What changed in this filing

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Item 1. Financial Statements

2022-10-07 compared with 2022-07-18 · 266 added, 245 removed, 543 unchanged (48% of the section changed)

21 unchanged sentences

Total current liabilities

Notes payable

Note payable-related party

Operating lease liability

Notes payable, net of current portion

Note payable-related party, net of current portion

Operating lease liability, net of current portion

Total liabilities

4 unchanged sentences

150,000,000 shares authorized;

85,235,769 and 83,119,104 issued and outstanding at May 31, 2022 and February 28, 2022, respectively.

89,179,437 and 83,119,104 issued and outstanding at August 31, 2022 and February 28, 2022, respectively.

Additional paid-in capital

11 unchanged sentences

Three-Months Ended

Six-Months Ended

(As Restated)

Cost of goods sold

Gross profit (loss)

Operating expenses

Engineering, research and development (including $ 34,000 , $ 46,000 , $ 68,700 and $ 82,000 to related party, respectively)

Selling, general and administration

Selling, general & administration

Total operating expenses

1 unchanged sentence

( 1,830,200 )

( 1,439,956 )

Other income (expense):

Interest expense, net

Interest expense, net (including $ 84,874 , $ 247,278 , $ 124,748 and $ 494,558 to related parties,

respectively)

Change in fair value of derivative warrant liability

Gain on extinguishment of derivative warrant liability

Gain on debt settlement

Gain on extinguishment of PPP loans

Gain on extinguishment of derivative warrant liability, net

Change in fair value of derivative warrant liability

Loss before tax provision

( 1,318,164 )

( 1,838,443 )

Income tax provision

$ ( 765,963 )

$ ( 932,855 )

$ ( 1,318,164 )

$ ( 1,838,572 )

Basic and diluted loss per share

3 unchanged sentences

CONDENSED STATEMENTS OF SHAREHOLDERS’

and Six Months Ended August 31, 2022

Shareholders’

Balance, February 28, 2021 (As Restated)

Balance, February 28, 2022

$ 450,136,522

2 unchanged sentences

Common shares issued for cash

Share-based compensation

Balance, May 31, 2021 (unaudited) (As Restated)

Fair value of warrants issued for note settlement

Balance, May 31, 2022 (unaudited)

( 471,916,570 )

( 20,085,503 )

Common shares issued for cash

Balance, August 31, 2022 (unaudited)

$ 452,855,789

Balance, February 28, 2022

$ ( 472,682,533 )

$ ( 19,817,826 )

and Six Months Ended August 31, 2021

Shareholders’

Balance, February 28, 2021 (As Restated)

$ 446,249,272

$ ( 467,372,506 )

$ ( 21,116,125 )

Common shares issued for cash

Fair value of warrants issued for note settlement

Balance, May 31, 2022 (unaudited)

Share-based compensation

Balance, May 31, 2021 (unaudited) (As Restated)

( 468,278,223 )

( 21,575,623 )

Common shares issued for cash

Common shares issued for settlement of debt-related parties

Share-based compensation

Balance, August 31, 2021 (unaudited) (As Restated)

$ 448,112,961

$ ( 469,211,078 )

$ ( 21,090,386 )

See accompanying notes to these unaudited financial

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(As Restated)

3 unchanged sentences

Depreciation and amortization

Inventory write-down

Gain on extinguishment of PPP loan

10 unchanged sentences

Cash used in operating activities

( 1,498,653 )

( 1,287,409 )

Cash used in investing activities:

11 unchanged sentences

Fair value of warrants issued for note settlement

Accounts payable converted into shares of common stock

Accrued expenses converted into shares of common stock

See accompanying notes to these unaudited financial

11 unchanged sentences

The accompanying unaudited condensed financial

statements as of and for the three months ended May 31, 2022 and 2021, have been prepared have been prepared in conformity with accounting

principles generally accepted in the United States of America (“U.S.

GAAP”) and the applicable rules and regulations of the

Securities and Exchange Commission (the “SEC”) regarding interim financial reporting.

Certain information and note disclosures

normally included in the financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules

and regulations.

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

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

The Condensed Balance Sheet information as

of February 28, 2022, was derived from the Company’s audited Financial Statements as of February 28, 2022, included in the Company’s

Annual Report on Form 10-K filed with the SEC on June 21, 2022.

These financial statements should be read in conjunction with that report.

The results of operations for the period ended May 31, 2022, may not necessarily be indicative of the results that may be expected for

the full fiscal year ending February 28, 2023.

statements as of and for the three months and six months ended August 31, 2022 and 2021, have been prepared have been prepared in conformity

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

GAAP”) and the applicable rules and regulations

of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting.

Certain information and note

disclosures normally included in the financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant

to such rules and regulations.

In the opinion of management, the unaudited condensed financial statements reflect all adjustments of a

normal recurring nature that are necessary for a fair presentation of the results for the periods presented.

The Condensed Balance Sheet

information as of February 28, 2022, was derived from the Company’s audited Financial Statements as of February 28, 2022, included

in the Company’s Annual Report on Form 10-K filed with the SEC on June 21, 2022.

These financial statements should be read in conjunction

with that report.

The results of operations for the three-month and six-month periods ended August 31, 2022, may not necessarily be indicative

of the results that may be expected for the full fiscal year ending February 28, 2023.

The Company’s fiscal year ends on the last

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prepared assuming that the Company will continue as a going concern.

During the three-month period ended May 31, 2022, the Company reported

a net loss of approximately $ 552,000 and used cash in operating activities of approximately $ 722,000 , respectively.

These factors raise

substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements

In addition, the Company’s independent registered public accounting firm, in its report on the Company’s February

28, 2022, financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

The financial

statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

During the six-month period ended August 31, 2022, the Company reported

a net loss of approximately $ 1,318,000 , and used cash in operating activities of approximately $ 1,499,000 , and at August 31, 2022, had

a stockholders’ deficit of approximately $ 19.8 million.

These factors raise substantial doubt about the Company’s ability

to continue as a going concern within one year of the date that the financial statements are issued.

In addition, the Company’s

independent registered public accounting firm, in its report on the Company’s February 28, 2022, financial statements, raised substantial

doubt about the Company’s ability to continue as a going concern.

The financial statements do not include any adjustments that might

be necessary if the Company is unable to continue as a going concern.

In the event the Company is unable to generate

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used in valuing derivative liabilities, assumptions used in valuing share-based compensation, and accruals for potential liabilities.

Amounts could materially change in the future.

Actual results could differ from those estimates.

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(“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets;

2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly

or indirectly;

3 – Unobservable inputs.

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;

Level 3 – Unobservable inputs.

The recorded amounts of inventory, other current

4 unchanged sentences

The following table sets

forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of May 31, 2022 and February

forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of August 31, 2022 and February

August 31, 2022

Derivative warrant liability

4 unchanged sentences

The Company estimated the fair value of the derivative

warrant liability using the Binomial Model.

warrant liability using a binomial model.

Loss per share

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debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised.

For the three-months ended May 31, 2022 and May

For the six-months ended August 31, 2022 and August

31, 2021, the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have had an

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ASU 2016-13 is effective for the Company

beginning January 1, 2023, and early adoption is permitted.

The Company does not believe the potential impact of the new guidance and

related codification improvements will be material to its financial position, results

beginning March 1, 2023, and early adoption is permitted.

The Company does not believe the potential impact of the new guidance and related

codification improvements will be material to its financial position, results

Other recent accounting pronouncements issued

3 unchanged sentences

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED

UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED AUGUST 31, 2021

The unaudited condensed financial statements for

the three months ended May 31, 2021 and certain balances as of February 28, 2021 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 by prior management 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.

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.

the Company had granted stock options during Fiscal 2021 which were erroneously not recorded.

the six months ended August 31, 2021 and certain balances as of February 28, 2021 have been restated.

During the fourth quarter of fiscal

2022, our management determined the following:

that the Company erroneously did not recognize a derivative warrant liability associated with warrants issued by prior management 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 by prior management had characteristics of derivative liabilities.

The Company determined

the fair value of the warrant derivative liability, including its initial recording and revaluation for changes in fair value and expiring

warrants, as of February 28, 2021, was $ 1,366,375 , and recorded the liability and its associated expense as a prior period adjustment

to Accumulated Deficit in the amount of $ 1,366,375 .

