What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-24 compared with 2023-01-13 · 314 added, 426 removed, 46 unchanged (94% of the section changed)

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

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:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Amounts in thousands,

except share and per share amounts)

Forward Looking

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

18 unchanged sentences

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.

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.

in our Annual Report on Form 10-K for the year ended February 28, 2023, issued on May 26, 2023 (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.

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.

(i) sales and marketing, (ii) design and

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.

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.

1 unchanged sentence

Robert Lempert as directors of the Company in their stead.

See Item 3, Legal Proceedings for more information.

in Fiscal 2020, Melvin Gagerman –– Aura’s CEO and CFO since 2006 –– was replaced.

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.

succeeded Mr.

Lavut succeeded Mr.

Gagerman as President and Mr.

1 unchanged sentence

Gagerman as CFO.

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.

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.

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.

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 May 31,

2022 and the three months ended May 31, 2021 were approximately $155,000 and $81,000, respectively.

During the three months ended May

31, 2021, we relocated all administrative offices and operations to a new state-of-the-art facility consisting of approximately 18,000

square feet in Lake Forest, California.

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.

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.

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 executed formal agreements regarding the restructure of his debt.

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.

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.

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 $10,000 over a period of seven years;

$3,000 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.

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 3,331,664 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.

Critical Accounting Policies and

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.

For these key estimates and assumptions, we made appropriate

accounting estimates based on the facts and circumstances available as of the reporting date.

To the extent that there are significant

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 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.

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

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

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

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.

The Company recognizes

revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”)

Topic 606, Revenue from Contracts with Customers.

In accordance with ASC 606, we recognize revenue, net of discounts, for our generator

sets at time of product delivery to the domestic distributor (i.e.

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

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

Inventories are

valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis.

We review the components of inventory

on a regular basis for excess or obsolete inventory based on estimated future usage and sales.

When evidence exists that the net realizable

value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs.

Once inventory has

been written down, it creates a new cost basis for inventory that may not be subsequently written up.

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.

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.

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.

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 3 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.

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;

Deferral of discretionary

The extent of the impact of the COVID-19 pandemic

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

the COVID-19 outbreak within the U.S.

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

especially in the commercial vehicle markets.

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

be predicted.

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

take further actions as it relates to costs and liquidity.

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

impacted our results for the entirety of Fiscal 2021 and Fiscal 2022, the first three quarters of fiscal year 2023, and could be impactful

for the balance of Fiscal 2023.

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, Fiscal 2023 and the first quarter of Fiscal 2024 were significantly reduced, thus impacting our

results of operations during these quarters.

Despite the fact that the COVID-19 pandemic was officially declared to have ended in May

2023, the Company is still experiencing some of its negative effects.

In response to

the COVID-19 pandemic and business disruption, we implemented certain measures to manage costs, preserve liquidity and enhance employee

The extent of the

impact of the COVID-19 pandemic on our business, financial results and liquidity have been dependent upon a number of factors, 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 factors continue to be outside of our control, are

highly uncertain, and cannot be predicted.

If the impact continues to linger, 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, Fiscal 2022 and Fiscal 2023, the first quarter

of fiscal year 2024, and could be impactful for the balance of Fiscal 2024.

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.

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.

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.

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

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

its business further or cease business altogether.

Substantial additional capital resources will be required to fund continuing expenditures

related to our research, development, manufacturing and business development activities.

The Company’s continuation as a going

concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current

financing, to obtain additional financing, and ultimately to attain profitability.

During the next

twelve months we intend to continue 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 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

ended May 31, 2023 compared to three months ended May 31, 2022

Net revenue was

approximately $10 for the three-months ended May 31, 2023 (“Fiscal Q1 2024”) compared to approximately $6 for the three-months

ended May 31, 2022 (“Fiscal Q1 2023”).

Revenues continue to be negatively impacted by both the lingering effects of the COVID-19

pandemic, as well as a generally low level of resources.

5 unchanged sentences

prevent executing the increased selling efforts in the near term.

Cost of goods sold was approximately $26,000

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

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

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

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

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

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

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

Engineering, research and development expenses

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

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

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

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

of the new Chief Scientist.

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

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

in the Fiscal Q3 2022 period.

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

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

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

These decreases in expenses were partially offset

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

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

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

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

Interest expense in Fiscal Q3 2023 decreased

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

The reduction in interest

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

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

The settlement of the

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

payment of the initial $3.0 installment.

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

The extension fee of $30,000

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

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

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

Proceedings ).

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

payable and equipment loans.

Other expense in the Fiscal Q3 2023 period was

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

measured as of November 30, 2022.

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

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

Net loss for the three-month period of Fiscal

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

Cost of goods sold

was approximately $15 in Fiscal Q1 2024 compared to approximately $13 in Fiscal Q1 2023.

This resulted in a gross loss of approximately

$5 or a gross margin loss of 49%, and approximately $7 gross loss and a gross margin loss of 113%, in Fiscal Q1 2024 and Fiscal Q1 2023,

respectively.

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

of shipments in each quarter which reduced our ability to fully absorb fixed operating costs.

Engineering, research

and development expenses were approximately $207 in Fiscal Q1 2024, compared to approximately $167 in the Fiscal Q1 2023, or an increase

Fiscal Q1 2024 includes a higher engineering staff level and a concentrated effort to optimize the Company’s several new

designs of its generators and motors.

Fiscal Q1 2023 reflects the Company’s initial efforts to increase its development program,

including costs for engineering several new designs, as well as increased testing of its new electronic control unit (“ECU”).

Selling, general

and administration (“SG&A”) expenses decreased by approximately $342 or 40% to approximately $508 in the Fiscal Q1 2024

period from approximately $850 in the Fiscal Q1 2023 period.

The decrease during Fiscal Q1 2024 was principally attributed to lower legal

costs of $332 almost exclusively related to the settlement of the Kopple litigation in the FQ1 2023 period.

Interest expense

in Fiscal Q1 2024 increased approximately $347 or 427%, to approximately $428 from approximately $81 in the Fiscal Q1 2023 period due

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

The new note did not accrue interest until January 2023, so FQ1 2023 included no Kopple-based interest.

In Fiscal Q1 2024, $87 of interest

was accrued on the unpaid balance of the restructured Kopple note, and in addition, the Company recorded $260 of extension and forbearance

fees, which are being categorized as interest.

Other income in

the Fiscal Q1 2024 period was approximately $7 which represents the favorable change in the fair value of the derivative warrant liability

for the three-months, measured as of May 31, 2023.

Comparatively, the revaluation of the derivative warrant liability in Fiscal Q1 2023,

measured as of May 31, 2022, resulted in a favorable change in the fair value of approximately $553 for the three-month period.

Net loss for the

three-month period of Fiscal Q1 2024 increased by approximately $589, to a loss of approximately $1,141 from a net loss of approximately

$552 in the three-month period of Fiscal Q1 2023.

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

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

Nine months ended November 30, 2022 compared

to nine months ended November 30, 2021

Net revenue was approximately $70,400 for the

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.

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%.

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.

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

nine-month period.

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

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

Net loss for the nine-month period of Fiscal

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

in the nine-month period of Fiscal YTD 2022.

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

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

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

Liquidity and Capital Resources

During the 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

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.

This was attributed to (i) a significantly lower net gain related to derivative liability

valuation of approximately $546 and (ii) higher interest expense of approximately $347, which were partially offset by (i) a decreased

operating loss of $304 principally attributable to the lower legal expenses related to the Kopple settlement.

Liquidity and

Capital Resources

For the three-month

period ended May 31, 2023, we recorded a net loss of approximately $1,141 and used cash in operations of approximately $797 and at May

31, 2023, had a stockholders’ deficit of approximately $20.5 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.

the Company’s independent registered public accounting firm, in their report on the Company’s February 28, 2023, audited

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

The net loss of

approximately $1,141 in Fiscal Q1 2024 as compared to the Fiscal Q1 2023 net loss of approximately $552 was due to Fiscal Q1 2023 having

a significantly higher non-cash benefit from the change in fair value of the derivative warrant liability and Fiscal Q1 2024 having substantially

higher interest expense related to the Kopple restructured note, partially offset by a decreased 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 lingering effects of the COVID-19 pandemic.

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

1 unchanged sentence

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.

At May 31, 2023,

we had cash of approximately $50, compared to cash of approximately $15 at February 28, 2023.

Subsequent to May 31, 2023, the Company

issued 787,880 shares of common stock in exchange for cash proceeds of approximately $260.

Working capital deficit at May 21, 2023 was

a $14.1 million deficit as compared to an $13.7 million deficit at February 28, 2023.

At May 31, 2023 and February 28, 2023, 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 $6 million to maintain existing operations for Fiscal 2024

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.

cannot raise the needed funds, we will 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 $10,000 over a period of seven years;

$3,000 of which was originally to be paid in June 2022, and subsequently

extended to August 1, 2023, Beginning in January 2023, interest began to accrue on the unpaid balance at a rate of 6%, compounded annually.

All amounts, including all accrued interest and deferred forbearance fees, 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 3,331,664 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.

also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including

certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if

the Company remains in uncured default in its payment obligations under the settlement.

As of the date of this report, the Company has

not yet paid the full $3,000,000 installment due to Kopple;

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

We consider the transactions described above with Mr.

related party transactions.

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.

Quantitative and Qualitative Disclosures

About Market Risk

As a smaller reporting company, we are not required

to provide disclosure under this Item 3.

As of the date of this report, the Company has not yet paid the full $3,000 installment due to Kopple;

having only made

a partial payment of $150 in June 2022.

We consider the transactions described

above with Mr.

Kopple to be related party transactions.

Legal Proceedings” and “Part IV, Item 15, Notes 9 and 17 to the Financial Statements” included in the Company’s

Annual Report on Form 10-K filed with the SEC on May 26, 2023 for information regarding the dispute and settlement with Mr.

Kopple regarding

these transactions.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting

company, we are not required to provide disclosure under this Item 3.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis