What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-01-13 compared with 2022-10-07 · 264 added, 227 removed, 208 unchanged (70% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

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as other statements regarding matters that are not historical fact, constitute forward-looking statements.

We caution investors that any

forward-looking statements presented in this Report are based on the beliefs of, assumptions made by, and information currently available

We caution investors that

any forward-looking statements presented in this Report are based on the beliefs of, assumptions made by, and information currently available

Such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties

and factors that are beyond our control or ability to predict.

Although we believe that our assumptions are reasonable, they are not guarantees

of future performance and some will inevitably prove to be incorrect.

As a result, our actual future results may differ from our expectations,

and those differences may be material.

Accordingly, investors should use caution in relying on forward-looking statements to anticipate

future results or trends.

Some of the risks and uncertainties that may cause

our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include

the following:

Our ability to generate positive cash flow from operations;

Our ability to obtain additional financing to fund our operations;

The impact of economic, political and market conditions on us and our customers;

The impact of unfavorable results of legal proceedings;

Our exposure to potential liability arising from possible errors and omissions, breach of fiduciary duty, breach of duty of care, waste of corporate assets and/or similar claims that may be asserted against us;

Our ability to compete effectively against competitors offering different technologies;

Our business development and operating development;

Our expectations of growth in demand for our products;

Other risks described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended February 28, 2022, issued on June 21, 2022 (as the same may be updated from time to time in subsequent quarterly reports), which discussion is incorporated herein by this reference.

Although we believe that our assumptions are reasonable, they are not

guarantees of future performance and some will inevitably prove to be incorrect.

As a result, our actual future results may differ from

our expectations, and those differences may be material.

Accordingly, investors should use caution in relying on forward-looking statements

to anticipate future results or trends.

Some of the risks and uncertainties that may

cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements

include the following:

Our ability to generate

positive cash flow from operations;

Our ability to obtain

additional financing to fund our operations;

The impact of economic,

political and market conditions on us and our customers;

The impact of unfavorable

results of legal proceedings;

Our exposure to potential

liability arising from possible errors and omissions, breach of fiduciary duty, breach of duty of care, waste of corporate assets

and/or similar claims that may be asserted against us;

Our ability to compete

effectively against competitors offering different technologies;

Our business development

and operating development;

Our expectations of

growth in demand for our products;

Other risks described

under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks discussed

in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors”

in our Annual Report on Form 10-K for the year ended February 28, 2022, issued on June 21, 2022 (as the same may be updated from

time to time in subsequent quarterly reports), which discussion is incorporated herein by this reference.

We do not intend to update or revise any forward-looking

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As a result, you should not place undue reliance on these forward-looking statements.

Our business is based on the exploitation of our

Axial Flux Induction solution known as the AuraGen ® for commercial and industrial applications and the VIPER for military

Our business is based on the exploitation of

our Axial Flux Induction solution known as the AuraGen ® for commercial and industrial applications and the VIPER for military

applications.

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the impact of COVID-19 on our operations.

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.

Our engineering, research and development costs for the three months ended November 30, 2022

and the three months ended November 30, 2021 were approximately $229,000 and $208,000, respectively.

Engineering, research and development

costs for the nine months ended November 30, 2022 and the nine months ended November 30, 2021 were approximately $640,000 and $371,000,

respectively.

During the nine months ended November 30, 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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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.

$3 million payment and the due date for the remainder of the initial payment was extended to January 2023 in exchange for $105,000 in

extension fees paid through the date of this filing and an additional $230,000 in forbearance fees which are to be paid with the final

installment of all accrued interest in approximately March 2030.

The extension and forbearance 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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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.

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.

The Company recognizes revenue in accordance

with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,

Revenue from Contracts with Customers.

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.

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.

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.

The Company determines whether a contract is,

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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.

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.

of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.

Recognition of compensation expense for non-employees is in the same period and manner

as if the Company had paid cash for services.

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

Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.

Derivative Financial Instruments

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including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

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.

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

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

first three 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

disruption, we implemented certain measures to manage costs, preserve liquidity and enhance employee safety.

These measures included the

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;

These measures included

the following:

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.

Deferral of discretionary

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

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 three quarters of fiscal year 2023, and could be impactful

for the balance of Fiscal 2023.

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.

During the nine-month period ended November 30, 2022, the Company reported

a net loss of approximately $2,582,000, and used cash in operating activities of approximately $2,254,000, and at November 30, 2022, had

a stockholders’ deficit of approximately $20.2 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

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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

Substantial additional capital resources will be required to fund continuing expenditures related to our research, development,

manufacturing and business development activities.

The Company’s continuation as a going concern is dependent upon its ability to

generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing,

and ultimately to attain profitability.

profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease

business altogether.

Substantial additional capital resources will be required to fund continuing expenditures related to our research,

development, manufacturing and business development activities.

The Company’s continuation as a going concern is dependent upon

its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional

financing, and ultimately to attain profitability.

During the next twelve months we intend to continue

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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.

anticipate being able to obtain new sources of funding to support these actions in the fourth fiscal quarter of Fiscal 2023 and in the

upcoming fiscal year.

Results of Operations

Three months ended August 31, 2022 compared

to three months ended August 31, 2021

Three months ended November 30, 2022 compared

to three months ended November 30, 2021

Net revenue was approximately $53,800 for the

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

three-months ended November 30, 2022 (“Fiscal Q3 2023”) compared to approximately $58,400 for the three-months ended November

30, 2021 (“Fiscal Q3 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

Fiscal Q2 2023 compared to approximately $46,900 in Fiscal Q2 2022.

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

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

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

During Fiscal Q3 2023, we delivered 7 generator units and 2 other ECU units as compared to 3

generator/ECU systems 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 $26,000

in Fiscal Q3 2023 compared to approximately $58,000 in Fiscal Q3 2022.

This resulted in a gross profit of approximately $27,700, or a

gross margin of 52%, and approximately $300 gross profit or essentially breakeven, in Fiscal Q3 2023 and Fiscal Q3 2022, respectively.

The almost zero gross profit and breakeven margin in the Fiscal Q3 2022 period was largely influenced by the low volume of shipments

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

Q3 2023 period showed improvement in gross profit as the production volume has started to increase somewhat and the non-production time

of the operations team was redirected to research and development related activities.

Engineering, research and development expenses

were approximately $229,000 in Fiscal Q3 2023, compared to approximately $208,000 in the Fiscal Q3 2022 period, or an increase of 10%.

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.

Fiscal Q3 2023 reflects an augmented development program as compared to Fiscal Q3 2022 for the engineering of several new product designs,

as well as increased testing, including increased staffing costs of approximately $44,000 and software costs licensing costs of approximately

These increases were partially offset by a reduction in recruiting expenses, as Fiscal Q3 2022 included the acquisition cost

of the new Chief Scientist.

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

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

$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 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.

expense decreased by approximately $122,700 or 16% to approximately $622,300 in the Fiscal Q3 2023 period from approximately $745,100

in the Fiscal Q3 2022 period.

The decrease during Fiscal Q3 2023 was principally associated with the reduction of approximately $163,200

in share-based compensation costs related to the vesting options granted in Fiscal 2021, reduction of public relations marketing expense

of approximately $73,500 and a reduction of approximately $44,400 in legal expenses.

These decreases in expenses were partially offset

by a (i) increased salary and fringe benefit expenses of approximately $92,000, including the addition of the Company’s Chief Financial

Officer, (ii) higher expenses of approximately $49,000 occupancy and equipment related expenses, (iii) higher accounting fees of approximately

$10,700 related to the review of the Company’s financial statements for filing the 10-Q for Fiscal Q2 2023, and (iv) an overall

net increase of approximately $6,100 in all other selling and administrative expenses as compared to the Fiscal Q3 2022 period.

Interest expense in Fiscal Q3 2023 decreased

approximately $10,600 or 4%, to approximately $260,300 from approximately $270,900 in the Fiscal Q3 2022 period.

The reduction in interest

expense in Fiscal Q3 2022 principally reflects a change in the interest amount recorded due to the settlement of the Kopple litigation.

Fiscal Q3 2022 included approximately $205,200 in interest expense on the Kopple notes that were being disputed.

The settlement of the

Kopple litigation resulted in the conversion of the Kopple notes payable into a new note, which does not begin to accrue interest until

payment of the initial $3.0 installment.

The payment date was extended and is to be paid by November 2022.

The extension fee of $30,000

paid in Fiscal Q3 2022 and the accrued but unpaid forbearance fee of $130,000 were classified as additional interest, resulting in approximately

$45,200 lower interest expense related to the Kopple notes as compared to Fiscal Q3 2022.

(See Note 15 and Part II- Item 3 – Legal

Proceedings ).

The overall reduction in interest was partially offset by approximately $41,700 of interest recorded for overdue accounts

payable and equipment loans.

Other expense in the Fiscal Q3 2023 period was

approximately $180,500 which represents the unfavorable change in the fair value of the derivative warrant liability for the three-months,

measured as of November 30, 2022.

Comparatively, the revaluation of the derivative warrant liability in Fiscal Q3 2022, measured as of

November 30, 2021, resulted in an unfavorable change in the fair value of approximately $734,100 for the three-month period.

Net loss for the three-month period of Fiscal

Q2 2023 decreased by approximately $166,900, to a loss of approximately $766,000 from a restated net loss of approximately $932,900 in

the three-month period of Fiscal Q2 2022.

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

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

Q3 2023 decreased by approximately $693,400, to a loss of approximately $1,264,200 from a restated net loss of approximately $1,957,400

in the three-month period of Fiscal Q3 2022.

This was attributed to (i) reduction of the net loss related to derivative liability valuation

of approximately $553,600, (ii) less interest expense of approximately $10,600, and (iii) the decreased operating loss of approximately

Nine months ended November 30, 2022 compared

to nine months ended November 30, 2021

Net revenue was approximately $70,400 for the

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

nine-months ended November 30, 2022 (“Fiscal YTD 2023”) compared to approximately $84,500 for the nine-months ended November

30, 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.

During Fiscal YTD 2023, we delivered 7 generator units and 3 other ECU units as compared to

4 generator/ECU systems delivered and 2 other ECU units in the same nine-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 $55,800

in Fiscal YTD 2023 compared to approximately $154,300 in Fiscal YTD 2022.

This resulted in a gross profit of approximately $14,600, or

a gross margin of 21%, and approximately $69,700 gross loss and a gross margin loss of 83%, in Fiscal YTD 2023 and Fiscal YTD 2022, respectively.

The gross loss and related gross margin loss for Fiscal YTD 2022 was 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.

YTD 2023 period showed improvement resulting in a modest gross profit as the production volume has started to increase somewhat and more

importantly, the non-production time of the operations team was redirected to research and development related activities as the Company

has focused more on the development and testing of new designs in Fiscal YTD 2023.

Engineering, research and development expenses

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Fiscal YTD 2023 reflects

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

the continuation of the increased development program, including additional staffing costs for the engineering team, analytical software

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

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

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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

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

legal costs of $134,700 primarily related to the settlement of the Kopple litigation and a complaint related to the Company’s former

Chief Executive Officer, Mel Gagerman, (ii) additional salary other wage-related expenses of approximately $329,600, including the addition

of the Company’s Chief Financial Officer, (iii) higher accounting fees of approximately $67,500 related to the audit and review

of the Company’s financial statements for filing the 10-K for Fiscal 2022 and the 10-Q reports for Fiscal Q1and Q2 2023, (iv) occupancy

costs and amortization of newly acquired equipment and related software expenses of $67,200, and (v) an overall net increase of approximately

$40,400 in all other selling and administrative expenses as compared to the Fiscal YTD 2022 period.

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offset by a reduction of approximately $489,600 in share-based compensation costs related to the vesting options granted in Fiscal 2021

and a reduction of public relations marketing expense of approximately $73,500.

Interest expense in Fiscal YTD 2023 decreased

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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.

fees of $75,000 paid through November 30, 2022 and the accrued but unpaid forbearance fee of $130,000 were classified as additional interest,

resulting in approximately $414,900 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

$95,800 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.

approximately $560,300 which represents the favorable change in the fair value of the derivative warrant liability for the nine-months,

measured as of November 30, 2022.

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

of November 30, 2021, resulted in an unfavorable change in the fair value of approximately $594,700 for the nine-month period.

YTD 2022 also included a gain on the extinguishment of derivative liability of $44,620 associated with warrants that expired during the

nine-month period.

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 nine-month period of Fiscal

YTD 2023 decreased by approximately $1,213,700, to a loss of approximately $2,582,400 from a restated net loss of approximately $3,796,000

in the nine-month period of Fiscal YTD 2022.

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

of approximately $1,155,000 and (ii) less interest expense of approximately $443,800, which were partially offset by (i) increased operating

loss of $261,100 and (ii) a $75,100 gain on forgiveness of debt, and (iii) an approximately $4,300 gain on debt settlement.

Liquidity and Capital Resources

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.

During the nine-month period ended November 30, 2022, the Company reported

a net loss of approximately $2,582,400, and used cash in operating activities of approximately $2,254,000, and at November 30, 2022, had

a stockholders’ deficit of approximately $20.2 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 $2,582,400 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

nine-month period ended November 30, 2022 as compared to the nine-month period ended November 30, 2021 restated net loss of approximately

$3,796,000 was due to the first nine 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

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 November 30, 2022, we had cash of approximately

$220,300, compared to cash of approximately $150,200 at February 28, 2022.

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

Subsequent to November 30, 2022, the Company issued 442,424

shares of common stock in exchange for cash proceeds of approximately $146,000.

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

Working capital deficit at November 30, 2022 was a $12.6

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 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 28, 2022.

At August 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 November 30, 2022 and February 28, 2022, we had no accounts receivable.

Prior to Fiscal 2020, in order to maintain liquidity,

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to customers.

We cannot assure the reader that additional financing will be available nor that the commercial targets will be met in the

amounts required to keep the business operating.

The issuance of additional shares of equity in connection with such financing could dilute

the interests of our existing stockholders, and such dilution could be substantial.

If we cannot raise the needed funds, we would also

be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our

current business plan and ultimately our viability as a company.

We cannot assure the reader that additional financing will be available nor that the commercial targets will be met in

the amounts required to keep the business operating.

The issuance of additional shares of equity in connection with such financing could

dilute the interests of our existing stockholders, and such dilution could be substantial.

If we cannot raise the needed funds, we would

also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement

our current business plan and ultimately our viability as a company.

In March 2022, the Company reached a settlement

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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 November

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

2023, after which, interest will accrue on the unpaid balance at a rate of 6%, compounded annually.

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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;

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.

2 unchanged sentences

Legal Proceedings” and

“Part IV, Item 15, Note 19 to the Financial Statements” included in the Company’s Annual Report on Form 10-K filed with

the SEC on June 21,2022 for information regarding the dispute and settlement with Mr.

“Part IV, Item 15, Note 19 to the Financial Statements” included in the Company’s Annual Report on Form 10-K filed

with the SEC on June 21,2022 for information regarding the dispute and settlement with Mr.

Kopple regarding these transactions.

4 unchanged sentences

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