Additionally, the warrant derivative liability was revalued at May 31, 2021 and the

net decrease in fair value of $ 127,420 was recorded as a reduction to the liability.

The associated other income of $ 127,420 was recorded

to the statement of operations and consisted of a gain for the decrease in fair value of $ 82,800 and a gain on expiring warrants of $ 44,620 .

(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

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.

The resulting net impact of these prior period adjustments for the Fiscal

2022 beginning balance is a decrease to Additional paid-in capital of $ 136,004 and a corresponding $ 136,004 decrease in Accumulated deficit.

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

share-based compensation expense to the statement of operations.

The resulting net impact of these prior period adjustments for the Fiscal

2022 beginning balance is an increase to Additional paid-in capital of $ 258,636 and a corresponding $ 258,636 increase in Accumulated

Additionally, in order to correct the timing of the expense recognition as it continued into Fiscal 2022, the Company recorded

an additional $ 16,933 of share-based compensation expense to the statement of operations for the three-month period ended May 31, 2022.

Fiscal 2022, the Company recognized that certain stock options granted during Fiscal 2021 were being recorded as payroll compensation

expense in Fiscal 2022.

Restatement item (C) noted above properly recognizes the amount and timing of the share-based compensation expense,

which results in the need to reverse the payroll compensation recorded in Fiscal 2022.

For the three-month period ended May 31, 2021,

payroll compensation expense of $ 92,625 was reversed out of the statement of operations, and the associated liability in Accrued expenses

was reduced by the same amount.

(A) In Fiscal 2022, the Company recognized that previously issued warrants by prior management had characteristics of derivative liabilities.

The Company determined the fair value of the warrant derivative liability, including its initial recording and revaluation for changes in fair value and expiring warrants, as of February 28, 2021, was $ 1,366,375 , and recorded the liability and its associated expense as a prior period adjustment to Accumulated Deficit in the amount of $ 1,366,375 .

Additionally, the warrant derivative liability was revalued at May 31, 2021 and August 31, 2021 and the net decreases in fair value of $ 56,640 and $ 127,420 were recorded as reductions to the liability.

The associated other income of $ 56,640 for the three-month period ended August 31, 2021 was recorded to the statement of operations as a gain for the decrease in the fair value of the derivative warrant liability.

The associated aggregate other income of $ 184,060 for the six-month period ended August 31, 2021 was recorded to the statement of operations and consisted of a gain for the decrease in fair value of $ 139,440 and a gain on expiring warrants of $ 44,620 .

(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.

The resulting net impact of these prior period adjustments for the Fiscal 2022 beginning balance is a decrease to Additional paid-in capital of $ 136,004 and a corresponding $ 136,004 decrease in Accumulated deficit.

(C) 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 share-based compensation expense to the statement of operations.

The resulting net impact of these prior period adjustments for the Fiscal 2022 beginning balance is an increase to Additional paid-in capital of $ 258,636 and a corresponding $ 258,636 increase in Accumulated deficit.

Additionally, in order to correct the timing of the expense recognition as it continued into Fiscal 2022, the Company recorded an additional $ 67,592 and $ 84,526 of share-based compensation expense to the statement of operations for the three-month and the six-month periods ended August 31, 2021, respectively, as well as recording the associated increases to Additional paid-in capital in their respective periods.

(D) In Fiscal 2022, the Company recognized that certain stock options granted during Fiscal 2021 were being recorded as payroll compensation expense in Fiscal 2022.

Restatement item (C) noted above properly recognizes the amount and timing of the share-based compensation expense, which results in the need to reverse the payroll compensation recorded in Fiscal 2022.

For the three-month and six-month periods ended August 31, 2021, payroll compensation expense of $ 92,624 and $ 185,250 , respectively, was reversed out of the statement of operations, and the associated liability in Accrued expenses was reduced by the same amount.

Reclassifications

Fiscal 2021 and the three months ended May 31, 2021 (“Fiscal Q1 2022”), the Company presented interest accrued of $ 5,125

on its Economic Injury Disaster Loan as additional note payable principle.

In the accompanying condensed financial statements,

the Company has reclassified the cumulative accrued interest of $ 5,125 recorded in fiscal 2021 fiscal Q1 2022 from notes payable to accrued

(1) In Fiscal 2021 and the six-months ended August 31, 2021, the Company presented interest accrued of $ 6,596 on its Economic Injury Disaster Loan as additional note payable principle.

In the accompanying condensed financial statements, the Company has reclassified the cumulative accrued interest of $ 6,596 recorded in Fiscal 2021 and the first six months of Fiscal 2022 from notes payable to accrued interest.

The following table presents the effect of the restatements and reclassifications

on the Company’s previously issued balance sheet:

As of May 31, 2021

As of August 31, 2021

As Previously

1 unchanged sentence

Accrued expenses (including accrued interest)

$ ( 185,250 )

Derivative warrant liability

5 unchanged sentences

The following table presents the effect of the

restatements and reclassifications on the Company’s previously issued statement of operations:

As of May 31, 2021

restatements and reclassifications on the Company’s previously issued statements of operations:

For the three months ended August 31, 2021

As Previously

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Change in fair value of derivative warrant liability

$ ( 1,108,829 )

$ ( 905,717 )

Net loss per share, basic and diluted

For the six months ended August 31, 2021

As Previously

Reclassifications

Selling, general and administrative expense

Gain on extinguishment of derivative warrant liability

Change in fair value of derivative warrant liability

Net loss per share, basic and diluted

The following table presents the effect of the

3 unchanged sentences

( 465,883,499

$ ( 465,883,499 )

$ ( 19,749,750 )

Prior period revisions

( 1,489,007 )

( 1,366,375 )

Corrections of errors

1 unchanged sentence

( 467,372,506

$ ( 467,372,506 )

$ ( 21,116,125 )

Balance, May 31, 2021, as previously reported

$ 446,555,737

$ ( 466,992,328 )

Balance, August 31, 2021, as previously reported

( 468,006,855

Prior period revisions

( 1,489,007 )

( 1,366,375 )

Share-based compensation addition

1 unchanged sentence

Corrections of errors

Balance, May 31, 2021, as restated

$ 446,695,305

$ ( 468,278,223 )

Balance, August 31, 2021, as restated

( 469,211,078

1 unchanged sentence

restatements and reclassifications on the Company’s previously issued statement of cash flows:

As of May 31, 2021

As Previously

For the six months ended August 31, 2021

Reclassifications

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Depreciation expense

for the three months ended May 31, 2022 and 2021 was $ 18,222 and $ 772 , respectively:

for the six months ended August 31, 2022 and 2021 was $ 37,237 and $ 772 , respectively.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

9 unchanged sentences

all amended in 2018 and the maturity date for all the notes was changed to January 11, 2023.

At May 31, 2022 and February

28, 2022, accrued interest on convertible notes payable totaled $ 301,713 and $ 284,063 , respectively, and is included in accrued expenses

(See Note 10).

At August 31, 2022 and

February 28, 2022, accrued interest on convertible notes payable totaled $ 319,394 and $ 284,063 , respectively, and is included in accrued

expenses (See Note 10).

NOTE 7 – CONVERTIBLE NOTE PAYABLE-RELATED

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2023, and is convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

At May 31, 2022 and February

28, 2022, accrued interest on convertible notes payable-related party totaled $ 600,719 and $ 562,911 , respectively, and is included in

accrued expenses (See Note 10).

At August 31, 2022 and

February 28, 2022, accrued interest on convertible notes payable-related party totaled $ 638,527 and $ 562,911 , respectively, and is included

in accrued expenses (See Note 10).

NOTE 8 – NOTES PAYABLE

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(a) Note payable-EID loan

(b) Notes payable-vehicles and equipment

(b) Notes payable-vehicle and equipment

Unsecured notes payable

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The second note is due in 72 equal monthly payments of approximately $1,500 each, including interest at 10.9% interest

As of May 31, 2022 and February 28, 2022, the balance of the notes was $246,534 and $265,616, respectively.

As of August 31, 2022 and February 28, 2022, the balance of the notes was $227,008 and $265,616, respectively.

Demand promissory notes as of May 31, 2022 and

February 28, 2022 are for one individual issued in September 2015 that is payable on demand with an interest rate of 10 % per annum.

Demand promissory notes as of August 31, 2022

and February 28, 2022 are for one individual issued in September 2015 that is payable on demand with an interest rate of 10% per annum.

NOTE 9 – NOTES PAYABLE-RELATED PARTIES

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and accrued interest amounted to $ 12,140,641 .

On March 14, 2022, the Company reached an agreement with Kopple to

resolve all remaining litigation between them, including all amounts owed to Kopple under the notes.

Under the terms of the settlement,

the Company agreed to issue a new note and pay Kopple an aggregate amount of $ 10,000,000 , including $ 3,000,000 to be paid in June 2022,

which was subsequently extended to July 2022 (see Note 16), 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 Company used a Black-Scholes model to compute the fair value of the warrants which is

estimated to be $ 1,051,473 .

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.

On March 14, 2022, the Company reached an agreement

with Kopple to resolve all remaining litigation between them, including all amounts owed to Kopple under the notes.

Under the terms of

the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $ 10,000,000 , including $ 3,000,000 to be paid

in June 2022, which was subsequently extended to November 2022 (see Note 15), 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 Company used Black-Scholes modeling to compute the fair value of

the warrants which is estimated to be $ 1,051,473 .

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.

on the settled Note begins accruing in September 2022.

Pursuant to the settlement agreement, the Company is also subject to certain affirmative

and negative covenants such as periodic submission of financial statements to Koppel and restrictions on future financing and investing

activities, as defined in the agreement.

Management believes such covenants are normal for this type of transaction and that management

believes meeting these covenants will not affect operations.

The Company assessed the settlement with Kopple

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(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 an unsecured demand note and bears interest

at a rate of 10 % per annum.

At May 31, 2022 and February 28, 2022, accrued interest on notes payable-Gagerman totaled $ 75,494 and $ 73,428 ,

respectively, and is added to the note principal for presentation on the accompanying balance sheets.

As of May 31, 2022 and February

28, 2022, the outstanding balance of the Gagerman notes payable and accrued interest amounted to $ 157,494 and $ 155,428 , respectively.

On November 20, 2019, the Company reached an agreement

with its joint venture partner Jiangsu Shengfeng 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

As of May 31, 2022 and February 28, 2022, the principal due was $ 700,000 .

Melvin Gagerman, the

Company’s former CEO and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued

an unsecured demand promissory note to him in the amount of $ 82,000 that bears interest at a rate of 10 % per annum.

Gagerman claims that

this note has not been repaid to-date and is now owed.

In June 2022, Gagerman

brought suit against the Company for repayment of this alleged note.

Despite the fact that, based on Gagerman’s allegations, the

note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s

Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note.

The Company disputes that any

amount is presently owed to Gagerman.

Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion,

violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes

Gagerman committed against the Company (see Note 15).

Based on Gagerman’s

claims, as of August 31, 2022 and February 28, 2022, the outstanding balance of the Gagerman notes payable and accrued interest would

amount to $ 159,560 and $ 155,428 , respectively.

As of August 31, 2022 and February 28, 2022, despite the fact that the Company disputes

Gagerman’s claims, under ASC 450 - Contingencies , the Company has recorded the claimed notes payable and accrued interest

amounts of $ 159,560 and $ 155,428 , respectively, in the accompanying balance sheets.

On November 20, 2019, the Company reached an

agreement with its joint venture partner Jiangsu Shengfeng 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 August 31, 2022 and February 28, 2022, the principal due was $ 700,000 .

NOTE 10 – ACCRUED EXPENSES

Accrued expenses consisted of the following:

Accrued payroll and related expenses

Accrued interest-convertible notes payable

1 unchanged sentence

Accrued interest-notes payable

Subtotal-accrued interest

Accrued payroll and related expenses

Other accrued expenses

As of May 31, 2022 and February 28, 2022, accrued expenses includes accrued

interest, accrued payroll and accrued consulting fees in the aggregate of $ 793,053 and $ 750,322 , respectively, which are due to officers

and shareholders and are considered related party transactions.

As of August 31, 2022 and February 28, 2022, accrued expenses includes

accrued interest, accrued payroll and accrued consulting fees in the aggregate of $ 876,715 and $ 750,322 , respectively, which are due to

officers and shareholders and are considered related party transactions.

NOTE 11 – LEASES

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NOTE 12 – DERIVATIVE WARRANT LIABILITY

In prior years the Company issued warrants 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.

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.

In prior years under prior management, the Company

issued warrants 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

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Fair value of derivative warrant liability

Derivative Warrants

Fair Value of Derivative Warrant Liability

February 28, 2022

1 unchanged sentence

Gain on extinguishment on expiration of warrants

August 31, 2022

NOTE 13 – STOCKHOLDERS’ DEFICIT

During the three-months ended May 31, 2022, the

During the six-months ended August 31, 2022, the

Company issued 6,060,333 shares of common stock for approximately $ 1,668,000 in cash.

During the three-months ended May 31, 2021 the Company

issued 1,865,333 shares of common stock for approximately $ 283,000 .

During the six-months ended August 31, 2021, the

Company issued 4,652,000 shares of common stock for net proceeds of approximately $ 988,000 .

Additionally, during the six-months ended

August 31, 2021, the Company issued 1,571,429 shares of common stock in settlement of accounts payable and accrued expenses to related

parties in the aggregate amount of $ 550,000 .

Stock Options

A summary of the Company’s stock option activity for the three-months

ended May 31, 2022 is as follows:

A summary of the Company’s stock option activity for the six-months

ended August 31, 2022 is as follows:

Outstanding, February 28, 2022

Outstanding, May 31, 2022

Outstanding, August 31, 2022

The exercise prices and information related to options under the 2011

Plan outstanding on May 31, 2022 is as follows:

Plan outstanding on August 31, 2022 is as follows:

Exercise Price

1 unchanged sentence

Stock Options

Contractual Life

$ 0.25 to $ 1.40

The Company granted no stock options under its

stock option 2011 Plan for the three-month period ended May 31, 2022 and the three-month period ended May 31, 2021.

stock option 2011 Plan for the six-month period ended August 31, 2022 and the six-month period ended August 31, 2021.

As a result of stock

options granted during the Fiscal 2021 year, the Company recognized $ 163,218 in share-based compensation expense related to the fair value

of vested stock options in the three-month period ended May 31, 2021.

options granted during the Fiscal 2021 year, the Company recognized $ 163,218 and $ 326,436 in share-based compensation expense related

to the fair value of vested stock options in the three-month and six-month periods ended August 31, 2021.

A summary of the Company’s warrant activity

for the three-months ended May 31, 2022 is as follows:

for the six-months ended August 31, 2022 is as follows:

Outstanding, February 28, 2022

Outstanding, May 31, 2022

There was no intrinsic value as of May 31, 2022,

Outstanding, August 31, 2022

There was no intrinsic value as of August 31,

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 as of May 31, 2022 is as follows:

The exercise prices and

information related to the warrants as of August 31, 2022 is as follows:

Exercise Price

1 unchanged sentence

Stock Warrants

Contractual Life

0.85 to $ 1.40

6 unchanged sentences

The Company determined

the fair value of the Kopple Warrants was $ 1,051,473 using a Black-Scholes model using the assumptions as set forth in the table below:

the fair value of the Kopple Warrants was $ 1,051,473 using Black-Scholes modeling with the assumptions as set forth in the table below:

Warrants Issued

Three-Months Ended

Six-Months Ended

Exercise Price

3 unchanged sentences

NOTE 14 – RELATED PARTY TRANSACTIONS

As of May 31, 2022 and February 28, 2022, Bettersea

As of August 31, 2022 and February 28, 2022, Bettersea

LLC (“Bettersea”) was an 10.3 % and 11.0 %, respectively, shareholder in the Company.

For the three-months ended May 31, 2022

and May 31, 2021, the Company incurred total fees to Bettersea of $ 34,700 and $ 36,000 , respectively, for various consulting services.

As of May 31, 2022 and February 28, 2022, a total of $ 216,507 and $ 218,507 , respectively, was due to Bettersea and included in accounts

payable and accrued expenses.

For the three-months and six-months ended

August 31, 2022 and August 31, 2021, the Company incurred total fees to Bettersea of $ 34,000 , $ 46,000 , $ 68,700 and $ 82,000 , respectively,

for various consulting services.

As of August 31, 2022 and February 28, 2022, a total of $ 218,107 and $ 218,507 , respectively, was due

to Bettersea and included in accounts payable and accrued expenses.

NOTE 15 – CONTINGENCIES

15 unchanged sentences

The remaining balance of approximately $ 171,000 ,

included in accrued expenses, is to be paid no later than September 1, 2022 and accrues interest of 10 % per annum until paid.

included in accrued expenses, is to be paid no later than March 1, 2023 and accrues interest of 10 % per annum until paid.

Since July 2017 the Company has been engaged in

9 unchanged sentences

$3 million of which

was originally to be paid in June 2022 and subsequently extended to July 2022 (see Note 16), 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.

was originally to be paid in June 2022 and subsequently extended to November 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.

On March 26, 2019, various stockholders of the

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

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

On March 27, 2019, those

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

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

These written consents represented a majority

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

of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the

Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming

the validity of the consents and declaring that Aura’s Board consists of Ms.

Diaz-Versón, Jr.

On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs,

confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s

outstanding stock acting by written consent (b) Ms.

Lempert had been validly elected by the holders of a majority

of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists of

Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, Jr.

As a result of prior management’s unsuccessful

opposition to this stockholders’ action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup

their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions.

To date, no final

determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

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.

In March 2019, various stockholders of the Company

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

William Anderson, and Si Ryong Yu as directors of the Company’s Board and electing Cipora Lavut, David Mann and Dr.

Robert Lempert

as directors in their stead.

These written consents represented a majority of the then-outstanding shares of the Company’s

common stock.

Because of the refusal by not only the removed directors but also the Company’s prior management 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

pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents.

8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong

Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written

consent (b) Ms.

Lempert had been validly elected by the holders of a majority of the Company’s outstanding

stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert,

Gary Douglas and Salvador Diaz-Versón, Jr.

As a result of prior management’s unsuccessful opposition to this stockholders’

action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company

under Delaware’s corporate benefit doctrine and/or other legal provisions.

To date, no final determination has been made as to the

amount of recoupment, if any, to which such stockholders may be entitled.

In June 2022, Melvin

Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against

the Company for repayment of an allegedly unsecured demand promissory note presumably in the principal amount of $ 82,000 which he claims

was entered into in April 2014 and bears interest at a rate of 10 % per annum.

Despite the fact that, based on Gagerman’s allegations,

the note was issued during a period when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’s Board of

Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note.

The Company disputes that any amount is

presently owed to Gagerman and has filed a cross-complaint against him for, among things, conversion, violation of California Business

& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura,

including without limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action.

NOTE 16 – SUBSEQUENT EVENTS

In March 2022, the Company reached a settlement agreement with Kopple

(see Note 9) to settle certain debt and accrued interest totaling $ 12,140,641 for $10,000,000, including $3,000,000 due on or before June

28, 2022, and the issuance of warrants exercisable into 3,331,664 shares of the Company’s common stock.

In June 2022, the Company

entered into an amendment to the settlement agreement with Kopple (the “Amendment”).

Pursuant to the Amendment, the Company

agreed to pay an extension fee and make a partial payment towards the $3,000,000 installment.

For the additional consideration and the

partial payment, Kopple agreed to extend the due date for the balance of the installment to July 2022.

In June 2022, the Company made

a partial payment of the first installment and as of the date of this report, has not yet paid the full balance of the $3,000,000 due

In July 2022, Melvin Gagerman, our former CEO and CFO, brought suit

against the Company relating to a 2014 unsecured demand note in the original amount of $ 82,000 .

With interest, Gagerman claims to now

be owed a total of approximately $ 150,000 .

The Company disputes that this note is presently enforceable against the Company and that the

demanded amount is owed to Gagerman.

Subsequent to May 31, 2022, the Company issued

to settle certain debt and accrued interest (see Note 9).

In June and July 2022, the Company entered into two amendments to the settlement

agreement, pursuant to which the Company agreed to pay extension fees and make a partial payment of $150,000 on a first installment of

$3,000,000 initially due in June 2022.

For the additional consideration and partial payment, Kopple agreed to extend the due date for

the balance of the first installment to September 2022.

In September 2022, the Company made an additional extension fee payment to Kopple,

in exchange for Kopple’s agreement to further extend the due date of the balance of the first installment to November 2022.

the date of this report, the Company has not yet paid the balance of the first installment of $2,850,000 due to Kopple.

Subsequent to August 31, 2022, the Company issued

1,492,000 shares of common stock in exchange for cash proceeds of approximately $ 373,000 .

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

What changed 10-Q

Item 1. Financial Statements