Item 3. Legal Proceedings
ITEM 3. LEGAL PROCEEDINGS
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. The Company settled
certain matters subsequent to year end that did not individually or in the aggregate have a material impact on the Company’s financial
condition or operating results.
In 2017, the Company’s former COO was
awarded approximately $238,000 in accrued salary and related charges by the California labor board. In August 2021, the Company
reached a settlement by which the Company agreed to pay approximately $330,000, representing the principal award plus accrued
interest. As of the time of this filing, the Company has paid approximately $108,400 toward the settlement amount. The remaining
balance of approximately $221,600 is to be paid no later than September 1, 2022, and accrues interest of 10% per annum
until paid.
Since July 2017 the Company has been engaged in
litigation with a former director, Robert Kopple, relating to more than $13 million and the current equivalent of the 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 should have been originally issued to them pursuant to various agreements with the Company entered
to between 2013-2016. In March 2022, the Company reached a settlement with the Kopple Parties that resolves all claims asserted against
the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. 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 on or before June 8, 2022, 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. As of June 8, 2022 and
the date of this report, the Company has not yet paid the $3,000,000 installment due to Kopple. Pursuant to the agreement, the Company
has 60 days to cure the nonpayment of the $3,000,000 default. (See Part IV, Item 15, Note 19 to the Financial Statements).
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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.
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. 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 the 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 in favor of the Messrs. Abdou. The Company subsequently
appealed this judgment and, in September 2019, reached a settlement agreement with the Messrs. Abdou to implement a payment plan in accordance
with the 2018 judgment. As of February 28, 2022 the outstanding principal balance was zero and remaining interest was approximately $18,000. As
of the date of this filing, all amounts have been paid and no principal or interest remains outstanding.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.