What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-07 compared with 2022-07-18 · 194 added, 116 removed, 241 unchanged (56% of the section changed)

76 unchanged sentences

the impact of COVID-19 on our operations.

Our engineering, research and development costs for the three months ended May 31, 2022 and

the three months ended May 31, 2021 were approximately $155,000 and $81,000, respectively.

During the three months ended May 31, 2021,

we relocated all administrative offices and operations to a new state-of-the-art facility consisting of approximately 18,000 square feet

in Lake Forest, California.

Our engineering, research and development costs for the three months ended August 31, 2022 and

the three months ended August 31, 2021 were approximately $244,000 and $82,000, respectively.

Engineering, research and development costs

for the six months ended August 31, 2022 and the six months ended August 31, 2021 were approximately $411,000 and $163,000, respectively.

During the six months ended August 31, 2021, we relocated all administrative offices and operations to a new state-of-the-art facility

consisting of approximately 18,000 square feet in Lake Forest, California.

This new facility is wholly occupied by Aura.

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Robert Kopple, our former Vice Chairman of the Board, was the only significant unsecured note holder

that did not executed formal agreements regarding the restructure of his debt.

that did not execute formal agreements regarding the restructure of his debt.

Legal Proceedings” included in

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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.

A partial payment of $150,000 has been made towards the initial

$3 million payment and the due date for the remainder of the initial payment was extended to November in exchange for $45,000 in extension

fees paid through August 31, 2022 and an additional $30,000 paid in September 2022 (See Note 16).

The extension fees have been classified

as additional interest in the accompanying financial statements.

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.

In Fiscal 2019, we effectuated a one-for-seven

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As a result, net sales and production levels during the fourth quarter of Fiscal 2020, the entirety of Fiscal 2021, Fiscal 2022 and the

first quarter of Fiscal 2023 were significantly reduced, thus impacting our results of operations during these quarters.

first two quarters of Fiscal 2023 were significantly reduced, thus impacting our results of operations during these quarters.

In response to the COVID-19 pandemic and business

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These measures included the

of payroll costs through temporary furloughs;

cleaning and disinfection procedures at our facilities, temperature checks for our workers, promotion of social distancing at our facilities

and requirements for employees to work from home where possible;

of capital expenditures;

Reduction of payroll costs through temporary furloughs;

Enhanced cleaning and disinfection procedures at our facilities, temperature checks for our workers, promotion of social distancing at our facilities and requirements for employees to work from home where possible;

Reduction of capital expenditures;

Deferral of discretionary spending.

The extent of the impact of the COVID-19

pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread

of the COVID-19 outbreak within the U.S.

and globally, the impact on capital and financial markets and the related impact on our customers,

especially in the commercial vehicle markets.

These future developments are outside of our control, are highly uncertain, and cannot be

If the impact is prolonged, then it can further increase the difficulty of planning for operations and may require us to take

further actions as it relates to costs and liquidity.

These and other potential impacts of the COVID-19 pandemic have adversely impacted

our results for the entirety of Fiscal 2021 and Fiscal 2022, the first quarter of fiscal year 2023, and could be impactful for the balance

of Fiscal 2023.

The extent of the impact of the COVID-19 pandemic

on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread of the

COVID-19 outbreak within the U.S.

and globally, the impact on capital and financial markets and the related impact on our customers, especially

in the commercial vehicle markets.

These future developments are outside of our control, are highly uncertain, and cannot be predicted.

If the impact is prolonged, then it can further increase the difficulty of planning for operations and may require us to take further

actions as it relates to costs and liquidity.

These and other potential impacts of the COVID-19 pandemic have adversely impacted our results

for the entirety of Fiscal 2021 and Fiscal 2022, the first two quarters of fiscal year 2023, and could be impactful for the balance of

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 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.

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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Results of Operations

Three months ended May 31, 2022 compared to

three months ended May 31, 2021

Net revenue was approximately $6,300 for the three-months

ended May 31, 2022 (“Fiscal Q1 2023”) compared to approximately $23,900 for the three-months ended May 31, 2021 (“Fiscal

During Fiscal Q1 2023, we delivered 1 generator unit as compared to 3 units delivered in the same quarter in the prior

Revenues continue to be negatively impacted by both the COVID-19 pandemic, as well as a generally low level of resources.

project with confidence the timing or amount of revenue that we can expect despite improvements in the pandemic being under more control

globally including a successful rollout of the vaccine programs.

To increase revenues which were impacted by the economic effects of the

pandemic, the Company needs to augment its marketing and sales efforts substantially.

As the Company’s focus has been on new product

engineering and development, the current limited resources prevent executing the increased selling efforts in the near term.

Three months ended August 31, 2022 compared

to three months ended August 31, 2021

Net revenue was approximately $10,300 for the

three-months ended August 31, 2022 (“Fiscal Q2 2023”) compared to approximately $2,200 for the three-months ended August 31,

2021 (“Fiscal Q2 2022”).

During Fiscal Q2 2023, we delivered 1 unit and provided servicing of 2 other units as compared to

zero units delivered in the same quarter in the prior year.

Revenues continue to be negatively impacted by both the COVID-19 pandemic,

as well as a generally low level of resources.

We cannot project with confidence the timing or amount of revenue that we can expect despite

improvements in the pandemic being under more control globally including a successful rollout of the vaccine programs.

To increase revenues

which were impacted by the economic effects of the pandemic, the Company needs to augment its marketing and sales efforts substantially.

As the Company’s focus has been on new product engineering and development, the current limited resources prevent executing the

increased selling efforts in the near term.

Cost of goods sold was approximately $16,400 in

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This resulted in a gross loss of approximately $6,100, or a gross

margin loss of 113%, and approximately $25,400 gross loss and a gross margin loss of 106%, in Fiscal Q1 2023 and Fiscal Q1 2022, respectively.

margin loss of 59%, and approximately $44,700 gross loss or a gross margin loss of 201%, in Fiscal Q2 2023 and Fiscal Q2 2022, respectively.

The gross loss and related gross margin loss for both the three-month periods were largely influenced by the low volume of shipments in

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Engineering, research and development expenses

were approximately $167,000 in Fiscal Q1 2023, compared to approximately $81,000 in the Fiscal Q1 2022, or an increase of 107%.

Q1 2022 began to see higher level of costs than several of the prior years as the Company restarted its new product development program

beginning with the development of a new electronic control unit (“ECU”).

Fiscal Q1 2023 reflects the continuation of the increased

development program, including costs for engineering several new designs as well as increased testing.

were approximately $244,000 in Fiscal Q2 2023, compared to approximately $82,000 in the Fiscal Q2 2022 period, or an increase of 297%.

During Fiscal 2022 the Company began to see higher level of R&D costs than several of the prior years as the Company restarted its

new product development program beginning with the development of a new electronic control unit (“ECU”).

Fiscal Q2 2023 reflects

an augmented continuation of the development program, including increased staffing costs for engineering several new designs as well as

increased testing.

Selling, general and administration (“SG&A”)

expense increased by approximately $113,400 or 15% to approximately $850,400 in the Fiscal Q1 2023 period from approximately $737,000

in the Fiscal Q1 2022 period.

The increase during Fiscal Q1 2023 was principally associated with (i) higher legal costs of $220,700 related

to the settlement of the Kopple litigation, (ii) additional salary expense of $76,500, including the addition of the Company’s Chief

Financial Officer and (iii) all other expense net increases of approximately $18,900, partially offset by a reduction of approximately

$163,200 in share-based compensation costs related to the vesting options granted in fiscal 2020 and a net reduction of approximately

$39,500 in selling expenses which included the write-off of deferred sales compensation costs determined not to be recoverable in Fiscal

Q1 2022 period.

expense increased by approximately $85,600 or 10% to approximately $555,700 in the Fiscal Q2 2023 period from approximately $470,100 in

the Fiscal Q2 2022 period.

The increase during Fiscal Q2 2023 was principally associated with (i) increased salary and fringe benefit

expenses of approximately $131,000, including the addition of the Company’s Chief Financial Officer, (ii) higher accounting fees

of approximately $50,600 related to the audit and review of the Company’s financial statements for filing the 10-K for Fiscal 2022

and the 10-Q for Fiscal Q1 2023, (iii) expensing approximately $70,800 of prepaid commissions determined to be unrecoverable, (and (iv)

an overall net increase of approximately $4,000 in all other selling and administrative expenses as compared to the Fiscal Q1 2022 period.

These increased expenses were partially offset by a reduction of approximately $163,200 in share-based compensation costs related to the

vesting options granted in Fiscal 2021.

Interest expense in Fiscal Q2 2023 decreased approximately

$188,300 or 70%, to approximately $81,800 from approximately $269,600 in the Fiscal Q1 2022 period due principally to the settlement of

the Kopple litigation which resulted in the conversion of the Kopple notes payable into a new note.

The new note does not begin to accrue

interest until July 2022.

$244,900 or 62%, to approximately $147,500 from approximately $392,400 in the Fiscal Q2 2022 period.

The reduction in interest expense

was due principally to (i) Fiscal Q2 2022 including an approximately $55,000 interest accrual related to the settlement with a former

employee (See Note 15), (ii) Fiscal Q2 2022 including an approximately $68,000 interest accrual for unpaid accounts payable to a related

party, and (iii) the settlement of the Kopple litigation which resulted in the conversion of the Kopple notes payable into a new note.

The new note does not begin to accrue interest until payment of the initial $3.0 installment, which was extended and to be paid by November

The extension fees of $45,000 paid through August 31, 2022 were classified as additional interest, resulting in approximately $162,400

lower interest expense related to the Kopple notes as compared to Fiscal Q2 2022 (See Note 15 and Part II- Item 3 – Legal Proceedings ).

Other income in the Fiscal Q2 2023 period was

approximately $187,400 which represents the favorable change in the fair value of the derivative warrant liability for the three-months,

measured as of May 31, 2022.

Comparatively, the revaluation of the derivative warrant liability in Fiscal Q1 2022, measured as of May

measured as of August 31, 2022.

Comparatively, the revaluation of the derivative warrant liability in Fiscal Q2 2022, measured as of August

31, 2021, resulted in a favorable change in the fair value of approximately $56,600 for the three-month period.

Fiscal Q1 2022 also included

a gain on the extinguishment of derivative liability of $44,620 associated with warrants that expired during the three-month period.

addition, Fiscal Q1 2022 included an approximately $75,100 gain on extinguishment of debt in connection with the forgiveness of 100% of

the principal and accrued interest related to the initial PPP loan obtained by the Company in April 2020.

Net loss for the three-month period of Fiscal

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This was attributed to (i) additional net gain related to derivative liability valuation of

approximately $426,000 and (ii) less interest expense of approximately $188,300, which were partially offset by (i) increased operating

loss of $181,400 and (ii) a $75,100 gain on forgiveness of debt, and (iii) an approximately $4,300 gain on debt settlement.

approximately $130,800 and (ii) less interest expense of approximately $244,900, which were partially offset by the increased operating

loss of approximately $208,900.

Six months ended August 31, 2022 compared to

six months ended August 31, 2021

Net revenue was approximately $16,600 for the

six-months ended August 31, 2022 (“Fiscal YTD 2023”) compared to approximately $26,200 for the six-months ended August 31,

2021 (“Fiscal YTD 2022”).

During Fiscal YTD 2023, we delivered 2 generator units as compared to 3 units delivered in the same

six-month period in the prior year.

Revenues continue to be negatively impacted by both the COVID-19 pandemic, as well as a generally

low level of resources.

We cannot project with confidence the timing or amount of revenue that we can expect despite improvements in the

pandemic being under more control globally including a successful rollout of the vaccine programs.

To increase revenues which were impacted

by the economic effects of the pandemic, the Company needs to augment its marketing and sales efforts substantially.

As the Company’s

focus has been on new product engineering and development, the current limited resources prevent executing the increased selling efforts

in the near term.

Cost of goods sold was approximately $29,800 in

Fiscal YTD 2023 compared to approximately $96,200 in Fiscal YTD 2022.

This resulted in a gross loss of approximately $13,200, or a gross

margin loss of 79%, and approximately $70,100 gross loss and a gross margin loss of 268%, in Fiscal YTD 2023 and Fiscal YTD 2022, respectively.

The gross loss and related gross margin loss for both the six-month periods were largely influenced by the low volume of shipments in

each quarter which reduced our ability to fully absorb fixed operating costs including higher operating costs related to the new facility.

Engineering, research and development expenses

were approximately $410,900 in Fiscal YTD 2023, compared to approximately $162,800 in the Fiscal YTD 2022, or an increase of 252%.

Fiscal 2022, the Company began to see higher level of R&D expenses than several of the prior years as the Company restarted its new

product development program beginning with the development of a new electronic control unit (“ECU”).

Fiscal YTD 2023 reflects

the continuation of the increased development program, including costs for engineering several new designs as well as increased testing.

Selling, general and administration (“SG&A”)

expense increased by approximately $199,100 or 16% to approximately $1,406,200 in the Fiscal YTD 2023 period from approximately $1,207,100

in the Fiscal YTD 2022 period.

The increase during Fiscal YTD 2023 was due to several offsetting factors, including (i) higher legal costs

of $179,200 primarily related to the settlement of the Kopple litigation, (ii) additional salary fringe benefits expense of approximately

$237,800, including the addition of the Company’s Chief Financial Officer, (iii) higher accounting fees of approximately $56,800

related to the audit and review of the Company’s financial statements for filing the 10-K for Fiscal 2022 and the 10-Q for Fiscal

Q1 2023, (iv) amortization of newly acquired equipment and related software expenses of $30,300, and (v) an overall net increase of approximately

$21,400 in all other selling and administrative expenses as compared to the Fiscal YTD 2022 period.

These increased expenses were partially

offset by a reduction of approximately $326,400 in share-based compensation costs related to the vesting options granted in Fiscal 2021.

Interest expense in Fiscal YTD 2023 decreased

approximately $433,200 or 65%, to approximately $228,700 from approximately $661,900 in the Fiscal YTD 2022 period principally due to

(i) Fiscal YTD 2022 including an approximately $55,000 interest accrual related to the settlement with a former employee (See Note 15),

(ii) Fiscal YTD 2022 including an approximately $68,000 interest accrual for unpaid accounts payable to a related party, and (iii) the

settlement of the Kopple litigation which resulted in the conversion of the Kopple notes payable into a new note.

The new note does not

begin to accrue interest until payment of the initial $3.0 installment, which was extended and to be paid by November 2022.

The extension

fees of $45,000 paid through August 31, 2022 were classified as additional interest, resulting in approximately $369,800 lower interest

expense related to the Kopple notes as compared to Fiscal YTD 2022 (See Note 15 and Part II- Item 3 – Legal Proceedings ).

Partially offsetting those reductions in expense, Fiscal YTD 2023 included approximately $59,600 of interest expense on outstanding accounts

payable and equipment loans.

Other income in the Fiscal YTD 2023 period was

approximately $740,800 which represents the favorable change in the fair value of the derivative warrant liability for the six-months,

measured as of August 31, 2022.

Comparatively, the revaluation of the derivative warrant liability in Fiscal YTD 2022, measured as of

August 31, 2021, resulted in a favorable change in the fair value of approximately $139,400 for the six-month period.

Fiscal YTD 2022

also included a gain on the extinguishment of derivative liability of $44,620 associated with warrants that expired during the six-month

In addition, Fiscal YTD 2022 included an approximately $75,100 gain on extinguishment of debt in connection with the forgiveness

of 100% of the principal and accrued interest related to the initial PPP loan obtained by the Company in April 2020.

Net loss for the six-month period of Fiscal YTD

2023 decreased by approximately $520,400, to a loss of approximately $1,318,000 from a restated net loss of approximately $1,838,400 in

the six-month period of Fiscal YTD 2022.

This was attributed to (i) additional net gain related to derivative liability valuation of approximately

$601,300 and (ii) less interest expense of approximately $433,200, which were partially offset by (i) increased operating loss of $390,200

and (ii) a $75,100 gain on forgiveness of debt, and (iii) an approximately $4,300 gain on debt settlement.

Liquidity and Capital Resources

For the three-month period ended May 31, 2022,

we recorded a net loss of approximately $552,200 and used cash in operations of approximately $722,500 and at May 31, 2022, had a stockholders’

deficit of approximately $20.1 million.

These conditions raise substantial doubt regarding our ability to continue as a going concern

for a period of at least one year from the date of issuance of these financial statements.

In addition, the Company’s independent

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

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

The net loss of approximately $552,200 in Fiscal

Q1 2023 as compared to the Fiscal Q1 2022 restated net loss of approximately $905,700 was due to Fiscal Q1 2023 having a significantly

higher non-cash benefit from the change in fair value of the derivative warrant liability and substantially lower interest expense, partially

offset by an increased operating loss, as noted above.

A significant factor in both periods contributing to the negative operating cash

flows is the low level of operating activities caused principally by the COVID-19 pandemic.

As a result of the impacts of the COVID-19

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

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

At May 28, 2022, we had cash of approximately

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 conditions raise substantial doubt regarding

our ability to continue as a going concern for a period of at least one year from the date of issuance of these financial statements.

In addition, the Company’s independent registered public accounting firm, in their report on the Company’s February 28, 2022,

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

The net loss of approximately $1,318,000 in the

six-month period ended August 31, 2022 as compared to the six-month period ended August 31, 2021 restated net loss of approximately $1,838,000

was due to the first six months of Fiscal 2023 having a significantly higher non-cash benefit from the change in fair value of the derivative

warrant liability and substantially lower interest expense, partially offset by an increased operating loss, as noted above.

A significant

factor in both periods contributing to the negative operating cash flows is the low level of operating activities caused principally by

the COVID-19 pandemic.

As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and our access

to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the

availability of sufficient amounts of financing, and our future prospects.

At August 31, 2022, we had cash of approximately

$109,000, compared to cash of approximately $150,000 at February 28, 2022.

Subsequent to May 31, 2022, the Company issued 1,490,000 shares

of common stock in exchange for cash proceeds of approximately $446,900.

Working capital deficit at May 21, 2022 was a $12.4 million deficit

as compared to an $21.7 million deficit at February 28, 2022.

The primary reason for the decrease in the deficit was the reclassification

of approximately $8.1 million in notes payable-related party, including accrued interest, related to Kopple from current liabilities to

Subsequent to August 31, 2022, the Company issued 1,492,000

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

Working capital deficit at August 31, 2022 was a $12.2

million deficit as compared to an $21.7 million deficit at February 28, 2022.

The primary reason for the decrease in the deficit was the

reclassification of approximately $8.1 million in notes payable-related party, including accrued interest, related to Kopple from current

liabilities to long-term.

The reclassification resulted from the Company reaching an agreement with Mr.

Robert Kopple, a related party note holder, to

resolve all litigation between the parties related to notes payable and accrued interest carried at a value of $12.1 million as of February

At May 31, 2022 and February 28, 2022, we had no accounts receivable.

Robert Kopple, a related party

note holder, to resolve all litigation between the parties related to notes payable and accrued interest carried at a value of $12.1 million

as of February 28, 2022.

At August 31, 2022 and February 28, 2022, we had no accounts receivable.

Prior to Fiscal 2020, in order to maintain liquidity,

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million over a period of seven years;

$3 million of which was originally to be paid in June 2022, and subsequently extended to July 2022,

$3 million of which 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.

As of the date of this report, the Company has not yet paid

the full $3,000,000 installment due to Kopple;

having only made a partial payment in June 2022.

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 the date of this report, the Company has not

yet paid the full $3,000,000 installment due to Kopple;

having only made a partial payment of $150,000 in June 2022.

We consider the transactions described above with Mr.

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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 2. Management’s Discussion and Analysis