What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-06-21 compared with 2021-06-01 · 433 added, 389 removed, 11 unchanged (99% of the section changed)

have been a party to litigation, a consent solicitation and a proxy contest with shareholders controlling a majority of the Company’s

stock, which is costly and time-consuming and has had a material adverse effect on our business, results of operations and financial

condition and could adversely affect our stock price.

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

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

Board and electing Ms.

We have been a party to litigation, a consent

solicitation and a proxy contest with shareholders controlling a majority of the Company’s stock, which is costly and time-consuming

and has had a material adverse effect on our business, results of operations and financial condition and could adversely affect our stock

In March 2019, stockholders of the Company representing

a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald

Buschur, William Anderson and Si Ryong Yu as members of the Company’s Board and electing Ms.

Cipora Lavut, Mr.

1 unchanged sentence

Robert Lempert as directors of the Company.

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.

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.

refusal to recognize the legal effectiveness of the consents and the decision by the Company’s former leadership team to

utilize corporate resources to vigorously contest the shareholder action has consumed significant financial resources, temporarily

stagnated operations, and resulted in substantial costs, all of which had a material adverse effect on our business, operating

results and financial condition.

have a history of losses, and we may not be profitable in any future period.

for Fiscal 2018 and Fiscal 2021, in each fiscal year since our reorganization in 2006, we have reported losses.

years 2019 and 2020, we recorded net losses of $2.5 million and $2.6 million, respectively.

Since the Company’s Chapter

11 bankruptcy reorganization in 2006, we have spent considerable amounts on, among other things, building market awareness and

infrastructure for sales and distribution, enhancing our engineering capabilities, perfecting an all-electric refrigeration transport

system for midsize trucks, developing a 18-kW product, and developing an eight-inch system capable of delivering approximately

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.

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,

Aura’s refusal to recognize the legal effectiveness of the consents and the decision by the Company’s former leadership

team to utilize corporate resources to vigorously contest the shareholder action has consumed significant financial resources, temporarily

stagnated operations, and resulted in substantial costs, all of which had a material adverse effect on our business, operating results

and financial condition.

We have a history of losses, and we may not be profitable in

any future period.

Except for Fiscal 2018 and Fiscal 2021, in each

fiscal year since our reorganization in 2006, we have reported losses.

For Fiscal year 2022, we recorded a net loss of $4.0 million.

the Company’s Chapter 11 Plan reorganization in 2006, we have spent considerable amounts on, among other things, building market

awareness and infrastructure for sales and distribution, enhancing our engineering capabilities, perfecting an all-electric refrigeration

transport system for midsize trucks, developing a 15 kW product, and developing a six-inch system capable of delivering approximately

4 kW of power.

We continue to need substantial funds for the development of new products, enhancement of existing

products and in order to expand sales.

However, sales of our products have not increased as we expected them to, and

may never increase to the level that we need to expand our operations, or even to sustain them.

We can provide no assurance

as to when, or if, we will be profitable in the future.

Even if we achieve profitability, we may not be able to sustain

effects of a pandemic or widespread outbreak of an illness, such as the COVID-19 pandemic, has had and could continue to have

a material adverse impact on our business, results of operations and financial condition.

outbreak of COVID-19 was declared a pandemic by the World Health Organization (“WHO”) during our fourth quarter

of Fiscal 2020 and continues to impact our operations and cash flows up to the filing date of this Annual Report on Form 10-K

for Fiscal 2021.

While we have implemented measures to mitigate the impact of the COVID-19 pandemic, we expect our Fiscal 2022

results of operations to continue to be adversely affected by the COVID-19 pandemic.

a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our corporate

facilities, as have our customers, partners, suppliers, and vendors, as described in Item 1 —

Business —

Recent Developments.”

Collectively, these disruptions have had a material adverse impact on our business throughout

Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve.

we cannot predict for how long and to what extent this crisis will continue to impact our business operations or the global economy

Potential impacts to our business include, but are not limited to:

ability to successfully execute our long-term growth strategy;

declines in the level of purchases of products, including our products, caused by higher unemployment and lower disposal income

levels, travel and social gathering restrictions, work-from-home arrangements, or other factors beyond our control;

ability to generate sufficient cash flows to support our operations, including repayment of our debt obligations as they become

potential loss of one or more of our significant customers or partners, or the loss of a large number of smaller customers or

partners, if they are not able to withstand prolonged periods of adverse economic conditions, and our ability to collect outstanding

closures or other operational restrictions of our facilities;

chain disruptions resulting from closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of

goods produced in infected areas, including any related cost increases;

ability to access capital markets and maintain compliance with covenants associated with our existing debt instruments, as well

as the ability of our key customers, suppliers, and vendors to do the same with regard to their own obligations;

costs to protect the health and safety of our employees, customers, and communities, such as more frequent and thorough cleanings

of our facilities and supplying personal protection equipment;

of management attention and resources from ongoing business activities and/or a decrease in employee morale;

ability to maintain an effective system of internal controls and compliance with the requirements under the Sarbanes-Oxley Act

discussion related to the various risks and uncertainties described above is included elsewhere within the “Risk Factors”

section of this Annual Report on Form 10-K.

derive a substantial portion of our revenues from customers in industries susceptible to trends and factors affecting those industries,

including the COVID-19 pandemic.

AuraGen ®

system is geared toward end-markets such as commercial vehicles, communications, transportation industries,

and consumer and industrial equipment markets.

Factors negatively affecting these industries also negatively affect our business,

financial condition and results of operations.

Any adverse occurrence, including industry slowdown, recession, costly or constraining

regulations, excessive inflation, prolonged disruptions in one or more of our customers’

production schedules or labor disturbances,

that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and

operations of our customers in these industries, could materially adversely affect our business, financial condition and results

of operations.

a result of the COVID-19 pandemic, global vehicle production has decreased, and some manufacturers have completely shut down manufacturing

operations in some countries and regions, including the United States and Europe.

As a result, we have experienced, and are likely

to continue to experience, delays in the production and distribution of our products and the loss of sales.

If the global economic

effects caused by the COVID-19 pandemic continue or increase, overall customer demand may continue to decrease which could have

a further adverse effect on our business, results of operations and financial condition.

will need additional capital in the future to meet our obligations and financing may not be available.

During Fiscal

2020 and 2021, the Company attempted to increase its engineering and manufacturing activities, but it still struggled with meeting

its financial requirements.

If we cannot obtain additional capital, we will not be able to continue our operations.

a result of our operating losses, we have largely financed our operations through sales of our equity securities.

Beginning with

Fiscal 2017, the Company significantly reduced its engineering, manufacturing, sales, and marketing activities to focus on renegotiating

numerous financial obligations and conserving cash.

For Fiscal 2021, we had approximately $1.9 million negative cash flows from

operations as compared to negative $0.8 million in Fiscal 2020 due primarily to the impact of Covid-19 pandemic.

The Company’s

engineering and manufacturing activities remained limited due to our inability to increase sales and raise significant amounts

of new financing.

Our ability to continue as a going concern is directly dependent upon our ability to obtain additional operating

capital and generating sufficient operating cash flow.

The impacts of the COVID-19 pandemic have caused significant uncertainty

and volatility in the credit markets and there can be no assurance that lenders or investors will make additional commitments

to provide financing to us under current circumstances.

As a result of the impacts of the COVID-19 pandemic, we may be required

to raise additional capital and our access to and cost of financing will depend on, among other things, global economic conditions,

conditions in the global financing markets, the availability of sufficient amounts of financing, and our prospects.

unable to obtain additional funding as and when we need it, we will not be able to recommence operations or undertake our planned

we do not receive additional financing when and as needed, we may not be able to continue the research, development and commercialization

of our technology and products.

In that case, our business and results of operations would be materially and adversely

capital requirements have been and will continue to be significant.

We will require substantial additional funds in

excess of our current financial resources for research, development and commercialization of products, to obtain and maintain

patents and other intellectual property rights in these technologies and products, and for working capital and other purposes,

the timing and amount of which are difficult to ascertain.

When we need additional funds, such funds may not be available

on commercially reasonable terms or at all.

If we cannot obtain additional funding when needed, our business and results

of operation would be materially and adversely affected.

intellectual property rights are valuable, and any inability or failure to protect them could reduce the value of our products,

services and brand, which would have a material adverse effect on our business.

patents, trademarks, and all of our other intellectual property rights are important assets for us.

There are events

that are outside of our control that pose a threat to our intellectual property rights.

For example, effective intellectual

property protection may not be available in every country in which our products and services are distributed or made available.

the efforts we have taken to protect our proprietary rights may not be sufficient or effective.

Due to our lack of

financial resources, we may not be able to adequately protect our technology portfolio or apply for new patents to extend our

intellectual property portfolio.

The expiration of patents in our patent portfolio may also have an adverse effect on our business.

Any significant impairment of our intellectual property rights could harm our business and or our ability to compete.

our intellectual property rights is costly and time consuming and we may need to resort to litigation to enforce our patent rights

or to determine the scope and validity of third-party intellectual property rights and we may not have the financial resources

to pay for such litigation.

Some of our competitors may be able to sustain the costs of complex patent litigation more

effectively than we can because they have substantially greater resources.

seek to obtain patent protection for our innovations.

It is possible, however, that some of these innovations may not

be protectable.

In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations

that later turn out to be important.

Furthermore, there is always the possibility, despite our efforts, that the scope

of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable.

inability or failure to protect our intellectual property rights could have a material adverse effect on our business by reducing

the value of our products, services and brand.

occasionally become subject to commercial disputes that could harm our business by distracting our management from the operation

of our business, by increasing our expenses and, if we do not prevail, by subjecting us to potential monetary damages and other

time to time, we are engaged in disputes regarding our commercial transactions.

These disputes could result in monetary

damages or other remedies that could adversely impact our financial position or operations.

Even if we prevail in these disputes,

they may distract our management from operating our business and the cost of defending these disputes would reduce our operating

have been named as a party in various legal proceedings, and we may be named in additional litigation, all of which will require

significant management time and attention, result in significant legal expenses and may result in an unfavorable outcome, which

could have a material adverse effect on our business, operating results and financial condition.

are and may become subject to various legal proceedings and claims that arise in or outside the ordinary course of business.

current lawsuits and pending proceedings are described under Part I, Item 3.

“Legal Proceedings.”

results of these lawsuits and future legal proceedings cannot be predicted with certainty.

Also, our insurance coverage may be

insufficient or not provide any coverage at all for certain claims, our assets may be insufficient to cover any amounts that exceed

our insurance coverage, and we may have to pay damage awards or otherwise may enter into settlement arrangements in connection

with such claims.

Any such payments or settlement arrangements in current or future litigation could have a material adverse effect

on our business, operating results or financial condition.

