AURA SYSTEMS INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our President and Chief Financial Officer concluded as of February 28, 2022, that our disclosure controls and procedures were not effective. 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 conformity with generally accepted accounting principles and properly reflected in the financial results; and (2) ineffective controls over transactions for issuances of common stock, options, and warrants to provide for review of all terms in a timely and accurate manner, to ensure reporting is in conformity 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 aforementioned material weaknesses were identified by our Chief Financial Officer in connection with the review of our financial statements as of February 28, 2022. Management’s Annual Report on Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2022. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on these assessments, and on those criteria, the Company’s management concluded that as of February 28, 2022, the Company’s internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles . 33 Remediation Plan In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures: We have increased our personnel resources and technical accounting expertise within the accounting function with the hiring of a new Chief Financial Officer as disclosed on Form 8-K filed with the Securities and Exchange Commission on February 17, 2022. We intend to hire one or more additional personnel for the finance and accounting function which will provide the manpower to perform timely and complete reviews of debt and equity transactions consistent with control objectives. We also plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to account for all transactions, including equity and debt transactions. We plan to test our updated controls and remediate our deficiencies in the fiscal year 2023. Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal year ended February 28, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Inherent Limitations on Effectiveness of Controls The Company does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected. ITEM 9B. OTHER INFORMATION None Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None 34 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers In March 2019, stockholders of the Company controlling 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. David Mann, and Dr. Robert Lempert as directors of the Company in their stead. As a result of Aura’s refused to recognize the legal effectiveness of the consents, in April 2019, 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. 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 stockholder 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. In July 2019 the employment of Melvin Gagerman was terminated. (See Item 3, Legal Proceedings for more information.) Also in July 2019, the Board of Directors appointed Ms. Lavut to succeed Mr. Gagerman as President of Aura, appointed Mr. Mann to succeed Mr. Gagerman as Chief Financial Officer of the Company, and appointed Dr. Lempert Secretary of Aura. In February 2022, the Board of Directors appointed Mr. Steven Willett to succeed Mr. Mann as the Company’s Chief Financial Officer. Mr. Mann remains on the Board of Directors. The following table sets forth the names, ages, and offices of all our current directors and executive officers. Our officers are appointed by, and serve at the pleasure of, the Board of Directors. The stockholders at the annual meeting elect our directors to serve until the next meeting. Name Age Title Gary Douglas (1) 74 Director, Member of the Audit Committee Salvador Diaz-Verson, Jr. (1) 63 Director, Chairman of the Audit Committee David Mann (2), (3) 50 Director, Chairman of the Compensation Committee, Member of the Nominating Committee and Member of the Audit Committee, former Chief Financial Officer Cipora Lavut (2) 66 President, Chairman of the Board, Member of Nominating Committee and Member of the Compensation Committee Robert Lempert (2) 78 Secretary, Director, Chairman of the Nominating Committee and Member of the Compensation Committee Steven Willett (4) 64 Chief Financial Officer (1) Mr. Douglas and Mr. Diaz-Verson, Jr. were appointed to the Board of Directors on March 29, 2018 by the written consent of stockholders holding a majority of the Company’s shares. (2) In March 2019, stockholders of the Company controlling a combined total of more than 27.5 million shares delivered signed written consents to the Company electing Ms. Lavut, Mr. Mann and Dr. Lempert to the Company’s Board of Directors. Because of Aura’s refusal to recognize the legal effectiveness of the consents, in April 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware seeking an order confirming the validity of the elections. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that 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. In July 2019, the Board of Directors appointed Ms. Lavut President and Chairman of the Board, appointed Mr. Mann as Chief Financial Officer and appointed Dr. Lempert as Secretary. (3) On February 14, 2022, Mr. Mann resigned as Chief Financial Officer. (4) On February 14, 2022 Mr. Willett was appointed as Chief Financial Officer. 35 Biographical information with respect to our current directors and executive officer is provided below. Salvador Diaz-Versón, Jr . Mr. Diaz-Versón, Jr. was elected as a director on March 29, 2018. Previously, he served as a director of the Company from 1997-2005 and again from June 2007 until January 2018. Mr. Diaz-Versón, Jr. is the founder, Chairman and President of Diaz-Verson Capital Investments, Inc., and was a registered investment advisor with the Securities and Exchange Commission until 2009. Mr. Diaz-Versón, Jr. served as President and member of the board of directors of American Family Corporation (AFLAC, INC.) from 1976 until 1992. Mr. Diaz-Versón, Jr. served as President and Chief Investment Officer of American Family Life Assurance Company, a subsidiary of AFLAC, Inc. He is currently Chairman of Miramar Securities. Mr. Diaz-Versón, Jr. has received two presidential appointments to the Christopher Columbus Fellowship Foundation; first by President George H.W. Bush in 1992 and subsequently by President Clinton in 2000. Mr. Diaz-Versón, Jr. is a trustee of the Florida State University Foundation and is a national trustee of the Boys and Girls Club of America. He also serves as a trustee of Clark Atlanta University. Mr. Diaz-Versón, Jr. is a graduate of Florida State University and was selected as a director in view of his lengthy experience in managing companies and his knowledge of capital investments. Gary Douglas . Mr. Douglas was elected as a director on March 29, 2018. Mr. Gary Douglas has a BBA in Management degree, with extensive experience in cooperate communication and investment banking. He is a principal in Douglas Strategic Communications LLC, a marketing strategy and communications consultancy, and Ex officio Chairman of Picture Marketing, Inc., a digital marketing company. Mr. Douglas also formally served as Chief Marketing Officer of O’Melveny Consulting LLP, a unit of a global law firm. He also served as President of SP/Hambros America and Division President of Geneva Learning Systems and Group Vice President of Business Development for the five Geneva Companies, both SP/Hambros and The Geneva companies were middle market investment bankers. Mr. Douglas brings to the Board extensive experience in cooperate communication and investment banking. Cipora Lavut . Ms. Lavut was one of Aura’s original founding members. From 1987 to 2002 Ms. Lavut served on Aura’s Board and as a Senior Vice President. During this period, Ms. Lavut was instrumental to Aura receiving large contracts from The Boeing Company, Litton Industries and the United States Air Force. Ms. Lavut also provided critical investor relations and marketing support during this time. Ms. Lavut left Aura in 2002. Ms. Lavut presently provides marketing and business consulting to a variety of retail and service-oriented businesses. She holds a degree from California State University, Northridge. Robert Lempert . Dr. Lempert graduated from the University of Pennsylvania and conducted his residency at the Albert Einstein Medical Center in Philadelphia. Dr. Lempert also served as a Captain in the U.S. Army and previously served on the Company’s Board from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Dr. Lempert has been a significant investor, shareholder and an active advocate of Aura’s technology for more than 20 years. David Mann . Mr. Mann has been Vice President of Marketing for Mann Marketing, a manufacturing and import company, since 1990 and the Vice President of Sales of that company since 2007. From 2000 until 2007, Mr. Mann also served as Vice President of Operations. Mr. Mann has extensive experience dealing with all aspects of marketing and sales, as well as suppliers in both North America and China. Mr. Mann has been an investor in the Aura since 2007 and previously served as a director of the Company from November 28, 2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Mr. Mann holds a degree in Business Administration from College St. Laurent, Montreal, Canada. Steven Willett . Mr. Willett was previously employed by Govino, LLC, where he has served as CFO and Vice President of Finance since 2017. From 2014 to 2017, Mr. Willett served as Director of Finance for the Americas of Identiv, Inc., and prior to that, as Director of Finance of aerospace & defense contractor Trex Enterprises Corporation. Mr. Willett holds a Bachelor of Science degree in accounting from the University of Massachusetts and an M.B.A. with concentration in finance from Bentley University McCallum Graduate School of Business. 36 Delinquent Section 16(a) Reports Our shares of common stock are registered under the Securities Exchange Act of 1934, and therefore our executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, no executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports during the years ended February 28, 2022 and February 28, 2021. Code of Ethics We have adopted a Code of Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department. This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.aurasystems.com in the Investor Relations section. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of such provision of our Code of Ethics by posting such information on our website within four business days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will also be disclosed. Family Relationships None of our directors or executive officers is related to one another. Committees of the Board of Directors The Board maintains the following committees to assist it in discharging its oversight responsibilities. Audit Committee . The Audit Committee does not have a formal charter but is responsible primarily for overseeing the services performed by our independent registered public accounting firm, evaluating our accounting policies and system of internal controls, and reviewing our annual and quarterly reports before filing with the Securities and Exchange Commission. The current members of the Audit Committee are Mr. Salvador Diaz Versón Jr., Mr. David Mann and Mr. Gary Douglas. The Board of Directors has determined that the Audit Committee does not have a member who is an “audit committee financial expert” as such term is defined by the rules and regulations of the Securities and Exchange Commission. While the Board recognizes that the Board members serving on the Audit Committee do not meet the qualifications required of an “audit committee financial expert,” the Board believes that the appointment of a new director to the Board of Directors and to the Audit Committee at this time is not necessary as the level of financial knowledge and experience of the current member of the Audit Committee, including such member’s ability to read and understand fundamental financial statements, is sufficient to adequately discharge the Audit Committee’s responsibilities Compensation Committee . The Compensation Committee does not have a formal charter but reviews and recommends to the full Board the amounts and types of compensation to be paid to the Chairman and Chief Executive Officer; reviews and approves the amounts and types of compensation to be paid to our other executive officers and the non-employee directors; reviews and approves, on behalf of the Board, salary, bonus and equity guidelines for our other employees; and administers our equity plans. The Compensation Committee is currently comprised of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert. Nominating Committee . The Nominating Committee does not have a formal charter but assists the Board in identifying qualified individuals to become directors, determines the composition of the Board and its committees, monitors the process to assess the Board’s effectiveness and helps develop and implement our corporate governance guidelines. The Nominating Committee also considers nominees proposed by stockholders. The Nominating Committee currently consists of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert. Director Compensation Although we do not currently compensate our directors in cash for their service as members of our Board of Directors, the Board may, in its discretion, elect to compensate directors for attending Board and Committee meetings and to reimburse directors for out-of-pocket expenses incurred in connection with attending such meetings. Additionally, our directors are eligible to receive stock options under the 2011 Directors and Executive Officer Stock Option Plan. During Fiscal 2022, the President and Board Chairman received options under the 2011 Directors and Executive Officers Stock Option Plan (the “2011 Plan”) to acquire 500,000 shares of the Company’s common stock at an exercise price of $0.50. Additionally, during Fiscal 2022, the other four Directors received options in varying amounts under the 2011 Plan to acquire an aggregate total of 1,000,000 shares of the Company’s common stock at an exercise price of $0.25. On the date of these grants, the Company’s shares were traded at $0.35 and $0.24 per share, respectively. During Fiscal 2021, each Director received options under the 2011 Plan to acquire 250,000 shares of the Company’s common stock, an aggregate total of 1,250,000 shares, at an exercise price of $0.25. On the date of grant the shares were traded at $0.16 per share. There are no payments due to any directors upon their resignation or retirement as members of the Board. 37 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation earned by or paid to the principal executive officer and the named executive officers during the Fiscal years ended February 28, 2022 and February 28, 2021. 2022 Summary Compensation Table Fiscal Salary Option Awards Non-Equity Incentive Compensation All Other Compensation Total Name and Principal Position Year ($) ($) ($) ($) ($) Cipora Lavut 2022 144,750 (2) - - 100,000 (3) 250,000 President 2021 140,000 (1) - - - 140,000 Steven Willett 2022 6,154 (4) - - - 6,154 Chief Financial Officer (1) Ms. Lavut was elected President effective July 9, 2019 and on March 19, 2020, the Board of Directors authorized an annual salary of $250,000, retroactively effective to January 1, 2020. For Fiscal 2021, Ms. Lavut accrued an annual salary of $250,000 and was paid $140,000 in cash over the same period, deferring the balance. (2) For Fiscal 2022, Ms. Lavut has been accruing an annual salary of $250,000 and has been paid $144,750 in cash over the same period, deferring the balance. (3) Additionally in Fiscal 2022, Ms. Lavut received approximately 286,000 shares of common stock to settle $100,000 of previously deferred accrued salary. (4) Mr. Willett began serving as Chief Financial Officer in February 2022. The amount in the table for Fiscal 2022 represents the pro rata compensation received for the two-week period since his appointment. Outstanding Equity Awards at 2022 Fiscal Year-End The Board of Directors and Executive Officers have been granted various options to acquire the Company’s common stock under the Company’s 2011 Directors and Executive Officers Stock Option Plan )the “2011 Plan”) as detailed in the table below. All of these options were outstanding as of February 28, 2022. Stock Options & Warrants Outstanding Weighted Average Remaining Contractual Life in Years Weighted Average Exercise Price of Options & Warrants Outstanding Cipora Lavut, President and Board Chair 750,000 3.67 $ 0.42 Salvador Diaz-Verson, Jr., Director 1,108,857 2.74 $ 0.62 Gary Douglas, Director 700,000 2.75 $ 0.76 David Mann, Director 650,912 2.37 $ 0.64 Robert Lempert, Director 350,000 3.26 $ 0.25 Option Exercises and Stock Vesting During Fiscal 2022 No stock options were exercised during Fiscal 2022 by the individuals named in the Summary Compensation Table. On February 25, 2021, the Board of Directors approved the grant of 500,000 options to acquire the Company’s common stock to the Company’s President for successfully recruiting advisors to the Board under the Company’s Directors and Executive Officers Stock Option Plan. The options were granted with immediate vesting, a five-year expiration term, and with an exercise price of $0.50 per option share. On December 10, 2020, the Board of Directors approved the grant of an aggregate total of 1,000,000 options to acquire the Company’s common stock to four of the five current Board members in varying amounts for services provided outside of standard Board responsibilities under the Company’s 2011 Plan. The options were granted with pro rata monthly vesting over a one-year vesting period, with a five-year expiration term, and with an exercise price of $0.25 per option share. Option Exercises and Stock Vesting During Fiscal 2021 No stock options were exercised during Fiscal 2021 by the individuals named in the Summary Compensation Table. On March 19, 2020, the Board of Directors approved the grant of an aggregate total of 1,250,000 options to acquire the Company’s common stock to each of the five current board members in equal amounts of 250,000 per person under the Company’s 2011 Plan. Per the terms of the 2011 Plan, vesting occurs after a six-month period plus one day from the date of grant, with a five-year expiration term, and with an exercise price of $0.25 per option share. 38 Employment Contracts, Termination of Employment Contracts and Change in Control Arrangements We do not currently have any employment agreements with any of our Named Executive Officers. In March 2020, the Board of Directors approved an annual salary for Ms. Lavut of $250,000, retroactively effective from January 1, 2020. Potential Payments to the Named Executive Officers Upon Termination or Change in Control None of the named executive officers is entitled to any payments or benefits upon termination, whether by change in control or otherwise, other than benefits available generally to all employees. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, to the extent of our knowledge, certain information regarding our common stock owned as of June 30, 2020 (i) by each person who is known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each of our Directors and the named executive officers in the Summary Compensation Table, and (iii) by all Directors and current executive officers as a group: Beneficial Ownership Table Beneficial Owner (1) Number of Shares of Common Stock Percent of Common Stock Salvador Diaz-Verson, Jr. (2) 1,178,607 1.4 % Gary Douglas (3) 700,000 * % Cipora Lavut (4) 2,639,660 3.1 % Robert Lempert (5) 497,343 * % David Mann (6) 2,062,843 2.5 % Steven Willett (7) 150 * % All current executive officers and Directors as a group (six) (2) (3) (4) (5) (6) (7) 7,078,603 8.2 % 5% Stockholders Warren Breslow (8) 9,958,116 11.6 % Elimelech Lowy (9) 7,612,645 8.7 % BetterSea LLC (10) 9,179,912 11.0 % * Less than 1% of outstanding shares (1) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission. The calculation of the percentage of beneficial ownership is based upon 83,123,537 shares of common stock outstanding on February 28, 2022. In computing the number of shares beneficially owned by any stockholder and the percentage ownership of such stockholder, shares of common stock which may be acquired by a such stockholder upon exercise or conversion of warrants or options which are currently exercisable or exercisable within 60 days of February 28, 2022, are deemed to be exercised and outstanding. Such shares, however, are not deemed outstanding for purposes of computing the beneficial ownership percentage of any other person. Shares issuable upon exercise of warrants and options which are subject to stockholder approval are not deemed outstanding for purposes of determining beneficial ownership. Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The mailing address for each of the officers and directors is c/o Aura Systems, Inc., 20431 North Sea, Lake Forest, CA 92630. (2) Includes 1,108,857 warrants exercisable within 60 days of February 28, 2022. (3) Includes 700,000 warrants exercisable within 60 days of February 28, 2021. (4) Includes 750,000 warrants exercisable within 60 days of February 28, 2022. (5) Includes warrants to purchase 350,000 shares exercisable within 60 days of February 28, 2021. (6) Includes warrants to purchase 650,912 shares exercisable within 60 days of February 28, 2022, as well as 1,411,931 shares, 979,204 of which Mr. Mann has sole dispositive power and approximately 432,727 of which, Mr. Mann holds a power of attorney to vote such shares. (7) Includes common shares only as of February 28, 2022. (8) Includes warrants to purchase 16,000 shares exercisable within 60 days of February 28, 2022, and the right to convert $3,000,000 and accrued interest of $412,911 convertible note payable to 2,437,794 common shares at a conversion price of $1.40. (9) Includes warrants to purchase 4,092,877 shares exercisable within 60 days of February 28, 2022. and 3,519,768 shares, which Mr. Lowy has sole dispositive power. (10) Includes common shares only as of February 28, 2022. 