities: Inventory ( 97,222 ) ( 15,129 ) Other current assets ( 84,380 ) ( 34,300 ) Accounts payable and accrued expenses 389,322 ( 181,026 ) Accrued interest on notes payable 804,233 847,987 Operating lease liability 53,865 - Cash used in operating activities ( 1,966,781 ) ( 1,246,498 ) Cash used in investing activities: Purchase of property, plant and equipment ( 116,844 ) ( 8,921 ) Cash flows from financing activities: Issuance of common stock 1,867,755 1,220,000 Principal payments of notes payable ( 95,572 ) ( 65,000 ) Proceeds from Federal PPP loans 91,235 224,305 Cash provided by financing activities 1,863,418 1,379,305 Net increase (decrease) in cash and cash equivalents ( 220,207 ) 123,886 Beginning cash 390,702 19,807 Ending cash $ 170,494 $ 143,693 Cash paid in the period for: Interest $ 89,846 $ 2,500 Income taxes $ - $ - Supplemental schedule of non-cash transactions: Accounts payable converted into shares of common stock $ 450,000 $ - Accrued expenses converted into shares of common stock $ 100,000 $ - Notes payable converted into shares of common stock $ - $ 267,000 Acquire fixed asset with note payable $ 209,666 $ - See accompanying notes to these unaudited financial statements. 3 AURA SYSTEMS INC. CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT (Unaudited) Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 29, 2020 56,400,874 $ 5,639 $ 443,417,452 $ ( 466,726,027 ) $ ( 23,302,937 ) Shares issued for cash 1,358,333 135 234,865 - 235,000 Stock-based compensation expense - - 77,599 - 77,599 Net loss - - - ( 606,001 ) ( 606,001 ) Balance, May 31, 2020 57,759,207 $ 5,774 $ 443,729,916 $ ( 467,332,029 ) $ ( 23,596,339 ) Shares issued for cash 3,866,665 387 579,613 - 580,000 Shares issued for settlement 192,641 19 266,981 - 267,000 Stock-based compensation expense - - 96,477 - 96,477 Net income - - - 2,723,392 2,723,392 Balance, August 31, 2020 61,818,513 6,180 444,672,987 ( 464,608,637 ) ( 19,929,470 ) Shares issued for cash 2,699,999 270 404,730 - 405,000 Stock-based compensation expense - - 19,674 - 19,674 Net loss - - - ( 589,829 ) ( 589,829 ) Balance, November 30, 2020 64,518,512 6,450 445,097,391 ( 465,198,466 ) ( 20,094,625 ) Balance, February 28, 2021 71,107,442 $ 7,111 $ 446,126,638 $ ( 465,883,499 ) $ ( 19,749,750 ) Shares issued for cash 1,865,333 186 282,815 - 283,001 Stock-based compensation expense - - 146,284 146,284 Net loss - - - ( 1,108,829 ) ( 1,108,829 ) Balance, May 31, 2021 72,972,775 $ 7,297 $ 446,555,737 $ ( 466,992,328 ) $ ( 20,429,295 ) Shares issued for cash 2,786,667 279 704,596 704,875 Shares issued for settlement 1,571,429 157 549,843 550,000 Stock-based compensation expense 95,625 95,625 Net loss ( 1,014,527 ) ( 1,014,527 ) Balance, August 31, 2021 77,330,870 $ 7,733 $ 447,905,801 $ ( 468,006,855 ) $ ( 20,093,322 ) Shares issued for cash 2,963,331 296 879,584 879,880 Shares issued for service 245,001 25 73,475 73,500 Stock-based compensation expense 94,356 94,356 Net loss ( 1,245,836 ) ( 1,245,836 ) Balance, November 30, 2021 80,539,202 $ 8,054 $ 448,953,216 $ ( 469,252,691 ) $ ( 20,291,421 ) See accompanying notes to these unaudited financial statements. 4 AURA SYSTEMS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Aura Systems, Inc., (“Aura”, “We” or the “Company”) a Delaware corporation, was founded to engage in the development, commercialization, and 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. 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.”). 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. 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. 5 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 15, 2020; early adoption is permitted. 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 No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its financial statements. 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. The 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. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability. During the next twelve months we intend to 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. 6 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) November 30, 2021 February 28, 2021 Demand promissory notes payable with Mr. Zeitlen as of May 31, 2021 and February 22, 2021, respectively, carrying an interest rate of 10 % (see Demand Promissory Notes below) $ 10,000 $ 10,000 Messrs. Abdou note payable 30,181 120,181 U.S. Payroll Protection Plan loan program 91,235 74,405 CNC Associates note payable 204,095 - U.S. Small Business Administration-Economic Injury Disaster Loan 158,064 153,668 Total Demand and Notes Payable 493,575 358,254 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. 264,462 264,462 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. 133,178 133,178 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. 945,825 945,825 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. 59,506 59,506 Total Convertible Promissory Notes 1,402,971 1,402,971 Accrued Interest - convertible, demand and notes payable 298,328 239,038 Total Non-Related Party 2,194,874 2,000,263 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 3,525,925 3,412,911 Kopple Notes Payable-related party, see Kopple Notes, Note 6: 11,937,746 11,317,787 Mel Gagerman Note Payable, see Gagerman, Note 6: 153,405 147,227 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. 700,000 700,000 Total Related Party 16,317,076 15,577,925 Total notes payable and accrued interest 18,511,950 17,578,188 Less: Current portion $ ( 13,723,625 ) $ ( 13,015,295 ) Long-term portion $ 4,788,324 $ 4,562,893 7 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. M. Abdou and Mr. W. Abdou, for the sale of $ 125,000 of secured convertible notes payable (the “Notes”) and warrants. The Notes had a 1-year maturity date and were convertible into shares of common stock at the conversion price of $ 0.50 per share. The warrants were subsequently exercised. The Company recorded $ 24,470 as a discount, which has been fully amortized. There is a remaining balance of $ 125,000 as of February 28, 2019. In 2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed by Messrs. 