0001213900-20-017983.txt : 20200720 0001213900-20-017983.hdr.sgml : 20200720 20200720164924 ACCESSION NUMBER: 0001213900-20-017983 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 47 CONFORMED PERIOD OF REPORT: 20200531 FILED AS OF DATE: 20200720 DATE AS OF CHANGE: 20200720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AURA SYSTEMS INC CENTRAL INDEX KEY: 0000826253 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 954106894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17249 FILM NUMBER: 201036829 BUSINESS ADDRESS: STREET 1: 10541 ASHDALE STREET CITY: STANTON STATE: CA ZIP: 90680 BUSINESS PHONE: 3106435300 MAIL ADDRESS: STREET 1: 10541 ASHDALE STREET CITY: STANTON STATE: CA ZIP: 90680 10-Q 1 f10q0520_aurasystems.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2020

 

OR

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

AURA SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   95-4106894
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

10541 Ashdale Street

Stanton, CA 90680

(Address of principal executive offices and zip code)

 

Registrant’s telephone number, including area code: (310) 643-5300

 

 

Former name, former address and former fiscal year, if changed since last report:

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  YES ☒  NO  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☐  NO 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐   Accelerated Filer ☐
Non-accelerated filer   ☒   Smaller Reporting Company
    Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

 

Class   Outstanding July 15, 2020
Common Stock, par value $0.0001 per share   59,625,872 shares

 

 

 

 

 

AURA SYSTEMS, INC.

 

INDEX

 

Index     Page No.
PART I. FINANCIAL INFORMATION
       
  ITEM 1. Financial Statements (Unaudited) 1
       
    Balance Sheets as of May 31, 2020 and February 28, 2020 1
       
    Statements of Operations for the Three months ended May 31, 2020 and 2019 2
       
    Statements of Cash Flows for the Three months ended May 31, 2020 and 2019 3
       
    Statements of Changes in Shareholders’ Deficit 4
       
    Notes to Financial Statements 5
       
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
       
  ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 19
       
  ITEM 4. Controls and Procedures 20
       
PART II. OTHER INFORMATION 21
       
  ITEM 1. Legal Proceedings 21
       
  ITEM 1A. Risk Factors 22
       
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
       
  ITEM 3. Defaults Upon Senior Securities 22
       
  ITEM 4. Mine Safety Disclosures 23
       
  ITEM 5. Other Information 23
       
  ITEM 6. Exhibits 24
       
  SIGNATURES AND CERTIFICATIONS 25

 

i

 

 

ITEM 1. FINANCIAL STATEMENTS

 

AURA SYSTEMS, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

 

   May 31,
2020
   February 29,
2020
 
Assets        
Current assets        
Cash and cash equivalents  $138,174   $19,807 
Inventory   89,106    90,037 
Other current assets   417    1,487 
Total current assets   227,697    111,330 
Non-Current Assets   -    - 
Total assets  $227,697   $111,330 
           
Liabilities & Shareholders’ Deficit          
Current liabilities          
Accounts payable  $2,515,819   $2,537,061 
Accrued expenses   2,023,207    1,946,290 
Customer advances   440,331    440,331 
Accrued expense-related party   1,008,328    1,008,328 
Accrued interest-notes payable-related party   300,719    262,911 
Accrued interest-notes payable   541,106    498,698 
Notes payable, current portion   1,002,653    983,717 
Notes payable and accrued interest-related party   11,543,432    11,333,960 
Total current liabilities   19,375,595    19,011,296 
Notes payable-related party   3,000,000    3,000,000 
Note payable   45,470    0 
Convertible notes payable   1,402,971    1,402,971 
Total liabilities   23,824,036    23,414,267 
           
Commitments and contingencies (note 7)   -    - 
           
Shareholders’ deficit          
Common stock: $0.0001 par value; 150,000,000 shares authorized at May 31 and February 29, 2020; 57,759,207 and 56,400,874 issued and outstanding at May 31 and February 29, 2020, respectively   5,774    5,639 
Additional paid-in capital   443,729,916    443,417,452 
Accumulated deficit   (467,332,029)   (466,726,027)
Total shareholders’ deficit   (23,596,339)   (23,302,937)
Total liabilities and shareholders’ deficit  $227,697   $111,330 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

1

 

  

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three-Months Ended
May 31,
 
   2020   2019 
         
Net revenue  $48,633   $- 
Cost of goods sold   40,393    2,889 
Gross profit (loss)   8,240    (2,889)
Operating expenses          
Engineering, research & development   33,994    58,193 
Selling, general & administration   343,559    297,223 
Total operating expenses   377,553    355,416 
Loss from operations   (369,313)   (358,305)
Other expense:          
Interest expense, net   289,688    317,015 
Other income   7,000    - 
Gain on debt settlement   46,000    - 
Loss before income tax provision   (606,001)   (675,321)
Income tax provision   -    - 
Net loss  $(606,001)  $(675,321)
           
Basic and dilutive loss per share  $(0.01)  $(0.01)
Weighted average shares outstanding   57,072,794    53,863,602 

 

See accompanying notes to these unaudited financial statements.

 

2

 

  

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Three-Months Ended
May 31,
 
   2020   2019 
         
Net loss  $(606,001)  $(675,321)
Adjustments to reconcile net loss to cash used in operating activities          
Stock-based compensation expense   77,599    - 
Decrease in        - 
Inventory   931    - 
Other current assets   1,070    12,763 
Increase in          
Accts payable, customer deposits and accrued expenses   345,364    265,122 
Cash used in operating activities   (181,037)   (397,436)
           
Cash flows from financing activities          
Issuance of common stock   235,000    50,000 
Payment on notes payable   (10,000)   - 
Proceeds from Federal PPP note   74,405    - 
Cash provided by financing activities   299,405    50,000 
           
Net decrease in cash and cash equivalents   118,368    (347,436)
Beginning cash   19,807    358,209 
Ending cash  $138,174   $10,773 
Cash paid in the period for:          
Interest  $-   $- 
Income taxes  $-   $- 

 

See accompanying notes to these unaudited financial statements.

 

3

 

 

AURA SYSTEMS INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)

 

   Common
Stock
Shares
   Common
Stock
Amount
   Additional
Paid-In
Capital
   Accumulated
Deficit
   Total
Shareholders’
Deficit
 
Balance, February 28, 2019   53,714,145   $5,371   $442,519,092   $(464,119,162)  $(21,594,699)
Shares issued for cash   156,250    15    49,985         50,000 
Net loss   -    -    -    (675,321)   (675,321)
Balance, May 31, 2019   53,870,395   $5,386   $442,569,077   $(464,794,483)  $(22,220,020)
                          
Balance, February 29, 2020   56,400,874    5,639    443,417,452    (466,726,027)   (23,302,937)
Shares issued for cash   1,358,333    135    234,865    -    235,000 
Stock-based compensation expense   -    -    77,599    -    77,599 
Net loss   -    -    -    (606,001)   (606,001)
Balance, May 31, 2020   57,759,207    5,774    443,729,916    (467,332,029)   (23,596,339)

 

See accompanying notes to these unaudited financial statements.

 

4

 

 

AURA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

Aura Systems, Inc., (“Aura”, “We” or the “Company”) a Delaware corporation, was founded to engage in the development, commercialization, and sales of products, systems, and components, using its patented and proprietary electromagnetic technology. Aura develops and sells AuraGen® axial flux mobile induction power systems to the industrial, commercial, and defense mobile power generation markets. In addition, the Company has also developed and patented High Force Electromagnetic Linear Actuators which it has sold in prior years.

 

Basis of Presentation

 

In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. However, the results of operations included in such financial statements may not necessary be indicative of annual results.

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 29, 2020 filed with the Securities and Exchange Commission (“SEC”) on July 13, 2020 (“2020 Form 10-K.”).

 

Significant Accounting Policies

 

For a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in our financial statements included in Company’s 2020 Form 10-K. During the three months ended May 31, 2020, there were no significant changes made to the Company’s significant accounting policies.

 

5

 

 

Use of Estimates

 

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current year presentation.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument. Subsequent to the issuance of ASU 2016-13, the FASB clarified the guidance through several ASUs. The collective new guidance (ASC 326) generally requires entities to use a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect. The entity’s estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts. ASC 326 is effective for annual and interim fiscal reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2018. The Company is continuing to evaluate the expected impact of this ASC 326 but does not expect it to have a material impact on its financial statements upon adoption.

 

NOTE 2 – GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The unaudited condensed financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

If the Company is unable to generate profits on a sustained basis and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply 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.

 

Beginning with the second quarter of fiscal year 2020, we increased operations of our AuraGen®/VIPER business and revenue for the three-months ended May 31, 2020 was $49,000 as compared to $0 revenue in the comparable period of fiscal 2020.

 

6

 

 

NOTE 3 – NOTES PAYABLE

 

Non-related party and related party notes payable transaction consisted of the following:

 

Non-Related Party Promissory Notes (see below)  May 31,
2020
   February 29,
2020
 
         
Demand promissory notes payable with 4 individuals, carrying an interest rate of 10% (see Demand Promissory Notes below)  $768,537   $768,537 
Messrs. Abdou notes payable   205,181    215,181 
U.S. Payroll Protection Plan loan program   74,405    - 
Total Demand and Notes Payable   1,048,123    983,718 
Convertible Promissory Note originally dated August 10, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%. See Convertible Promissory Notes – Dalrymple August 2012 for further details.   264,462    264,462 
Convertible Promissory Note originally dated October 2, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%. See Convertible Promissory Notes – Dalrymple October 2012 for further details.   133,178    133,178 
Senior secured convertible notes originally dated May 7, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.75 per share, carrying interest rate of 5%. See Convertible Debt – Kenmont Capital Partners, LPD Investments and Guenther for further details.   945,825    945,825 
Senior secured convertible notes originally dated June 20, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.50 per share, carrying interest rate of 5%. See Convertible Debt – Dresner and Lempert for further details.   59,506    59,506 
Total Convertible Promissory Notes   1,402,971    1,402,971 
Accrued Interest - notes payable   541,106    498,698 
Total Non-Related Party   2,992,200    2,885,387 
           
Notes Payable-Related Party (see Note 6)          
Convertible Note payable – related party, carrying an interest rate of 5% - see Note 6, Breslow Note, for further details   3,000,000    3,000,000 
Kopple Notes Payable-related party , see Kopple Notes, Note 6:   10,702,338    10,494,933 
Mel Gagerman Notes Payable, see Gagerman, Note 6:   141,093    139,026 
On November 20, 2019, the Company entered into a preliminary  agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture. Payment terms consist of a non-interest bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021.   700,000    700,000 
Accrued Interest - notes payable- related party   300,719    262,911 
Total Related Party   14,844,150    14,596,871 
Total notes payable and accrued interest   17,836,350    17,482,258 
Less: Current portion  $(13,387,910)  $(13,079,287)
Long-term portion  $4,448,441   $4,402,971 

 

7

 

 

Demand Promissory Notes and Notes Payable

 

The Demand Promissory Notes are four individual notes issued in 2015 that are payable on demand with an interest rate of 10% per annum.

 

As of February 29 and May 31, 2020, the aggregate principal amount owed to these persons is $768,537; the principal amount of each note and the person/entity payable to are as follows: $10,000 Mr. Zeitlin, a former director of the Company; $30,000 Mr. Sook; $461,537 Mr. Macleod, a former president of the Company; and $267,000 Mr. Veen. In February 2018, the Company issued 192,641 shares of its common stock to Steven Veen in satisfaction of $267,000 in debt. Despite this issuance, Mr. Veen claims to continue to be entitled to repayment of the $267,000 debt. Mr. Veen has to-date, not surrendered the shares issued to him in fulfillment of the debt he claims to be still owed and continues to own the 192,641 shares as of the date of this filing.

 

Abdou and Abdou

 

On June 20, 2013, the Company entered into an agreement with two individuals, Mr. M. Abdou and Mr. W. Abdou, for the sale of $125,000 of secured convertible notes payable (the “Notes”) and warrants. The Notes had a 1-year maturity date and were convertible into shares of common stock at the conversion price of $0.50 per share. The warrants were subsequently exercised. The Company recorded $24,470 as a discount, which has been fully amortized. There is a remaining balance of $125,000 as of February 28, 2019. In 2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed by Messrs. Abdou demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. In January 2017, the Company entered into an agreement with all secured creditors other than Mr. W. Abdou and Mr. M. Abdou. In September 2018, the court entered a judgment of approximately $235,000 plus legal fees of in favor of the Messrs. Abdou. The Company subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for a principal amount of $325,000, of which approximately $205,000 and $215,000 were outstanding as of May 31 and February 29, 2020, respectively.

 

Paycheck Protection Plan Loan

 

During April 2020, the Company ceased operations for approximately 6 weeks in compliance with State of California and the County of Orange public health pronouncements associated with the COVID-19 pandemic. On April 23, 2020, we obtained a Paycheck Protection Program (“PPP”) loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part. As of May 31, 2020, $45,470 was classified as notes payable, non-current and $28,935 was classified as part of notes payable, current portion.

 

8

 

 

Convertible Notes Payable

 

Kenmont Capital Partners

 

On May 7, 2013, the Company transferred 4 notes payable with a total principal value of $1,000,000 together with accrued interest, and consulting fees to a senior secured convertible note with a principal value of $1,087,000 (“New Kenmont Note”) and warrants to Kenmont Capital Partners LP. The New Kenmont Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75 per share. The warrants were subsequently exercised. The Company recorded $342,020 as a discount, which has been fully amortized. There was a remaining balance of $549,954 as of May 31 and February 29, 2020, respectively.

 

LPD Investments

 

On May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to a senior secured convertible note with a principal value of $558,700 (“New LPD Note”) and warrants to LPD Investments, Ltd. The New LPD Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75 per share. The warrants were subsequently exercised. The Company recorded $175,793 as a discount, which has been fully amortized. There is a remaining balance of $163,677 as of May 31 and February 29, 2020, respectively.

 

Guenther

 

On May 7, 2013, the Company entered into an agreement with an individual, Mr. Guenther, for the sale of $750,000 of secured convertible note payable (the “Note”) and warrants. The Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75 per share. The warrants entitle the holder to acquire 1,000,000 shares and have an initial exercise price of $0.75 per share and have a 7-year term. The Company recorded $235,985 as a discount, which has been fully amortized. There is a remaining balance of $232,194 as of May 31 and February 29, 2020, respectively.

 

Dresner and Lempert

 

On June 20, 2013, the Company entered into an agreement with two individuals, Mr. Dresner and Dr. Lempert, for the sale of $200,000 of secured convertible notes payable (the “Notes”) and warrants. The Notes had a 1-year maturity date and were convertible into shares of common stock at the conversion price of $0.50 per share. The warrants were subsequently exercised. The Company recorded $39,152 as a discount, which has been fully amortized. During fiscal 2020, Dr. Lempert convert his share of the amount outstanding into common shares and the balance outstanding of $59,506 as of May 31 and February 29, 2020, respectively, is for Dresner exclusively

 

9

 

 

Dalrymple – August 2012

 

On August 10, 2012, the Company entered into an agreement with an individual, Mr. Dalrymple, for the sale of $1,000,000 of unsecured Convertible Promissory Note. The Convertible Promissory Note balance together with all accrued interest thereon was due and payable on August 10, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing date. On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%.  The Company recorded $310,723 as a debt discount, which will be amortized over the life of the noteThere is a remaining balance of $264,462 as of May 31 and February 29, 2020, respectively.

 

Dalrymple – October 2012

 

On October 2, 2012, the Company entered into an agreement with an individual, Mr. Dalrymple, for the sale of $500,000 of unsecured Convertible Promissory Note. This Convertible Promissory Note balance together with all accrued interest thereon was due and payable on October 2, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing date. On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%. The Company recorded $137,583 as a debt discount, which will be amortized over the life of the noteThere is a remaining balance of $133,178 as of May 31 and February 29, 2020, respectively.

 

On January 30, 2017, the Company entered into an agreement entitled First Amendment to Transaction Documents with five of seven secured creditors holding a security interest in all of the Company’s assets except for its patents and other intellectual properties. These creditors are the seven listed above under Convertible Debt and include the following: Kenmont Capital Partners, LPD Investments, Guenther, Dresner, Lempert and Abdou and Abdou. All of the creditors entered into the January 30, 2017 agreement with the exception of Mr. W. Abdou and Mr. M. Abdou. The original agreement dated May 7, 2013 provided that if at least 75% of the stock issuable upon conversion of the convertible notes votes to amend the agreement and/or waive any conditions or defaults, then any such amendments or waivers shall be binding on all secured creditors. The five secured creditors signing the amendment total in excess of 95% of the issuable stock upon conversion and, therefore the agreement is binding on all seven of the secured creditors. The agreement provided that all accrued and unpaid interest will be added to the principal amount. The amended note provided for no interest from November 1, 2016 to February 14, 2018, the date at which the 1-for-7 reverse stock split became effective at which time 80% of the total debt including accrued interest was converted into shares of common stock and a new five year 5% per annum convertible note was issued for the remainder. The new amended and restated senior convertible notes have a maturity date of January 30, 2022. The five creditors and the Company entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment to Transaction Documents on April 8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7 reverse stock split, which was completed on February 14, 2018. The amended and restated senior convertible notes also require the Company to make a “Required Cash Payment” as defined in the agreement if the Company receives at least $4,000,000 in aggregate gross proceeds from the sale of equity securities (including securities convertible into equity securities) of the Company in one or a series of related transactions. The Required Cash Payment is equal to the current outstanding balance of the notes, which was approximately $1,005,000 as of May 31 and February 29, 2020, respectively, plus any outstanding accrued interest.

 

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of the period referenced below:

 

   May 31,
2020
   February 29,
2020
 
Accrued payroll and related expenses  $1,914,845   $1,868,928 
Accrued legal expenses   30,000    - 
Other accrued expenses   78,362    77,362 
   $2,023,207   $1,946,290 

 

Accrued payroll and related expenses consist primarily of salaries and vacation time accrued but not paid to employees due to our lack of financial resources.

 

10

 

 

NOTE 5 – SHAREHOLDERS’ EQUITY

 

Common Stock

 

During the three months ended May 31, 2020, the Company issued 1,358,333 shares of common stock for $235,000 in cash. During the three months ended May 31, 2019, the Company issued 156,250 shares of common stock for $50,000 in cash.

 

Employee Options and Warrants

 

The 2006 Employee Stock Option Plan

 

In September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan, subject to shareholder approval, which was obtained at a special shareholders meeting in 2009. Under the 2006 Plan, the Company may grant options for up to the greater of three million or 10% of the number of shares of the Common Stock of Aura from time to time outstanding. As of February 29, 2020, and May 31, 2020, there were no stock options outstanding.

 

The 2011 Director and Executive Officers Stock Option Plan

 

In October 2011, shareholders approved the 2011 Director and Executive Officers Stock Option Plan at the Company’s annual meeting. Under the 2011 Plan, the Company may grant options for up to 15% of the number of shares of Common Stock of the Company from time to time outstanding, with a contractual option term of five-years, and a vesting period not less than six-months and one day following date of grant. In the three-months ended May 31, 2020, the Board of Directors approved grants of 250,000 stock options to each board member for an aggregate of 1,250,000, with an exercise price of $0.25 per option and at a market price of $0.16 on March 19, 2020, the date of grant. The following table provided the assumptions required to apply the Black-Scholes Merton option model to determine the fair value of the stock options as of the grant date:

 

   Options
Issued
During the
Three-Months
ended
May 31,
2020
 
     
Exercise Price  $0.25 
Share Price  $0.16 
Volatility %   225%
Risk-free rate   0.57%
Expected term (yrs.)   4.0 

 

The aggregate fair value of the 1,250,000 options granted in March 2020 is $194,000, or $0.155 per option, with $77,599 recorded as part of sales, general and administration expense during the three-months ended May 31, 2020.

 

The following tables provide additional information regarding stock options outstanding and exercisable under the 2011 Director and Executive Officers Stock Option Plan:

 

   Number of Shares   Exercise Price   Weighted Average Intrinsic Value 
Outstanding, February 29, 2020   1,040,001   $1.40   $            - 
Granted   1,250,000    0.25    - 
Exrecised   -    -    - 
Cancelled   -    -    - 
Outstanding, May 31, 2020   2,290,001   $0.77   $- 

 

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Range of
Exercise Price
  Stock Options
Outstanding
    Stock Options
Exercisable
    Weighted Average
Remaining
Contractual Life
  Weighted Average
Exercise Price of
Options
Outstanding
    Weighted Average
Exercise Price of
Options
Exercisable
 
$0.25 to $1.40     2,290,001       1,040,001     3.75 Yrs.   $ 0.77     $ 1.40  

 

Warrants

 

Historically, warrants have been issued to investors and others for services and enticements to invest funds with the Company. Generally, these warrants fully vest immediately or within a 90-day period from the date of grant and have an expiration date of five-years from the date of grant. With grants dated prior to fiscal year 2021, an exercise price of $1.40 has been used with all warrants. No warrants were issued in the three months ended May 31, 2020.

 

Activity in issued and outstanding warrants is as follows for the three months ended May 31, 2020:

 

   Number of Shares   Exercise
Price
 
Outstanding, February 29, 2020   5,816,939   $1.40 
Granted   -    - 
Exrecised   -    - 
Cancelled   -    - 
Outstanding, May 31, 2020   5,816,939   $1.40 

 

Other information related to the warrants outstanding and exercisable as of May 31, 2020 follows:

 

Range of
Exercise Price
   Stock Warrants Outstanding   Stock Warrants Exercisable   Weighted Average Remaining Contractual Life  Weighted Average Exercise Price of Warrants Outstanding   Weighted Average Exercise Price of Warrants Exercisable 
$1.40    5,816,939    5,816,939    2.49 Yrs.  $1.40   $1.40 

 

NOTE 6 – RELATED PARTIES TRANSACTIONS

 

Notes payable-related party, non-current - $3,000,000 on the condensed balance sheets as of May 31 and February 29, 2020 consists of the Breslow Note as described below:

 

Breslow Note

 

On January 24, 2017, the Company entered into a Debt Refinancing Agreement with Mr. Breslow, a former Director of the Company. Pursuant to the agreement, both Mr. Breslow and the Company acknowledged that total debt owed to Mr. Breslow was $23,872,614 including $8,890,574 of accrued interest. Mr. Breslow agreed to cancel and forgive all interest due, waive all events of default and sign a new five-year convertible note in the amount of $14,982,041 providing for no interest for six months and interest of 5% per annum thereafter payable monthly in arrears. The note also provides various default provisions. In accordance with the agreement, on February 14, 2018, the effective date of the 1-for-7 reverse stock split, $11,982,041 of the note was converted into 7,403,705 shares of common stock and the then accrued interest of $9,388,338 was forgiven. A new $3,000,000 convertible five-year note representing the remaining balance was entered into at a conversion rate of $1.40. The note bears interest at a rate of 5% per annum payable monthly in arrears with accrued interest of $300,719 and $262,911 recorded as accrued interest-related party (see Note 4) as of May 31 and February 29, 2020, respectively.

 

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Notes payable and accrued interest-related party, current - $11,543,432 on the condensed balance sheet as of May 31 and $11,333,960 as of February 29, 2020 consists of the Kopple Notes, the Gagerman Note and the Jiangsu Shengfeng Note as set forth below:

 

Kopple Notes

 

As of May 31, and February 29, 2020, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $5,607,323 was unchanged. As of May 31, 2020, additional accrued interest of $5,095,015 was owed to Mr. Kopple for a total balance of $10,702,338. As of February 29, 2020, additional accrued interest of $4,887,610 was owed to Mr. Kopple for a total balance of $10,494,933.

 

On August 19, 2013, the Company entered into an agreement with Robert Kopple, a former member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the “Kopple Notes”) and warrants. The Kopple Notes carried a base interest rate of 9.5%, have a 4-year maturity date and were convertible into shares of common stock at the conversion price of $3.50 per share (conversion feature expired in 2017). The warrants were subsequently exercised. The Company recorded $667,118 as a discount, which has been fully amortized. The Company also entered into a demand note payable with this individual in the amount of $20,000, which bears interest at a rate of 5% per annum.

 

Gagerman Note

 

On May 31, 2020, the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $59,093 for a total owed to Melvin Gagerman, the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5, 2014. Interest accrues at 10% per annum. On February 29, 2020, the amount owed to Gagerman was $139,026.

 

Jiangsu Shengfeng Note

 

On November 20, 2019, the Company entered into a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture, to return $700,000 previously advanced to the Company in September 2018 and recorded as part of customer advance on the balance sheet as of February 28, 2019. Following this agreement which consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021. Principal loan amount on May 31, 2020 and February 29, 2020 was $700,000, respectively, and is classified as part of notes payable and accrued interest-related party, current on the balance sheets as of May 31, 2020.

 

NOTE 7 – COMMITMENTS & CONTINGENCIES

 

Leases

 

Our facilities consist of approximately 20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita, California. The Stanton facility is used for some assembly and testing of AuraGen®/VIPER systems and is rented on a month-to-month basis. The rent for the Stanton facility is $10,000 per month and the storage facility is $5,000 per month. In May 2020, the Company provided notice of its intention to vacate this storage facility in Santa Clarita by July 31, 2020. Our current Stanton facility is not sufficient to support the expected operations and the Company is searching for a new facility to be used for limited production, testing, warehousing and engineering and office space for support staff. Commencing in February 2019 and ending in July 2019, the Company rented approximately 300 square feet of office space in Irvine, California at a cost of $ 2,350 per month on a month-to-month basis.

 

Following the adoption of Topic 842, Leases, as of the start of fiscal year 2020, the Company determined that there was no impact on its Condensed Financial Statements during the nine-month period ended May 31, 2020. The standard requires entities to evaluate all lease transactions including leases previously classified as operating leases, and, if required under Topic 842, a right-to-use asset and a corresponding lease liability may be recorded on the balance sheet in the period in which a lease commences.

 

Contingencies

 

We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected.

 

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In 2017, the Company’s former COO was awarded approximately $238,000 in accrued salary and related charges by the California labor board. The Company believes that this award does not reflect the amount owed which is significantly lower and is exploring all its options and available remedies and is working toward an offer to settle this matter.

 

The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura’s behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017, Mr. Kopple filed suit against the Company as well as against current director Mr. Diaz-Verson and former directors Mr. Breslow and Mr. Howsmon, as well as Mr. Gagerman, our former CEO and a former director, in connection with these allegations. In 2018, the Court sustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with Mr. Kopple. However, to-date, no settlement has been reached in large part because Mr. Kopple continues to demand that as part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial and management functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole.

 

In May 2018, Shelley Scholnick dba JB Transporters brought suit against the Company claiming ongoing fees in excess of $52,000 owed for the storage of the Company’s property. Notably, in June 2017, the Company had brought suit against J.B. Moving & Delivery, a business operated and controlled by a relative of Scholnick, Jacob Binstok, for damages suffered by the Company as a result of the defendant’s improper storage of the Company’s property and improper refusal to return such property. In 2018, the Company successfully received a judgment against J.B. Moving & Delivery in the amount of approximately $114,000. In April 2020, Aura and Scholnick entered into a Confidential Settlement and Release Agreement wherein (i) the 2018 action initiated by Scholnick against Aura was resolved with no amounts owing by Aura and the complaint and cross-complaint were subsequently dismissed with prejudice; and (ii) the amount owing to Aura pursuant to the judgment against J.B. Moving and Delivery was compromised and resolved through a single lump-sum payment to Aura.

 

On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company.  On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019 and March 27, 2019, respectively. Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms. Lavut, Mr. Mann, Dr. Lempert, Mr. Douglas and Mr. Diaz-Versón, Jr. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent (b) Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, Jr. As a result of prior management’s unsuccessful opposition to this stockholders’ action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions. To-date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

This Report contains forward-looking statements within the meaning of the federal securities laws. Statements other than statements of historical fact included in this Report, including the statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding future events or prospects are forward-looking statements. The words “approximates,” “believes,” “forecasts,” “expects,” “anticipates,” “estimates,” “intends,” “plans” “would,” “could,” “should,” “seek,” “may,” or other similar expressions in this Report, as well as other statements regarding matters that are not historical fact, constitute forward-looking statements. We caution investors that any forward-looking statements presented in this Report are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.

 

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:

 

  Our ability to generate positive cash flow from operations;

 

  Our ability to obtain additional financing to fund our operations;

 

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

 

  The impact of unfavorable results of legal proceedings;

 

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

 

  Our ability to compete effectively against competitors offering different technologies;

 

  Our business development and operating development;

 

  Our expectations of growth in demand for our products; and

 

  Other risks described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K  for the year ended February 29, 2020, issued on July 13, 2020 (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.

 

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Overview

 

During fiscal 2017 through 2018, we reduced our engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations and minimizing expenditures while we attempted to raise additional funding and pursue some initial engineering activities.

 

In fiscal 2018, we successfully eliminated approximately 68% of our total indebtedness. Specifically, our secured creditors converted approximately $5.73 million of secured debt into approximately 4.1 million shares of our common stock. The converted debt represented approximately 80% of the total secured debt of the Company. The balance of the secured debt (approximately $960,000) is to be paid to the secured creditors in cash if we raise at least $4.0 million in proceeds through new equity offerings in one or a series of related offerings. Additionally, in fiscal 2018, approximately $12.77 million of unsecured debt was converted into approximately 9.3 million shares of the Company’s common stock and approximately $12.3 million of unsecured debt was forgiven. In total, during fiscal 2018, we eliminated a total of approximately $30.8 million of debt.

 

 The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura’s behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017, Mr. Kopple filed suit against the Company as well as against current director Mr. Diaz-Verson and former directors Mr. Breslow and Mr. Howsmon, as well as Mr. Gagerman, our former CEO and a former director, in connection with these allegations. In 2018, the Court sustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with Mr. Kopple. However, to-date, no settlement has been reached in large part because Mr. Kopple continues to demand that as part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial and management functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole.

 

On February 14, 2018, we effectuated a one-for-seven reverse stock split.

 

In fiscal 2019, we began increasing our engineering and manufacturing activities. We utilized contractors for these services in order to minimize our expense while we continued to pursue new sources of financing. In July 2019 under our new management team, we began significantly increasing our sales, engineering, manufacturing and marketing activities.

 

Our business is based on the exploitation of our patented mobile power 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.

 

(i) Our sales and marketing approaches are composed of direct sales in North America and the use of agents, distributors. In North America, our primary focus is in (a) mobile exportable power applications, and (c) U.S. Military applications.

 

(ii) 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, different voltages, three phase options, shore power systems, higher current solutions as well as interface kits for different platforms. After suspending the majority of our engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations in fiscal 2018 and 2019, we incurred modest engineering expenses of approximately $34,000 and $58,000 during the three-months ended May 31 2020 and 2019, respectively.

 

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.

 

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Revenue Recognition

 

The core principle of ASC 606, Revenue from Contracts with Customers (“ASC 606”), is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying ASC 606, all revenue transactions must be evaluated using a five-step approach to determine the amount and timing of revenue to be recognized. The five-step approach requires (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied.

 

Our primary source of revenue is the manufacture and delivery of AuraGen/VIPER sets used primarily in mobile power applications, which represented 100% of our revenues of approximately $49,000 and $0 for the three-months ended May 31 2020 and 2019, respectively. Our current principle sales channel is sales to a domestic distributor.

 

In accordance with ASC 606, we recognize the entirety of the revenue, net of discounts, for our AuraGen/VIPER sets at time of product delivery to the 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 2.5% price discount in accordance with this policy. Our commercial terms and conditions do not include a right of return for reasons other than a defect in performance or quality. We offer 18 months assurance-type warranty covering material and manufacturing defects, which we account for under the guidance of ASC 460, Guarantees. We have a limited history of shipments, and, as such, we have not recorded a warranty liability on our balance sheets at May 31, 2020 and February 29, 2020, respectively; however, we expect warranty claims to eventually be nil, therefore, we have not delayed the recognition of revenue during fiscal years 2021 and 2020.

 

Inventory Valuation and Classification

 

Inventories are valued at the lower of cost (first-in, first-out) or market, on a standard cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. From fiscal 2015 through 2019 we minimally operated and therefore only produced minimal product. As a result, while we believed that a portion of the inventory had value, we were unable to substantiate demand and fully reserved all inventory in fiscal 2019. Beginning with fiscal 2020, production has increased, and fully reserved inventory has been used in current production. We classify all of our inventory as raw material and work-in-process.

 

Stock-Based Compensation

 

We account for stock-based compensation under the provisions of FASB ASC 718, “Compensation – Stock Compensation”, which requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair value-based method and the recording of such expense in the statements of operations.

  

We account for stock option and warrant grants issued and vesting to non-employees, such as consultants and third parties, in accordance with FASB ASC 718, “Compensation – Stock Compensation”, where appropriate, whereas the fair value of the equity-based compensation is based upon the measurement date as determined at the earlier of either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete.

 

In accordance with established public company accounting practice, we have consistently utilized the Black-Scholes option-pricing model to calculate the fair value of stock options and warrants issued as compensation, primarily to management, employees, and directors.  The Black-Scholes option-pricing model is a widely accepted method of valuation that public companies typically utilize to calculate the fair value of options and warrants that they issue in such circumstances. During the three-month period ended May 31, 2020, our Board of Directors awarded a total of 1,250,000 stock options to the five members of the board, with a five-year term, an exercise price of $0.25 per option, and a vesting period of not less than six-months and one day. Using the Black-Scholes option model, we determined an aggregate fair value of $194,000 of which $77,599 was recorded in the three-months ended May 31, 2020.

 

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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 and the first quarter of fiscal 2021 were significantly reduced, thus impacting our results of operations during these quarters.

 

In response to the COVID-19 pandemic and business disruption, we implemented certain measures to manage costs, preserve liquidity and enhance employee safety. These measures included the following:

 

  Reduction of payroll costs through temporary furloughs;

 

  Enhanced cleaning and disinfection procedures at our facilities, temperature checks for our workers, promotion of social distancing at our facilities and requirements for employees to work from home where possible;
     
  Reduction of capital expenditures; and

 

  Deferral of discretionary spending.

 

The extent of the impact of the COVID-19 pandemic on our business, financial results and liquidity will depend largely on future developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the related impact on our customers, especially in the commercial vehicle markets. These future developments are outside of our control, are highly uncertain and cannot be predicted. If the impact is prolonged, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity. These and other potential impacts of the COVID-19 pandemic will adversely impact our results for the first quarter of fiscal 2021, as well as the full fiscal year, and that impact could be material.

 

Going Concern

 

The financial statements contained herein in Item I. Financial Statement have been prepared assuming we will continue as a going concern. During the three-months ended May 31, 2020 and 2019, we reported net losses of approximately $606,000 and $675,000, respectively, and had negative cash flows from operating activities of approximately $181,000 and $397,000, respectively.

 

If we are unable to generate profits on a sustained basis and is unable to continue to obtain financing for its working capital requirements, we may have to curtail its business sharply 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. Our 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 our current financing, to obtain additional financing, and ultimately to attain profitability.

 

Results of Operations

 

Three months ended May 31, 2020 compared to three months ended May 31, 2019

 

Net revenue was approximately $49,000 for the three-months ended May 31, 2020 (the “Three-Months FY2021”) compared to $0 for the three-months ended May 31, 2019 (the “Three-Months FY2020”). During the first quarter of 2021, we delivered 8 generator units to a distribution customer as compared to 0 units in the same quarter in the prior year.

 

Cost of goods sold was approximately $40,000 in the Three-Months FY2021 compared to approximately $3,000 in the Three-Months FY2020 resulting in a gross profit of $8,000, or a gross margin of 16%, and a $3,000 gross loss in the Three-Months FY2020 and a meaningless gross margin. Gross profit and related gross margin for the Three-Months FY2021 shipments were influenced by two main factors: (i) the low volume of shipments attributed partly to the impact of COVID-19 causing temporary closure of operations, which reduced our ability to fully absorb fixed operating costs, and offset partially by (ii) a reduction of cost of goods sold due to the utilization of fully reserved inventory of approximately $4,000 used in the course of production. During the balance of this fiscal year, we believe we will continue to utilize fully reserved inventory components to offset production costs for material and this will favorably benefit our operating results and related cash flows.

 

Engineering, research and development expenses were approximately $34,000 in the Three-Months FY2021, compared to approximately $58,000 in the Three-Months FY2020, or a decrease of 41% Selling, general and administrative (“SG&A”) expense increased approximately $42,000 (14%) to approximately $339,000 in the Three-Months FY2021 from approximately $297,000 in the Three-Months FY2020. During Three-Months FY2021, we incurred $77,599 of stock-based compensation expense related to the grant of 1,250,000 to our five board members. Other SG&A expenses declined by approximately $35,000 due to reduced headcount expense.

 

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Net interest expense in the Three-Months FY2021 decreased approximately $27,000 or 4%, to approximately $290,000 from approximately $317,000 in the Three-Months FY2020.

 

Other income increased $53,000 in the Three-Months FY2021 due to a favorable $46,000 settlement of a legal matter and a one-time benefit of $7,000 related to the Paycheck Protection Program (“PPP”) administered by the U.S. Small Business Administration in response to the COVID-19 pandemic.

 

Net loss for the Three-Months FY2021 decreased approximately $69,000, or 10%, to $606,000 from a loss of $675,000 in the Three-Months FY2020 due primarily to primarily to additional expense of $77,600 for stock-based compensation expense offset by (i) higher gross profit on shipments of $11,000 (ii) $53,000 of one-time other income (iii) reduced engineering, research and development expenses of $24,000 (iv) reduced net interest expense of $27,000 and (v) reduced headcount expense of $35,000

 

Liquidity and Capital Resources

 

Net cash used in operations for the three-months ended May 31, 2020, was approximately $181,000, a decrease of $216,000 from the comparable period in the prior fiscal year. Net cash provided by financing activities during the three-months ended May 31, 2020, was $299,000 consisting of (i) cash proceeds from issuance of common stock of $235,000, (ii) proceeds of $74,405 related to the PPP COVID-19 program and partially offset by (iii) a $10,000 principle payment on a note payable; compared to cash provided by financing of $50,000 in the same period of fiscal 2020 consisting of cash proceeds from the issuance of common shares. The cash flow generated from our operations to date has not been sufficient to fund our working capital needs, and we cannot predict when operating cash flow will be sufficient to fund working capital needs.

