# Aura Systems Inc: Form 10-Q for the period ended May 31, 2020

- Company: [Aura Systems Inc](/companies/ausi.md) (CIK 826253)
- Form: 10-Q
- Filed: 2020-07-20
- Accepted by EDGAR: Jul 20, 2020, 20:49 ET
- Period: 2020-05-31
- Accession: 0001213900-20-017983
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/826253/000121390020017983/f10q0520_aurasystems.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/826253/000121390020017983/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-05-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-03-01 to 2020-05-31 | $48.6k | us-gaap:Revenues |
| Cost of revenue | 3 months, 2020-03-01 to 2020-05-31 | $40.4k | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2020-03-01 to 2020-05-31 | $8.2k | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-03-01 to 2020-05-31 | $34.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2020-03-01 to 2020-05-31 | $343.6k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-03-01 to 2020-05-31 | −$369.3k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-03-01 to 2020-05-31 | $289.7k | us-gaap:InterestExpense |
| Net income | 3 months, 2020-03-01 to 2020-05-31 | −$606.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-03-01 to 2020-05-31 | −$0.01 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 3 months, 2020-03-01 to 2020-05-31 | −$181.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2020-05-31 | $138.2k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-05-31 | $227.7k | us-gaap:AssetsCurrent |
| Total assets | at 2020-05-31 | $227.7k | us-gaap:Assets |
| Current liabilities | at 2020-05-31 | $19.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-05-31 | $23.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-05-31 | −$23.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,741 characters.

### 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.

### 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.

#### 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.

### 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.

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.

## Market risk

As filed, 5,141 characters.

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.

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.

## Controls and procedures

As filed, 2,158 characters.

### 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.

## Risk factors

As filed, 228 characters.

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.

Filed Jul 20, 2020.
Source: SEC EDGAR, the filing index for accession 0001213900-20-017983. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.