39 Securities Authorized for Issuance Under Equity Compensation Plans as of February 28, 2022 Equity Compensation Plan Information as of February 28, 2022 a. b. c. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price for Options, Warrants and Rights Number of Securities For Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a.) Equity compensation plans approved by equity holders 3,559,769 $ 0.55 16,129,445 Equity compensation plans not approved by equity holders 1,500,000 $ 0.50 - (1) Reflects options under the 2006 Stock Option Plan and the 2011 Stock Option Plan, of which both were approved by Company shareholders. Additionally, it includes options which were authorized by the Board but cannot be issued until the proposal for renewal of the employee stock option plan is approved by the shareholders. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to the greater of (i) 10,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time to time. The 2011 Stock Option Plan authorizes the Company to grant stock options or warrants to executive officers and directors exercisable for up to an aggregate number of shares equivalent to 15% of the number of shares of common stock outstanding from time to time. The numbers in this table are as of February 28, 2022 (See Note 15 to the Financial Statements). For additional information regarding options and warrants, see Note 15 to our financial statements appearing elsewhere in this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Review and Approval of Related Party Transactions Our Audit Committee is responsible for the review and approval of all related party transactions required to be disclosed to the public under SEC rules. This procedure has been established by our Board of Directors in order to serve the interests of our shareholders. Related party transactions are reviewed and approved by the Audit Committee on a case-by-case basis. Under existing, unwritten policy no related party transaction can be approved by the Audit Committee unless it is first determined that the terms of such transaction is on terms no less favorable to us than could be obtained from an unaffiliated third party on an arms-length basis and is otherwise in our best interest. Director Independence Using the definition of “independence” included in the listing rules of The Nasdaq Stock Market, our Board has determined that Salvador Diaz-Versón, Jr. and Gary Douglas are both independent directors. 40 ITEM 14. PRINCIPAL ACCOUNTING FEES AND DISCLOSURES The following table sets forth the aggregate fees billed to us by BF Borgers, CPA, PC (“BFB CPA”) for the years ended February 28, 2022, and February 29, 2021: Year Ended February 28, 2021 February 29, 2020 Audit Fees $ 50,000 $ 61,000 Audit-related fees - - Tax fees - - All other fees - - Total $ 50,000 $ 61,000 As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those Fiscal years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.” Audit Fees Services provided to us by BFB CPA, Inc. with respect the audit of our annual financial statements and review of our annual reports on Form 10-K and for reviews of the financial statements are included in our quarterly reports on Form 10-Q for the first three quarters of the years ended February 28, 2022 and February 29, 2021. Audit Related Fees BFB CPA did not provide any professional services to us during Fiscal 2022 or Fiscal 2021 which would constitute “audit related fees”. Tax Fees BFB CPA did not provide any professional services to us during Fiscal 2022 or Fiscal 2021 which would constitute “tax fees”. All Other Fees BFB CPA did not provide any professional services to us during Fiscal 2022 or Fiscal 2021 which would constitute “other fees”. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors Under the SEC’s rules, the Audit Committee is required to pre-approve the audit and permissible non-audit services performed by the independent registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public accounting firm. Consistent with the SEC’s rules, the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During Fiscal 2022 and Fiscal 2021 all services provided by BFB CPA were pre-approved by the Audit Committee in accordance with this policy. There were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent Fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees. 41 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Documents filed as part of this Form 10-K: 1. Financial Statements See Index to Financial Statements at page F-1 2. Financial Statement Schedules See Index to Financial Statements at page F-1 3. Exhibits See Exhibit Index ITEM 16. FORM 10-K SUMMARY None. 42 INDEX TO EXHIBITS Description of Documents 3.1 Amended and Restated Certificate of Incorporation of Aura Systems, Inc. (Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Form 10-K filed on June 15, 2009) 3.1(a) Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated February 14, 2018 (Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Current Report on Form 8-K filed on February 21, 2018) 3.2 Amended and Restated Bylaws of Aura Systems, Inc. (Incorporated by reference to Exhibit 3.2 to Aura Systems, Inc.’s Report on Form 10-K filed on June 15, 2009) 10.1* Aura Systems, Inc. 2006 Stock Option Plan (Incorporated by reference to Exhibit 10.4 to Aura System, Inc.’s Form 10-K filed on March 25, 2008) 10.2* Form of Aura Systems, Inc. Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.5 to Aura System, Inc.’s Form 10-K filed on March 25, 2008) 10.3 Second Amendment to Transaction Documents dated March 14, 2017 among Registrant and those persons who have signed the signature page thereto (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.4 Third Amendment to Transaction Documents dated April 8, 2017 among Registrant and those persons who have signed the signature page thereto (Incorporated by reference to Exhibit 10.2 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.5 Second Amendment to Debt Refinancing Agreement dated April 9, 2017 by and between Aura Systems, Inc., on the one hand, and Warren Breslow and the Survivor’s Trust Under the Warren L. Breslow Trust, on the other hand (Incorporated by reference to Exhibit 10.3 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.6 First Amendment to Unsecured Convertible Promissory Note dated June 15, 2017 by and between the Survivor’s Trust Under the Warren L. Breslow Trust and the Registrant (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017) 10.7 Agreement entered into on June 19, 2017 between Aura Systems Inc. and BetterSea LLC (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Current Report on Form 8-K/A filed on May 9, 2018) 10.11 Sino-Foreign Cooperative Joint Venture Contract dated January 27, 2017 between Aura Systems, Inc. and Jiangsu AoLunTe Electrical Machinery Industrial Col, Ltd. (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Form 8-K filed on February 1, 2017) 10.12* Aura Systems, Inc. Directors and Executive Officers Stock Option Plan (Incorporated by reference to Exhibit 10.67 to Aura Systems, Inc.’s Form S-1 filed on November 30, 2011) 14.1 Code of Ethics (Incorporated by reference to Exhibit 14.1 to Aura Systems, Inc.’s Annual Report on Form 10-K filed on June 13, 2018) 31.1 CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 31.2 CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. Section 1350 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Indicates a management contract or compensatory plan or arrangement. In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed. Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 43 Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AURA SYSTEMS, INC. Dated: June 21, 2022 By: /s/ Cipora Lavut Cipora Lavut President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signatures Title Date /s/ Cipora Lavut President (Principal Executive Officer), June 21, 2022 Cipora Lavut Board Chair /s/ Steven Willett Chief Financial Officer (Principal Financial Officer) June 21, 2022 Steven Willett /s/ David Mann Director June 21, 2022 David Mann /s/ Robert Lempert Director June 21, 2022 Robert Lempert /s/ Gary Douglas Director June 21, 2022 Gary Douglas /s/ Salvador Diaz-Verson, Jr. Director June 21, 2022 Salvador Diaz-Verson, Jr. 44 Index to Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 572 ) F-2 Financial Statements of Aura Systems, Inc.: Balance Sheets as of February 28, 2022 and February 28, 2021 (as restated) F-3 Statements of Operations - Years ended February 28, 2022 and February 28, 2021 (as restated) F-4 Statements of Stockholders’ Deficit - Years ended February 28, 2022 and February 28, 2021 (as restated) F-5 Statements of Cash Flows - Years ended February 28, 2022 and February 28, 2021 (as restated) F-6 Notes to Financial Statements F-7 to F-26 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Aura Systems, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Aura Systems, Inc. (the “Company”) as of February 28, 2022 and 2021 (restated), the related statements of operations, stockholders’ deficit, and cash flows for the year ended February 28, 2022, the related statements of operations, stockholders’ deficit, and cash flows for the year ended February 28, 2021 (restated), and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The 2021 financial statements were previously audited by another auditor. As discussed in Note 3 to the financial statements, the 2021 financial statements have been restated to correct errors. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, during the year ended February 28, 2022, the Company has incurred a loss and used cash in operations, and at February 28, 2022, had a stockholders’ deficit. In addition, $13 million of convertible notes payable were in default as of that date. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates. Determination and Valuation of Warrant Derivative Liability As discussed in Notes 3 and 13 to the financial statements, during the year ended February 28, 2022 and in prior periods, the Company issued warrants that required management to assess whether the warrants required accounting as derivative liabilities. When it is determined that derivative liability accounting treatment is required, the Company measures the derivative liabilities at fair value using binominal models. Such models use certain assumptions related to exercise price, term, expected volatility, and risk-free interest rate. As of February 28, 2022, the warrant derivative liability totaled $828,000. We identified the determination and valuation of the warrant derivative liability as a critical audit matter due to the significant judgements used by the Company in determining whether the warrants required derivative accounting treatment and the significant judgements used in determining the fair value of the warrant derivative liability including the appropriateness of the model utilized. Auditing the determination and valuation of the warrant derivative liability involved a high degree of auditor judgement and specialized skills and knowledge were needed. The primary procedures we performed to address this critical audit matter included the following. We inspected and reviewed warrant agreements to evaluate the Company’s determination of whether derivative accounting was required, including assessing and evaluating management’s application of relevant accounting standards to such transactions. We evaluated the reasonableness and appropriateness of the choice of valuation model used for each specific derivative instrument. We tested the reasonableness of the underlying assumptions and data used in the valuations to determine the fair values, including stock price, exercise price, term, expected volatility and risk-free interest rate. We tested the accuracy and completeness of data used by the Company in developing the assumptions used in the model. We developed an independent expectation using market data sources, models and key assumptions determined to be relevant and reliable and compared such independent expectation to the Company’s estimate. We have served as the Company’s auditor since 2022. /s/ Weinberg & Company, P.A. Los Angeles, California June 21, 2022 F- 2 AURA SYSTEMS, INC. BALANCE SHEETS February 28, 2022 February 28, 2021 (As Restated) Assets Current assets Cash and cash equivalents $ 150,217 $ 390,702 Inventories 144,257 94,166 Prepaid and other current assets 255,453 115,203 Total current assets 549,927 600,071 Property and equipment, net 484,526 14,870 Operating lease right-of-use asset 1,000,467 1,168,053 Security deposit 159,595 159,595 Total assets $ 2,194,515 $ 1,942,589 Liabilities and Shareholders’ Deficit Current liabilities Accounts payable (including $ 208,507 and $ 590,501 due to related party, respectively) $ 1,581,724 $ 1,880,172 Accrued expenses (including $ 187,411 and $ 178,536 due to related party, respectively) 1,692,173 1,291,775 Customer advances 440,331 440,331 Notes payable, current portion 97,958 198,331 Convertible notes payable, current portion 1,402,971 - Convertible note payable-related party, current portion 3,000,000 - Notes payable-related parties, –in default 12,996,069 12,165,015 Operating lease liability, current portion 179,450 110,587 Derivative warrant liability 828,232 1,366,375 Total current liabilities 22,218,908 17,452,586 Notes payable 327,658 156,255 Operating lease liability 867,484 1,046,902 Convertible notes payable - 1,402,971 Convertible note payable-related party - 3,000,000 Total liabilities 23,414,050 23,058,714 Commitments and contingencies - - Shareholders’ deficit Common stock: $ 0.0001 par value; 150,000,000 shares authorized; 83,119,104 and 71,103,009 issued and outstanding at February 28, 2022 and February 28, 2021, respectively. 8,312 7,109 Additional paid-in capital 450,136,522 446,249,272 Accumulated deficit ( 471,364,369 ) ( 467,372,506 ) Total shareholders’ deficit ( 21,219,535 ) ( 21,116,125 ) Total liabilities and shareholders’ deficit $ 2,194,515 $ 1,942,589 See accompanying notes to these financial statements. F- 3 AURA SYSTEMS, INC. STATEMENTS OF OPERATIONS Fiscal Years Ended February 28, 2022 February 28, 2021 (As Restated) Net revenue $ 100,406 $ 114,923 Cost of goods sold 124,360 81,449 Gross profit (loss) ( 23,954 ) 33,474 Operating expenses: Engineering, research and development 610,728 237,450 Selling, general and administration (including $ 137,500 and $ 131,300 to related party, respectively) 2,795,133 1,577,238 Total operating expenses 3,405,861 1,814,688 Loss from operations ( 3,429,816 ) ( 1,781,214 ) Other income (expense): Interest expense, net ( 1,271,586 ) ( 1,279,949 ) Gain on extinguishment of debt - 3,447,039 Gain on extinguishment of PPP loans 167,104 - Gain on extinguishment of derivative warrant liability, net 61,540 13,611 Gain on debt settlement 4,292 71,775 Change in fair value of derivative warrant liability 476,602 ( 432,714 ) Other income - 7,000 Income (loss) before tax provision ( 3,991,863 ) 45,548 Income tax provision - 800 Net income (loss) $ ( 3,991,863 ) $ 44,748 Basic income (loss) per share $ ( 0.05 ) $ 0.00 Diluted income (loss) per share $ ( 0.05 ) $ 0.00 Basic weighted-average shares outstanding 76,805,616 61,768,215 Diluted weighted-average shares outstanding 76,805,616 65,203,634 See accompanying notes to these financial statements. F- 4 AURA SYSTEMS INC. STATEMENTS OF SHAREHOLDERS’ DEFICIT Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 29, 2020 (As Restated) 56,589,046 $ 5,658 $ 443,548,428 $ ( 467,417,254 ) $ ( 23,863,168 ) Common shares issued for cash 14,098,327 1,410 2,144,590 2,146,000 Common shares issued for settlement of debt-related party 415,636 41 103,868 103,909 Share-based compensation 452,386 452,386 Net income 44,748 44,748 Balance, February 28, 2021 (As Restated) 71,103,009 7,109 446,249,272 ( 467,372,506 ) ( 21,116,125 ) Common shares issued for cash 10,199,665 1,021 2,651,839 2,652,860 Common shares issued for settlement of debt-related parties 1,571,429 157 549,843 550,000 Common shares issued for services 245,001 25 73,475 73,500 Share-based compensation 612,093 612,093 Net loss ( 3,991,863 ) ( 3,991,863 ) Balance, February 28, 2022 83,119,104 $ 8,312 $ 450,136,522 $ ( 471,364,369 ) $ ( 21,219,535 ) See accompanying notes to these financial statements. F- 5 AURA SYSTEMS, INC. STATEMENTS OF CASH FLOWS Fiscal Years Ended February 28, 2022 February 28, 2021 (As Restated) Net income (loss) $ ( 3,991,863 ) $ 44,748 Adjustments to reconcile net loss to cash used in operating activities Depreciation 14,765 743 Inventory write-down 36,000 - Gain on extinguishment of debt - ( 3,447,039 ) Gain on extinguishment of PPP loans ( 167,104 ) - Gain on extinguishment of derivative warrant liability, net ( 61,540 ) ( 13,611 ) Change in fair value of derivative warrant liability ( 476,602 ) 432,714 Gain on debt settlement ( 4,292 ) ( 71,775 ) Common stock issued for services 73,500 - Share-based compensation 612,093 452,386 Changes in operating assets and liabilities: Inventory ( 86,091 ) ( 4,129 ) Prepaid and other current assets ( 90,251 ) ( 113,716 ) Deposit - ( 159,595 ) Operating lease right-of-use asset 167,586 7,220 Accounts payable and accrued expenses 387,695 ( 85,468 ) Accrued interest on notes payable 1,055,885 1,086,510 Operating lease liability ( 110,555 ) ( 17,784 ) Cash used in operating activities ( 2,640,774 ) ( 1,888,796 ) Cash used in investing activities: Purchase of property and equipment ( 196,421 ) ( 15,614 ) Cash flows from financing activities: Proceeds from issuance of common stock 2,652,860 2,146,000 Principal payments of notes payable ( 147,385 ) ( 95,000 ) Proceeds from government assistance loans – PPP and EID loans 91,235 224,305 Cash provided by financing activities 2,596,710 2,275,305 Net increase (decrease) in cash and cash equivalents ( 240,485 ) 370,895 Cash and cash equivalents-beginning of year 390,702 19,807 Cash and cash equivalents-end of year $ 150,217 $ 390,702 Cash paid for: Interest $ 85,295 $ 4,428 Income taxes $ - $ - Supplemental schedule of non-cash transactions: Recognition of operating lease right of use asset and operating lease liability $ - $ 1,175,273 Accounts payable converted into shares of common stock $ 450,000 $ 103,909 Accrued expenses converted into shares of common stock $ 100,000 $ - Acquisition of property and equipment with notes payable $ 288,000 $ - See accompanying notes to these financial statements. F- 6 AURA SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS February 28, 2022 NOTE 1 – ORGANIZATION AND 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. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During the fiscal year ended February 28, 2022, the Company incurred a net loss of approximately $ 4.0 million and had negative cash flows from operating activities of approximately $ 2.6 million and at February 28, 2022, had a stockholders deficit of approximately $ 21.2 million and a working capital deficit of approximately $ 21.7 million. Also, at February 28, 2022, the Company is in default on notes payable in the aggregate amount of approximately $ 13.0 million. These factors raise substantial doubts about the Company’s ability to continue as a going concern within one year of the date that these financial statements are issued. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. At February 28, 2022, the Company had cash on hand in the amount of $ 150,000 . Subsequent to February 28, 2022, the Company issued 1,153,666 shares of common stock in exchange for cash proceeds of $ 346,100 . In addition, subsequent to February 28, 2022, the Company reached an agreement with a related party note holder to resolve all litigation between them related to notes payable and accrued interest of $ 12.1 million (see Note 19). Management estimates that the current funds on hand will be sufficient to continue operations through the next four months. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. During the next twelve months we intend to continue to attempt to increase the Company’s sale of our AuraGen ® /VIPER products both domestically and internationally and to add to our existing management team. In addition, we plan to continue 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. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing. 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. COVID-19 As of the date of this filing, there continues to be widespread concern regarding the ongoing impacts and disruptions caused by the COVID-19 pandemic in the regions in which the Company operates. Although the impacts of the COVID-19 pandemic have not been material to date, a prolonged downturn in economic conditions could have a material adverse effect on our customers and demand for our services. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Significant estimates include assumptions made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities. Amounts could materially change in the future. F- 7 Revenue Recognition The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. To determine revenue recognition under ASC 606, an entity performs the following five-steps (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-steps to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Our primary source of revenue is the manufacture and delivery of generator sets used primarily in mobile power applications, which represented nearly 100 % of our revenues of approximately $ 100,000 and $ 115,000 for the fiscal years ended February 28, 2022 and February 28, 2021, respectively. Our principal sales channel is sales to a domestic distributor. In accordance with ASC 606, we recognize revenue, net of discounts, for our generator sets at time of product delivery to the domestic distributor (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligations to the customer. Our payment terms are cash payment due upon delivery and typically includes a 2 % price discount off the selling price in accordance with this policy. Our commercial terms and conditions do not include a right of return for reasons other than a defect in performance or quality. We offer a 24 month assurance-type warranty covering material and manufacturing defects, which we account for under the guidance of ASC 460, Guarantees. We have a limited history of shipments, and, as such, we have not recorded a warranty liability on our balance sheets at February 28, 2022 and February 28, 2021, respectively; however, we expect warranty claims to eventually be nil, therefore, we have not delayed the recognition of revenue during Fiscal years 2022 and 2021. Cost of Goods Sold Cost of goods sold primarily consists of the salaries of certain employees and contractors, purchase price of consumer products, packaging supplies, inventory reserve and customer shipping and handling expenses. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of revenue upon sale of products to our customers. Cash and Cash Equivalents Cash and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. Inventories Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. During the year ended February 28, 2022, the Company wrote-down inventories of $ 36,000 . During the year ended February 28, 2021, there were no inventory write downs recorded. F- 8 Property and Equipment Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately three years up to ten years once the individual assets are placed in service. Leasehold improvements are amortized over the shorter of the useful life or the remaining period of the applicable lease term. Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows e xpected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value at that time. At February 28, 2022 and 2021, management determined there were no impairments of the Company’s property and equipment. Impairment of Long-lived Assets The Company reviews its property and equipment, right-of-use asset, and other long-lived assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. For the years ended February 28, 2022 and 2021, the Company had no impairment of long-lived assets. Leases The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. Customer Advances Customer advances represent consideration received from customers under revenue contracts for which the Company has not yet delivered to the customer. Concentration of Credit and Other Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $ 250,000 . We have not experienced any losses in such accounts and believe we are not exposed to any significant risk on cash and cash equivalents. During the year ended February 28, 2022, one customer accounted for 18 % of revenues. During the year ended February 28, 2021, one customers accounted for 83 % of revenues. As of February 28, 2022, three vendors accounted for 44 %, 13 % and 15 % of accounts payable. As of February 28, 2021, three vendors accounted for 34 %, 31 % and 13 % of accounts payable. Research and Development The Company engages in research and development to stay current with changes in vehicle manufacture and design and to maintain an advantage over potential competition. Research and development expenses relate primarily to the development, design, testing of preproduction prototypes and models and are expensed as incurred. Research and development costs for Fiscal 2022 and 2021 was approximately $ 600,000 and $ 200,000 , respectively. Share-Based Compensation The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services. F- 9 Income Taxes The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. Derivative Warrant Liability The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each reporting date, with any increase or decrease in the fair value being recorded in the statement of operations. Fair Value of Financial Instruments The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value: ● Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets; ● Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and ● Level 3 – Unobservable inputs. The recorded amounts of inventory, other current assets, accounts payable, and accrued expenses approximate their fair value due to their short-term nature. The carrying amounts of notes payable and convertible notes payable approximate their respective fair values because of their current interest rates payable in relation to current market conditions. The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of February 28, 2022 and 2021: February 28, 2022 Level 1 Level 2 Level 3 Total Liabilities Derivative warrant liability $ - $ 828,232 $ - $ 828,232 Total liabilities $ - $ 828,232 $ - $ 828,232 February 28, 2021 Level 1 Level 2 Level 3 Total Liabilities Derivative warrant liability $ - $ 1,366,375 $ - $ 1,366,375 Total liabilities $ - $ 1,366,375 $ - $ 1,366,375 The Company estimated the fair value of the derivative warrant liability using the Binomial Model (see Note 14). F- 10 E arnings (loss) per share The Company’s earnings (loss) per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock assuming all potential shares had been issued, and the additional shares of common stock were dilutive. Diluted earnings (loss) per share reflects the potential dilution, using the as-if-converted method for convertible debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised The following information sets forth the computation of basic and diluted net increase in the Company's net assets per share resulting from operations for the years ended February 28, 2022 and 2021: Year Ended February 28, 2022 2021 Numerator Net income (loss) $ ( 3,991,863 ) $ 44,748 Adjustment for interest expense on convertible notes - 220,179 Adjusted net income (loss) $ ( 3,991,863 ) $ 264,927 Denominator Denominator for basic weighted average share 76,805,616 61,768,215 Adjustment for dilutive effect of convertible notes - 3,435,419 Denominator for diluted weighted average share 76,805,616 65,203,634 Earnings (loss) per share Basic earnings (loss) per share: $ ( 0.05 ) $ 0.00 Diluted earnings (loss) per share $ ( 0.05 ) $ 0.00 For the years ended February 28, 2022, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following: February 28, 2022 February 28, 2021 Warrants 4,800,834 5,662,272 Options 5,059,769 3,040,002 Convertible notes 3,749,961 - Total 13,610,564 8,702,274 Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows (see Note 3). Segments The Company operates in one segment for the manufacture and delivery of generator sets. In accordance with the “ Segment Reporting ” Topic of the ASC, the Company’s chief operating decision maker has been identified as the President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a small business filer, the standard will be effective for the Company for interim and annual reporting periods beginning after March 1, 2023. Management is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures. F- 11 In August 2020, the FASB issued ASU No. 2020-06 (“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 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. ASU 2020-06 will be effective March 1, 2024, for the Company and is to be adopted through a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting for its convertible debt instruments. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options . ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have a material impact on the Company’s financial statements or disclosures. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future financial statements. NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS The financial statements for the year ended February 28, 2021 and certain balances as of February 29, 2020 have been restated. On May 31, 2022, our management determined the following: ● that the Company erroneously did not recognize a derivative warrant liability associated with warrants issued in prior years that included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As such, the Company determined that the warrants fundamental transaction provision created a derivative liability pursuant to current accounting guidelines. ● that the Company had issued common stock in exchange for a settlement of debt to a former employee during fiscal 2018 and had erroneously not accounted for it until fiscal 2021. ● that the Company had granted stock options during fiscal 2021 which were erroneously not recorded. The effects on the previously issued financial statements are as follows: (A) In fiscal 2022, the Company recognized that previously issued warrants had characteristics of derivative liabilities. The Company determined the fair value of the warrant derivative liability as of February 29, 2020, was $ 947,271 , and recorded the liability and its associated expense as a prior period adjustment to Accumulated Deficit in the amount of $ 947,271 . Additionally, the warrant derivative liability was revalued at February 28, 2021 and the net increase in fair value of $ 419,103 was recorded as additional liability. The associated other net expense of $ 432,714 for the increase in fair value, partially offset by the gain on expiring warrants of $ 13,611 , was recorded to the statement of operations. (B) In fiscal 2022, the Company recognized that during fiscal 2021, the Company recorded the effect of issuing common stock for debt to a former employee when the issuance had occurred in fiscal 2018. To correct the timing of recording the transaction, the Company calculated the gain on the extinguishment of debt as of the February 28, 2018, issuance date in the amount of $ 256,044 and recorded the gain as a prior period adjustment to Accumulated Deficit. Additionally, the interest expense associated with the debt of $ 13,460 and gain on its extinguishment of $ 133,500 recorded in fiscal 2021 were reversed out of the statement of operations. € In fiscal 2022, the Company recognized that certain stock options granted during fiscal 2021 should have been fully or partially vested in the year of grant but had no share-based compensation expense recorded in fiscal 2021. To correct the timing of the expense recognition, the Company computed the amount of expense associated with the vesting as of February 28, 2021, and recorded an additional $ 258,636 of stock-based compensation expense to the statement of operations and is included in selling, general and administrative expenses. F- 12 Reclassifications (1) In fiscal 2021, the Company presented interest accrued of $ 3,668 on its Economic Injury Disaster Loan as additional note payable principle. In the accompanying fiscal 2022 financial statements, the Company has reclassified the accrued interest of $ 3,668 recorded in fiscal 2021 from notes payable to accrued interest. (2) In fiscal 2021, the Company presented $ 2,713,652 of extinguishment of accrued wages and accounts payable as Other Income. In the accompanying fiscal 2022 financial statements, the $ 2,713,652 has been reclassified to gain on extinguishment of debt. The following table presents the effect of the restatements and reclassifications on the Company’s previously issued balance sheet: As of February 28, 2021 As Previously Reported Adjustments Reclassifications As Restated Notes Accrued expenses (including accrued interest) $ 1,288,107 $ - $ 3,668 $ 1,291,775 [1] Note payable 159,922 - ( 3,668 ) 156,255 [1] Derivative warrant liability - 1,366,375 - 1,366,375 [A] Additional paid-in capital 446,126,640 ( 136,004 ) - 446,249,272 [B] 258,636 - [C] Accumulated deficit $ ( 465,883,499 ) $ ( 1,366,375 ) $ - $ ( 467,372,506 ) [A] 136,004 - [B] ( 258,636 ) - [C] The following table presents the effect of the restatements and reclassifications on the Company’s previously issued statement of operations: As of February 28, 2021 As Previously Reported Adjustments Reclassifications As Restated Notes Selling, general and administrative expense $ 1,318,602 $ 258,636 $ - $ 1,577,238 [C] Interest expense 1,293,409 ( 13,460 ) - 1,279,949 [B] Gain on extinguishment of debt 866,887 ( 133,500 ) 2,713,652 3,447,039 [2] Gain on extinguishment of derivative warrant liability - 13,611 - 13,611 [A] Change in fair value of derivative warrant liability - ( 432,714 ) - ( 432,714 ) [A] Other income 2,720,652 - ( 2,713,652 ) 7,000 [2] Net income $ 842,528 $ ( 797,780 ) $ - $ 44,748 Net income per share, basic and diluted $ 0.01 $ 0.00 F- 13 The following table presents the effect of the restatements on the Company’s previously issued statement of shareholder deficit: Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Total Shareholders’ Deficit Balance, February 29, 2020, as previously reported 56,400,874 $ 5,639 $ 443,417,452 $ ( 466,726,027 ) $ ( 23,302,937 ) Prior period revisions 192,641 19 130,977 ( 691,227 ) ( 560,231 ) Corrections of errors ( 4,469 ) - Balance, February 29, 2020, as restated 56,589,046 $ 5,658 $ 443,548,428 $ ( 467,417,254 ) $ ( 23,863,168 ) Balance, February 28, 2021, as previously reported 71,107,442 $ 7,109 $ 446,126,640 $ ( 465,883,499 ) $ ( 19,749,750 ) Prior period revisions - - 122,632 ( 1,489,007 ) ( 1,366,375 ) Corrections of errors ( 4,433 ) - Balance, February 28, 2021, as restated 71,103,009 $ 7,109 $ 446,249,272 $ ( 467,372,506 ) $ ( 21,116,125 ) The following table presents the effect of the restatements and reclassifications on the Company’s previously issued statement of cash flows: As of February 28, 2021 As Previously Reported Adjustments Reclassifications As Restated Notes Cash flows from operating activities: Net income $ 842,528 $ ( 797,780 ) $ - $ 44,748 [A] [B] [C] Gain on extinguishment of liabilities ( 3,585,639 ) 133,500 5,100 ( 3,447,039 ) [B] Gain on debt settlement ( 71,775 ) ( 71,775 ) Gain on extinguishment of derivative warrant liability - ( 13,611 ) - ( 13,611 ) [A] Change in fair value of derivative warrant liability - 432,714 - 432,714 [A] Share-based compensation expense 193,750 258,636 - 452,386 [C] Changes in working capital assets and liabilities: Operating lease right-to-use asset - - 7,220 7,220 Accounts payable and accrued expenses 99,839 - ( 185,308 ) ( 85,469 ) [1] Accrued interest on notes payable 847,987 ( 13,460 ) 251,983 1,086,510 [B] [1] Operating lease liability ( 10,564 ) - ( 7,220 ) ( 17,784 ) Supplemental schedule of non-cash transactions: Notes payable converted into shares of common stock $ 267,000 $ ( 267,000 ) $ - $ - [B] NOTE 4 – INVENTORIES Inventories consisted of the following: February 28, 2022 February 28, 2021 Raw materials $ 129,836 $ 91,739 Work-in-process 14,421 - Finished goods - 2,427 Total inventory $ 144,257 $ 94,166 F- 14 NOTE 5 – PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consisted of the following: February 28, 2022 February 28, 2021 Prepaid annual software licenses $ 94,907 $ - Prepaid commissions 73,390 63,500 Vendor advances 35,500 37,400 Other prepaid expenses 51,656 14,303 Total other current assets $ 255,453 $ 115,203 Equity method investment (written off in fiscal 2020) In March 2017, the Company entered into a joint venture (“Jiangsu Shengf”ng") with a Chinese company to build and distribute AuraGen® products in China. The Chinese partner owns 51 % of Jiangsu Shengfeng and contributed facilities and equipment of approximately $ 9.75 million, and approximately $ 500,000 of working capital. The Company owns 49 % of Jiangsu Shengfeng and contributed $ 250,000 of working capital as well as a limited license. In September, 2018, Jiangsu Shengfeng placed a $ 1,000,000 order with the Company which included an advance payment of $ 700,000 . The Company failed to deliver products in accordance with the order received. In November 2019, the Company issued a note payable for the $ 700,000 due to Jiangsu Shengfeng (see Note 10) as part of an agreement for the repayment of the advance subject to Jiangsu Shengf’ng's continuance of operations. However, starting in January 2020, Jiangsu Shengfeng’s operations were shut down by governmental authorities due to the COVID-19 virus, and as of the date of this filing, its operations have not restarted. As of February 28, 2020, the Company wrote off its equity interest in Jiangsu Shengfeng. NOTE–6 - PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: February 28, 2022 2021 Leasehold improvements $ 56,530 $ - Machinery and equipment 276,762 15,613 Vehicle 96,334 - Computer equipment 59,816 - Furniture and fixtures 10,592 - 500,034 15,613 Less accumulated depreciation and amortization ( 15,508 ) ( 743 ) $ 484,526 $ 14,870 Depreciation expense for the years ended February 28, 2022 and 2021 was $ 14,765 and $ 743 , respectively: NOTE 7 – CONVERTIBLE NOTES PAYABLE Convertible notes payable consisted of the following: February 28, 2022 February 28, 2021 Convertible notes payable $ 1,402,971 $ 1,402,971 Non-current - ( 1,402,971 ) Current $ 1,402,971 $ - F- 15 In Fiscal 2013 and 2014, the Company issued six convertible notes payable in the aggregate of $ 4,000,000 . As of February 28, 2022 and 2021, the outstanding balance of the convertible notes payable amounted to $ 1,402,971 . The notes are unsecured, bear interest at 5 % per annum and are convertible to shares of common stock at a conversion price of $ 1.40 per share, as adjusted. The notes were originally due in 2014 to 2017, and were all amended in 2018 and the maturity date for all the notes was changed to January 11, 2023. At February 28, 2022 and 2021, accrued interest on convertible notes payable totaled $ 284,063 and $ 213,884 , respectively, and is included in accrued expenses (See Note 11). NOTE 8 – CONVERTIBLE NOTE PAYABLE-RELATED PARTY Convertible note payable – related party consisted of the following: February 28, 2022 February 28, 2021 Convertible note payable $ 3,000,000 $ 3,000,000 Non-current - ( 3,000,000 ) Current $ 3,000,000 $ - On January 24, 2017, the Company entered into a debt refinancing agreement with a former director and current shareholder of the Company. As part of the agreement, the Company issued a $ 3,000,000 convertible note. The convertible note is unsecured, bears interest at 5 % per annum, is due February 2, 2023, and is convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted. At February 28, 2022 and 2021, accrued interest on convertible notes payable-related party totaled $ 562,911 and $ 412,911 , respectively, and is included in accrued expenses (See Note 11). NOTE 9 – NOTES PAYABLE Notes payable consisted of the following: February 28, 2022 February 28, 2021 Secured notes payable (a) Note payable-EID loan $ 150,000 $ 150,000 (b) Notes payable-vehicles and equipment 265,616 - Unsecured notes payable (c) Notes payable-PPP loans - 74,405 (d) Note payable-Abdou - 120,181 (e) Note payable-other-in default 10,000 10,000 Total $ 425,616 $ 354,586 Non-current 327,658 156,255 (a) Economic Injury Disaster (EID) 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 (“EID Loan”) program. On July 1, 2020, the Company received a $150,000 loan 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 loan is due July 1, 2050, interest accrues at 3.75% per annum, and is secured by the assets of the Company . F- 16 (b) Notes payable-vehicle and equipment During fiscal 2022, the Company purchased two pieces of equipment and a vehicle for $329,297 as a part of its efforts to expand its operations and research and development capacities. The Company made down payments aggregating $41,300 with the balance financed by two notes payable aggregating $287,997. The notes are secured by the equipment and vehicle purchased. One note is due in 36 equal monthly payments of approximately $6,100 each, including interest at 2.9% per annum. The second note is due in 72 equal monthly payments of approximately $1,500 each, including interest at 10.9% interest per annum. As of February 28, 2022, the balance of the notes was $265,616. (c) Paycheck Protection Plan (PPP) Loans On April 23, 2020, the Company was granted a Paycheck Protection Program (“PPP”) loan in the amount of $ 74,405 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP matures on April 23, 2022, bears interest at a rate of 1 % per annum, with the first six months of interest deferred, and is unsecured and guaranteed by the SBA. The Company applied ASC 470, Debt, to account for the PPP loan. Funds from the PPP loan may only be used for qualifying expenses, including qualifying payroll costs, qualifying group health care benefits, qualifying rent and debt obligations, and qualifying utilities. The Company used the loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses. The Company applied for the forgiveness of the PPP Loan, and in April 2021 the Company was notified that the PPP loan, including accrued interest, was being forgiven under the terms of the PPP program. As a result, the Company recorded other income of approximately $ 75,100 , representing the forgiven principal and interest. In March 2021, the Company applied for and received a second PPP loan (“PPP-2”) in the amount of approximately $ 91,200 pursuant to CARES Act, as amended to allow a second loan. The terms of the PPP-2 loan were essentially the same as under the original PPP loan. The Company applied for the forgiveness of the PPP-2 loan, and in January 2022 we were notified that the PPP-2 loan, including accrued interest, was being forgiven under the terms of the PPP program. As a result, the Company recorded other income of approximately $ 92,000 , representing the forgiven principal and interest. Total gain on extinguishment of debt recorded for the PPP and PPP-2 loans is $ 167,104 (d) Abdou On June 20, 2013, the Company issued convertible notes payable to two individuals in the aggregate of $ 125,000 . The notes were due June 20, 2014. The loans were not paid when due, and in September 2019, the note holders and the Company reached a settlement for past due principal, accrued interest, and fees of approximately $325,000. As of February 28, 2020, the outstanding balance of the settlement note was $215,181. During the year ended February 28, 2021, the Company paid $95,000 of the note, and as of February 28, 2021, the outstanding balance was $120,181. During the year ended February 28, 2022, the Company paid the remaining balance of $120,181. (e) Other notes payable Demand promissory notes as of February 28, 2022 and February 28, 2021 are for one individual issued in September 2015 that is payable on demand with an interest rate of 10 % per annum. During the year ended February 28, 2021, an aggregate of $743,386, consisting of $491,537 of demand notes principal and $251,849 of accrued interest, was extinguished as the related statute of limitations were determined to have expired (see Note 12). F- 17 At February 28, 2022 and 2021, accrued interest on notes payable totaled $ 36,541 and $ 28,822 , respectively, and is included in accrued expenses (See Note 11). NOTE 10 – NOTES PAYABLE-RELATED PARTIES-IN DEFAULT Notes payable-related parties consisted of the following: February 28, 2022 February 28, 2021 Unsecured notes payable (a) Notes payable-Koppel-in default $ 5,607,323 $ 5,607,323 Accrued interest-Koppel-in default 6,533,318 5,710,464 Subtotal-Koppel-in default 12,140,641 11,317,787 (b) Note payable- Gagerman-in default 82,000 82,000 Accrued interest-Gagerman-in default 73,428 65,228 Subtotal-Gagerman-in default 155,428 147,228 (c) Note payable-Jiangsu Shengfeng-in default 700,000 700,000 Total $ 12,996,069 $ 12,165,015 Non-current - - Current $ 12,996,069 $ 12,165,015 (a) Kopple Notes In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $ 6,107,323 . Robert Kopple was the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. The notes are unsecured, bear interest at rates ranging from 5 % and 15 % per annum, and were due in fiscal 2014 through fiscal 2018. At February 28, 2022 and 2021, the accrued interest due to Kopple totaled $ 6,533,318 and $ 5,710,464 , respectively. Due to its significance, the balance of accrued interest is added to the note payable principal for presentation on the accompanying balance sheets. As of February 28, 2022 and 2021, the outstanding balance of the Kopple notes payable and accrued interest amounted to $ 12,140,641 and $ 11,317,787 , respectively. Kopple brought suit against the Company beginning in 2017 for repayment of the notes. On March 14, 2022, the Company reached an agreement with Kopple to resolve all remaining litigation between them. Under the terms of the settlement, the Company agreed to pay Kopple an aggregate amount of $ 10,000,000 , and granted Koppel warrants exercisable into 3,331,664 shares of the Company’s common stock. The fair value of the warrants is estimated to be $ 1,000,000 , resulting in total consideration to Kopple of approximately $11,000,00 (see Note 19). (b) Note payable-Gagerman In April 2014, the Company issued a note payable to Gagerman, former CEO and CFO of the Company, for $ 82,000 . The note is unsecured, bears interest at a rate of 10 % per annum and matured in March 2019. At February 28, 2022 and 2021, accrued interest on notes payable-Gagerman totaled $ 73,428 and $ 65,228 , respectively, and is added to the note principal for presentation on the accompanying balance sheets. As of February 28, 2022 and 2021, the outstanding balance of the Gagerman notes payable and accrued interest amounted to $ 155,428 and $ 147,228 , respectively. F- 18 (c) Jiangsu Shengfeng Note On November 20, 2019, the Company reached an agreement with its joint venture partner Jiangsu Shengfeng (see Note 5) regarding the return of $ 700,000 that had been advanced to the Company, and the Company issued a non-interest-bearing promissory note for $ 700,000 to be paid over a 11-month period beginning March 15, 2020, through February 15, 2021. As of February 28, 2022 and February 28, 2021, the principal due was $ 700,000 , respectively. As of February 28, 2022, the note is past due and deemed in default. NOTE 11 – ACCRUED EXPENSES Accrued expenses consisted of the following: February 28, 2022 February 28, 2021 (As Restated) Accrued payroll and related expenses $ 431,597 $ 547,412 Accrued interest-convertible notes payable 284,063 213,884 Accrued interest-convertible notes payable related party 562,911 412,911 Accrued interest-notes payable 36,541 28,822 Other accrued expenses 377,061 88,746 $ 1,692,173 $ 1,291,775 NOTE 12 – GAIN ON EXTINGUISHMENT OF DEBT During fiscal 2021, the Company recorded a gain on extinguishment of debt primarily related to the cancellation of liabilities following the expiration of the statute of limitations on such debt. The Company obtained a legal opinion with conclusions that support the Company’s position that the statute of limitations for all potential claims owed by the Company on approximately $ 2,704,000 of accrued wages and vendor payables, and notes payable and accrued interest of approximately $ 743,000 , had expired pursuant to various precedents. Accordingly, the Company recorded a gain on extinguishment of debt of $ 3,447,039 in the accompanying statement of operations for the year ended February 28, 2021. NOTE 13 – LEASES During fiscal 2021, our facilities consisted primarily of an approximate 20,000 square feet facility in Stanton, California and an additional storage facility in Santa Clarita, California. Effective February 28, 2021, we vacated the Stanton facility and consolidated our administrative, production operations including warehousing within an approximately 18,000 square foot facility in Lake Forest, California. The Lake Forest lease is for 66-months effective February 2021 through August 31, 2026. The initial monthly base rental rate was approximately $22,000 per month and escalates 3% each year to approximately $26,000 per month in 2026. The lease liability was determined by discounting the future lease payments under the lease terms using a 10 % per annum discount rate to arrive at the current lease liability. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made and excludes lease incentives. F- 19 The components of lease expense and supplemental cash flow information related to leases for the period are as follows: Year ended February 28, 2022 Year ended February 28, 2021 Lease Cost Operating lease cost (included in general and administration in the Company’s statement of operations) $ 279,000 $ 170,000 Other Information Cash paid for amounts included in the measurement of lease liabilities for the years ended February 28, 2022 $ 222,000 $ - Weighted average remaining lease term – operating leases (in years) 4.5 5.5 Average discount rate – operating leases 10.0 % 10.0 % The supplemental balance sheet information related to leases for the period is as follows: At February 28, 2022 Operating leases Long-term right-of-use assets $ 1,000,467 Short-term operating lease liabilities $ 179,450 Long-term operating lease liabilities 867,484 Total operating lease liabilities $ 1,046,934 Maturities of the Company’s lease liability is as follows: Year Ending February 28: Operating Lease 2023 $ 275,000 2024 283,000 2025 292,000 2026 300,000 2027 128,000 Total lease payments 1,278,000 Less: Imputed interest/present value discount ( 231,066 ) Present value of lease liabilities $ 1,046,934 F- 20 NOTE 14 – DERIVATIVE WARRANT LIABILITY The Company issued warrants in prior years that include a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. The Company determined that the warrants do not satisfy the criteria for classification as equity instruments due to the existence of the cash settlement feature that is not within the sole control of the Company, and the warrants are accounted for as liabilities in accordance with ASC 815. The fair value of the warrants is remeasured at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of operations. The warrant liability will ultimately be converted into the Company’s equity when the warrants are exercised, or will be extinguished on the expiration of the outstanding warrants. The following tables summarize the derivative warrant liability: February 28, 2022 February 28, 2021 Stock price $ 0.41 $ 0.35 Risk free interest rate 1.0 % 1.8 % Expected volatility 170 % 232 % Expected life in years 0.98 2.0 Expected dividend yield 0 % 0 % Number of warrants 4,800,834 5,662,272 Fair value of derivative warrant liability $ 828,232 $ 1,366,375 Number of Warrants Outstanding Fair Value of Derivative Warrant Liability February 29, 2020 (As Restated) 5,816,939 $ 947,272 Change in fair value of derivative warrant liability - 432,714 Gain on extinguishment on expiration of warrants ( 154,667 ) ( 13,611 ) February 28, 2021 (As Restated) 5,662,272 $ 1,366,375 Change in fair value of derivative warrant liability - ( 476,603 ) Gain on extinguishment on expiration of warrants ( 861,438 ) ( 61,540 ) February 28, 2022 4,800,834 $ 828,232 NOTE 15 – STOCKHOLDERS’ DEFICIT Common Stock On February 28, 2022 and February 28, 2021, the Company had 150,000,000 shares of $ 0.0001 par value common stock authorized for issuance. During the year ended February 28, 2022, the Company issued an aggregate of 12,016,095 shares of its common stock as follows: ● The Company sold 10,199,665 shares of common stock for net proceeds of $ 2,652,860 in a private placement. ● The Company issued 1,571,429 shares of common stock with a fair value of $ 550,000 for settlement of debt. ● The Company issued 245,001 shares of common stock for services with a fair value of $ 73,500 . The common shares were valued based on the closing price of the Company’s shares of common stock on the respective dates of issuances. During the year ended February 28, 2021, the Company issued an aggregate of 14,513,963 shares of its common stock as follows: ● The Company sold 14,098,327 shares of common stock for net proceeds of $ 2,146,000 in a private placement. ● The Company issued 415,636 shares of common stock with a fair value of $ 103,909 for settlement of debt. F- 21 Stock Options A summary of the Company’s stock option activity is as follows: Number of Shares Exercise Price Weighted Average Intrinsic Value Total options, February 29, 2020 (As Restated) 1,040,001 $ 1.40 $ - Granted 4,250,000 0.38 225,000 Exercised - - - Cancelled - - - Total options, February 28, 2021 (As Restated) 5,290,001 $ 0.77 $ 225,000 Granted - - - Exercised - - - Cancelled ( 230,232 ) 1.40 - Total options, February 28, 2022 5,059,769 $ 0.55 $ 360,000 Exercisable, February 28, 2022 5,059,769 $ 0.55 $ 360,000 The exercise prices and information related to options under the 2011 Plan outstanding on February 28, 2022 is as follows: 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 5,059,769 5,059,769 3.25 $ 0.55 $ 0.55 During the year ended February 28, 2021, the Board of Directors granted options to purchase an aggregate of 2,750,000 shares of the Company’s common stock to the Company’s President and members of the Board of Directors. Options exercisable into 2,250,000 shares have an exercise price of $ 0.25 per share, and options exercisable into 500,000 shares have an exercise price of $ 0.50 per share. Options exercisable into 2,000,000 shares vested immediately, and options exercisable into 750,000 shares vest over 12 months. The 2,750,000 options expire in five years . The aggregate fair value of the options was determined to be $ 576,879 using a Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 222 % to 226 %, (ii) discount rate of 0.16 % to 0.57 %, iii) zero expected dividend yield, and (iv) expected life of 2.5 years to 3 years. In February 2021, the Company’s Board of Directors authorized the grant of 1,500,000 stock options at an exercise price of $ 0.50 per share as compensation for advisors to the Board. As of February 28, 2022 and 2021, these options have not been issued as the proposal to renew the employee stock option plan needs to be approved by the shareholders at an annual meeting. Upon approval, the 1,500,000 stock options will be issued. The options vest over 12 months, and expire in five years . Although the options have not been issued, the commitment to issue existed when granted by the Board. As a result, the fair value of the authorized grant was determined to be $ 487,600 using a Black-Scholes option pricing model based on the following assumptions: (i) volatility rate of 226 %, (ii) discount rate of 0.34 %, iii) zero expected dividend yield, and (iv) expected life of 3 years. The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the stock options granted is estimated using the “simplified” method, whereby the expected term equals the average of the vesting term and the original contractual term of the stock option. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future. F- 22 During the years ended February 28, 2022 and 2021, the Company recognized stock-based compensation of $ 612,093 and $ 452,386 related to the fair value of vested stock options. Employee Stock Option Plans In September 2009, the Company’s shareholders approved the 2006 Employee Stock Option Plan (as amended, the “2006 Plan”). Under the 2006 Plan, the Company may grant options for up to 10,000,000 or 15 % of the number of shares of Common Stock of Aura outstanding from time to time. As of February 28, 2022 and 2021, no options remain outstanding under the 2006 Plan as the last remaining options expired during fiscal 2020, and no options are available for grant under the 2006 Plan as the authorized term of the plan has expired. In October 2011, the Company’s shareholders approved the 2011 Director and Executive Officers Stock Option Plan (the “2011 Plan”). Under the 2011 Plan, the Company may grant options, or warrants, for up to 15 % of the number of shares of Common Stock of the Company outstanding from time to time. Pursuant to this plan, the Board or a committee of the Board may grant an option to any person who is elected or appointed a director or executive officer of the Company. The exercise price of each option shall be at least equal to the fair market value of such shares on the date of grant, and the term of the options may not be greater than five years. During the year ended February 28, 2022, there were no options granted under the 2011 Plan. During the year ended February 28, 2021, the Company issued 2,750,000 stock options under the 2011 Plan. Warrants Number of Warrants Exercise Price Outstanding, February 29, 2020 5,816,939 $ 1.40 Granted - - Exercised - - Cancelled ( 154,667 ) 1.40 Outstanding, February 28, 2021 5,662,272 $ 1.40 Granted - - Exercised - - Cancelled ( 861,438 ) 1.40 Outstanding, February 28, 2022 4,800,834 $ 1.40 There was no intrinsic value as of February 28, 2022, as the exercise prices of these warrants were greater than the market price of the Company’s stock. The exercise prices and information related to the warrants under the 2011 Plan outstanding on February 28, 2022 is as 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 4,800,834 4,800,834 0.98 $ 1.40 $ 1.40 F- 23 NOTE 16 – INCOME TAXES For the year ended February 28, 2022, the Company had no income tax expense. For the year ended February 28, 2021, the Company recorded an income tax expense of $ 800 for state franchise taxes. FY2022 FY2021 Current: Federal $ - $ - State - 800 Total current $ - $ 800 Deferred: Federal $ - $ - State - - Total deferred $ - $ - Total Provision $ - $ 800 The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate: FY2022 FY2021 Federal tax benefit at statutory rate 21 % 21 % State tax benefit, net of federal benefit 7 % 7 % Change in valuation allowance ( 28 )% ( 28 ) % Total 0 % 0 % The following table summarizes our deferred tax asset at February 28, 2022, and February 28, 2021: FY2022 FY2021 Deferred tax asset Net operating loss carryforwards $ 42,141,000 $ 46,999,000 Gross deferred tax assets 42,141,000 46,999,000 Valuation allowance ( 42,141,000 ) ( 46,999,000 ) Net deferred tax asset (liability) $ - $ - The provisions of ASC Topic 740, Accounting for Income Taxes, require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. For the years ended February 28, 2022 and 2021, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was more likely than not that the net deferred tax assets were not fully realizable. Accordingly, the Company established a full valuation allowance against its net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. During the years ended February 28, 2022 and 2021, the valuation allowance decreased by $ 4.8 million and $ 5.8 million, respectively. At February 28, 2022, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income. For Federal purposes the amounts available were approximately $ 168.4 million and for state purposes the amounts available were approximately $ 96.8 million. The Federal carryforwards expire on various dates through 2042 and the state carryforwards expire through 2039. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s NOL may be limited as a result of changes in stock ownership. The Company’s operations are based in California and it is subject to Federal and California state income tax. Tax years after 2017 are open to examination by United States and state tax authorities. The Company adopted the provisions of ASC 740, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. ASC 740 also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions. As of February 28, 2022 and 2021, no liability for unrecognized tax benefits was required to be recorded or disclosed. F- 24 Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of February 28, 2022, and February 28, 2021, we have no accrued interest and penalties related to uncertain tax positions. We are subject to taxation in the U.S. and California. Our tax years for 2014 and forward are subject to examination by our tax authorities. We are not currently under examination by any tax authority. The Company has failed to file its California tax returns for the years ended February 28, 2015 thru February 28, 2022 due to its inability to pay the minimum annual franchise tax payment of $800. The balance of accrued income taxes related to unpaid California franchise tax of $4,800 represents six years of minimum taxes due. NOTE 17 – RELATED PARTY TRANSACTIONS As of February 28, 2022 and 2021, Bettersea LLC (“Bettersea”) was an 11.0 % and 10.4 %, respectively, shareholder in the Company. For the years ended February 28, 2022 and 2021, the Company incurred total fees to Bettersea of $ 137,500 and $ 131,300 , respectively, for consulting services. As of February 28, 2022 and 2021, a total of $ 218,507 and $ 602,501 , respectively, was due to Bettersea and included in accounts payable and accrued expenses.. During fiscal 2022, the Company issued 1,285,714 shares of common stock with a fair value of $450,000 for the settlement of accounts payable of $450,000 due to Bettersea. Also during fiscal 2022, the Company issued 285,715 shares of common stock with a fair value of $100,000 for the settlement of accounts payable of $100,000 due to the Company’s President. During fiscal 2021, the Company issued 415,636 common shares with a fair value of $103,909 for the settlement of accounts payable of $103,909 due to a 50% owner of Bettersea. There were no gains or losses recognized on these transactions. NOTE 18 – CONTINGENCIES The Company is subject to legal proceedings and claims 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 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 Note 19) F- 25 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. NOTE 19 – SUBSEQUENT EVENTS In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $ 5,607,323 (see Note 10). The notes were due in fiscal 2014 through fiscal 2018. As of February 28, 2022 and 2021, the outstanding balance of the Kopple notes payable and accrued interest amounted to $ 12,140,641 and $ 11,317,787 , respectively. Kopple brought suit against the Company beginning in 2017 for repayment of the notes. On March 14, 2022, the Company reached an agreement with Kopple to resolve all remaining litigation between them. Under the terms of the settlement, the Company agreed to pay Kopple an aggregate amount of $10,000,000, including $3,000,000 to be paid by June 8, 2022, and granted Koppel warrants exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share. The fair value of the warrants is estimated to be $1,000,000, resulting in total consideration to Kopple of approximately $11,000,00. Pursuant to current accounting guidelines, the Company will only recognize any gain on the settlement of the Kopple notes and accrued interest of $12,140,161 upon completion of all settlement payments. 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. The settlement provides for certain increases in the amount payable to Kopple and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations. Subsequent to February 28, 2022, the Company issued 1,153,666 shares of common stock in exchange for cash proceeds of $ 346,100 . F-26