 

There were no acquisitions of property and equipment during the three-months ended May 31, 2020 and 2019.

 

Accrued expenses and other current liabilities as of May 31, 2020 increased by approximately $0.1 million to $4.3 million from approximately $4.2 million as of February 29, 2020 due (i) increased accrued legal expenses of $30,000 (ii) increased accrued payroll of $46,000 and (iii) increased accrued interest cost of $80,000.

 

The Company had a deficit of $20.4 million in shareholders’ equity as of May 31, 2020, compared to $20.1 million as of February 29, 2020 with the net change attributed to net loss of approximately $0.7 million offset partially by (i) the issuance of shares of approximately $0.2 million for cash and (ii) the granting of options to board members totaling 1,250,000 with an aggregate fair value of $194,000, of which $77,599 was recognized during the first quarter of fiscal 2021.

 

On April 23, 2020, we obtained a Paycheck Protection Program (“PPP”) loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part.

 

In the past, in order to generate liquidity, we have relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and require additional debt or equity financing to fund ongoing operations. The issuance of additional shares of equity in connection with any such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise 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. 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we are not required to provide disclosure under this Item 3.

 

19

 

 

ITEM 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the specified time periods. For the last 3 fiscal years, these control and procedures broke down due to insufficient capital to maintain such controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the Company’s management evaluated, with the participation of the Company’s Principal Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures. Based on the evaluation, the Company’s Principal Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of the end of the period covered by this report in ensuring that information requiring disclosure is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. The Company continues to remediate the findings contained in our Annual Report on Form 10-K, for the fiscal year ended February 29, 2020, issued on July 13, 2020.

 

Changes in Internal Control over Financial Reporting

 

There have been no other changes in our internal control over financial reporting during our fiscal quarter ended May 31, 2020, not previously identified in our Annual Report on Form 10-K, for the fiscal year ended February 29, 2020 and issued on July 13, 2020 which have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

20

 

 

PART II - OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s financial statements for that reporting period could be materially adversely affected.

 

In 2017, the Company’s former COO was awarded approximately $238,000 in accrued salary and related charges by the California labor board. The Company believes that this award does not reflect the amount owed which is significantly lower and is exploring all its options and available remedies and is working toward an offer to settle this matter.

  

The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura’s behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017, Mr. Kopple filed suit against the Company as well as against current director Mr. Diaz-Verson and former directors Mr. Breslow and Mr. Howsmon, as well as Mr. Gagerman, our former CEO and a former director, in connection with these allegations. In 2018, the Court sustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with Mr. Kopple. However, to-date, no settlement has been reached in large part because Mr. Kopple continues to demand that as part of any such settlement, he receive unilateral control over significant aspects of the Company’s financial and management functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole.

 

21

 

 

In May 2018, Shelley Scholnick dba JB Transporters brought suit against the Company claiming ongoing fees in excess of $52,000 owed for the storage of the Company’s property. Notably, in June 2017, the Company had brought suit against J.B. Moving & Delivery, a business operated and controlled by a relative of Scholnick, Jacob Binstok, for damages suffered by the Company as a result of the defendant’s improper storage of the Company’s property and improper refusal to return such property. In 2018, the Company successfully received a judgment against J.B. Moving & Delivery in the amount of approximately $114,000. In April 2020, Aura and Scholnick entered into a Confidential Settlement and Release Agreement wherein (i) the 2018 action initiated by Scholnick against Aura was resolved with no amounts owing by Aura and the complaint and cross-complaint were subsequently dismissed with prejudice; and (ii) the amount owing to Aura pursuant to the judgment against J.B. Moving and Delivery was compromised and resolved through a single lump-sum payment to Aura.

 

On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company.  On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019 and March 27, 2019, respectively. Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms. Lavut, Mr. Mann, Dr. Lempert, Mr. Douglas and Mr. Diaz-Versón, Jr. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent (b) Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company’s outstanding stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, Jr. As a result of prior management’s unsuccessful opposition to this stockholders’ action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions. To-date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

 

ITEM 1A. Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s Fiscal 2020 Annual Report on Form 10-K issued on July 13, 2020.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three-months ended May 31, 2020, we issued 1,358,333 shares of common stock for cash proceeds of $235,000.

 

ITEM 3. Defaults Upon Senior Securities.

 

As of the date of this filing, Robert Kopple, our former Vice Chairman of the Board, is the only significant unsecured note holder that has not executed formal agreements regarding the restructure of his debt. Mr. Kopple claims that he and his affiliates are owed approximately $10.6 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura’s behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment fees) on terms significantly preferable to other similarly situated unsecured creditors as well  as warrants to purchase approximately 3.3 million shares of our common stock. We dispute Mr. Kopple’s claims and we are currently in a legal dispute regarding these claims. See “Item 1. Legal Proceedings” included elsewhere in this Quarterly Report on Form 10-Q for information regarding the dispute with Mr. Kopple regarding these transactions as well as “Note 3 – Notes Payable” and “Note 5 – Related Parties Transactions” to the Company’s condensed financial statements, “Liquidity and Capital Resources” in “Item 2 and Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this quarterly report on Form 10-Q for additional information regarding amounts that may be owed under the Company’s notes payable and the recent restructuring of certain Company debt. Mr. Kopple has not accepted our numerous offers to settle this debt and continues to demand that as part of any such resolution, he receive unilateral control over significant aspects of the Company’s financial and management functions such as, but not limited to, the right to unilaterally direct the Company’s ordinary business expenditures and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company’s management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole.

 

22

 

 

In June 2014, we entered into a Financing Letter of Agreement (the “June 2014 Agreement”) with two affiliate entities of Mr. Kopple, KF Business Ventures and the Kopple Family Partnership (the “Additional Kopple Parties”), pursuant to which the Additional Kopple Parties loaned us an additional $1,000,000 (the “June 2014 Loan”). In connection with the June 2014 Loan, Mr. Kopple also added $202,205 in penalties and accrued interest, credited us with $200,000 for amounts previously repaid by us and several earlier advances into a single new note (the “June 2014 Kopple Note”) in the principal amount of $2,715,2067 and bearing simple interest at a rate of 10% per annum.

  

Pursuant to the June 2014 Agreement, the Kopple Parties also placed various restrictions on our ability to raise additional capital, hire qualified personnel and pay certain expenses without his prior approval for so long as the principal amount of his note remained outstanding. The June 2014 Kopple Note also required us to issue Mr. Kopple a stock purchase warrant (the “June 2014 Kopple Warrant”) to purchase approximately 771,000 shares of our common stock at an exercise price of $0.70 per share, to be exercisable for seven years. Additionally, if we borrowed funds, issued capital stock or rights to acquire or convert into capital stock, or granted rights in respect to territories to any person for cash consideration of more than $5 million in the aggregate after the date of the June 2014 Kopple Note, we would be required to pay the entire amount of such cash consideration in excess of $5 million as a mandatory prepayment of the June 2014 Kopple Note. Additionally, Mr. Kopple required a default provision providing that in the event that the entire outstanding balance of the June 2014 Kopple Note was not paid in full prior to October 1, 2014, then for each consecutive calendar month during the period beginning October 1, 2014 and ending March 31, 2015, we would issue to Mr. Kopple additional stock purchase warrants, each to purchase 416,458 shares of our common stock, up to a maximum aggregate of approximately 2.5 million shares of our common stock, at $0.70 per share (the “Kopple Penalty Warrants”), the Kopple Penalty Warranties to be exercisable for seven years from the time of their respective issuances. In addition to the Kopple Penalty Warrants, the default provision under the June 2014 Kopple Note provides for a 5% late charge on the total amount due plus 15% per year interest. We have not repaid the Kopple Parties in full for the amounts loaned to us. Additionally, we have not issued any of the Kopple Penalty Warrants and management believes that Mr. Kopple is not entitled to receive them. We have also cancelled the June 2014 Kopple Warrant.

 

We consider the transactions described above with Mr. Kopple to be related party transactions.

  

ITEM 4. Mine Safety Disclosures

 

Not applicable.

 

ITEM 5. Other Information.

 

None.

 

23

 

 

ITEM 6.  Exhibits

 

31.1   Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
     
31.2   Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
     
32.1   Certification of PrincipalExecutive Officier and Chief Financial Officer  Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH     XBRL Schema Document
     
101.CAL     XBRL Calculation Linkbase Document
     
101.DEF     XBRL Definition Linkbase
     
101.LAB     XBRL Label Linkbase Document
     
101.PRE     XBRL Presentation Linkbase Document

 

24

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: July 20, 2020 AURA SYSTEMS, INC.
  (Registrant)
     
  By: /s/ Cipora Lavut
    Cipora Lavut
    President

 

 

25

 

EX-31.1 2 f10q0520ex31-1_aurasystems.htm CERTIFICATION

Exhibit 31.1

 

CERTIFICATION

 

I, Cipora Lavut, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Aura Systems, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize, and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: July 20, 2020 By: /s/ Cipora Lavut
    Cipora Lavut
    President

 

EX-31.2 3 f10q0520ex31-2_aurasystems.htm CERTIFICATION

Exhibit 31.2

 

CERTIFICATION

 

I, David Mann, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Aura Systems, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize, and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: July 20, 2020 By: /s/ David Mann
    David Mann
    Chief Financial Officer

 

EX-32.1 4 f10q0520ex32-1_aurasystems.htm CERTIFICATION

Exhibit 32.1

 

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Cipora lavut, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Aura Systems, Inc. on Form 10-Q for the period ended May 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Aura Systems, Inc. at the dates and for the periods indicated.

 

Date: July 20, 2020 By: /s/ Cipora Lavut
    Cipora Lavut
    President

 

I, David Mann, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Aura Systems, Inc. on Form 10-Q for the period ended May 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Aura Systems, Inc. at the dates and for the periods indicated.

 

Date: July 20, 2020 By: /s/ David Mann
    David Mann
    Chief Financial Officer

 

A signed original of this written statement required by Section 906 has been provided to Aura Systems, Inc. and will be retained by Aura Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

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Commitments Textual [Abstract]. Description of contingencies. Amount of ongoing fees. Moving and delivery amount. Exercise price per share or per unit of warrants or rights outstanding granted. Exercise price per share or per unit of warrants or rights outstanding exercised. Exercise price per share or per unit of warrants or rights outstanding cancelled. Share based compensation shares authorized under exercise price range number of stock warrants exercisable. Share based compensation shares authorized under warrants outstanding weighted average exercise price. share-based compensation shares authorized under warrants exercisable weighted average exercise price. Warrants exercise price description. Tabular disclosure of warrant exercise prices, by grouped ranges, including the upper and lower limits of the price range, the number of shares under warrant, weighted average exercise price and remaining contractual terms. Schedule of Black-Scholes Merton option model to determine the fair value of the stock options as of the grant date. Amount of increase (decrease) in additional paid in capital (APIC) resulting from a compansation associated with an share-based compensation plan other than an employee stock ownership plan (ESOP). 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Document and Entity Information - shares
3 Months Ended
May 31, 2020
Jul. 15, 2020
Document and Entity Information [Abstract]    
Entity Registrant Name AURA SYSTEMS INC  
Entity Central Index Key 0000826253  
Amendment Flag false  
Current Fiscal Year End Date --02-28  
Document Type 10-Q  
Document Period End Date May 31, 2020  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2021  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Incorporation State Country Code DE  
Entity File Number 0-17249  
Entity Interactive Data Current No  
Entity Common Stock, Shares Outstanding   59,625,872
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Balance Sheets (Unaudited) - USD ($)
May 31, 2020
Feb. 29, 2020
Current assets    
Cash and cash equivalents $ 138,174 $ 19,807
Inventory 89,106 90,037
Other current assets 417 1,487
Total current assets 227,697 111,330
Non-Current Assets
Total assets 227,697 111,330
Current liabilities    
Accounts payable 2,515,819 2,537,061
Accrued expenses 2,023,207 1,946,290
Customer advances 440,331 440,331
Accrued expense-related party 1,008,328 1,008,328
Accrued interest-notes payable-related party 300,719 262,911
Accrued interest-notes payable 541,106 498,698
Notes payable, current portion 1,002,653 983,717
Notes payable and accrued interest-related party 11,543,432 11,333,960
Total current liabilities 19,375,595 19,011,296
Notes payable-related party 3,000,000 3,000,000
Note payable 45,470 0
Convertible notes payable 1,402,971 1,402,971
Total liabilities 23,824,036 23,414,267
Commitments and contingencies (note 7)
Shareholders' deficit    
Common stock: $0.0001 par value; 150,000,000 shares authorized at May 31 and February 29, 2020; 57,759,207 and 56,400,874 issued and outstanding at May 31 and February 29, 2020, respectively 5,774 5,639
Additional paid-in capital 443,729,916 443,417,452
Accumulated deficit (467,332,029) (466,726,027)
Total shareholders' deficit (23,596,339) (23,302,937)
Total liabilities and shareholders' deficit $ 227,697 $ 111,330
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Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares
May 31, 2020
Feb. 29, 2020
Statement of Financial Position [Abstract]    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 57,759,207 56,400,874
Common stock, shares outstanding 57,759,207 56,400,874
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Statements of Operations (Unaudited) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Income Statement [Abstract]    
Net revenue $ 48,633
Cost of goods sold 40,393 2,889
Gross profit (loss) 8,240 (2,889)
Operating expenses    
Engineering, research & development 33,994 58,193
Selling, general & administration 343,559 297,223
Total operating expenses 377,553 355,416
Loss from operations (369,313) (358,305)
Other expense:    
Interest expense, net 289,688 317,015
Other income 7,000
Gain on debt settlement 46,000
Loss before income tax provision (606,001) (675,321)
Income tax provision
Net loss $ (606,001) $ (675,321)
Basic and dilutive loss per share $ (0.01) $ (0.01)
Weighted average shares outstanding 57,072,794 53,863,602
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Cash flows from operating activities:    
Net loss $ (606,001) $ (675,321)
Adjustments to reconcile net loss to cash used in operating activities    
Stock-based compensation expense 77,599
Decrease in    
Inventory 931
Other current assets 1,070 12,763
Increase in    
Accts payable, customer deposits and accrued expenses 345,364 265,122
Cash used in operating activities (181,037) (397,436)
Cash flows from financing activities    
Issuance of common stock 235,000 50,000
Payment on notes payable (10,000)
Proceeds from Federal PPP note 74,405
Cash provided by financing activities 299,405 50,000
Net decrease in cash and cash equivalents 118,368 (347,436)
Beginning cash 19,807 358,209
Ending cash 138,174 10,773
Cash paid in the period for:    
Interest
Income taxes
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.20.2
Condensed Statements of Shareholders' Deficit (Unaudited) - USD ($)
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Beginning balance at Feb. 28, 2019 $ 5,371 $ 442,519,092 $ (464,119,162) $ (21,594,699)
Beginning balance, Shares at Feb. 28, 2019 53,714,145      
Shares issued for cash $ 15 49,985   50,000
Shares issued for cash, Shares 156,250      
Net loss     (675,321) (675,321)
Ending balance at May. 31, 2019 $ 5,386 442,569,077 (464,794,483) (22,220,020)
Ending balance, Shares at May. 31, 2019 53,870,395      
Beginning balance at Feb. 29, 2020 $ 5,639 443,417,452 (466,726,027) (23,302,937)
Beginning balance, Shares at Feb. 29, 2020 56,400,874      
Shares issued for cash $ 135 234,865 235,000
Shares issued for cash, Shares 1,358,333      
Stock-based compensation expense 77,599 77,599
Net loss     (606,001) (606,001)
Ending balance at May. 31, 2020 $ 5,774 $ 443,729,916 $ (467,332,029) $ (23,596,339)
Ending balance, Shares at May. 31, 2020 57,759,207      
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Operations and Summary of Significant Accounting Policies
3 Months Ended
May 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

Aura Systems, Inc., ("Aura", "We" or the "Company") a Delaware corporation, was founded to engage in the development, commercialization, and sales of products, systems, and components, using its patented and proprietary electromagnetic technology. Aura develops and sells AuraGen® axial flux mobile induction power systems to the industrial, commercial, and defense mobile power generation markets. In addition, the Company has also developed and patented High Force Electromagnetic Linear Actuators which it has sold in prior years.

 

Basis of Presentation 

 

In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. However, the results of operations included in such financial statements may not necessary be indicative of annual results.

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 29, 2020 filed with the Securities and Exchange Commission ("SEC") on July 13, 2020 ("2020 Form 10-K.").

 

Significant Accounting Policies

 

For a detailed discussion about the Company's significant accounting policies, refer to Note 2 — "Summary of Significant Accounting Policies," in our financial statements included in Company's 2020 Form 10-K. During the three months ended May 31, 2020, there were no significant changes made to the Company's significant accounting policies. 

 

Use of Estimates

 

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current year presentation.

  

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument. Subsequent to the issuance of ASU 2016-13, the FASB clarified the guidance through several ASUs. The collective new guidance (ASC 326) generally requires entities to use a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect. The entity's estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts. ASC 326 is effective for annual and interim fiscal reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2018. The Company is continuing to evaluate the expected impact of this ASC 326 but does not expect it to have a material impact on its financial statements upon adoption.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.20.2
Going Concern
3 Months Ended
May 31, 2020
Going Concern [Abstract]  
GOING CONCERN

NOTE 2 – GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The unaudited condensed financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

If the Company is unable to generate profits on a sustained basis and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply 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.

 

Beginning with the second quarter of fiscal year 2020, we increased operations of our AuraGen®/VIPER business and revenue for the three-months ended May 31, 2020 was $49,000 as compared to $0 revenue in the comparable period of fiscal 2020.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable
3 Months Ended
May 31, 2020
Debt Disclosure [Abstract]  
NOTES PAYABLE

NOTE 3 – NOTES PAYABLE

 

Non-related party and related party notes payable transaction consisted of the following:

 

Non-Related Party Promissory Notes (see below)  May 31,
2020
   February 29,
2020
 
         
Demand promissory notes payable with 4 individuals, carrying an interest rate of 10% (see Demand Promissory Notes below)  $768,537   $768,537 
Messrs. Abdou notes payable   205,181    215,181 
U.S. Payroll Protection Plan loan program   74,405    - 
Total Demand and Notes Payable   1,048,123    983,718 
Convertible Promissory Note originally dated August 10, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%. See Convertible Promissory Notes – Dalrymple August 2012 for further details.   264,462    264,462 
Convertible Promissory Note originally dated October 2, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%. See Convertible Promissory Notes – Dalrymple October 2012 for further details.   133,178    133,178 
Senior secured convertible notes originally dated May 7, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.75 per share, carrying interest rate of 5%. See Convertible Debt – Kenmont Capital Partners, LPD Investments and Guenther for further details.   945,825    945,825 
Senior secured convertible notes originally dated June 20, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.50 per share, carrying interest rate of 5%. See Convertible Debt – Dresner and Lempert for further details.   59,506    59,506 
Total Convertible Promissory Notes   1,402,971    1,402,971 
Accrued Interest - notes payable   541,106    498,698 
Total Non-Related Party   2,992,200    2,885,387 
           
Notes Payable-Related Party (see Note 6)          
Convertible Note payable – related party, carrying an interest rate of 5% - see Note 6, Breslow Note, for further details   3,000,000    3,000,000 
Kopple Notes Payable-related party , see Kopple Notes, Note 6:   10,702,338    10,494,933 
Mel Gagerman Notes Payable, see Gagerman, Note 6:   141,093    139,026 
On November 20, 2019, the Company entered into a preliminary  agreement with Jiangsu Shengfeng, the Company's Chinese joint venture. Payment terms consist of a non-interest bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021.   700,000    700,000 
Accrued Interest - notes payable- related party   300,719    262,911 
Total Related Party   14,844,150    14,596,871 
Total notes payable and accrued interest   17,836,350    17,482,258 
Less: Current portion  $(13,387,910)  $(13,079,287)
Long-term portion  $4,448,441   $4,402,971 

 

Demand Promissory Notes and Notes Payable

 

The Demand Promissory Notes are four individual notes issued in 2015 that are payable on demand with an interest rate of 10% per annum.

 

As of February 29 and May 31, 2020, the aggregate principal amount owed to these persons is $768,537; the principal amount of each note and the person/entity payable to are as follows: $10,000 Mr. Zeitlin, a former director of the Company; $30,000 Mr. Sook; $461,537 Mr. Macleod, a former president of the Company; and $267,000 Mr. Veen. In February 2018, the Company issued 192,641 shares of its common stock to Steven Veen in satisfaction of $267,000 in debt. Despite this issuance, Mr. Veen claims to continue to be entitled to repayment of the $267,000 debt. Mr. Veen has to-date, not surrendered the shares issued to him in fulfillment of the debt he claims to be still owed and continues to own the 192,641 shares as of the date of this filing.

 

Abdou and Abdou

 

On June 20, 2013, the Company entered into an agreement with two individuals, Mr. M. Abdou and Mr. W. Abdou, for the sale of $125,000 of secured convertible notes payable (the "Notes") and warrants. The Notes had a 1-year maturity date and were convertible into shares of common stock at the conversion price of $0.50 per share. The warrants were subsequently exercised. The Company recorded $24,470 as a discount, which has been fully amortized. There is a remaining balance of $125,000 as of February 28, 2019. In 2016, the Company and the Company's former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed by Messrs. Abdou demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. In January 2017, the Company entered into an agreement with all secured creditors other than Mr. W. Abdou and Mr. M. Abdou. In September 2018, the court entered a judgment of approximately $235,000 plus legal fees of in favor of the Messrs. Abdou. The Company subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for a principal amount of $325,000, of which approximately $205,000 and $215,000 were outstanding as of May 31 and February 29, 2020, respectively.

 

Paycheck Protection Plan Loan

 

During April 2020, the Company ceased operations for approximately 6 weeks in compliance with State of California and the County of Orange public health pronouncements associated with the COVID-19 pandemic. On April 23, 2020, we obtained a Paycheck Protection Program ("PPP") loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part. As of May 31, 2020, $45,470 was classified as notes payable, non-current and $28,935 was classified as part of notes payable, current portion.

 

Convertible Notes Payable

 

Kenmont Capital Partners

 

On May 7, 2013, the Company transferred 4 notes payable with a total principal value of $1,000,000 together with accrued interest, and consulting fees to a senior secured convertible note with a principal value of $1,087,000 ("New Kenmont Note") and warrants to Kenmont Capital Partners LP. The New Kenmont Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75 per share. The warrants were subsequently exercised. The Company recorded $342,020 as a discount, which has been fully amortized. There was a remaining balance of $549,954 as of May 31 and February 29, 2020, respectively.

 

LPD Investments

 

On May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to a senior secured convertible note with a principal value of $558,700 ("New LPD Note") and warrants to LPD Investments, Ltd. The New LPD Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75 per share. The warrants were subsequently exercised. The Company recorded $175,793 as a discount, which has been fully amortized. There is a remaining balance of $163,677 as of May 31 and February 29, 2020, respectively.

 

Guenther

 

On May 7, 2013, the Company entered into an agreement with an individual, Mr. Guenther, for the sale of $750,000 of secured convertible note payable (the "Note") and warrants. The Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75 per share. The warrants entitle the holder to acquire 1,000,000 shares and have an initial exercise price of $0.75 per share and have a 7-year term. The Company recorded $235,985 as a discount, which has been fully amortized. There is a remaining balance of $232,194 as of May 31 and February 29, 2020, respectively.

 

Dresner and Lempert

 

On June 20, 2013, the Company entered into an agreement with two individuals, Mr. Dresner and Dr. Lempert, for the sale of $200,000 of secured convertible notes payable (the "Notes") and warrants. The Notes had a 1-year maturity date and were convertible into shares of common stock at the conversion price of $0.50 per share. The warrants were subsequently exercised. The Company recorded $39,152 as a discount, which has been fully amortized. During fiscal 2020, Dr. Lempert convert his share of the amount outstanding into common shares and the balance outstanding of $59,506 as of May 31 and February 29, 2020, respectively, is for Dresner exclusively.

 

Dalrymple – August 2012

 

On August 10, 2012, the Company entered into an agreement with an individual, Mr. Dalrymple, for the sale of $1,000,000 of unsecured Convertible Promissory Note. The Convertible Promissory Note balance together with all accrued interest thereon was due and payable on August 10, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing date. On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%.  The Company recorded $310,723 as a debt discount, which will be amortized over the life of the noteThere is a remaining balance of $264,462 as of May 31 and February 29, 2020, respectively.

 

Dalrymple – October 2012

 

On October 2, 2012, the Company entered into an agreement with an individual, Mr. Dalrymple, for the sale of $500,000 of unsecured Convertible Promissory Note. This Convertible Promissory Note balance together with all accrued interest thereon was due and payable on October 2, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing date. On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%. The Company recorded $137,583 as a debt discount, which will be amortized over the life of the noteThere is a remaining balance of $133,178 as of May 31 and February 29, 2020, respectively.

 

On January 30, 2017, the Company entered into an agreement entitled First Amendment to Transaction Documents with five of seven secured creditors holding a security interest in all of the Company's assets except for its patents and other intellectual properties. These creditors are the seven listed above under Convertible Debt and include the following: Kenmont Capital Partners, LPD Investments, Guenther, Dresner, Lempert and Abdou and Abdou. All of the creditors entered into the January 30, 2017 agreement with the exception of Mr. W. Abdou and Mr. M. Abdou. The original agreement dated May 7, 2013 provided that if at least 75% of the stock issuable upon conversion of the convertible notes votes to amend the agreement and/or waive any conditions or defaults, then any such amendments or waivers shall be binding on all secured creditors. The five secured creditors signing the amendment total in excess of 95% of the issuable stock upon conversion and, therefore the agreement is binding on all seven of the secured creditors. The agreement provided that all accrued and unpaid interest will be added to the principal amount. The amended note provided for no interest from November 1, 2016 to February 14, 2018, the date at which the 1-for-7 reverse stock split became effective at which time 80% of the total debt including accrued interest was converted into shares of common stock and a new five year 5% per annum convertible note was issued for the remainder. The new amended and restated senior convertible notes have a maturity date of January 30, 2022. The five creditors and the Company entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment to Transaction Documents on April 8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7 reverse stock split, which was completed on February 14, 2018. The amended and restated senior convertible notes also require the Company to make a "Required Cash Payment" as defined in the agreement if the Company receives at least $4,000,000 in aggregate gross proceeds from the sale of equity securities (including securities convertible into equity securities) of the Company in one or a series of related transactions. The Required Cash Payment is equal to the current outstanding balance of the notes, which was approximately $1,005,000 as of May 31 and February 29, 2020, respectively, plus any outstanding accrued interest.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Accrued Expenses
3 Months Ended
May 31, 2020
Payables and Accruals [Abstract]  
ACCRUED EXPENSES

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of the period referenced below:

 

   May 31,
2020
   February 29,
2020
 
Accrued payroll and related expenses  $1,914,845   $1,868,928 
Accrued legal expenses   30,000    - 
Other accrued expenses   78,362    77,362 
   $2,023,207   $1,946,290 

 

Accrued payroll and related expenses consist primarily of salaries and vacation time accrued but not paid to employees due to our lack of financial resources.

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity
3 Months Ended
May 31, 2020
Stockholders' Equity Note [Abstract]  
SHAREHOLDERS' EQUITY

NOTE 5 – SHAREHOLDERS' EQUITY

 

Common Stock

 

During the three months ended May 31, 2020, the Company issued 1,358,333 shares of common stock for $235,000 in cash. During the three months ended May 31, 2019, the Company issued 156,250 shares of common stock for $50,000 in cash.

 

Employee Options and Warrants

 

The 2006 Employee Stock Option Plan

 

In September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan, subject to shareholder approval, which was obtained at a special shareholders meeting in 2009. Under the 2006 Plan, the Company may grant options for up to the greater of three million or 10% of the number of shares of the Common Stock of Aura from time to time outstanding. As of February 29, 2020, and May 31, 2020, there were no stock options outstanding.

 

The 2011 Director and Executive Officers Stock Option Plan

 

In October 2011, shareholders approved the 2011 Director and Executive Officers Stock Option Plan at the Company's annual meeting. Under the 2011 Plan, the Company may grant options for up to 15% of the number of shares of Common Stock of the Company from time to time outstanding, with a contractual option term of five-years, and a vesting period not less than six-months and one day following date of grant. In the three-months ended May 31, 2020, the Board of Directors approved grants of 250,000 stock options to each board member for an aggregate of 1,250,000, with an exercise price of $0.25 per option and at a market price of $0.16 on March 19, 2020, the date of grant. The following table provided the assumptions required to apply the Black-Scholes Merton option model to determine the fair value of the stock options as of the grant date:

 

   Options
Issued
During the
Three-Months
ended
May 31,
2020
 
     
Exercise Price  $0.25 
Share Price  $0.16 
Volatility %   225%
Risk-free rate   0.57%
Expected term (yrs.)   4.0 

 

The aggregate fair value of the 1,250,000 options granted in March 2020 is $194,000, or $0.155 per option, with $77,599 recorded as part of sales, general and administration expense during the three-months ended May 31, 2020.

 

The following tables provide additional information regarding stock options outstanding and exercisable under the 2011 Director and Executive Officers Stock Option Plan:

 

   Number of Shares   Exercise Price   Weighted Average Intrinsic Value 
Outstanding, February 29, 2020   1,040,001   $1.40   $            - 
Granted   1,250,000    0.25    - 
Exrecised   -    -    - 
Cancelled   -    -    - 
Outstanding, May 31, 2020   2,290,001   $0.77   $- 

 

Range of
Exercise Price
  Stock Options
Outstanding
    Stock Options
Exercisable
    Weighted Average
Remaining
Contractual Life
  Weighted Average
Exercise Price of
Options
Outstanding
    Weighted Average
Exercise Price of
Options
Exercisable
 
$0.25 to $1.40     2,290,001       1,040,001     3.75 Yrs.   $ 0.77     $ 1.40  

 

Warrants

 

Historically, warrants have been issued to investors and others for services and enticements to invest funds with the Company. Generally, these warrants fully vest immediately or within a 90-day period from the date of grant and have an expiration date of five-years from the date of grant. With grants dated prior to fiscal year 2021, an exercise price of $1.40 has been used with all warrants. No warrants were issued in the three months ended May 31, 2020.

 

Activity in issued and outstanding warrants is as follows for the three months ended May 31, 2020:

 

   Number of Shares   Exercise
Price
 
Outstanding, February 29, 2020   5,816,939   $1.40 
Granted   -    - 
Exrecised   -    - 
Cancelled   -    - 
Outstanding, May 31, 2020   5,816,939   $1.40 

 

Other information related to the warrants outstanding and exercisable as of May 31, 2020 follows:

 

Range of
Exercise Price
   Stock Warrants Outstanding   Stock Warrants Exercisable   Weighted Average Remaining Contractual Life  Weighted Average Exercise Price of Warrants Outstanding   Weighted Average Exercise Price of Warrants Exercisable 
$1.40    5,816,939    5,816,939    2.49 Yrs.  $1.40   $1.40 
XML 22 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Related Parties Transactions
3 Months Ended
May 31, 2020
Related Party Transactions [Abstract]  
RELATED PARTIES TRANSACTIONS

NOTE 6 – RELATED PARTIES TRANSACTIONS

 

Notes payable-related party, non-current - $3,000,000 on the condensed balance sheets as of May 31 and February 29, 2020 consists of the Breslow Note as described below:

 

Breslow Note

 

On January 24, 2017, the Company entered into a Debt Refinancing Agreement with Mr. Breslow, a former Director of the Company. Pursuant to the agreement, both Mr. Breslow and the Company acknowledged that total debt owed to Mr. Breslow was $23,872,614 including $8,890,574 of accrued interest. Mr. Breslow agreed to cancel and forgive all interest due, waive all events of default and sign a new five-year convertible note in the amount of $14,982,041 providing for no interest for six months and interest of 5% per annum thereafter payable monthly in arrears. The note also provides various default provisions. In accordance with the agreement, on February 14, 2018, the effective date of the 1-for-7 reverse stock split, $11,982,041 of the note was converted into 7,403,705 shares of common stock and the then accrued interest of $9,388,338 was forgiven. A new $3,000,000 convertible five-year note representing the remaining balance was entered into at a conversion rate of $1.40. The note bears interest at a rate of 5% per annum payable monthly in arrears with accrued interest of $300,719 and $262,911 recorded as accrued interest-related party (see Note 4) as of May 31 and February 29, 2020, respectively.

 

Notes payable and accrued interest-related party, current - $11,543,432 on the condensed balance sheet as of May 31 and $11,333,960 as of February 29, 2020 consists of the Kopple Notes, the Gagerman Note and the Jiangsu Shengfeng Note as set forth below:

 

Kopple Notes

 

As of May 31, and February 29, 2020, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $5,607,323 was unchanged. As of May 31, 2020, additional accrued interest of $5,095,015 was owed to Mr. Kopple for a total balance of $10,702,338. As of February 29, 2020, additional accrued interest of $4,887,610 was owed to Mr. Kopple for a total balance of $10,494,933.

 

On August 19, 2013, the Company entered into an agreement with Robert Kopple, a former member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the "Kopple Notes") and warrants. The Kopple Notes carried a base interest rate of 9.5%, have a 4-year maturity date and were convertible into shares of common stock at the conversion price of $3.50 per share (conversion feature expired in 2017). The warrants were subsequently exercised. The Company recorded $667,118 as a discount, which has been fully amortized. The Company also entered into a demand note payable with this individual in the amount of $20,000, which bears interest at a rate of 5% per annum.

 

Gagerman Note

 

On May 31, 2020, the Gagerman note consisted of $82,000 of unsecured note payable plus accrued interest of $59,093 for a total owed to Melvin Gagerman, the Company's former CEO and CFO, pursuant to a demand note entered into on April 5, 2014. Interest accrues at 10% per annum. On February 29, 2020, the amount owed to Gagerman was $139,026.

 

Jiangsu Shengfeng Note

 

On November 20, 2019, the Company entered into a preliminary agreement with Jiangsu Shengfeng, the Company's Chinese joint venture, to return $700,000 previously advanced to the Company in September 2018 and recorded as part of customer advance on the balance sheet as of February 28, 2019. Following this agreement which consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021. Principal loan amount on May 31, 2020 and February 29, 2020 was $700,000, respectively, and is classified as part of notes payable and accrued interest-related party, current on the balance sheets as of May 31, 2020.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments & Contingencies
3 Months Ended
May 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS & CONTINGENCIES

NOTE 7 – COMMITMENTS & CONTINGENCIES

 

Leases

 

Our facilities consist of approximately 20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita, California. The Stanton facility is used for some assembly and testing of AuraGen®/VIPER systems and is rented on a month-to-month basis. The rent for the Stanton facility is $10,000 per month and the storage facility is $5,000 per month. In May 2020, the Company provided notice of its intention to vacate this storage facility in Santa Clarita by July 31, 2020. Our current Stanton facility is not sufficient to support the expected operations and the Company is searching for a new facility to be used for limited production, testing, warehousing and engineering and office space for support staff. Commencing in February 2019 and ending in July 2019, the Company rented approximately 300 square feet of office space in Irvine, California at a cost of $ 2,350 per month on a month-to-month basis.

 

Following the adoption of Topic 842, Leases, as of the start of fiscal year 2020, the Company determined that there was no impact on its Condensed Financial Statements during the nine-month period ended May 31, 2020. The standard requires entities to evaluate all lease transactions including leases previously classified as operating leases, and, if required under Topic 842, a right-to-use asset and a corresponding lease liability may be recorded on the balance sheet in the period in which a lease commences.

 

Contingencies

 

We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management's expectations, the Company's financial statements for that reporting period could be materially adversely affected.

 

In 2017, the Company's former COO was awarded approximately $238,000 in accrued salary and related charges by the California labor board. The Company believes that this award does not reflect the amount owed which is significantly lower and is exploring all its options and available remedies and is working toward an offer to settle this matter.

  

The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura's behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017, Mr. Kopple filed suit against the Company as well as against current director Mr. Diaz-Verson and former directors Mr. Breslow and Mr. Howsmon, as well as Mr. Gagerman, our former CEO and a former director, in connection with these allegations. In 2018, the Court sustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with Mr. Kopple. However, to-date, no settlement has been reached in large part because Mr. Kopple continues to demand that as part of any such settlement, he receive unilateral control over significant aspects of the Company's financial and management functions such as, but not limited to, the right to unilaterally direct the Company's ordinary business expenditures and requiring the Company to seek his approval for the hiring of nearly all personnel, all to the exclusion of the Company's management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors' duties to shareholders and creditors as a whole.

 

In May 2018, Shelley Scholnick dba JB Transporters brought suit against the Company claiming ongoing fees in excess of $52,000 owed for the storage of the Company's property. Notably, in June 2017, the Company had brought suit against J.B. Moving & Delivery, a business operated and controlled by a relative of Scholnick, Jacob Binstok, for damages suffered by the Company as a result of the defendant's improper storage of the Company's property and improper refusal to return such property. In 2018, the Company successfully received a judgment against J.B. Moving & Delivery in the amount of approximately $114,000. In April 2020, Aura and Scholnick entered into a Confidential Settlement and Release Agreement wherein (i) the 2018 action initiated by Scholnick against Aura was resolved with no amounts owing by Aura and the complaint and cross-complaint were subsequently dismissed with prejudice; and (ii) the amount owing to Aura pursuant to the judgment against J.B. Moving and Delivery was compromised and resolved through a single lump-sum payment to Aura.

 

On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company's Board and electing Cipora Lavut as a director of the Company.  On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company's Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company's common stock as of March 26, 2019 and March 27, 2019, respectively. Because of Aura's refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura's Board consists of Ms. Lavut, Mr. Mann, Dr. Lempert, Mr. Douglas and Mr. Diaz-Versón, Jr. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong Yu and William Anderson had been validly removed by the holders of a majority of the Company's outstanding stock acting by written consent (b) Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company's outstanding stock acting by written consent, and (c) the Company's Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert, Gary Douglas and Salvador Diaz-Versón, Jr. As a result of prior management's unsuccessful opposition to this stockholders' action filed in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware's corporate benefit doctrine and/or other legal provisions. To-date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Nature of Operations and Summary of Significant Accounting Policies (Policies)
3 Months Ended
May 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations

Nature of Operations

 

Aura Systems, Inc., ("Aura", "We" or the "Company") a Delaware corporation, was founded to engage in the development, commercialization, and sales of products, systems, and components, using its patented and proprietary electromagnetic technology. Aura develops and sells AuraGen® axial flux mobile induction power systems to the industrial, commercial, and defense mobile power generation markets. In addition, the Company has also developed and patented High Force Electromagnetic Linear Actuators which it has sold in prior years.

Basis of Presentation

Basis of Presentation

 

In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. However, the results of operations included in such financial statements may not necessary be indicative of annual results.

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 29, 2020 filed with the Securities and Exchange Commission ("SEC") on July 13, 2020 ("2020 Form 10-K.").

Significant Accounting Policies

Significant Accounting Policies

 

For a detailed discussion about the Company's significant accounting policies, refer to Note 2 — "Summary of Significant Accounting Policies," in our financial statements included in Company's 2020 Form 10-K. During the three months ended May 31, 2020, there were no significant changes made to the Company's significant accounting policies.

Use of Estimates

Use of Estimates

 

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument. Subsequent to the issuance of ASU 2016-13, the FASB clarified the guidance through several ASUs. The collective new guidance (ASC 326) generally requires entities to use a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect. The entity's estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts. ASC 326 is effective for annual and interim fiscal reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2018. The Company is continuing to evaluate the expected impact of this ASC 326 but does not expect it to have a material impact on its financial statements upon adoption.

XML 25 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable (Tables)
3 Months Ended
May 31, 2020
Debt Disclosure [Abstract]  
Schedule of non-related party and related party notes payable transaction

Non-Related Party Promissory Notes (see below)  May 31,
2020
   February 29,
2020
 
         
Demand promissory notes payable with 4 individuals, carrying an interest rate of 10% (see Demand Promissory Notes below)  $768,537   $768,537 
Messrs. Abdou notes payable   205,181    215,181 
U.S. Payroll Protection Plan loan program   74,405    - 
Total Demand and Notes Payable   1,048,123    983,718 
Convertible Promissory Note originally dated August 10, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%. See Convertible Promissory Notes – Dalrymple August 2012 for further details.   264,462    264,462 
Convertible Promissory Note originally dated October 2, 2012, due January 11, 2023, convertible into shares of our common stock at a price of $0.76 per share, carrying interest rate of 5%. See Convertible Promissory Notes – Dalrymple October 2012 for further details.   133,178    133,178 
Senior secured convertible notes originally dated May 7, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.75 per share, carrying interest rate of 5%. See Convertible Debt – Kenmont Capital Partners, LPD Investments and Guenther for further details.   945,825    945,825 
Senior secured convertible notes originally dated June 20, 2013, due January 11, 2023, convertible into shares of our common stock at a price of $0.50 per share, carrying interest rate of 5%. See Convertible Debt – Dresner and Lempert for further details.   59,506    59,506 
Total Convertible Promissory Notes   1,402,971    1,402,971 
Accrued Interest - notes payable   541,106    498,698 
Total Non-Related Party   2,992,200    2,885,387 
           
Notes Payable-Related Party (see Note 6)          
Convertible Note payable – related party, carrying an interest rate of 5% - see Note 6, Breslow Note, for further details   3,000,000    3,000,000 
Kopple Notes Payable-related party , see Kopple Notes, Note 6:   10,702,338    10,494,933 
Mel Gagerman Notes Payable, see Gagerman, Note 6:   141,093    139,026 
On November 20, 2019, the Company entered into a preliminary  agreement with Jiangsu Shengfeng, the Company's Chinese joint venture. Payment terms consist of a non-interest bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021.   700,000    700,000 
Accrued Interest - notes payable- related party   300,719    262,911 
Total Related Party   14,844,150    14,596,871 
Total notes payable and accrued interest   17,836,350    17,482,258 
Less: Current portion  $(13,387,910)  $(13,079,287)
Long-term portion  $4,448,441   $4,402,971
XML 26 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Accrued Expenses (Tables)
3 Months Ended
May 31, 2020
Payables and Accruals [Abstract]  
Schedule of accrued expenses

   May 31,
2020
   February 29,
2020
 
Accrued payroll and related expenses  $1,914,845   $1,868,928 
Accrued legal expenses   30,000    - 
Other accrued expenses   78,362    77,362 
   $2,023,207   $1,946,290 
XML 27 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Tables)
3 Months Ended
May 31, 2020
Stockholders' Equity Note [Abstract]  
Schedule of Black-Scholes Merton option model to determine the fair value of the stock options as of the grant date

   Options
Issued
During the
Three-Months
ended
May 31,
2020
 
     
Exercise Price  $0.25 
Share Price  $0.16 
Volatility %   225%
Risk-free rate   0.57%
Expected term (yrs.)   4.0 
Schedule of employee stock option plan

   Number of Shares   Exercise Price   Weighted Average Intrinsic Value 
Outstanding, February 29, 2020   1,040,001   $1.40   $            - 
Granted   1,250,000    0.25    - 
Exrecised   -    -    - 
Cancelled   -    -    - 
Outstanding, May 31, 2020   2,290,001   $0.77   $- 
Schedule of exercise price options outstanding

Range of
Exercise Price
  Stock Options
Outstanding
    Stock Options
Exercisable
    Weighted Average
Remaining
Contractual Life
  Weighted Average
Exercise Price of
Options
Outstanding
    Weighted Average
Exercise Price of
Options
Exercisable
 
$0.25 to $1.40     2,290,001       1,040,001     3.75 Yrs.   $ 0.77     $ 1.40  
Schedule of activity in issued and outstanding warrants

   Number of Shares   Exercise
Price
 
Outstanding, February 29, 2020   5,816,939   $1.40 
Granted   -    - 
Exrecised   -    - 
Cancelled   -    - 
Outstanding, May 31, 2020   5,816,939   $1.40 
Schedule of exercise prices warrants outstanding

Range of
Exercise Price
   Stock Warrants Outstanding   Stock Warrants Exercisable   Weighted Average Remaining Contractual Life  Weighted Average Exercise Price of Warrants Outstanding   Weighted Average Exercise Price of Warrants Exercisable 
$1.40    5,816,939    5,816,939    2.49 Yrs.  $1.40   $1.40 
XML 28 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Going Concern (Details) - USD ($)
3 Months Ended 12 Months Ended
May 31, 2020
Feb. 29, 2020
Going Concern (Textual)    
Recognized revenue $ 49,000 $ 0
XML 29 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Debt Instrument [Line Items]    
Total Demand and Notes Payble $ 1,048,123 $ 983,718
Total Convertible Promissory Notes 1,402,971 1,402,971
Accrued Interest - notes payable- see Note 7 541,106 498,698
Total Non-Related Party 2,992,200 2,885,387
Demand promissory notes payable [Member]    
Debt Instrument [Line Items]    
Demand and Notes Payble 768,537 768,537
Messrs. Abdou notes payable [Member]    
Debt Instrument [Line Items]    
Demand and Notes Payble 205,181 215,181
U.S. Payroll Protection Plan loan program [Member]    
Debt Instrument [Line Items]    
Demand and Notes Payble 74,405
Convertible Promissory Note dated August 10, 2012 [Member]    
Debt Instrument [Line Items]    
Convertible Promissory Notes 264,462 264,462
Convertible Promissory Note originally dated October 2, 2012 [Member]    
Debt Instrument [Line Items]    
Convertible Promissory Notes 133,178 133,178
Senior secured convertible notes originally dated May 7, 2013 [Member]    
Debt Instrument [Line Items]    
Convertible Promissory Notes 945,825 945,825
Senior secured convertible notes originally dated June 20, 2013 [Member]    
Debt Instrument [Line Items]    
Convertible Promissory Notes $ 59,506 $ 59,506
XML 30 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable (Details) (Parenthetical) - USD ($)
12 Months Ended
Feb. 29, 2020
Feb. 28, 2018
May 31, 2020
Demand Promissory Notes Payable [Member]      
Debt Instrument [Line Items]      
Notes payable interest rate     10.00%
Monthly repayments $ 768,537    
Repayment of loans total   $ 267,000  
Aggregate principle amount   $ 267,000  
Convertible Promissory Note originally dated August 10, 2012 [Member]      
Debt Instrument [Line Items]      
Notes payable interest rate     5.00%
Common stock at price     $ 0.76
Convertible Promissory Note originally dated October 2, 2012 [Member]      
Debt Instrument [Line Items]      
Notes payable interest rate     5.00%
Common stock at price     $ 0.76
Senior secured convertible notes originally dated May 7, 2013 [Member]      
Debt Instrument [Line Items]      
Notes payable interest rate     5.00%
Common stock at price     $ 0.75
Senior secured convertible notes originally dated June 20, 2013 [Member]      
Debt Instrument [Line Items]      
Notes payable interest rate     5.00%
Common stock at price     $ 0.50
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable (Details 1) - USD ($)
May 31, 2020
Feb. 29, 2020
Debt Instrument [Line Items]    
Convertible Note payable $ 45,470 $ 0
Accrued Interest - notes payable- related party. 300,719 262,911
Jiangsu Shengfeng [Member]    
Debt Instrument [Line Items]    
Convertible Note payable 700,000 700,000
Accrued Interest - notes payable- related party. 300,719 262,911
Total Related Party 14,844,150 14,596,871
Total notes payable and accrued interest 17,836,350 17,482,258
Less: Current portion (13,387,910) (13,079,287)
Long-term portion 4,448,441 4,402,971
Notes Payable [Member]    
Debt Instrument [Line Items]    
Convertible Note payable 3,000,000 3,000,000
Kopple Notes Payable-related party [Member]    
Debt Instrument [Line Items]    
Convertible Note payable 10,702,338 10,494,933
Mel Gagerman Notes Payable [Member]    
Debt Instrument [Line Items]    
Convertible Note payable $ 141,093 $ 139,026
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable (Details 1) (Parenthetical) - USD ($)
May 31, 2020
Feb. 29, 2020
Debt Instrument [Line Items]    
Convertible notes payable $ 45,470 $ 0
Notes Payable [Member]    
Debt Instrument [Line Items]    
Notes payable interest rate 5.00%  
Convertible notes payable $ 3,000,000 $ 3,000,000
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.20.2
Notes Payable (Details Textual)
1 Months Ended 3 Months Ended 12 Months Ended
Jan. 11, 2018
Jun. 20, 2013
USD ($)
$ / shares
May 07, 2013
USD ($)
Notes
$ / shares
shares
Oct. 02, 2012
USD ($)
Aug. 10, 2012
USD ($)
Apr. 23, 2020
Sep. 30, 2018
USD ($)
Jan. 30, 2017
May 31, 2020
USD ($)
Feb. 29, 2020
USD ($)
Feb. 28, 2019
USD ($)
Feb. 28, 2018
USD ($)
shares
Notes Payable (Textual)                        
Paycheck protection plan loan, Description           We obtained a Paycheck Protection Program (“PPP”) loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part. As of May 31, 2020, $45,470 was classified as notes payable, non-current and $28,935 was classified as part of notes payable, current portion.            
Convertible Secured Notes [Member] | Dresner and Lempert [Member]                        
Notes Payable (Textual)                        
Pre conversion debt principal amount   $ 200,000                    
Conversion price per share of notes payable | $ / shares   $ 0.50                    
Amortization of debt discount   $ 39,152                    
Remaining principle and interest balance                 $ 59,506 $ 59,506    
Notes maturity date, term   1 year                    
Convertible Secured Notes [Member] | Abdou and Abdou [Member]                        
Notes Payable (Textual)                        
Pre conversion debt principal amount   $ 125,000                    
Conversion price per share of notes payable | $ / shares   $ 0.50                    
Amortization of debt discount   $ 24,470                    
Remaining principle and interest balance                 $ 205,000 215,000 $ 125,000  
Notes maturity date, term   1 year                    
Repayment of loans   $ 125,000                    
Judgment of approximately value plus legal fees             $ 235,000          
Convertible Debt [Member]                        
Notes Payable (Textual)                        
Description of convertible promissory note               The seven listed above under Convertible Debt and include the following: Kenmont Capital Partners, LPD Investments, Guenther, Dresner, Lempert and Abdou and Abdou. All of the creditors entered into the January 30, 2017 agreement with the exception of Mr. W. Abdou and Mr. M. Abdou. The original agreement dated May 7, 2013 provided that if at least 75% of the stock issuable upon conversion of the convertible notes votes to amend the agreement and/or waive any conditions or defaults, then any such amendments or waivers shall be binding on all secured creditors. The five secured creditors signing the amendment total in excess of 95% of the issuable stock upon conversion and, therefore the agreement is binding on all seven of the secured creditors. The agreement provided that all accrued and unpaid interest will be added to the principal amount. The amended note provided for no interest from November 1, 2016 to February 14, 2018, the date at which the 1-for-7 reverse stock split became effective at which time 80% of the total debt including accrued interest was converted into shares of common stock and a new five year 5% per annum convertible note was issued for the remainder. The new amended and restated senior convertible notes have a maturity date of January 30, 2022. The five creditors and the Company entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment to Transaction Documents on April 8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7 reverse stock split, which was completed on February 14, 2018. The amended and restated senior convertible notes also require the Company to make a “Required Cash Payment” as defined in the agreement if the Company receives at least $4,000,000 in aggregate gross proceeds from the sale of equity securities (including securities convertible into equity securities) of the Company in one or a series of related transactions. The Required Cash Payment is equal to the current outstanding balance of the notes, which was approximately $1,005,000 as of May 31 and February 29, 2020, respectively, plus any outstanding accrued interest.        
Demand Promissory Notes Payable [Member]                        
Notes Payable (Textual)                        
Debt amount                       $ 267,000
Principle amount                   768,537    
Notes payable interest rate                 10.00%      
Description of convertible promissory note                 Principal amount owed to these persons is $768,537; the principal amount of each note and the person/entity payable to are as follows: $10,000 Mr. Zeitlin, a former director of the Company; $30,000 Mr. Sook; $461,537 Mr. Macleod, a former president of the Company; and $267,000 Mr. Veen.      
Converted shares of common stock | shares                       192,641
Repayment of loans                       $ 267,000
LPD Investments, Ltd. [Member] | Convertible Secured Notes [Member]                        
Notes Payable (Textual)                        
Pre conversion debt principal amount     $ 550,000                  
Debt amount     $ 558,700                  
Conversion price per share of notes payable | $ / shares     $ 0.75                  
Amortization of debt discount     $ 175,793                  
Remaining principle and interest balance                 $ 163,677 163,677    
Number of notes payable to transferred | Notes     2                  
Notes maturity date, term     1 year                  
Initial exercise price | $ / shares     $ 0.75                  
Kenmont Capital Partners [Member] | Convertible Secured Notes [Member]                        
Notes Payable (Textual)                        
Pre conversion debt principal amount     $ 1,000,000                  
Debt amount     $ 1,087,000                  
Conversion price per share of notes payable | $ / shares     $ 0.75                  
Amortization of debt discount     $ 342,020                  
Remaining principle and interest balance                 549,954 549,954    
Number of notes payable to transferred | Notes     4                  
Notes maturity date, term     1 year                  
Initial exercise price | $ / shares     $ 0.75                  
Refinancing Agreements [Member] | Convertible Secured Notes [Member] | Guenther [Member]                        
Notes Payable (Textual)                        
Pre conversion debt principal amount     $ 750,000                  
Conversion price per share of notes payable | $ / shares     $ 0.75                  
Term of warrant     7 years                  
Amortization of debt discount     $ 235,985                  
Number of common shares entitlement on exercise of warrant one (in shares) | shares     1,000,000                  
Remaining principle and interest balance                 232,194 232,194    
Notes maturity date, term     1 year                  
Initial exercise price | $ / shares     $ 0.75                  
Unsecured Debt [Member] | Convertible Debt [Member] | Dalrymple [Member]                        
Notes Payable (Textual)                        
Pre conversion debt principal amount       $ 500,000 $ 1,000,000              
Amortization of debt discount         $ 310,723              
Remaining principle and interest balance       $ 137,583         264,462 $ 264,462    
Due date of notes Jan. 11, 2023                      
Notes maturity date, term       5 years 5 years              
Notes payable interest rate 5.00%     7.00% 7.00%              
Unsecured Debt [Member] | Convertible Debt One [Member] | Dalrymple [Member]                        
Notes Payable (Textual)                        
Remaining principle and interest balance                 133,178      
Secured creditors September 2019 [Member] | Former Chief Executive Officers [Member]                        
Notes Payable (Textual)                        
Debt amount                 $ 325,000      
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.20.2
Accrued Expenses (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Payables and Accruals [Abstract]    
Accrued payroll and related expenses $ 1,914,845 $ 1,868,928
Accrued legal expenses 30,000
Other accrued expenses 78,362 77,362
Total $ 2,023,207 $ 1,946,290
XML 35 R25.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Details)
3 Months Ended
May 31, 2020
$ / shares
Stockholders' Equity Note [Abstract]  
Exercise Price $ 0.25
Share Price $ 0.16
Volatility % 225.00%
Risk-free rate 0.57%
Expected term (yrs.) 4 years
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Details 1) - 2006 Plan [Member]
3 Months Ended
May 31, 2020
USD ($)
$ / shares
shares
Number of Shares  
Number of Shares, Outstanding, February 29, 2020 | shares 1,040,001
Number of Shares, Granted | shares 1,250,000
Number of Shares, Exercised | shares
Number of Shares, Cancelled | shares
Number of Shares, Outstanding, May 31, 2020 | shares 2,290,001
Exercise Prices  
Exercise Prices, Outstanding, February 29, 2020 $ 1.40
Exercise Prices, Granted 0.25
Exercise Prices, Exercised
Exercise Prices, Cancelled
Exercise Price, Outstanding, May 31, 2020 $ 0.77
Weighted Average Intrinsic Value  
Weighted Average Intrinsic Value, Outstanding, February 29, 2020 | $
Weighted Average Intrinsic Value, Granted
Weighted Average Intrinsic Value, Exercised | $
Weighted Average Intrinsic Value, Cancelled
Weighted Average Intrinsic Value, Outstanding, May 31, 2020 | $
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Details 2) - $1.40 [Member]
3 Months Ended
May 31, 2020
$ / shares
shares
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Stock Options Outstanding | shares 2,290,001
Stock Options Exercisable | shares 1,040,001
Weighted Average Remaining Contractual Life 3 years 9 months
Weighted Average Exercise Price of Options Outstanding $ 0.77
Weighted Average Exercise Price of Options Exercisable 1.40
Minimum [Member]  
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Range of Exercise Price 0.25
Maximum [Member]  
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Range of Exercise Price $ 1.40
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Details 3) - Warrants [Member]
3 Months Ended
May 31, 2020
$ / shares
shares
Class of Warrant or Right [Line Items]  
Number of Shares, Outstanding, February 29, 2020 | shares 5,816,939
Number of Shares, Granted | shares
Number of Shares, Exercised | shares
Number of Shares, Cancelled | shares
Number of Shares, Outstanding, May 31, 2020 | shares 5,816,939
Exercise Prices, Outstanding, February 28, 2019 | $ / shares $ 1.40
Exercise Prices, Granted | $ / shares
Exercise Prices, Exercised | $ / shares
Exercise Prices, Cancelled | $ / shares
Exercise Prices, Outstanding, May 31, 2020 | $ / shares $ 1.40
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Details 4) - $ / shares
3 Months Ended
May 31, 2020
Feb. 29, 2020
Class of Warrant or Right [Line Items]    
Range of Exercise Prices $ 0.25  
Warrant [Member]    
Class of Warrant or Right [Line Items]    
Stock Warrants Outstanding 5,816,939 5,816,939
Warrant [Member] | $1.40 [Member]    
Class of Warrant or Right [Line Items]    
Range of Exercise Prices $ 1.40  
Stock Warrants Outstanding 5,816,939  
Stock Warrants Exercisable 5,816,939  
Weighted Average Remaining Contractual Life 2 years 5 months 27 days  
Weighted Average Exercise Price of Warrants Outstanding $ 1.40  
Weighted Average Exercise Price of Warrants Exercisable $ 1.40  
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.20.2
Shareholders' Equity (Details Textual) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Shareholders' Equity (Textual)    
Common stock for cash $ 235,000 $ 50,000
Shares issued for debt $ 329,723  
Warrants issues 1,250,000  
Warrants exercise price, description The aggregate fair value of the 1,250,000 options granted in March 2020 is $194,000, or $0.155 per option, with $77,599 recorded as part of sales, general and administration expense.  
2011 Director and Executive Officers Stock Option Plan [Member]    
Shareholders' Equity (Textual)    
Employee stock options, description Under the 2011 Plan, the Company may grant options for up to 15% of the number of shares of Common Stock of the Company from time to time outstanding, with a contractual option term of five-years, and a vesting period not less than six-months and one day following date of grant. In the three-months ended May 31, 2020, the Board of Directors approved grants of 250,000 stock options to each board member for an aggregate of 1,250,000, with an exercise price of $0.25 per option and at a market price of $0.16 on March 19, 2020,  
2006 Employee Stock Option Plan [Member]    
Shareholders' Equity (Textual)    
Employee stock options, description Under the 2006 Plan, the Company may grant options for up to the greater of three million or 10% of the number of shares of the Common Stock of Aura from time to time outstanding. As of February 29, 2020, and May 31, 2020, there were no stock options outstanding.  
Common Stock [Member]    
Shareholders' Equity (Textual)    
Shares of common stock 1,358,333 156,250
Common stock for cash $ 135 $ 15
Shares issued for debt, shares 1,030,385  
Warrants exercise price $ 1.40  
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.20.2
Related Parties Transactions (Details) - USD ($)
1 Months Ended 3 Months Ended 13 Months Ended
Feb. 14, 2018
May 31, 2020
Nov. 20, 2020
Feb. 29, 2020
Jan. 24, 2017
Related Parties Transactions (Textual)          
Notes payable-related party   $ 3,000,000   $ 3,000,000  
Accrued interest-related party   300,719   262,911  
Notes payable and accrued interest-related party   $ 11,543,432   11,333,960  
Convertible Secured Notes [Member]          
Related Parties Transactions (Textual)          
Interest rate   5.00%      
Mr. Breslow [Member]          
Related Parties Transactions (Textual)          
Unsecured notes payable and accrued interest - related party         $ 14,982,041
Debt amount         23,872,614
Convertible note payable and accrued interest-related party, net of discount $ 9,388,338       $ 8,890,574
New debt agreement, term 5 years        
Convertible note, amount $ 11,982,041        
Convertible note, shares 7,403,705        
Reverse stock split, description 1-for-7 reverse stock split.        
Interest rate 5.00%       5.00%
Remaining balance         $ 3,000,000
CEO [Member] | Unsecured Debt [Member]          
Related Parties Transactions (Textual)          
Unsecured notes payable and accrued interest - related party   $ 82,000      
CEO [Member] | Accrued interest [Member]          
Related Parties Transactions (Textual)          
Unsecured notes payable and accrued interest - related party   $ 59,093      
Mr. Kopple [Member]          
Related Parties Transactions (Textual)          
Related party transaction, description   On August 19, 2013, the Company entered into an agreement with Robert Kopple, a former member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the “Kopple Notes”) and warrants. The Kopple Notes carried a base interest rate of 9.5%, have a 4-year maturity date and were convertible into shares of common stock at the conversion price of $3.50 per share (conversion feature expired in 2017). The warrants were subsequently exercised. The Company recorded $667,118 as a discount, which has been fully amortized. The Company also entered into a demand note payable with this individual in the amount of $20,000, which bears interest at a rate of 5% per annum.      
Balance of priniciple and accrued interest   $ 10,702,338   10,494,933  
Mr. Kopple [Member] | Accrued interest [Member]          
Related Parties Transactions (Textual)          
Additional accrued interest   $ 5,095,015   4,887,610  
Gagerman [Member]          
Related Parties Transactions (Textual)          
Interest rate   10.00%      
Remaining balance       139,026  
Jiangsu Shengfeng [Member]          
Related Parties Transactions (Textual)          
Related party transaction, description   Following this agreement which consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 through February 15, 2021. Principal loan amount on May 31, 2020 and February 29, 2020 was $700,000, respectively, and is classified as part of notes payable and accrued interest-related party, current on the balance sheets as of May 31, 2020.      
Companies return     $ 700,000    
Priniciple loan amount   $ 700,000   $ 700,000  
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments & Contingencies (Details)
1 Months Ended 3 Months Ended
Mar. 26, 2019
shares
Dec. 31, 2018
USD ($)
May 31, 2018
USD ($)
May 31, 2020
USD ($)
ft²
Dec. 31, 2017
USD ($)
Commitments & Contingencies (Textual)          
Area of facility (in square feet) | ft²       20,000  
Contingencies description The Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company's Board and electing Cipora Lavut as a director of the Company.        
Stockholders combined total | shares 27,500,000        
Ongoing fees     $ 52,000    
Moving and delivery amount   $ 114,000      
Director [Member]          
Commitments & Contingencies (Textual)          
Secured debt, description       The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10.6 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura's behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment charges) and approximately 3.33 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company.  
California labor board [Member]          
Commitments & Contingencies (Textual)          
Accrued salary and related charges         $ 238,000
Storage Facility [Member]          
Commitments & Contingencies (Textual)          
Rent per month       $ 5,000  
Stanton Facility [Member]          
Commitments & Contingencies (Textual)          
Rent per month       $ 10,000  
Office Space [Member]          
Commitments & Contingencies (Textual)          
Area of facility (in square feet) | ft²       300  
Rent per month       $ 2,350  
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