Even if the plaintiffs’

claims are not successful, current future

litigation could result in substantial costs and significantly and adversely impact our reputation and divert management’s

attention and resources, which could have a material adverse effect on our business, operating results or financial condition.

We continue to need substantial funds for the development of new products, enhancement of existing products and in order

to expand sales.

However, sales of our products have not increased as we expected them to and may never increase to the level that we

need to expand our operations, or even to sustain them.

We can provide no assurance as to when, or if, we will be profitable in the future.

Even if we achieve profitability, we may not be able to sustain it.

The effects of a pandemic or widespread

outbreak of an illness, such as the COVID-19 pandemic, has had and could continue to have a material adverse impact on our business, results

of operations and financial condition.

The outbreak of COVID-19 was declared a pandemic

by the World Health Organization (“WHO”) during our fourth quarter of Fiscal 2020 and continues to impact our operations and

cash flows up to the filing date of this Annual Report for Fiscal 2022.

While we have implemented measures to mitigate the impact of the

COVID-19 pandemic, we expect our Fiscal 2023 results of operations to continue to be adversely affected by the COVID-19 pandemic.

As a result of the COVID-19 pandemic, we have

experienced varying degrees of business disruptions and periods of closure of our corporate facilities, as have our customers, partners,

suppliers, and vendors, as described in Item 1 — “Business — Recent Developments.” Collectively, these disruptions

have had a material adverse impact on our business throughout Fiscal 2022 and Fiscal 2021.

Despite the introduction of COVID-19 vaccines,

the pandemic remains highly volatile and continues to evolve.

Accordingly, we cannot predict for how long and to what extent this crisis

will continue to impact our business operations or the global economy as a whole.

Potential impacts to our business include, but are not

● our ability to successfully execute our long-term growth strategy;

● potential declines in the level of purchases of products, including our products, caused

by higher unemployment and lower disposal income levels, travel and social gathering restrictions, work-from-home arrangements, or other

factors beyond our control;

● our ability to generate sufficient cash flows to support our operations, including repayment

of our debt obligations as they become due;

● the potential loss of one or more of our significant customers or partners, or the loss of

a large number of smaller customers or partners, if they are not able to withstand prolonged periods of adverse economic conditions,

and our ability to collect outstanding receivables;

● temporary closures or other operational restrictions of our facilities;

● supply chain disruptions resulting from closed factories, reduced workforces, scarcity of

raw materials, and scrutiny or embargoing of goods produced in infected areas, including any related cost increases;

● our ability to access capital markets and maintain compliance with covenants associated with

our existing debt instruments, as well as the ability of our key customers, suppliers, and vendors to do the same with regard to their

own obligations;

● additional costs to protect the health and safety of our employees, customers, and communities,

such as more frequent and thorough cleanings of our facilities and supplying personal protection equipment;

● diversion of management attention and resources from ongoing business activities and/or a

decrease in employee morale;

● our ability to maintain an effective system of internal controls and compliance with the

requirements under the Sarbanes-Oxley Act of 2002.

Additional discussion

related to the various risks and uncertainties described above is included elsewhere within this “Risk Factors” section of

our Form 10-K.

We derive a substantial portion of our revenues

from customers in industries susceptible to trends and factors affecting those industries, including the COVID-19 pandemic.

Our AuraGen ® system is geared toward

end-markets such as commercial vehicles, communications, transportation industries, and consumer and industrial equipment markets.

negatively affecting these industries also negatively affect our business, financial condition and results of operations.

occurrence, including industry slowdown, recession, costly or constraining regulations, excessive inflation, prolonged disruptions in

one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales

in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely

affect our business, financial condition and results of operations.

As a result of the COVID-19 pandemic, global vehicle

production has decreased, and some manufacturers have completely shut down manufacturing operations in some countries and regions, including

the United States and Europe.

As a result, we have experienced, and are likely to continue to experience, delays in the production and

distribution of our products and the loss of sales.

If the global economic effects caused by the COVID-19 pandemic continue or increase,

overall customer demand may continue to decrease which could have a further adverse effect on our business, results of operations and

financial condition.

We will need additional capital in the future

to meet our obligations and financing may not be available.

During Fiscal 2022 and Fiscal 2021, the Company attempted to increase

its engineering and manufacturing activities, but it still struggled with meeting its financial requirements.

If we cannot obtain additional

capital, we will not be able to continue our operations.

As a result of our operating losses, we have largely

financed our operations through sales of our equity securities.

Beginning with Fiscal 2017, the Company significantly reduced its engineering,

manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations and conserving cash.

2022 and Fiscal 2021, we had approximately $2.6 million negative and $1.9 million negative cash flows from operations, respectively, due

primarily to the impact of the COVID-19 pandemic.

The Company’s engineering and manufacturing activities remained limited due to

our inability to increase sales and raise significant amounts of new financing.

Our ability to continue as a going concern is directly

dependent upon our ability to obtain additional operating capital and generating sufficient operating cash flow.

The impacts of the

COVID-19 pandemic have caused significant uncertainty and volatility in the credit markets and there can be no assurance that lenders

or investors will make additional commitments to provide financing to us under current circumstances.

As a result of the impacts of the

COVID-19 pandemic, we may be required to raise additional capital and our access to and cost of financing will depend on, among other

things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and

our prospects.

If we are unable to obtain additional funding as and when we need it, we will not be able to recommence operations or undertake

our planned expansion.

There is substantial doubt about our ability

to continue as a going concern.

Our independent registered public accounting

firm in their report on the Company’s February 28, 2022 audited financial statements raised substantial doubt about our

ability to continue as a going concern.

We do not have any sufficient committed sources of capital and do not know whether

additional financing will be available when needed on terms that are acceptable, if at all.

This going concern statement from our

independent public accounting firm may discourage some investors from purchasing our stock or providing alternative capital

The failure to satisfy our capital requirements will adversely affect our business, financial condition, results of

operations and prospects.

We have identified material weaknesses in our disclosure controls and

procedures internal control over financial reporting.

The matters involving internal controls and procedures that our management considered

to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:

(1) ineffective controls over transactions

for debt issuances to provide for review of all terms in a timely and accurate manner, to ensure reporting is in conformance with generally

accepted accounting principles and properly reflected in the financial results;

and (2) ineffective controls over transactions for common

stock issuances and options to provide for review of all terms in a timely and accurate manner, to ensure reporting is in conformance

with generally accepted accounting principles and properly reflected in the financial results.

These material weaknesses resulted in the

restatement of our financial statements for the year ended February 28, 2021.

The Company plans to remediate the identified

material weaknesses and other deficiencies and enhance our internal controls and disclosure controls over financial reporting in fiscal

2023, but there can be no guarantee that this will be accomplished.

If we do not receive additional financing

when and as needed, we may not be able to continue the research, development and commercialization of our technology and products.

that case, our business and results of operations would be materially and adversely affected.

Our capital requirements have been and will continue

to be significant.

We will require substantial additional funds in excess of our current financial resources for research,

development and commercialization of products, to obtain and maintain patents and other intellectual property rights in these technologies

and products, and for working capital and other purposes, the timing and amount of which are difficult to ascertain.

and as we need additional funds, such funds may not be available on commercially reasonable terms or at all.

If we cannot obtain

additional funding when and as needed, our business and results of operation would be materially and adversely affected.

Our intellectual property rights are valuable,

and any inability or failure to protect them could reduce the value of our products, services and brand, which would have a material adverse

effect on our business.

Our patents, trademarks, and all of our other

intellectual property rights are important assets for us.

There are events that are outside of our control that pose a threat

to our intellectual property rights.

For example, effective intellectual property protection may not be available in every

country in which our products and services are distributed or made available.

Also, the efforts we have taken to protect our

proprietary rights may not be sufficient or effective.

Due to our lack of financial resources, we may not be able to adequately

protect our technology portfolio or apply for new patents to extend our intellectual property portfolio.

The expiration of patents in

our patent portfolio may also have an adverse effect on our business.

Any significant impairment of our intellectual property rights could

harm our business and or our ability to compete.

Protecting our intellectual property rights is costly and time consuming and

we may need to resort to litigation to enforce our patent rights or to determine the scope and validity of third-party intellectual property

rights and we may not have the financial resources to pay for such litigation.

Some of our competitors may be able to sustain

the costs of complex patent litigation more effectively than we can because they have substantially greater resources.

We seek to obtain patent protection for our innovations.

is possible, however, that some of these innovations may not be protectable.

In addition, given the costs of obtaining patent

protection, we may choose not to protect certain innovations that later turn out to be important.

Furthermore, there is always

the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed

invalid or unenforceable.

Our inability or failure to protect our intellectual property rights could have a material adverse

effect on our business by reducing the value of our products, services and brand.

We occasionally become subject to commercial

disputes that could harm our business by distracting our management from the operation of our business, by increasing our expenses and,

if we do not prevail, by subjecting us to potential monetary damages and other remedies.

From time to time, we are engaged in disputes

regarding our commercial transactions.

These disputes could result in monetary damages or other remedies that could adversely

impact our financial position or operations.

Even if we prevail in these disputes, they may distract our management from operating our

business and the cost of defending these disputes would reduce our operating results.

We have been named as a party in various

legal proceedings, and we may be named in additional litigation, all of which will require significant management time and attention,

result in significant legal expenses and may result in an unfavorable outcome, which could have a material adverse effect on our business,

operating results and financial condition.

We have been and may in the become subject to

various legal proceedings and claims that arise in or outside the ordinary course of business.

Certain current lawsuits and pending proceedings

are described under Part I, Item 3.

“Legal Proceedings.”

The results of these lawsuits and future legal

proceedings cannot be predicted with certainty.

Also, our insurance coverage may be insufficient or not provide any coverage at all for

certain claims, our assets may be insufficient to cover any amounts that exceed our insurance coverage, and we may have to pay damage

awards or otherwise may enter into settlement arrangements in connection with such claims.

Any such payments or settlement arrangements

in current or future litigation could have a material adverse effect on our business, operating results or financial condition.

the plaintiffs’ claims are not successful, current future litigation could result in substantial costs and significantly and adversely

impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business,

operating results or financial condition.

In addition, such lawsuits may make it more difficult to finance our operations.

are currently party to litigation with a former director relating to approximately $11.3 million and approximately 3.33 million

warrants which the director claims are owed to him and his affiliates.

An adverse ruling on these claims in this litigation would

materially and adversely affect our business results or operating and financial condition, dilute our shareholders’

interests in the Company and could adversely affect our stock price.

Company is presently engaged in a dispute with a former director, Robert Kopple, relating to approximately $11.3 million (representing

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

approximately $170,000 Mr.

Kopple claims to

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

and approximately $5.6 million Mr.

Kopple claims to be owed for

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

Kopple claims to be owed to him and

his affiliates by the Company.

We have substantial indebtedness and obligations to pay interest.

We currently have, and will likely continue to

have, a substantial amount of indebtedness and obligations to pay interest from various financing and settlement arrangements.

Our indebtedness

and interest obligations could, among other things, make it more difficult for us to satisfy our debt obligations, require us to use a

large portion of our cash flow from operations to repay and service our debt or otherwise create liquidity problems, limit our flexibility

to adjust to market conditions, and place us at a competitive disadvantage.

As of February 28, 2022, we had total notes payable debt outstanding

plus accrued interest of approximately $18.7 million, of which $18.4 million was short term.

In March 2022, the Company reached a settlement

that resolves the various claims asserted against us by former director, Robert Kopple, and his affiliated entities.

In July 2017, Mr.

Kopple filed suit against the Company as well as against the then other present

and former members of the Board of Directors in connection with these allegations.

The Company believes that it has valid defenses

in these matters and believes that no warrants are due to Mr.

Kopple or his affiliates.

The Company intends to vigorously defend

against these claims and has been actively attempting to reach a resolution 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.

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.

However, if we are unable to reach and resolution with Mr.

Kopple and Mr.

Kopple were to prevail in his lawsuit, an adverse ruling

on these claims would materially and adversely affect our business results or operating and financial condition, dilute our shareholders’

equity interests in the Company and could adversely affect our stock price.

“Legal Proceedings”, “Liquidity

and Capital Resources”

in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of

Operations”

included elsewhere in this Annual Report on Form 10-K for additional information regarding the transactions

Kopple and his affiliates brought suit against the Company relating to more than $13 million and the current equivalent of more than approximately

23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr.

Kopple and his affiliated entities (collectively

the “Kopple Parties”) claimed to be owed to them pursuant to various agreements with the Company entered into between 2013-2016.

Under the terms of the settlement, we have agreed to pay an aggregate amount of $10 million over a period of seven years;

$3 million of

which is to be paid within approximately three months of the settlement date, after which, interest will accrue on the unpaid balance

at a rate of 6%, compounded annually.

All amounts, including all accrued interest, are to be paid no later than eight years from the date

of the initial payment.

The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of approximately 3.3

million shares of our common stock at a price of $0.85 per share.

The settlement also provides for standard mutual general release provisions

and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties

and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations

under the settlement.

“Legal Proceedings”, “Liquidity and Capital Resources” in “Item 7.

Discussion and Analysis of Financial Condition and Results of Operations” and Footnote 19 “Subsequent Events “in the

Notes to Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the transactions

under dispute.

business is not diversified.

If we cannot increase market acceptance of our products, modify our products and services,

or compete with new technologies, we may never be profitable.

currently focus all of our resources on the successful commercialization of the AuraGen ®

family of products.

we have elected to focus our business on a single product line rather than diversifying into other areas, our success will be

dependent upon the commercial success of these products.

If we are unable to increase market acceptance of our products,

if we are unable to modify our products and services on a timely basis so that we lose customers, or if new technologies make

our technology obsolete, we may never be profitable.

of our competitors are larger and better financed than we are and have a greater presence in the marketplace.

may be adversely affected by industry competition.

and internationally, the industries in which we operate are extremely competitive.

We face substantial

competition from companies that have a long history of offering traditional auxiliary power units (portable generators), traditional

automotive alternators, and inverters (a device that inverts battery direct current electricity to alternating current).

of our competitors have substantially greater financial resources, spend considerably larger sums than we spend on research, new

product development and marketing, and have long-standing customer relationships.

Furthermore, we must compete with

many larger and better-established companies in the hiring and retention of qualified personnel.

Although we believe

we have significant technological advantages over our competitors, realizing and maintaining such advantages will require us to

develop customer relationships and will also depend on market acceptance of our products.

We expect to obtain the money to pay our expenses and pay the principal

and interest on our indebtedness from cash flow from our operations and potentially from securities offerings.

Accordingly, our ability

to meet our obligations depends on our future performance and capital raising activities, which will be affected by financial, business,

economic and other factors, many of which are beyond our control.

If our cash flow and capital resources prove inadequate to allow us

to pay the principal and interest on our debt and meet our other obligations, we could face substantial liquidity problems and might be

required to dispose of material assets or operations, restructure or refinance our debt, which we may be unable to do on acceptable terms,

and forego attractive business opportunities.

In addition, the terms of our existing or future debt agreements may restrict us from pursuing

any of these alternatives.

Our business is not diversified.

we cannot increase market acceptance of our products, modify our products and services, or compete with new technologies, we may never

be profitable.

We currently focus all of our resources on the

successful commercialization of the AuraGen ® family of products.

Because we have elected to focus our business

on a single technology line rather than diversifying into other areas, our success will be dependent upon the commercial success of these

If we are unable to increase market acceptance of our products, if we are unable to modify our products and services

on a timely basis so that we lose customers, or if new technologies make our technology obsolete, we may never be profitable.

Most of our competitors are larger and better

financed than we are and have a greater presence in the marketplace.

Our business may be adversely affected by industry competition.

Both in the U.S.

and internationally, the industries

in which we operate are extremely competitive.

We face substantial competition from companies that have a long history of offering

traditional auxiliary power units (portable generators), traditional automotive alternators, and inverters (a device that inverts battery

direct current electricity to alternating current).

Most of our competitors have substantially greater financial resources,

spend considerably larger sums than we spend on research, new product development and marketing, and have long-standing customer relationships.

we must compete with many larger and better-established companies in the hiring and retention of qualified personnel.

we believe we have significant technological advantages over our competitors, realizing and maintaining such advantages will require us

to develop customer relationships and will also depend on market acceptance of our products.

We may not have the financial

resources, technical expertise, or marketing and support capabilities to compete successfully, which would materially and adversely

affect our business.

may not be able to establish an effective distribution network or strategic OEM relationships;

in which case our sales will not

increase as expected and our financial condition and results of operations would be adversely affected.

are in the very beginning stages of developing our distribution network and establishing strategic relationships with original

equipment manufacturer (OEM) customers.

We may not be able to identify appropriate distributors or OEM customers on

a timely basis.

The distributors with which we partner may not focus adequate resources on selling our products or

may otherwise be unsuccessful in selling them.

In addition, we cannot assure you that we will be able to establish

OEM relationships on favorable terms or at all.

The lack of success of distributors or OEM customers in marketing our

products would adversely affect our financial condition and results of operations.

we are successful in executing our business plan to grow our business, our failure to efficiently manage our growth could have

an adverse effect on our business.

we are successful in executing our business plan, we may experience growth in our business that could place a significant strain

on our management and other resources.

Our ability to manage this growth will require us to successfully assimilate

new employees, improve existing management information systems and reorganize our operations.

If we fail to manage

growth efficiently, our business could be adversely affected.

may experience delays in product shipments and increased product costs because we depend on third party manufacturers for certain

product components.

Delays in product shipment or an inability to replace certain suppliers could have a material adverse

effect on our business and results of operations.

currently do not have the capability to manufacture most of the AuraGen ®

components on a commercial scale.

we rely extensively on contracts with third party manufacturers for such components.

The use of third-party manufacturers

increases the risk of delay of shipments to our customers and increases the risk of higher costs if our manufacturers are not

available when required.

Our suppliers and manufacturers may not supply us with a sufficient number of components or

components of adequate quality, which would delay production of our product.

We do not currently have written agreements

with any suppliers.

Furthermore, those suppliers who make certain components may not be easily replaced.

these disruptions in the supply of components could have a material adverse effect on our business or results of operations.

we are monitoring the impact of the COVID-19 pandemic on the operations of the Company, particularly with respect to possible

delays and other disruptions to the supply-chain.

we generally aim to use standard parts and components for our products, some of our components are currently available only from

limited sources.

may experience delays in production of the AuraGen ®

if we fail to identify alternate vendors, or if any parts supply

is interrupted or reduced or if there is a significant increase in production costs, each of which could materially adversely

and affect our business and operations.

will need to renew sources of component supplies to meet increases in demand for the AuraGen ®

is no assurance that our suppliers can or will supply the components to us on favorable terms or at all.

order to meet future demand for AuraGen ®

systems, we will need to renew contracts or form new contracts with our

prior manufacturers and suppliers or locate other suitable manufacturers and suppliers for subassemblies and other components.

Recently, we entered into discussions with several of our prior suppliers and we are in the process of negotiating settlements

of old payables and arranging new supply contracts.

Although we believe that there are a number of potential manufacturers and

suppliers of the components, we cannot guarantee that contracts for components can be obtained on favorable terms or at all.

material adverse change in terms of the purchase of these components could increase our cost of goods.

need to invest in tooling to have a more extensive line of products.

If we cannot expand our tooling, it may not be

possible for us to expand our operations.

are currently limited in the products that we are able to manufacture because of the limitations of our tooling capabilities.

order to have a broader line of products that address industrial and commercial needs, we must make a significant investment in

additional tooling or pursue new alternatives to replace traditional tooling.

We do not currently have the funds required

to acquire new tooling or to obtain replacements and no assurances can be given that we will have the required funds in the future.

we do not acquire the required funds for tooling or replacement tooling, we may not be able to expand our product line to meet

industrial and commercial needs.

are subject to government regulation that may restrict our ability to use certain suppliers outside the U.S.

or to sell our products

into certain countries.

If we cannot obtain the required approval from government agencies, then our business may be

adversely affected.

depend on third party suppliers for our parts and components, some of which are located outside of the United States.

the event that some of these suppliers are barred from selling their products in the United States, or cannot meet other U.S.

government regulations, we would need to locate other suppliers, which could delay or prevent us from shipping product to our

We use copper, steel and aluminum in our product and in the event of government regulations or restrictions

of these materials we may experience a shortage of these materials to manufacture our product.

resources, technical expertise, or marketing and support capabilities to compete successfully, which would materially and adversely affect

our business.

We may not be able to establish an effective

distribution network or strategic OEM relationships;

in which case our sales will not increase as expected and our financial condition

and results of operations would be adversely affected.

We are in the very beginning stages of developing

our distribution network and establishing strategic relationships with original equipment manufacturer (OEM) customers.

may not be able to identify appropriate distributors or OEM customers on a timely basis.

The distributors with which we partner

may not focus adequate resources on selling our products or may otherwise be unsuccessful in selling them.

In addition, we

cannot assure you that we will be able to establish OEM relationships on favorable terms or at all.

The lack of success of

distributors or OEM customers in marketing our products would adversely affect our financial condition and results of operations.

If we are successful in executing our business

plan to grow our business, our failure to efficiently manage our growth could have an adverse effect on our business.

If we are successful in executing our business

plan, we may experience growth in our business that could place a significant strain on our management and other resources.

ability to manage this growth will require us to successfully assimilate new employees, improve existing management information systems

and reorganize our operations.

If we fail to manage growth efficiently, our business could be adversely affected.