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. W. Abdou and Mr. M. Abdou. In September 2018, the court entered a judgment of approximately $ 235,000 plus legal fees of in favor of the Messrs. Abdou. 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. On 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 November 30, 2021. Economic Injury Disaster Loan Entities negatively impacted by the COVID-19 pandemic were eligible to apply for loans sponsored by the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EIDL Loan”) program. On July 1, 2020, the Company received cash proceeds of $149,900 under this program. The proceeds can be used to fund payroll, healthcare benefits, rent and other qualifying expenses, and the loan is not subject to a loan forgiveness provision. The standard EIDL Loan repayment terms include interest accrues at 3.75% per annum effective July 1, 2020; the payment schedule contains a one-year deferral period on initial principal and interest payments; the loan term is thirty years; The Company pledged the assets of the Company as collateral for the loan; and there is no prepayment penalty or fees. As of 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. 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. 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 liability. 8 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. The Company 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. Guenther 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. 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. 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. The warrants were subsequently exercised. The Company recorded $ 39,152 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. During Fiscal 2020, Dr. 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. 9 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. W. Abdou and Mr. M. Abdou. 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 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: November 30, February 28, 2021 2021 Accrued payroll and related expenses $ 710,550 $ 547,412 Accrued interest 298,328 239,038 Accrued interest-related party 525,925 412,911 Accrued professional fees 80,000 19,000 Other accrued expenses 113,973 69,747 $ 1,728,775 $ 1,288,107 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 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 $ 0.5 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 Common Stock 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. Issued 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). 10 The 2011 Director and Executive Officers Stock Option Plan In October 2011, shareholders approved the 2011 Director and Executive Officers Stock Option Plan (“2011 Plan”) at the Company’s annual meeting. 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 Number of Options Exercise Price Aggregate Intrinsic Value Outstanding, February 28, 2021 3,790,001 $ 0.57 $ 225,000 Granted - - - Exercised - - - Cancelled ( 130,233 ) 1.40 - Outstanding, November 30, 2021 3,659,768 $ 0.57 $ 975,000 Range of Exercise Price Stock Options Outstanding Stock Options Exercisable Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Options Outstanding Weighted Average Exercise Price of Options Exercisable $ 0.25 to $ 1.40 3,659,768 2,701,436 3.10 $ 0.57 $ 0.48 Warrants 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 5,662,272 $ 1.40 $ - Granted - - - Exercised - - - Cancelled ( 761,438 ) 1.40 - Outstanding, November 30, 2021 4,900,834 $ 1.40 $ - Other information related to the warrants outstanding and exercisable as of November 30, 2021 follows: Range of Exercise Price Stock Warrants Outstanding Stock Warrants Exercisable Weighted Average Remaining Contractual Life Weighted Average Exercise Price of Warrants Outstanding Weighted Average Exercise Price of Warrants Exercisable $ 1.40 4,900,834 4,900,834 1.21 $ 1.40 $ 1.40 11 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: Breslow Note On January 24, 2017, the Company entered into a Debt Refinancing Agreement with Mr. Breslow, a former Director of the Company. Pursuant to the agreement, both Mr. Breslow and the Company acknowledged that total debt owed to Mr. Breslow was $ 23,872,614 including $ 8,890,574 of accrued interest. Mr. 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 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 $ 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: Kopple Notes 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 . 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 exercised. The Company recorded $667,118 as a discount, which has been fully amortized. The Company also entered into a demand note payable with this individual in the amount of $20,000, which bears interest at a rate of 5% per annum. 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% per annum. 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 Sheets. 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 Leases Prior 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 November 30, 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 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. 12 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 interest. As of the time of this filing, the Company has paid approximately $ 109,000 toward the settlement amount. 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; 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 Company. In July 2017, Mr. Kopple 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. In 2018, the Court dismissed Mr. Diaz-Verson, Mr. Breslow, 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. Kopple. However, to-date, no settlement has been reached in large part because Mr. Kopple continues to demand that as part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial and management functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole. On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company. On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019 and March 27, 2019, respectively. Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms. Lavut, Mr. Mann, Dr. Lempert, Mr. 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. Lavut, Mr. Mann and Dr. 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. 13