What changed in this filing

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Item 1. Financial Statements

2023-07-24 compared with 2023-01-13 · 423 added, 661 removed, 192 unchanged (85% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS

(amounts in thousands, except share data)

Current assets

7 unchanged sentences

Current liabilities

Accounts payable (including $ 222,614 and $ 208,507 due to related party, respectively)

Accrued expenses (including $ 998,188 and $ 750,322 due to related party, respectively)

Accounts payable and accrued expenses (including $ 370 and $ 376 due to related party, respectively)

Accrued interest (including $ 1,382 and $ 995 due to related party, respectively)

Customer advances

Convertible notes payable, past due

Convertible note payable-related party, past due

Notes payable, current portion

Convertible notes payable, current portion

Convertible note payable-related party

Notes payable-related parties, current portion

Operating lease liability, current portion

Derivative warrant liability

Warrant derivative liability

Total current liabilities

Notes payable, net of current portion

Note payable-related party, net of current portion

Operating lease liability, net of current portion

Notes payable, non-current portion

Note payable-related party, non-current portion

Operating lease liability, non-current portion

Total liabilities

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150,000,000 shares authorized;

92,616,529 and 83,119,104 issued and outstanding at November 30, 2022 and February 28, 2022, respectively.

97,234,708 and 94,648,346 issued and outstanding at May 31, 2023 and February 28, 2023, respectively.

Additional paid-in capital

Accumulated deficit

( 473,946,727 )

( 471,364,369 )

Total shareholders’ deficit

( 20,150,255 )

( 21,219,535 )

Total liabilities and shareholders’ deficit

4 unchanged sentences

Three Months Ended

Nine-Months Ended

(As Restated)

(amounts in thousands, except share and per share data)

Cost of goods sold

Gross profit (loss)

Operating expenses:

Engineering, research and development (including $ 36 and $ 35 to related party, respectively)

Selling, general & administration

Selling, general and administration

Total operating expenses

Loss from operations

( 2,653,598 )

( 2,392,507 )

Other income (expense):

Interest expense, net (including $ 199,441 , $ 244,593 , $ 324,189 and $ 739,151 to related parties, respectively)

Interest expense, net

Change in fair value of derivative warrant liability

Gain on extinguishment of derivative warrant liability

Gain on debt settlement

Gain on extinguishment of PPP loans

Loss before tax provision

( 1,264,194 )

( 1,957,577 )

( 2,582,358 )

( 3,796,020 )

Income tax provision

$ ( 1,264,194 )

$ ( 1,957,448 )

$ ( 2,582,358 )

$ ( 3,796,020 )

Basic and diluted loss per share

3 unchanged sentences

CONDENSED STATEMENTS OF SHAREHOLDERS’

Three Months and Nine Months Ended November

thousands, except share data)

Shareholders’

1 unchanged sentence

$ ( 471,364 )

$ ( 471,364,369 )

$ ( 21,219,535 )

Common shares issued for cash

2 unchanged sentences

$ ( 471,916 )

( 20,085,503 )

Common shares issued for cash

Balance, August 31, 2022 (unaudited)

$ 452,855,789

$ ( 472,682,533 )

$ ( 19,817,826 )

Common shares issued for cash

( 1,264,194 )

Balance, November 30, 2022 (unaudited)

$ 453,787,210

$ ( 473,946,727 )

$ ( 20,150,255 )

Three Months and Nine Months Ended November

Shareholders’

Balance, February 28, 2021 (As Restated)

$ 446,249,272

$ ( 467,372,506 )

$ ( 21,116,125 )

Common shares issued for cash

Share-based compensation

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

( 468,278,223 )

( 21,575,623 )

Common shares issued for cash

Common shares issued for settlement of debt-related parties

Share-based compensation

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

$ 448,112,961

$ ( 469,211,078 )

Balance, February 28, 2023

$ ( 474,774 )

Common shares issued for cash

Common shares issued for services

Share-based compensation

( 1,957,448 )

Balance, November 30, 2021 (unaudited) (As Restated)

$ 449,229,238

$ ( 471,168,526 )

Balance, May 31, 2023 (unaudited)

$ ( 475,915 )

2 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS

Nine Months Ended

(As Restated)

$ ( 2,582,358 )

$ ( 3,796,020 )

Three Months Ended

(amounts in thousands)

Adjustments to reconcile net loss to cash used in operating activities

Depreciation and amortization

Inventory write-down

Gain on extinguishment of PPP loan

Gain on extinguishment of derivative warrant liability, net

Change in fair value of derivative warrant liability

Gain on debt settlement

Common shares issued for services

Share-based compensation

Changes in operating assets and liabilities:

1 unchanged sentence

Operating lease right-of-use asset

Accounts payable and accrued expenses

Accounts payable, accrued expenses and customer advances

Accrued interest on notes payable

Customer advances

Operating lease liability

Cash used in operating activities

( 2,253,971 )

( 1,966,782 )

Cash used in investing activities:

3 unchanged sentences

Principal payments of notes payable

Proceeds from government assistance loans – PPP loan

Cash provided by financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents-beginning of period

2 unchanged sentences

Supplemental schedule of non-cash transactions:

Reclassification of prepaid expense to property and equipment

Adjustment to interest expense to account for the effective interest rate of note payable

Fair value of warrants issued for note settlement

Accounts payable converted into shares of common stock

Accrued expenses converted into shares of common stock

Acquisition of property and equipment with notes payable

See accompanying notes to these unaudited financial

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS

Three and Nine months ended November 30, 2022

(Amounts in thousands, except share and per

share amounts)

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY

8 unchanged sentences

The accompanying unaudited condensed financial

statements as of and for the three months and nine months ended November 30, 2022 and 2021, have been prepared have been prepared in conformity

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

GAAP”) and the applicable rules and regulations

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

Certain information and note

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

GAAP have been condensed or omitted pursuant

to such rules and regulations.

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

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

The Condensed Balance Sheet

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

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

These financial statements should be read in conjunction

with that report.

The results of operations for the three-month and nine-month periods ended November 30, 2022, may not necessarily be

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

statements as of and for the three months ended May 31, 2023 and 2022, have been prepared have been prepared in conformity with accounting

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

GAAP”) and the applicable rules and regulations of the

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

Certain information and note disclosures

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

GAAP have been condensed or omitted pursuant to such rules

and regulations.

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

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

The Condensed Balance Sheet information as

of February 28, 2023, was derived from the Company’s audited Financial Statements as of February 28, 2023, included in the Company’s

Annual Report on Form 10-K filed with the SEC on May 26, 2023.

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

The results of operations for the period ended May 31, 2023, may not necessarily be indicative of the results that may be expected for

the full fiscal year ending February 28, 2024.

The Company’s fiscal year ends on the last

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Accordingly, the current fiscal year will end on February 28, 2024 and is referred to as “Fiscal 2024”.

Our prior fiscal years ended February 28, 2022 and 2021, and are referred to as “Fiscal 2022” or “Fiscal 2021”.

Our prior fiscal years ended February 28, 2023, February 28, 2022 and 2021, and are referred to as “Fiscal 2023”, “Fiscal

2022” and “Fiscal 2021”, respectively.

Going Concern

1 unchanged sentence

prepared assuming that the Company will continue as a 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.

During the three-month period ended May 31, 2023, the Company reported

a net loss of approximately $ 1,141 and used cash in operating activities of approximately $ 797 , respectively, and at May 31, 2023 the

Company had a stockholders’ deficit of $ 20,546 .

In addition, at May 31,2023, convertible notes payable in the aggregate amount of

$ 4,403 are past due.

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, 2023, 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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to support the operation.

The Company anticipates 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.

As of the date of this filing, there continues

to be widespread concern regarding the ongoing impacts and disruptions caused by the COVID-19 pandemic in the regions in which the Company

Although the impacts of the COVID-19 pandemic have not been material to date, a prolonged downturn in economic conditions could

have a material adverse effect on our customers and demand for our services.

The Company has not observed any impairments of its assets

or a significant change in the fair value of its assets due to the COVID-19 pandemic.

At this time, it is not possible for the Company

to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results

of operations, financial condition, or liquidity.

The Company anticipates being able to obtain new sources of funding to support these actions in the upcoming

As of the date of this filing, the COVID-19 pandemic

has been declared to be officially over.

Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions

in which the Company operates.

The Company has not observed any impairments of its assets or a significant change in the fair value of

its assets due to the COVID-19 pandemic.

At this time, it is not possible for the Company to predict the duration or magnitude of the

adverse results stemming from the outbreak and its lingering effects on the Company’s business or results of operations, financial

condition, or liquidity.

Revenue Recognition

2 unchanged sentences

from Contracts with Customers.

Our primary source of revenue is the

manufacture and delivery of generator sets used primarily in mobile power applications.

Our principal sales channel is sales to a

domestic distributor.

In accordance with ASC 606, the Company recognizes revenue, net of discounts, for our generator sets at time

of product delivery to the domestic distributor or directly to end users (i.e.

point-in-time), which also corresponds to the passage

of legal title to the customer and the satisfaction of our performance obligations to the customer.

Our primary source of revenue is the manufacture

and delivery of generator sets used primarily in mobile power applications.

Our principal sales channel is sales to a domestic distributor.

In accordance with ASC 606, the Company recognizes 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.

Use of Estimates

5 unchanged sentences

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

Amounts could materially change in the future.

Actual results could differ from those estimates.

24 unchanged sentences

The following table sets

forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of November 30, 2022 and

February 28, 2022:

November 30, 2022

forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of May 31, 2023 and February

(amounts in thousands)

warrant liability

Derivative warrant liability

Total liabilities

The Company estimated

the fair value of the derivative warrant liability using the Binomial Model.

The following table

provides a roll-forward of the warrant derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs

for the period ended May 31, 2023 as follows:

(amounts in thousands, except share data)

Fair Value of

February 28, 2023

Derivative warrant liability

Total liabilities

The Company estimated the fair value of the derivative

warrant liability using a binomial model.

Change in fair value of derivative warrant liability

Reclassifications

Certain February

28, 2023 balances have been reclassified to conform with the May 31, 2023 presentation.

In presenting the Company’s consolidated

balance sheet at February 28, 2023, the Company originally presented accrued interest of $ 1,389 and accrued payroll and expenses of $ 441 ,

totaling $ 1,830 as a separate line item called Accrued Expenses.

In presenting the Company’s consolidated balance sheet at May

31, 2023, the Company has reclassified the balance of accrued interest of $ 1,389 as a separate line item, and the balance of accrued

payroll and expenses of $ 441 as part of accounts payable and accrued expense in the accompanying February 28, 2023 financial statements.

Loss per share

The Company’s loss per share amounts have

been computed based on the weighted-average number of shares of common stock outstanding for the period.

Basic earnings (loss) per share

is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares of common stock

outstanding during the period.

Diluted earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders

by the weighted average number of shares of common stock assuming all potential shares had been issued, and the additional shares of common

stock were dilutive.

Diluted earnings (loss) per share reflects the potential dilution, using the as-if-converted method for convertible

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

For the nine-months ended November 30, 2022 and

November 30, 2021, the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have

had an anti-dilutive effect.

The Company’s

loss per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period.

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average

number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed by dividing net earnings

(loss) available to common shareholders by the weighted average number of shares of common stock assuming all potential shares had been

issued, and the additional shares of common stock were dilutive.

Diluted earnings (loss) per share reflects the potential dilution, using

the as-if-converted method for convertible debt, and the treasury stock method for options and warrants, which could occur if all potentially

dilutive securities were exercised.

For the three-months

ended May 31, 2023 and May 31, 2022, the calculations of basic and diluted loss per share are the same because potentially dilutive securities

would have had an anti-dilutive effect.

The potentially dilutive securities consisted of the following:

Convertible notes

Reclassifications

Certain prior period amounts have been reclassified

to conform to the current year presentation.

These reclassifications have no effect on the previously reported financial position, results

of operations and cash flows (see Note 2).

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other

Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) .

ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial

conversion models.

As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost

as long as no other features require bifurcation and recognition as derivatives.

For contracts in an entity’s own equity, the type

of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the

current guidance due to a failure to meet the settlement conditions of the derivative scope exception.

This update simplifies the related

settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider

whether collateral is required to be posted, and (iii) assess shareholder rights.

ASU 2020-06 is effective March 1, 2024, for the Company

and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method.

adoption is permitted and effective March 1, 2022, the Company early adopted ASU 2020-06 using the modified retrospective approach.

adoption of ASU 2020-06 did not have any impact on the Company’s financial statement presentation or disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings

Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic

718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain

Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”).

ASU 2021-04 provides

guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified

written call option (i.e., a warrant) that remains equity classified after modification or exchange as an exchange of the original instrument

for a new instrument.

An issuer should measure the effect of a modification or exchange as the difference between the fair value of the

modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition

model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt

origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification).

ASU 2021-04 is effective

for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

An entity should

apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date.

adopted ASU 2021-04 effective March 1, 2022.

The adoption of ASU 2021-04 did not have any impact on the Company’s financial statement

presentation or disclosures.

Recently Issued Accounting Pronouncements Not

In June 2016, FASB issued ASU No.

2016-13, Credit

Losses - Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires entities to use a

forward-looking approach based on current expected credit losses to estimate credit losses on certain types of financial instruments,

Recent Accounting

Pronouncements

Recently Adopted

Accounting Pronouncements

May 2021, the FASB issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),

Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”

(“ASU 2021-04”).

ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions

or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity classified after modification

or exchange as an exchange of the original instrument for a new instrument.

An issuer should measure the effect of a modification or

exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately

before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding

accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance

and debt origination or modification).

ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021,

including interim periods within those fiscal years.

An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications

or exchanges occurring on or after the effective date.

The Company adopted ASU 2021-04 effective March 1, 2022.

The adoption of ASU 2021-04

did not have any impact on the Company’s financial statement presentation or disclosures.

In September 2016, the

FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 requires entities to use a forward-looking

approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments,

including trade receivables.

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

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

codification improvements will be material to its financial position, results of operations, cash flows and related disclosures.

Other recent accounting pronouncements issued

by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and

Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s

present or future financial statements.

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED

UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED NOVEMBER 30, 2021

The unaudited condensed financial statements for

the nine months ended November 30, 2021 and certain balances as of February 28, 2021 have been restated.

During the fourth quarter of

Fiscal 2022, our management determined the following:

that the Company erroneously did not recognize a derivative warrant liability associated with warrants issued by prior management in prior years that included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder.

As such, the Company determined that the warrants fundamental transaction provision created a derivative liability pursuant to current accounting guidelines.

that the Company had

issued common stock in exchange for a settlement of debt to a former employee during Fiscal 2018 and had erroneously omitted

accounting for it until Fiscal 2021.

that the Company had granted stock options during Fiscal 2021 which were erroneously unrecorded.

The effects on the previously issued financial statements are as follows:

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

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

Additionally, the warrant derivative liability was revalued at May 31, 2021, August 31, 2021 and November 30, 2021 and the net decreases in fair value of $ 56,640 at May 31, 2021 and $ 127,420 at August 31, 2021 were recorded as reductions to the liability.

The increase in fair value of $ 734,106 was recorded as an increase to the liability.

The associated other expense of $ 734,106 for the three-month period ended November 30, 2021 was recorded to the statement of operations as a loss for the increase in the fair value of the derivative warrant liability.

The associated aggregate other expense of $ 550,046 for the nine-month period ended November 30, 2021 was recorded to the statement of operations and consisted of a loss for the increase in fair value of $ 594,666 and a gain on expiring warrants of $ 44,620 .

(B) In Fiscal 2022, the Company recognized that during Fiscal 2021, the Company recorded the effect of issuing common stock for debt to a former employee when the issuance had occurred in Fiscal 2018.

To correct the timing of recording the transaction, the Company calculated the gain on the extinguishment of debt as of the February 28, 2018, issuance date in the amount of $ 256,044 and recorded the gain as a prior period adjustment to Accumulated Deficit.

Additionally, the interest expense associated with the debt of $ 13,460 and gain on its extinguishment of $ 133,500 recorded in Fiscal 2021 were reversed out of the statement of operations.

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

(C) In Fiscal 2022, the Company recognized that certain stock options granted during Fiscal 2021 should have been fully or partially vested in the year of grant but had no share-based compensation expense recorded in Fiscal 2021.

To correct the timing of the expense recognition, the Company computed the amount of expense associated with the vesting as of February 28, 2021 and recorded an additional $ 258,636 of share-based compensation expense to the statement of operations.

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

Additionally, in order to correct the timing of the expense recognition as it continued into Fiscal 2022, the Company recorded an additional $ 68,862 and $ 153,388 of share-based compensation expense to the statement of operations for the three-month and the nine-month periods ended November 30, 2021, respectively, as well as recording the associated increases to Additional paid-in capital in their respective periods.

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

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

For the three-month and nine-month periods ended November 30, 2021, payroll compensation expense of $ 91,356 and $ 276,606 , respectively, was reversed out of the statement of operations, and the associated liability in Accrued expenses was reduced by the same amount.

Reclassifications

(1) In Fiscal 2021 and the nine-months ended November 30, 2021, the Company presented interest accrued of $ 8,064 on its Economic Injury Disaster Loan as additional note payable principle.

In the accompanying condensed financial statements, the Company has reclassified the cumulative accrued interest of $ 8,064 recorded in Fiscal 2021 and the first nine months of Fiscal 2022 from notes payable to accrued interest.

The following table presents the effect of the

restatements and reclassifications on the Company’s previously issued balance sheet:

As of November 30, 2021

As Previously

Reclassifications

Accrued expenses (including accrued interest)

$ ( 276,606 )

Derivative warrant liability

Additional paid-in capital

Accumulated deficit

$ ( 469,252,691 )

$ ( 1,916,420 )

$ ( 471,168,525 )

The following table presents the effect of the

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

For the three months ended November 30, 2021

As Previously

Reclassifications

Selling, general and administrative expense

Gain on extinguishment of derivative warrant liability

Change in fair value of derivative warrant liability

$ ( 1,245,836 )

$ ( 711,612 )

$ ( 1,957,448 )

Net loss per share, basic and diluted

For the nine months ended November 30, 2021

As Previously

Reclassifications

Selling, general and administrative expense

Gain on extinguishment of derivative warrant liability

Change in fair value of derivative warrant liability

$ ( 3,369,192 )

$ ( 426,828 )

$ ( 3,796,020 )

Net loss per share, basic and diluted

The following table presents the effect of the

restatements on the Company’s previously issued statement of shareholder deficit:

Shareholders’

Balance, February 28, 2021, as previously reported

$ 446,126,638

$ ( 465,883,499 )

$ ( 19,749,750 )

Prior period revisions

( 1,489,007 )

( 1,366,375 )

Corrections of errors

Balance, February 28, 2021, as restated

$ 446,249,272

$ ( 467,372,506 )

$ ( 21,116,125 )

Balance, November 30, 2021, as previously reported

$ 448,953,216

$ ( 469,252,691 )

$ ( 20,291,421 )

Prior period revisions

( 1,489,007 )

( 1,366,375 )

Share-based compensation addition

Net loss addition

Corrections of errors

Balance, November 30, 2021, as restated

$ 449,229,238

$ ( 471,168,526 )

$ ( 21,931,236 )

The following table presents the effect of the

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

For the nine months ended November 30, 2021

As Previously

Reclassifications

Cash flows from operating activities:

$ ( 3,369,192 )

$ ( 426,828 )

$ ( 3,796,020 )

Gain on extinguishment of derivative warrant liability

Change in fair value of derivative warrant liability

Share-based compensation expense

Changes in working capital assets and liabilities:

Operating lease right-to-use asset

Accounts payable and accrued expenses

Accrued interest on notes payable

Operating lease liability

NOTE 3 – INVENTORIES

Inventories are valued at the lower of cost (first-in,

first-out) or net realizable value, net of write downs, and consisted of the following:

Raw materials

Work-in-process

Finished goods

Total inventory

NOTE 4 – PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets consisted of

the following:

Prepaid annual software licenses

Prepaid commissions

Vendor advances

Prepaid insurance

Other prepaid expenses

Total other current assets

NOTE 5– PROPERTY AND EQUIPMENT, NET

Property and equipment

consisted of the following:

Leasehold improvements

Machinery and equipment

Computer equipment

Furniture and fixtures

Less accumulated depreciation and amortization

Depreciation expense

for the nine months ended November 30, 2022 and 2021 was $ 57,320 and $ 6,224 , respectively.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:

Convertible notes payable

In Fiscal 2013 and 2014,

the Company issued six convertible notes payable in the aggregate of $ 4,000,000 .

As of November 30, 2022 and February 28, 2022, the outstanding

balance of the convertible notes payable amounted to $ 1,402,971 .

The notes are unsecured, bear interest at 5 % per annum and are convertible

to shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

The notes were originally due in 2014 to 2017, and were

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

At November 30, 2022

and February 28, 2022, accrued interest on convertible notes payable totaled $ 336,884 and $ 284,063 , respectively, and is included in accrued

expenses (See Note 10).

NOTE 7 – CONVERTIBLE NOTE PAYABLE-RELATED

Convertible note payable – related party consisted of the following:

The Company adopted ASU 2021-04 effective March 1, 2023.

The adoption of ASU

2016-13 did not have any impact on the Company’s financial statement presentation or disclosures.

recent accounting pronouncements and guidance issued by the FASB, including its Emerging Issues Task Force, the American Institute of

Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management

to have a material impact on the Company’s present or future financial statements.

CONVERTIBLE NOTES PAYABLE, PAST DUE

Convertible notes payable consisted

of the following:

(amounts in thousands)

Convertible notes payable – past due

Fiscal 2013 and 2014, the Company issued six convertible notes payable in the aggregate of $ 4,000 .

The notes are unsecured, bear interest

at 5 % per annum and are convertible to shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

The notes were originally

due in 2014 to 2017, and were all amended in 2018 and the maturity date for all the notes was changed to January 11, 2023.

As of May 31, 2023 and

February 28, 2023, the outstanding balance of the convertible notes payable amounted to $ 1,403 and are past due.

At May 31, 2023 and February

28, 2023, accrued interest on convertible notes payable totaled approximately $ 372 and $ 354 , respectively.

CONVERTIBLE NOTE PAYABLE-RELATED PARTY, PAST DUE

Convertible note payable – related

party consisted of the following:

(amounts in thousands)

Convertible note payable –

On January 24, 2017,

the Company entered into a debt refinancing agreement with a former director and current shareholder of the Company.

As part of the agreement,

the Company issued a $ 3,000,000 convertible note.

The convertible note is unsecured, bears interest at 5 % per annum, is due February 2,

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

At November 30, 2022

and February 28, 2022, accrued interest on convertible notes payable-related party totaled $ 675,925 and $ 562,911 , respectively, and is

included in accrued expenses (See Note 10).

NOTE 8 – NOTES PAYABLE

January 24, 2017, the Company entered into a debt refinancing agreement with a former director and current shareholder of the Company.

As part of the agreement, the Company issued a $ 3,000 convertible note.

The convertible note is unsecured, bears interest at 5 % per annum,

was due February 2, 2023, and is convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

May 31, 2023, the convertible note of $ 3,000 and related accrued interest of $ 751 has reached maturity and is past due.

May 31, 2023 and February 28, 2023, accrued interest on convertible notes payable-related party totaled $ 751 and $ 713 , respectively.

NOTES PAYABLE

Notes payable consisted of the following:

(amounts in thousands)

Secured notes payable

(a) Note payable-EID loan

(b) Notes payable-vehicle and equipment

(b) Notes payable-vehicles and equipment

Unsecured notes payable

(a) Economic Injury Disaster

Entities negatively impacted by the COVID-19 pandemic

were eligible to apply for loans sponsored by the United States Small Business Administration (“SBA”) Economic Injury Disaster

Loan (“EID Loan”) program.

On July 1, 2020, the Company received a $150,000 loan under this program.

The proceeds can be used

to fund payroll, healthcare benefits, rent and other qualifying expenses, and the loan is not subject to a loan forgiveness provision.

The loan is due July 1, 2050, interest accrues at 3.75% per annum, and is secured by the assets

of the Company .

(b) Notes payable-vehicle and equipment

During Fiscal 2022, the Company purchased two

pieces of equipment and a vehicle for $329,297 as a part of its efforts to expand its operations and research and development capacities.

The Company made down payments aggregating $41,300 with the balance financed by two notes payable aggregating $287,997.

The notes are

secured by the equipment and vehicle purchased.

One note is due in 36 equal monthly payments of approximately $6,100 each, including interest

at 2.9% per annum.

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

As of November 30, 2022 and February 28, 2022, the balance of the notes was $207,295 and $265,616, respectively.

Demand promissory notes as of November 30, 2022

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

NOTE 9 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

Injury Disaster (EID) Loan

On July 1, 2020,

the Company received a $150 loan under the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan

(“EID Loan”) program.

The loan is due July 1, 2050, interest accrues at 3.75% per annum, and is secured by the

assets of the Company .

Accrued interest at May 31, 2023 and February 28, 2023 was $ 12 and $ 13 , respectively.

(b) Notes payable-vehicle

and equipment

During Fiscal 2022,

the Company issued notes payable to purchase two pieces of equipment and a vehicle for $329.

The notes are secured by the equipment and

vehicle purchased.

One note for $210 is due October 31, 2024, and requires 36 equal monthly payments of approximately $6 each, including

interest at 2.9% per annum.

The second note for $78 is due January 20, 2027, and requires 72 equal monthly payments of approximately

$1.5 each, including interest at 10.9% interest per annum.

As of May 31, 2023 and February 28, 2023, the balance of the two notes was

approximately $167 and $188, respectively.

As of May 31, 2023

and February 28, 2023, the Company has one note payable due to an individual issued in September 2015 that is payable on demand with

an interest rate of 10 % per annum.

Accrued interest at May 31, 2023 and February 28, 2023 was $ 10 and $ 10 , respectively.

NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted

of the following:

(amounts in thousands)

Unsecured notes payable

(a) Notes payable-Koppel (prior to restructuring)

Accrued interest-Koppel (prior to restructuring)

Note payable-Kopple (restructured)

Subtotal-Koppel

(a) Notes payable-Kopple (as restructured)

(b) Note payable- Gagerman

1 unchanged sentence

Subtotal-Gagerman

(a) Kopple Notes

In fiscals 2013 through 2018, the Company issued notes payable to Robert

Kopple and associated entities (collectively “Kopple”) in the aggregate of $ 6,107,323 .

Robert Kopple is the former Vice-Chairman

of the Company’s Board of Directors and is a current shareholder in the Company.

The notes were unsecured, bear interest at rates

ranging from 5 % and 15 % per annum and were due in fiscal 2014 through fiscal 2018.

Kopple brought suit against the Company beginning in

2017 for repayment of the notes.

At February 28, 2022, the accrued interest due

to Kopple totaled $ 6,533,318 .

Due to its significance, the balance of accrued interest is added to the note payable principal for presentation

on the accompanying balance sheet as of February 28, 2022.

As of February 28, 2022, the outstanding balance of the Kopple notes payable

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

On March 14, 2022, the Company reached an agreement

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

Under the terms of

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

paid in June 2022, which was subsequently extended to January 2023 (see Note 16), and granted Koppel warrants exercisable into 3,331,664

shares of the Company’s common stock at a price of $ 0.85 per share.

The Company used Black-Scholes modeling to compute the fair

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

The settlement provides for certain increases in the amount payable to Kopple

and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations.

Interest on the settled Note begins accruing in February 2023.

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

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

and investing activities, as defined in the agreement.

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

that management believes meeting these covenants will not affect operations.

The Company assessed the settlement with Kopple

under ASC 470 and determined that the guidance under troubled debt restructuring should apply.

Per ASC 470-60, the carrying value of

the restructured note remains the same as before the restructuring, reduced only by the fair value of the warrants issued in connection

with the transaction.

The Company determined that the future undiscounted cash flows of the restructured new Kopple note exceeded the

carrying value, and accordingly, no gain was recognized, and no adjustment was made to the carrying value of the debt, other than the

adjustment for the fair value of the warrants.

Interest expense on the new Kopple note will be computed using a new effective rate that

equates the present value of the future cash payments specified by the new terms with the carrying value of the debt.

(b) Note payable-Gagerman

Melvin Gagerman, the

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

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

Gagerman claims that

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

In June 2022, Gagerman

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

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

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

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

The Company disputes that any

amount is presently owed to Gagerman.

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

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

Gagerman committed against the Company (see Note 15).

Based on Gagerman’s

claims, as of November 30, 2022 and February 28, 2022, the outstanding balance of the Gagerman notes payable and accrued interest would

amount to $ 161,605 and $ 155,428 , respectively.

As of November 30, 2022 and February 28, 2022, despite the fact that the Company disputes

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

amounts of $ 161,605 and $ 155,428 , respectively, in the accompanying balance sheets.

On November 20, 2019, the Company reached an

agreement with its joint venture partner Jiangsu Shengfeng regarding the return of $ 700,000 that had been advanced to the Company, and

the Company issued a non-interest-bearing promissory note for $ 700,000 to be paid over a 11-month period beginning March 15, 2020, through

February 15, 2021.

As of November 30, 2022 and February 28, 2022, the principal due was $ 700,000 .

NOTE 10 – ACCRUED EXPENSES

(a) Kopple Note

In fiscals 2013

through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate

Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company.

On March 14, 2022, the Company reached an agreement with Kopple to resolve all remaining litigation between them, including all amounts

owed to Kopple under the notes.

Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate

amount of $ 10,000 , including $ 3,000 initially due in June 2022, and $ 1,000 to be paid annually for seven years after the initial $ 3,000

Additionally, the settlement agreement granted Koppel a five year, fully vested warrant exercisable into 3,331,664 shares of

the Company’s common stock at a price of $ 0.85 per share with a fair value of $ 1.1 million.

The Company assessed

the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply.

value of the restructured note remains the same as before the restructuring, reduced only by the fair value of the warrants issued in

connection with the transaction.

The Company determined that the future undiscounted cash flows of the restructured new Kopple note exceeded

the carrying value, and accordingly, no gain was recognized, and no adjustment was made to the carrying value of the debt, other than

the adjustment for the fair value of the warrants.

Interest expense on the new Kopple note will be computed using a new effective rate

that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt.

In June 2022, the

first installment of $ 3 million became due, of which $ 150 was paid.

Through February 28, 2023, the note was amended several times to

extend the payment date of the remaining balance of $ 2,850 of the initial payment through January 2023, and the Company incurred extension

and forbearance fees totaling $ 335 , of which, $ 105 was paid and $ 230 was accrued.

As of February 28, 2023, outstanding principal balance

amounted to $ 10.9 million and accrued interest and fees of $ 282 , for a total of $ 11.2 million.

In January 2023, pursuant to the terms of the

amended note payable, the Company started accruing interest on the outstanding note balance at a rate of 6 % per annum, compounded annually.

During the three months ended March 31, 2023, the Company recorded extension and forbearance fees totaling $ 260 , of which $ 60 was paid,

to further extend the payment date of the $ 2,850 to May 2023, and accrued interest at 6 % of $ 149 .

In addition, the Company recorded a

reduction of $ 62 to the note liability to adjust stated interest of 6 % to an effective interest rate of 3.5 %.

As of May 31, 2023, outstanding

balance of the note payable amounted to $ 10.8 million and accrued interest and fees of $ 631 for a total of $ 11.5 million.

In July 2023,

the note was again amended to extend the payment date of the $ 2,850 to August 1, 2023 (See Note 12).

The settlement

provides for certain increases in the amounts payable to Kopple and the right of such parties to enter judgement against the Company

if the Company remains in uncured default in its payment obligations.

Pursuant to the settlement agreement, the Company is also subject

to certain affirmative and negative covenants such as periodic submission of financial statements to Koppel and restrictions on future

financing and investing activities, as defined in the agreement, including the covenant to not create any indebtedness that is senior

in right of payment to the Kopple debt.

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

believes meeting these covenants will not affect operations and the Company was in compliance with all covenants as of May 31, 2023.

Note payable-Gagerman

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

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

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

June 2022, Gagerman brought suit against the Company for repayment of this alleged note.

Despite the fact that, based on Gagerman’s

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

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

disputes that any amount is presently owed to Gagerman.

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

things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that

the Company believes Gagerman committed against the Company.

on Gagerman’s claims, as of May 31, 2023 and February 28, 2023, the outstanding balance of the Gagerman notes payable and accrued

interest would amount to approximately $ 166 and $ 16 , respectively.

As of May 31, 2023 and February 28, 2023, despite the fact that the

Company disputes Gagerman’s claims, under the guidance of ASC 450 - Contingencies , the Company has recorded the claimed

notes payable and accrued interest amounts of approximately $ 166 and $ 164 , respectively, in the accompanying balance sheets.

Jiangsu Shengfeng Note

On November 20,

2019, the Company reached an agreement with a former joint venture partner Jiangsu Shengfeng regarding the return of $ 700 that had been

advanced to the Company in prior years.

As a result, in November 2019, and the Company issued a non-interest-bearing promissory note

for $ 700 to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021.

As of May 31, 2023 and February 28,

2023, the principal due was $ 700 , respectively, and was past due.

NOTE 6 – ACCRUED INTEREST

Accrued expenses consisted of the following:

Accrued interest-convertible notes payable

Accrued interest-convertible notes payable related party

Accrued interest-notes payable and other

Subtotal-accrued interest

Accrued payroll and related expenses

Other accrued expenses

As of November 30, 2022 and February 28, 2022,

accrued expenses includes accrued interest, accrued payroll and accrued consulting fees in the aggregate of $ 998,188 and $ 750,322 , respectively,

which are due to officers and shareholders and are considered related party transactions.

(amounts in thousands)

Accrued interest-convertible notes payable (past due)

Accrued interest-convertible notes payable related party (past due)

Accrued interest and fees- Kopple note payable

Accrued interest-notes payable

Accrued interest- other

NOTE 7 – LEASES

Our administrative, and production operations

including warehousing, are housed in an approximately 18,000 square foot facility in Lake Forest, California.

The Lake Forest lease is

for 66-months effective February 2021 through November 30, 2026.

The initial monthly base rental rate was approximately $22,000 per month

and escalates 3% each year to approximately $26,000 per month in 2026.

The lease liability was determined by discounting the future lease

payments under the lease terms using a 10 % per annum discount rate to arrive at the current lease liability.

Operating lease right-of-use (“ROU”)

assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make

lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements is not readily determinable and the Company

utilizes its incremental borrowing rate in determining the present value of lease payments.

The operating lease ROU asset includes any

lease payments made and excludes lease incentives.

The components of lease expense and supplemental cash flow information

related to leases for the period are as follows:

Operating lease cost (included in general and administration in the Company’s statement of operations)

Other Information

Cash paid for amounts included in the measurement of lease liabilities

Weighted average remaining lease term – operating leases (in years)

Average discount rate – operating leases

The supplemental balance sheet information related to leases for the

period is as follows:

Our administrative,

and production operations including warehousing, are housed in an approximately 18,000 square foot facility in Lake Forest, California.

The Lake Forest lease is for 66-months effective February 2021 through August 31, 2026.

The initial monthly base rental rate was approximately

$22 per month and escalates 3% each year to approximately $26 per month in 2026.

The lease liability was determined by discounting the

future lease payments under the lease terms using a 10 % per annum discount rate to arrive at the current lease liability.

Operating lease

right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments

over the lease term.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the

Company’s obligation to make lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements is

not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments.

The operating lease ROU asset includes any lease payments made and excludes lease incentives.

The components of lease expense and

supplemental cash flow information related to leases for the period are as follows:

(amounts in thousands)

Operating lease cost

(included in general and administration in the Company’s statement of operations)

Cash paid for amounts included in

the measurement of lease liabilities

Weighted average remaining lease

term – operating leases (in years)

Average discount rate – operating

The supplemental balance sheet information

related to leases for the period is as follows:

Operating leases

3 unchanged sentences

Total operating lease liabilities

Maturities of the Company’s lease liability is as follows:

Maturities of the Company’s lease

liability is as follows:

Years Ending February 28:

3 unchanged sentences

Present value of lease liabilities

NOTE 12 – DERIVATIVE WARRANT LIABILITY

In prior years under prior management, the Company

issued warrants that include a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder.

The Company determined that the warrants do not satisfy the criteria for classification as equity instruments due to the existence of

the cash settlement feature that is not within the sole control of the Company, and the warrants are accounted for as liabilities in

accordance with ASC 815.

The fair value of the warrants is remeasured at each reporting period, and the change in the fair value is recognized

in earnings in the accompanying statements of operations.

The warrant liability will ultimately be converted into the Company’s

equity when the warrants are exercised, or will be extinguished on the expiration of the outstanding warrants.

The following tables summarize the derivative

warrant liability:

NOTE 8 – WARRANT DERIVATIVE LIABILITY

In prior years

the Company issued warrants that include a fundamental transaction provision that could give rise to an obligation to pay cash to the

warrant holder.

The Company determined that the warrants do not satisfy the criteria for classification as equity instruments due to

the existence of the cash settlement feature that is not within the sole control of the Company, and the warrants are accounted for as

liabilities in accordance with ASC 815.

The fair value of the warrants is remeasured at each reporting period, and the change in the

fair value is recognized in earnings in the accompanying statements of operations.

The warrant liability will ultimately be converted

into the Company’s equity when the warrants are exercised, or will be extinguished on the expiration of the outstanding warrants.

The following tables

summarize the derivative warrant liability:

(amounts in thousands, except

share and per share data)

Risk free interest rate

2 unchanged sentences

Expected dividend yield

Number of warrants

Number of warrant shares

Fair value of derivative warrant liability

February 28, 2022

Change in fair value of derivative warrant liability

Gain on extinguishment on expiration of warrants

November 30, 2022

NOTE 13 – STOCKHOLDERS’ DEFICIT

During the nine-months ended November 30, 2022,

the Company issued 9,497,425 shares of common stock for net proceeds of approximately $ 2,600,000 in cash.

During the nine-months ended

November 30, 2021, the Company issued 7,615,330 shares of common stock for net proceeds of approximately $ 1,868,000 .

Additionally, during

the nine-months ended November 30, 2021, the Company issued 1,571,429 shares of common stock in settlement of accounts payable and accrued

expenses to related parties in the aggregate amount of $ 550,000 and issued 245,001 shares of common stock in exchange for services valued

in the amount of $ 73,500 .

STOCKHOLDERS’ DEFICIT

During the three-months

ended May 31, 2023, the Company issued 2,586,362 shares of common stock for approximately $ 853 in cash.

During the three-months ended

May 31, 2022 the Company issued 2,116,665 shares of common stock for approximately $ 635 .

Stock Options

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

ended November 30, 2022 is as follows:

A summary of the Company’s stock

option activity for the three-months ended May 31, 2023 is as follows:

(amounts in thousands, except share and per share

Outstanding, February 28, 2023

Outstanding, November 30, 2022

The exercise prices and information related to options under the 2011

Plan outstanding on November 30, 2022 is as follows:

Range of Exercise Price

Stock Options

Outstanding, May 31, 2023

There was no intrinsic

value as of May 28, 2023, as the exercise prices of these options were greater than the market price of the Company’s stock.

exercise prices and information related to options under the 2011 Plan outstanding on May 31, 2023 is as follows:

Exercise Price

Contractual Life

$ 0.25 to $ 0.50

The Company granted no stock options under its

stock option 2011 Plan for the nine-month period ended November 30, 2022 and the nine-month period ended November 30, 2021.

of stock options granted during the Fiscal 2021 year, the Company recognized $ 163,218 and $ 489,654 in share-based compensation expense

related to the fair value of vested stock options in the three-month and nine-month periods ended November 30, 2021.

A summary of the Company’s warrant activity

for the nine-months ended November 30, 2022 is as follows:

The Company granted

no stock options under its stock option 2011 Plan for the three-month period ended May 31, 2023 and the three-month period ended May

A summary of the

Company’s warrant activity for the three-months ended May 31, 2023 is as follows:

Outstanding, February 28, 2023

Outstanding, November 30, 2022

There was no intrinsic value as of November 30,

2022, as the exercise prices of these warrants were greater than the market price of the Company’s stock.

The exercise prices and

information related to the warrants as of November 30, 2022 is as follows:

Range of Exercise Price

Stock Warrants

Outstanding, May 31, 2023

There was no intrinsic

value as of May 31, 2023, as the exercise prices of these warrants were greater than the market price of the Company’s stock.

exercise prices and information related to the warrants as of May 31, 2023 is as follows:

Exercise Price

Contractual Life

$ 0.50 to $ 1.40

During March 2022, the Company reached a settlement

agreement with its former Director, Robert Kopple who had been in litigation with the Company over unpaid notes payable and accrued interest

since 2017 (See Note 9).

During March 2022,

the Company reached a settlement agreement with its former Director, Robert Kopple who had been in litigation with the Company over unpaid

notes payable and accrued interest since 2017 (See Note 6).

As a part of the settlement, the Company issued to Mr.

Kopple 3,331,664 warrants to purchase the Company’s

common stock (the “Kopple Warrants”) with a term of 7 years and at an exercise price of $ 0.85 per share.

The Company determined

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

Kopple 3,331,664 warrants

to purchase the Company’s common stock (the “Kopple Warrants”) with a term of 7 years and at an exercise price of $ 0.85

The Company determined the fair value of the Kopple Warrants was $ 1,051 using a Black-Scholes model using the assumptions

as set forth in the table below:

Three-Months Ended

Exercise Price

2 unchanged sentences

Dividend Rate

NOTE 14 – RELATED PARTY TRANSACTIONS

As of November 30, 2022 and February 28, 2022,

Bettersea LLC (“Bettersea”) was an 9.9 % and 11.0 %, respectively, shareholder in the Company.

For the three-months and nine-months

ended November 30, 2022 and November 30, 2021, the Company incurred total fees to Bettersea of $ 50,000 , $ 44,000 , $ 118,700 and $ 126,000 ,

respectively, for various consulting services.

As of November 30, 2022 and February 28, 2022, a total of $ 222,614 and $ 218,507 , respectively,

was due to Bettersea and included in accounts payable and accrued expenses.

NOTE 15 – CONTINGENCIES

The Company is subject to legal proceedings and

claims that have arisen in the ordinary course of business.

Our management evaluates our exposure to these claims and proceedings individually

and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable.

However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty.

Although management

considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for

amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially

adversely affected.

In 2017, the Company’s former COO was awarded

approximately $ 238,000 in accrued salary and related charges by the California labor board.

In August 2021, the Company reached a settlement

by which the Company agreed to pay approximately $ 330,000 , representing the principal award plus accrued interest.

As of the time of

this filing, the Company has paid approximately $ 254,000 toward the settlement amount, including accrued interest.

The remaining balance

of approximately $ 101,000 , included in accrued expenses, is to be paid no later than March 1, 2023 and accrues interest of

10 % per annum until paid.

Since July 2017 the Company has been engaged

in litigation with a former director, Robert Kopple, relating to more than $ 13 million and the current equivalent of the approximately

23 million warrants, exercisable for seven years at a price of $ 0.10 per share, which Mr.

Kopple and his affiliated entities (collectively

the “Kopple Parties”) claimed should have been originally issued to them pursuant to various agreements with the Company

entered to between 2013-2016.

In March 2022, the Company reached a settlement with the Kopple Parties that resolves all claims asserted

against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company.

the terms of the settlement, the Company has agreed to pay an aggregate amount of $10 million over a period of seven years;

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.

In March 2019, various stockholders of the Company

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

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

Robert Lempert

as directors in their stead.

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

common stock.

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

legal effectiveness of the consents, in April 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware

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

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

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

consent (b) Ms.

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

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

Lempert, Gary Douglas and Salvador Diaz-Versón, Jr.

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

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

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

To date, no final determination has been made as to

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

In June 2022, Melvin

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

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

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

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

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

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

The Company disputes that any amount is presently

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

Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without

limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action.

NOTE 16 – SUBSEQUENT EVENTS

In December 2022, the Company executed a fourth amendment

to the March 2022 settlement to extend the balance due on the initial $3,000,000 payment to January 2023 (see Note 9).

The Company paid

an additional $30,000 to the Kopple Parties for the extension, bringing the aggregate total to $105,000 for cash payments related to the

Additionally, the Company agreed to pay an additional $ 100,000 forbearance fee to be paid with the final interest payment

under the settlement, bringing the aggregate total to $ 230,000 in these deferred forbearance fees.

Subsequent to November 30, 2022, the Company

issued 442,424 shares of common stock in exchange for cash proceeds of approximately $ 146,000 .

RELATED PARTY TRANSACTIONS

As of May 31, 2023

and February 28, 2023, Bettersea LLC (“Bettersea”) was an 9.4 % and 9.7 %, respectively, shareholder in the Company.

three-months ended May 31, 2023 and May 31, 2022, the Company incurred total fees to Bettersea of $ 36 and $ 35 , respectively, for various

consulting services.

As of May 31, 2023 and February 28, 2023, a total of $ 231 and $ 216 , respectively, was due to Bettersea and included

in accounts payable and accrued expenses.

CONTINGENCIES

The Company is

subject to legal proceedings and claims that have arisen in the ordinary course of business.

Our management evaluates our exposure to

these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the

loss is estimable and the loss is probable.

However, the outcome of legal proceedings and claims brought against the Company is subject

to significant uncertainty.

Although management considers the likelihood of such an outcome to be remote, if one or more of these legal

matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements

for that reporting period could be materially adversely affected.

In 2017, the Company’s

former COO was awarded approximately $ 238 in accrued salary and related charges by the California labor board.

In August 2021, the Company

reached a settlement by which the Company agreed to pay approximately $ 330 , representing the principal award plus accrued interest.

of the time of this filing, the Company has paid approximately $ 277 toward the settlement amount.

The remaining balance of approximately $ 53

is to be paid no later than September 1, 2023 , and accrues interest of 10 % per annum until paid.

Between July 2017

and March 2022, the Company had been engaged in litigation with a former director, Robert Kopple, relating to more than $ 13 million and

the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $ 0.10 per share, which Mr.

Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed should have been originally issued to them

pursuant to various agreements with the Company entered to between 2013-2016.

In March 2022, the Company reached a settlement with the

Kopple Parties that resolves all claims asserted against the Company without any admission, concession or finding of any fault, liability

or wrongdoing on the part of the Company.

Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10,000,

including an initial amount of $3,000 due in June 2022, which was subsequently extended to August 1, 2023.

In June, 2022, the Company

paid $150 of the initial amount.

All amounts, including all accrued interest and accrued forbearance fees, are to be paid no later than

eight years from the date of the initial payment.

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 $2,850 balance of the initial installment (see Note 6).

26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written

consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the

On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William

Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company.

These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019

and March 27, 2019, respectively.

Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8,

2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General

Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms.

Douglas and Mr.

Diaz-Versón, Jr.

On July 8, 2019 the Court of Chancery entered

final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been

validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent (b) Ms.

Lempert had been validly elected by the holders of a majority of the Company’s outstanding stock acting by written consent,

and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador

Diaz-Versón, Jr.

As a result of prior management’s unsuccessful opposition to this stockholders’ action filed in the

Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s

corporate benefit doctrine and/or other legal provisions.

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

if any, to which such stockholders may be entitled.

SUBSEQUENT EVENTS

Subsequent to May

31, 2023, an additional amendment to the settlement agreement with Kopple (see Note 6) was entered into extending the due date for the

$ 2,850 balance due on the initial payment to August 1, 2023.

In exchange for the additional amendments, the Company agreed to pay additional

extension fees of $ 30 in cash and an additional $ 100 in deferred forbearance fees to be paid with the final payment under the settlement

Subsequent to May

31, 2023, the Company issued 969,698 shares of common stock in exchange for cash proceeds of approximately $ 320 .

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

What changed 10-Q

Item 1. Financial Statements