We may experience delays in product shipments

and increased product costs because we depend on third party manufacturers for certain product components.

Delays in product

shipment or an inability to replace certain suppliers could have a material adverse effect on our business and results of operations.

We currently do not have the capability to manufacture

most of the AuraGen ® components on a commercial scale.

Therefore, we rely extensively on contracts with third

party manufacturers for such components.

The use of third-party manufacturers increases the risk of delay of shipments to our

customers and increases the risk of higher costs if our manufacturers are not available when required.

Our suppliers and manufacturers

may not supply us with a sufficient number of components or components of adequate quality, which would delay production of our product.

do not currently have written agreements with any suppliers.

Furthermore, those suppliers who make certain components may not

be easily replaced.

Any of these disruptions in the supply of components could have a material adverse effect on our business or

results of operations.

Furthermore, we are monitoring the impact of the COVID-19 pandemic on the operations of the Company, particularly

with respect to possible delays and other disruptions to the supply-chain.

Although we generally aim to use standard

parts and components for our products, some of our components are currently available only from limited sources.

We may experience delays in production of the

AuraGen ® if we fail to identify alternate vendors, or if any parts supply is interrupted or reduced or if there is a significant

increase in production costs, each of which could materially adversely and affect our business and operations.

We will need to renew sources of component

supplies to meet increases in demand for the AuraGen ® .

There is no assurance that our suppliers can or will

supply the components to us on favorable terms or at all.

As we recommence our operations and in order to

meet future demand for AuraGen ® systems, we will need to renew contracts or form new contracts with our prior manufacturers

and suppliers or locate other suitable manufacturers and suppliers for subassemblies and other components.

Recently, we entered into discussions

with several of our prior suppliers and we are in the process of negotiating settlements of old payables and arranging new supply contracts.

Although we believe that there are a number of potential manufacturers and suppliers of the components, we cannot guarantee that contracts

for components can be obtained on favorable terms or at all.

Any material adverse change in terms of the purchase of these

components could increase our cost of goods.

We need to invest in tooling to have a more

extensive line of products.

If we cannot expand our tooling, it may not be possible for us to expand our operations.

We are currently limited in the products that

we are able to manufacture because of the limitations of our tooling capabilities.

In order to have a broader line of products

that address industrial and commercial needs, we must make a significant investment in additional tooling or pursue new alternatives to

replace traditional tooling.

We do not currently have the funds required to acquire new tooling or to obtain replacements and

no assurances can be given that we will have the required funds in the future.

If we do not acquire the required funds for

tooling or replacement tooling, we may not be able to expand our product line to meet industrial and commercial needs.

We are subject to government regulation

that may restrict our ability to use certain suppliers outside the U.S.

or to sell our products into certain countries.

obtain the required approval from government agencies, then our business may be adversely affected.

We depend on third party suppliers for our parts

and components, some of which are located outside of the United States.

In the event that some of these suppliers are barred

from selling their products in the United States, or cannot meet other U.S.

government regulations, we would need to locate other suppliers,

which could delay or prevent us from shipping product to our customers.

We use copper, steel and aluminum in our product and

in the event of government regulations or restrictions of these materials we may experience a shortage of these materials to manufacture

Furthermore, U.S.

restricts us from selling products in some potential foreign markets without U.S.

government approval.

obtain the required approvals from government agencies to obtain materials or contract with suppliers or if we are restricted

by government regulation from selling our products into certain countries, our business may be adversely affected.

Acquisitions,

joint ventures, and strategic alliances may have an adverse effect on our business.

March 2017, we entered into a joint venture agreement with a Chinese partner.

This joint venture arrangement and other transactions

and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get

an unsatisfactory return on our investment, that we have difficulty integrating and retaining new employees, business systems,

and technology, or that they distract management from our other businesses.

If an arrangement fails to adequately anticipate changing

circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement.

The success of

these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products and services

or develop compelling new ones.

It may take longer than expected to realize the full benefits from these transactions and arrangements,

such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we

law restricts us from selling products in some potential foreign markets without U.S.

If we cannot obtain the required approvals from government agencies to obtain materials or contract with suppliers

or if we are restricted by government regulation from selling our products into certain countries, our business may be adversely affected.

Acquisitions, joint ventures, and strategic

alliances may have an adverse effect on our business.

In March 2017, we entered into a joint venture

agreement with a Chinese partner.

This joint venture arrangement and other transactions and arrangements involve significant challenges

and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that we have

difficulty integrating and retaining new employees, business systems, and technology, or that they distract management from our other

If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination

or renegotiation of the arrangement.

The success of these transactions and arrangements will depend in part on our ability to leverage

them to enhance our existing products and services or develop compelling new ones.

It may take longer than expected to realize the full

benefits from these transactions and arrangements, such as increased revenue, enhanced efficiencies, or increased market share, or the

benefits may ultimately be smaller than we expected.

These events could adversely affect our operating results or financial condition.

During Fiscal 2020, the Company recorded

an impairment expense of $250,000 writing-off the Jiangsu Shengfeng investment due to operational and future cash-flow uncertainties

associated with AuraGen ®

market development prospects in China through the joint venture

rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may

not be able to grow effectively.

performance is largely dependent on the talents and efforts of highly skilled individuals.

Our future success depends

on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization.

are currently in default under several agreements with various key consultants which may make those parties unwilling to continue

to work with the Company.

Our continued ability to compete effectively depends on our ability to attract new employees and to

retain and motivate our existing employees and consultants.

The incentives to attract, retain and motivate employees

and consultants provided by our ability to pay competitive salaries and rates as well as offering additional incentives such as

stock option grants or by future arrangements may not be as effective as in the past.

If we do not succeed in attracting

excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively.

business is subject to the risks of earthquakes and other natural catastrophic events, and to interruptions by man-made problems

such as computer viruses, terrorism, or pandemics.

corporate headquarters and our research and development operations are located in the State of California in regions known for

seismic activity.

A significant natural disaster, such as an earthquake, in this region could have a material adverse effect on

our business, financial condition and results of operations.

In addition, our servers are vulnerable to computer viruses, break-ins,

and similar disruptions from unauthorized tampering with our computer systems.

Any such event could have a material adverse effect

on our business, financial condition and results of operations.

to maintain effective internal controls over financial reporting could adversely affect our business and the market price of our

Common Stock.

to rules adopted by the SEC under the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal

controls over financial reporting and provide a management report on our internal controls over financial reporting in all annual

This report contains, among other matters, a statement as to whether our internal controls over financial reporting are

effective and the disclosure of any material weaknesses in our internal controls over financial reporting identified by management.

Section 404 also requires our independent registered public accounting firm to audit the effectiveness of our internal control

over financial reporting.

described in ITEM 9A, Controls and Procedures contained herein in this Annual Report, we have concluded that the material weakness

that was previously disclosed on Form 10-K, as amended, for the Fiscal year ended February 29, 2020, was successfully remediated

during Fiscal 2020.

Presently, the Company does not have the financial resources to fully comply with all requirements of Section

If, in the future, we identify additional material weaknesses in our internal controls over financial reporting during this

continuous evaluation process, our management may not be able to assert that such internal controls are effective.

if we are unable to assert that our internal controls over financial reporting are effective in the future, or if our auditors

are unable to attest that our internal controls are effective or they are unable to express an opinion on the effectiveness of

our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would

have an adverse effect on our business and the market price of our Common Stock.

on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for

our stockholders to resell their shares .

common stock is quoted on the Pink Sheets of the OTC Markets.

Trading in stock quoted on the OTC Markets is often thin and characterized

by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business

This volatility could depress the market price of our common stock for reasons unrelated to operating performance.

Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the

trading of securities listed on stock exchanges like NASDAQ or the New York Stock Exchange.

These factors may result in investors

having difficulty reselling any shares of our common stock.

During Fiscal 2020, the Company recorded an impairment expense of $250,000 writing-off the Jiangsu Shengfeng investment due to operational

and future cash-flow uncertainties associated with AuraGen ® market development prospects in China through the joint venture.

We rely on highly skilled

personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

Our performance is largely dependent on the talents

and efforts of highly skilled individuals.

Our future success depends on our continuing ability to identify, hire, develop,

motivate, and retain highly skilled personnel for all areas of our organization.

We are currently in default under several agreements

with various key consultants which may make those parties unwilling to continue to work with the Company.

Our continued ability to compete

effectively depends on our ability to attract new employees and to retain and motivate our existing employees and consultants.

incentives to attract, retain and motivate employees and consultants provided by our ability to pay competitive salaries and rates as

well as offering additional incentives such as stock option grants or by future arrangements may not be as effective as in the past.

we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively.

Our business is subject to the risks of

earthquakes and other natural catastrophic events, and to interruptions by man-made problems such as computer viruses, terrorism, or pandemics.

Our corporate headquarters and our research and

development operations are located in the State of California in regions known for seismic activity.

A significant natural disaster, such

as an earthquake, in this region could have a material adverse effect on our business, financial condition and results of operations.

In addition, our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer

Any such event could have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain effective internal controls

over financial reporting could adversely affect our business and the market price of our Common Stock.

Pursuant to rules adopted by the SEC under the

Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal controls over financial reporting and provide

a management report on our internal controls over financial reporting in all annual reports.

This report contains, among other matters,

a statement as to whether our internal controls over financial reporting are effective and the disclosure of any material weaknesses in

our internal controls over financial reporting identified by management.

Section 404 also requires our independent registered public

accounting firm to audit the effectiveness of our internal control over financial reporting.

As described in ITEM 9A, Controls and Procedures

contained herein in this Annual Report, we have concluded that the Company’s internal controls over financial reporting are not

effective for the Fiscal year ended February 28, 2022 and have identified a material weakness in our financial reporting internal controls.

The Company plans to remediate the material weakness in fiscal 2023, but there is no guarantee that this will be accomplished.

the Company does not have the financial resources to fully comply with all requirements of Section 404.

If, in the future, we identify

one or more material weaknesses in our internal controls over financial reporting during this continuous evaluation process, our management

may not be able to assert that such internal controls are effective.

Therefore, if we are unable to assert that our internal controls

over financial reporting are effective in the future, or if our auditors are unable to attest that our internal controls are effective

or they are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy

and completeness of our financial reports, which would have an adverse effect on our business and the market price of our Common Stock.

Trading on the OTC Markets is volatile and

sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares .

Our common stock is quoted on the Pink Sheets

of the OTC Markets.

Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices,

due to many factors, some of which may have little to do with our operations or business prospects.

This volatility could depress the

market price of our common stock for reasons unrelated to operating performance.

Moreover, the OTC Markets is not a stock exchange, and

trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ

or a stock exchange like the New York Stock Exchange.

These factors may result in investors having difficulty reselling any shares of

our common stock.

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors