What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-06-13 compared with 2024-06-04 · 138 added, 296 removed, 52 unchanged (89% of the section changed)

7 unchanged sentences

this Report immediately prior to “Item 1”.

Our business is based on

the exploitation of our Axial Flux Induction Motor solution and mobile power 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 motor applications,

Military applications and (d) industrial/commercial motor as well as mobile power 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 optimized power levels for electric motors and 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

Cipora Lavut, Mr.

David Mann and Dr.

Robert Lempert as directors of the Company in their stead.

See Item 3, Legal Proceedings

for more information.

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

In July 2019 Ms.

Lavut succeeded Mr.

Gagerman as President and Mr.

Mann succeeded Mr.

Gagerman as CFO.

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, the date of the change in management, through the end of

Fiscal 2023, the Company shipped approximately 150 units to.

Although our operations were impacted in Fiscal 2023, 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 elsewhere in this Annual Report on Form 10-K for information regarding the

impact of COVID-19 on our operations.

Our engineering, research and development costs for Fiscal 2024 and Fiscal 2023 were approximately

$750 and $850, respectively.

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 elsewhere in this Annual Report on Form 10-K for information regarding the dispute 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

In July 2017, Mr.

Kopple and his affiliates brought suit against the Company relating to more than $13 million and the current

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

and his affiliated entities (collectively the “Kopple Parties”) claimed to be owed to them pursuant to various agreements

with the Company entered into between 2013-2016.

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

$10 million over a period of seven years, including $3 million initial payment to be paid in June 2022.

$150 was paid in June 2022, and

the balance of the initial payment of $2.85 million was extended to May 29, 2023.

In exchange for the extension, the Company was required

to pay $165,000 in extension and forbearance fees in cash and $430 in accrued forbearance fees.

Beginning in January 2023, interest accrues

on the unpaid balance at a rate of 6%, compounded annually.

All amounts, including all accrued interest and deferred 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 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.

During the year ended February

29, 2024, the note was amended multiple times to extend the payment dates of the balance of the initial payment of $2,850, originally

due in June 2022, and the first installment payment of $1,000, originally due in June 2023 (collectively, the “past due principal”).

As a result of these amendments, the Company incurred additional extension and forbearance fees totaling $450 and adjustment to principal

balance of $23 that was recorded as part of interest expense.

As of February 29, 2024, outstanding principal balance amounted to $10,938,

including the $3,850 past due principal (see below).

In March 2024, the Company

and Kopple again amended the note payable.

The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with

the requirement to pay $2,000 due December 15, 2024, effectively extending the payment of $1,850 to future periods;

(ii) increased the

stated interest rate to 10%;

(iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024;

(iv) effective August 30, 2024, the Company will grant Kopple a conversion right that gives Kopple the option to be able to convert the

note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average

price of the Company’s common stock;

(v) during Fiscal 2025, will require the Company to pay 20% of all collected revenues within

10 days of the end of each fiscal quarter;

(vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the

form of equity, debt or convertible debt above $3.5 million;

(vii) reduces the exercise price of the warrants granted to Kopple in March

2022 from $0.85 per share to $0.50 per share;

and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031.

The Company will account for this amendment in the first quarter ended March 31, 2024, for fiscal year 2025.

Our business is based on the

exploitation of our Axial Flux Induction technology for both electric motors and generators.

Our power generation solution based on axial

flux induction is known as the AuraGen ® for commercial and industrial applications and the VIPER for military applications.

Aura’s axial flux induction technology provide:

(i) higher motor/generator efficiency, that directly translated to lower cost for

operations (ii) lighter and smaller machines that lead to lower manufacturing cost, (iii) higher reliability that results in less down

time and maintenance cost, (iv) the only raw materials used for construction are copper and steel without any rare earth or any other

types of permanent magnets.

This immediately results in global availability without market risks as well as geopolitical risks of dependence

on single source, and (v) the use of approximately 60% less of copper than the equivalent radial flux induction machines, results in less

needed mining to extract the needed copper with direct positive environmental impact.

Our business model consists

of three major components:

(i) sales and marketing, iii) design and engineering and (iii) axial flux induction motors and generators manufacturing.

Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas.

In addition, we are also exploring limited licensing of our technology to very large potential users as well as potential joint ventures

with existing industrial motor/generator suppliers.

The second component of our business model is focused on the design, engineer and

commercialize of new commercial and industrial electric motors based on our axial flux induction for numerous applications such as pumps,

compressors, and HVAC.

We are also designing electric motors for both 2- and 4-wheel EV application, as well as, expending the product

line for electric power generation.

The third component of our business model is to set up manufacturing of the axial flux induction products

being engineered and design.

We recently completed a 250-kW

electric motor prototype based on our axial flux induction for EV applications.

This activity is in conjunction with a large European

tier 1 automotive supplier interest and inputs.

We also completed the design for a 250-kW generator based on our axial flux induction

We expect to build this new generator over the next few months.

We have also in May 2024 completed the installation of our

new smaller 10-kW mobile power generator on a Polaris type ATV platform for US military applications.

We started working directly with

Polaris to perfect the output from the new generator on their platform.

We completed the designs for 5 horsepower axial flux induction

motor for swimming pool pump applications, and we also completed the design for a 10 horsepower axial flux induction motor for irrigation

pump applications.

We are also currently in discussions for usage of our technology for numerous wind turbines applications.

During fiscal

2025 we also applied for 3 new patents related to axial flux induction machines.

In fiscal 2024 and 2025 we

have significantly increased our engineering capabilities with having hired experts’ engineers in thermo dynamics (Ph.D.), electromagnetic

motor design (Ph.D.) Power electronics & control (Ph.D.) and mechanical design (M.S.M.E).

We have also acquired the latest in advance

engineering tools such as Ansys Maxwell finite elements, MATLAB and 3-D solid work.

Our engineering, research and development costs for

fiscal 2025 were approximately $1.2 million.

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.

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.

Significant estimates include assumptions

made for inventory reserve, impairment testing of long-lived assets, the valuation allowance for deferred tax assets, assumptions used

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

could materially change in the future.

Actual results could differ from those estimates.

There were no changes to our critical accounting

policies described in the financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024,

that impacted our condensed financial statements and related notes included herein.

Revenue Recognition

2 unchanged sentences

Topic 606, Revenue from Contracts with Customers.

To determine revenue recognition under ASC 606, an entity performs the following five-steps

(i) identifies the contract(s) with a customer;

(ii) identifies the performance obligations in the contract;

(iii) determines the transaction

(iv) allocates the transaction price to the performance obligations in the contract;

and (v) recognizes revenue when (or as) the

entity satisfies a performance obligation.

The Company only applies the five-steps to contracts when it is probable that the entity will

collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

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.

Our payment terms are cash payment due upon delivery and typically includes a 2% price discount off the selling price in accordance with

Our commercial terms and conditions do not include a right of return for reasons other than a defect in performance or quality.

We offer a 24-month assurance-type warranty covering material and manufacturing defects, which we account for under the guidance of ASC

460, Guarantee.

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

6 unchanged sentences

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.

Share-Based Compensation

The Company periodically

issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for

services and for financing costs.

Share-based compensation cost is measured at the grant date, based on the estimated fair value of the

award, and is recognized as expense over the requisite service period.

Recognition of compensation expense for non-employees is in the

same period and manner as if the Company had paid cash for services.

The Company periodically issues stock options and warrants, and

shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs.

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 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 will continue

to adversely impact our results for the first quarter of Fiscal 2025, as well as the full Fiscal year 2025, and that impact could be material.

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.

Higher inflation, the actions

by the Federal Reserve Bank to address inflation, most notably continuing increases in interest rates, and rising energy prices create

uncertainty about the future economic environment.

The Company expects that the impact of these issues will continue to evolve.

believes these factors impacted the Company’s business in fiscals 2023 and 2024 and will continue to impact the Company’s

business in fiscal 2025.

The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest

rates may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

Results of Operations

Fiscal 2025 compared to Fiscal 2024

Revenues in Fiscal 2024 were

approximately $56 as compared to the Fiscal 2023 period of approximately $71, a reduction of approximately 21%.

Fiscal 2024 revenues consisted

principally of the delivery of 7 AuraGen ® /VIPER systems, 5 of which were to a single distributor customer.

revenues consisted principally of the delivery of 9 AuraGen ® /VIPER systems, 7 of which were to a single distributor customer.

We believe that the low levels of revenue in both Fiscal 2024 and Fiscal 2023 were the result of the company’s switch in focus to

the development of the new family of improved products.

Net revenue was $50 for Fiscal

2025, compared to $56 for Fiscal 2024.

Revenues continue to be negatively impacted due to a generally low level of resources on our legacy

products as well as our shift to the development and production of numerous prototypes for our new product line.

We cannot project with

confidence the timing or amount of revenue that we can expect until the prototypes are completed, which should be in Fiscal 2026.

Cost of Goods

Cost of goods sold was approximately

$193 and $88 in the years ended February 29, 2024, and February 28, 2023, respectively.

During Fiscal 2024, the Company recorded an inventory

write-down of $123 to cost of goods sold, which contributed to a negative gross margin of approximately $137 in Fiscal 2024.

During Fiscal

2023, we benefited from the utilization of fully reserved inventory to deliver 9 units and recorded material cost at 32% of sales value,

direct labor at 43% of sales value and other overheads at 44% of sales.

Additionally, the Company recorded an inventory write-down of

$4,000 to cost of goods sold, which resulted in a negative gross margin of approximately $17,000 in FY 2023.

For both FY 2024 and FY

2023, the disproportionate increase in manufacturing overhead costs resulted from higher depreciation and systems costs without an offsetting

increase in production volumes.

While both the FY 2024 and FY 2023 periods benefited from the utilization of inventory that was previously

fully reserved, the new design ECU units fabricated in those periods did include the costs of new electronics boards.

Cost of goods sold was $29

for Fiscal 2025, compared to $193 for Fiscal 2024.

This resulted in a gross profit of $21 compared to a gross loss of $137 for Fiscal

The gross loss and related gross margin for Fiscal 2024 were largely influenced by the low volume of shipments, which reduced our

ability to fully absorb fixed operating costs.

Engineering, Research and Development

Engineering, research and

development costs decreased to approximately $750 in Fiscal 2024 from approximately $850 in Fiscal 2023, a decrease of approximately

The decrease is a result of the Company’s augmented engineering activities, including (i) successfully recruiting

new additions to the engineering staff;

(ii) licensing of modeling and design software tools for the full 12-month period;

(iii) additional expenses incurred in the process of designing, fabricating and testing the new version of our electronic control unit

(“ECU”) for our AuraGen ® /VIPER products.

development expenses were $1,249 for Fiscal 2025, compared to $750 for Fiscal 2024.

The increase is a result of the Company’s augmented

engineering activities, including (i) successfully recruiting new additions to the engineering staff;

(ii) licensing of modeling and design

software tools for the full 12-month period;

as well as (iii) additional expenses incurred in the process of designing, fabricating and

testing the new version of our electronic control unit (“ECU”) for our AuraGen ® /VIPER products.

Selling, General and Administrative Expense

Selling, general and administrative

expenses decreased approximately $763, or 29%, to $1,873 in Fiscal 2024 from $2,636 in Fiscal 2023 due to several factors.

of these was a decrease in legal expenses of approximately $628 as Fiscal 2023 had a lot of legal expenses relating to the Kopple settlement.

There was also a decrease in selling expenses of $100 due to lower sales and a decrease in outside services of $72.

This was partially

offset by (i) increased salary and wage-related expenses of approximately $100 due to new hires in the engineering department and (ii)

increased depreciation and software license related costs of approximately $85 associated with equipment and computer systems.

Selling, general and administration

(“SG&A”) expenses for Fiscal 2025 were $3,586 as compared to $1,873 for Fiscal 2024, an increase of $1,713 or 91%.

increase in SG&A was due to increased headcount and pay increases, and $1,342 in stock-based compensation.

Other Income (Expense) and Interest Expense

Net interest expense increased

significantly to approximately $1,465 in Fiscal 2024 from approximately $727 in Fiscal 2023, an increase of approximately $738, or 102%.

This is principally a result of the settlement of the litigation with Robert Kopple and his affiliates.

Under the terms of the settlement,

no interest was to accrue until payment of the initial $3 million, which was extended to May 2023.

In exchange for the extensions, the

company recorded $335 of fees which are being categorized as interest, plus note interest of approximately $52.

The aggregate Kopple-related

interest in Fiscal 2023 of approximately $387 compares to the Fiscal year 2022 Kopple-related interest of approximately $823, a 53% reduction.

Interest expense increased by $345 to $1,810 for Fiscal 2025, as compared

to $1,465 for Fiscal 2024.

During Fiscal 2025, the Company recorded a gain on debt settlement of $179 and a loss on debt extinguishment

of $19,324 (see Notes 7 and 9 of the accompanying financial statements), both of which did not occur in the prior year period.

estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded the change

in fair value of the derivative liability of $4,629 and $9 at February 28, 2025 and February 29, 2024, respectively.

We recorded net losses of

approximately $4,216 and $3,410 in the Fiscal years ended February 29, 2024 and February 28, 2023, respectively, or a decrease of income

of approximately $806 due to several factors as note above:

(i) Fiscal 2024 included the higher interest expense of approximately $738;

(ii) decreased operating expenses in selling, marketing and general and administrative of approximately $159;

and (iii) increased engineering

and R&D expenses of approximately $239 partially offsetting the other income improvements.

approximately $21,138 and $4,216 for Fiscal 2025 and 2024, respectively.

The increase in our net loss was due to several factors, as noted

above, including increased stock-based compensation expense, the recording of a loss on debt extinguishment to a related party, and the

change in fair value of our derivative liability.

Liquidity and Capital Resources

10 unchanged sentences

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

The net loss in Fiscal 2024

was approximately $806 higher as compared to Fiscal 2023 due to several offsetting items, but most notably increased interest expense

of approximately $738.

Fiscal 2024 also included additional expenditures to ramp up the Company’s engineering, R&D, and administrative

A significant factor in both periods contributing to the negative operating cash flows is the low level of operating activities

caused principally by the company’s switch to the development of new products and the COVID-19 pandemic.

As a result of the impacts

of the COVID-19 pandemic, we may be required to raise additional capital and our access to and cost of financing will depend on, among

other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing,

and our future prospects.

At February 29, 2024, we had cash of approximately $123, compared to cash of approximately $15 at February 28,

Subsequent to February 29, 2024, the Company issued 4,455,600 shares of common stock in exchange for cash proceeds of $1,114.

capital deficit at February 29, 2024 was a $14.9 million deficit as compared to an $13.7 million deficit at the end of the prior fiscal

The principal reasons for the increase in the deficit is an increase in Accounts Payable of $308 and accrued interest of $767 mostly

relating to the Kopple settlement.

The February 28, 2023, financial statements reflect the reclassification to non-current of $7.1 million

of the debt to Robert Kopple and his affiliated entities (collectively the “Kopple Parties”) as a result of the settlement.

Prior to Fiscal 2020, in

order to maintain liquidity, we relied upon external sources of financing, principally equity financing and private indebtedness.

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 2025 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 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.

Between July 2017 and March

2022, the Company was 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.

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 resolved 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 million over a period

of seven years, including $3 million initial payment to be paid in June 2022.

$150 was paid in June 2022, and the balance of the initial

payment of $2.85 million was extended to May 29, 2023.

In exchange for the extension, the Company was required to pay $165,000 in extension

and forbearance fees in cash and $430,000 in accrued forbearance fees.

Beginning in January 2023, interest accrues on the unpaid balance

at a rate of 6%, compounded annually.

All amounts, including all accrued interest and deferred 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 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.

During the year ended February

29, 2024, the note was amended multiple times to extend the payment dates of the balance of the initial payment of $2,850, originally

due in June 2022, and the first installment payment of $1,000, originally due in June 2023 (collectively, the “past due principal”).

As a result of these amendments, the Company incurred additional extension and forbearance fees totaling $450 and adjustment to principal

balance of $23 that was recorded as part of interest expense.

As of February 29, 2024, outstanding principal balance amounted to $10,938,

including the $3,850 past due principal (see below).

In March 2024, the Company

and Kopple again amended the note payable.

The amendment (i) replaced the requirement to pay the $3,850 past due principal balance with

the requirement to pay $2,000 due December 15, 2024, effectively extending the payment of $1,850 to future periods;

(ii) increased the

stated interest rate to 10%;

(iii) added a fee of $15 monthly until the Company makes a principal payment of $2 million by December 2024;

(iv) effective August 30, 2024, the Company will grant Kopple a conversion right that gives Kopple the option to be able to convert the

note payable into equity of the Company at a conversion price of the lower of $1.00 per share or 50% of the 10 day volume weighted average

price of the Company’s common stock;

(v) during Fiscal 2025, will require the Company to pay 20% of all collected revenues within

10 days of the end of each fiscal quarter;

(vi) will require the Company to pay Kopple 20% of any amount raised in new capital in the

form of equity, debt or convertible debt above $3.5 million;

(vii) reduces the exercise price of the warrants granted to Kopple in March

2022 from $0.85 per share to $0.50 per share;

and (vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031.

The Company will account for this amendment in the first quarter ended March 31, 2024, for fiscal year 2025.

We consider the transactions described above with

Kopple to be related party transactions.

Proceedings” and “Part IV, Item 15, Note 9 and Note 17 to the Financial Statements” included elsewhere in this Annual

Report on Form 10-K for information regarding the dispute and settlement with Mr.

Prior to Fiscal 2020, in order

to maintain liquidity, we relied upon external sources of financing, principally equity financing and private indebtedness.

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 2026 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 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.

Legal Proceedings”

and “Part IV, Item 15, and Note 9 to the Financial Statements” included elsewhere in this Annual Report on Form 10-K for information

regarding the dispute and settlement with Mr.

Kopple regarding these transactions.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis