AURA SYSTEMS INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements This Report contains forward-looking statements within the meaning of the federal securities laws. Statements other than statements of historical fact included in this Report, including the statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding future events or prospects are forward-looking statements. The words “approximates,” “believes,” “forecasts,” “expects,” “anticipates,” “estimates,” “intends,” “plans” “would,” “could,” “should,” “seek,” “may,” or other similar expressions in this Report, as well 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 to, us. 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; and ● 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 statements, whether because of new information, future events or otherwise except to the extent required by law. You should interpret all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf as being expressly qualified by the cautionary statements in this Report. As a result, you should not place undue reliance on these forward-looking statements. 22 Overview 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. Our business model consists of two major components: (i) sales and marketing, (ii) design and engineering. Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas. In North America, our primary focus is in (a) mobile exportable power applications, (b) EV applications, (c) U.S. Military applications and (d) industrial applications. The second component of our business model is focused on the design of new products and engineering support for the sales activities described above. The engineering support consists of the introduction of new features for our AuraGen ® /VIPER solution such as higher power/torque solutions, and different input and output voltages (DC and AC input and output versions). In Fiscal 2020 stockholders of the Company successfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s Board of Directors and elected Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company in their stead. See Item 3, Legal Proceedings for more information. Also, in Fiscal 2020, Melvin Gagerman –– Aura’s CEO and CFO since 2006 –– was replaced. In July 2019 Ms. Lavut succeeded Mr. Gagerman as President and Mr. Mann succeeded Mr. Gagerman as CFO. Dr. Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019. In the second half of Fiscal 2020, the Company began significantly increasing its engineering, manufacturing and marketing activities. From July 8, 2019 through the end of Fiscal year 2022 (February 28, 2022), we shipped more than 140 units to customers (more than a ten-fold increase over Fiscal 2019). Although our operations were impacted in Fiscal 2022 and Fiscal 2021 by the COVID-19 pandemic, during these periods we continued to expand our engineering and manufacturing capabilities. See “Item 1. Business. Impact of the COVID-19 Pandemic” included in our Annual Report on Form 10-K for Fiscal 2022 for information regarding the impact of COVID-19 on our operations. 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. During Fiscal 2018 and Fiscal 2019, the Company’s engineering, manufacturing, sales, and marketing activities were reduced while we focused on renegotiating numerous financial obligations. During this time, the Company’s agreements with numerous customers, third party vendors, and organizations and entities material to the operation of the Company business were canceled, delayed or terminated. During Fiscal 2018, the Company successfully restructured in excess of $30 million of debt. Robert Kopple, our former Vice Chairman of the Board, was the only significant unsecured note holder that did not execute formal agreements regarding the restructure of his debt. See “Item 3. Legal Proceedings” included in our Annual Report on Form 10-K for Fiscal 2022 filed with the SEC on June 21, 2022 and Part II, Other Information Item 1, contained in this Quarterly Report for information regarding the dispute and settlement with Mr. Kopple regarding these transactions. In March 2022, the Company reached a settlement that resolves the various claims asserted against us by Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”). Under the terms of the settlement, we have agreed to pay an aggregate amount of $10 million over a period of seven years; $3 million of which is to be paid within approximately four months of the settlement date, after which, interest will accrue on the unpaid balance at a rate of 6%, compounded annually. 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 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 reverse stock split and began increasing our engineering and manufacturing activities. 23 Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial conditions and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. The full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated for these key estimates and assumptions. However, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent that there are differences between these estimates and actual results, our financial statements may be materially affected. 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. Inventories Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. Leases The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. Share-Based Compensation The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services. The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services. Derivative Financial Instruments The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined by using a Binomial pricing model. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in the statement of operations. 24 Impact of COVID-19 The COVID-19 global pandemic has negatively affected the global economy, disrupted global supply chains, and created extreme volatility and disruptions to capital and credit markets in the global financial markets. We began to see the impact of COVID-19 during our fourth quarter of Fiscal 2020 with our Chinese joint venture’s manufacturing facilities being required to close and many of our customers suspending their own operations due to the COVID-19 pandemic. 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 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 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; and ● 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 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 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 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 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. 25 During the next twelve months we intend to continue to attempt to increase the Company’s operations and focus on the sale of our AuraGen®®/VIPER products both domestically and internationally and to add to our existing management team. In addition, we plan to source new suppliers for manufacturing operations, 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 fourth fiscal quarter of Fiscal 2023 and in the upcoming fiscal year. Results of Operations 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 November 30, 2022 (“Fiscal Q3 2023”) compared to approximately $58,400 for the three-months ended November 30, 2021 (“Fiscal Q3 2022”). 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. The Fiscal 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%. 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 $25,000. 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 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. 26 Net loss for the three-month period of Fiscal 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 $129,200. Nine months ended November 30, 2022 compared to nine months ended November 30, 2021 Net revenue was approximately $70,400 for the 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 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. The Fiscal 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 were approximately $639,700 in Fiscal YTD 2023, compared to approximately $370,600 in the Fiscal YTD 2022, or an increase of 73%. During 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 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”) expense increased by approximately $76,300 or 4% to approximately $2,028,500 in the Fiscal YTD 2023 period from approximately $1,952,200 in the Fiscal YTD 2022 period. 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. These increased expenses were partially 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 approximately $443,800 or 48%, to approximately $489,100 from approximately $932,900 in the Fiscal YTD 2022 period principally due to (i) Fiscal YTD 2022 including an approximately $56,700 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 $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 $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. Fiscal 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. 27 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 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 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 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 November 30, 2022, we had cash of approximately $220,300, compared to cash of approximately $150,200 at February 28, 2022. 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 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 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 November 30, 2022 and February 28, 2022, we had no accounts receivable. Prior to Fiscal 2020, in order to maintain liquidity, we relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and will require additional debt or equity financing to fund ongoing operations. Based on a cash flow analysis performed by management, we estimate that we will need an additional $5 million to maintain existing operations for Fiscal 2023 and increase the volume of shipments 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. In March 2022, the Company reached a settlement with the Kopple Parties that resolves all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, we have agreed to pay an aggregate amount of $10 million over a period of seven years; $3 million of which 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. 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. 28 We consider the transactions described above with Mr. Kopple to be related party transactions. See “Item 3. 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. Kopple regarding these transactions. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, we are not required to provide disclosure under this Item 3.