# Aura Systems Inc: Form 10-K for the period ended Feb 28, 2023

- Company: [Aura Systems Inc](/companies/ausi.md) (CIK 826253)
- Form: 10-K
- Filed: 2023-05-26
- Accepted by EDGAR: May 26, 2023, 20:59 ET
- Period: 2023-02-28
- Accession: 0001213900-23-043575
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/826253/000121390023043575/f10k2023_aurasystems.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/826253/000121390023043575/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-02-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 12 months, 2022-03-01 to 2023-02-28 | $71.0k | us-gaap:Revenues |
| Cost of revenue | 12 months, 2022-03-01 to 2023-02-28 | $88.0k | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 12 months, 2022-03-01 to 2023-02-28 | −$17.0k | us-gaap:GrossProfit |
| Research and development | 12 months, 2022-03-01 to 2023-02-28 | $850.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 12 months, 2022-03-01 to 2023-02-28 | $2.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 12 months, 2022-03-01 to 2023-02-28 | −$3.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 12 months, 2022-03-01 to 2023-02-28 | $727.0k | us-gaap:InterestExpense |
| Income tax | 12 months, 2022-03-01 to 2023-02-28 | −$1.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 12 months, 2022-03-01 to 2023-02-28 | −$3.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2022-03-01 to 2023-02-28 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 12 months, 2022-03-01 to 2023-02-28 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2022-03-01 to 2023-02-28 | 88,947,803 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2022-03-01 to 2023-02-28 | −$3.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2022-03-01 to 2023-02-28 | $54.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-02-28 | $15.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-02-28 | $312.0k | us-gaap:AssetsCurrent |
| Total assets | at 2023-02-28 | $1.7m | us-gaap:Assets |
| Current liabilities | at 2023-02-28 | $14.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-02-28 | $22.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-02-28 | −$20.3m | us-gaap:StockholdersEquity |

## Business

As filed, 63,531 characters.

### Introduction

Aura Systems, Inc. (“Aura”), is a Delaware corporation founded in 1987. *The Company innovated and commercialized the technology for Axial Flux Induction electric motors and generators. Aura’s axial flux induction motor technology (“AAFIM”) provides an industrial solution that does not use any permanent magnets, no rare earth elements, is smaller and lighter, uses significant less materials (just copper and steel), very high efficiency, significantly less copper, highly reliably, very robust, and no scheduled maintenance.*

The industrial electric motor market is expected to grow from an estimated USD 113.3 billion in 2020 to *USD 169.1 billion by 2026,* at a CAGR of 6.9% during the forecast period1.

Electric motors are employed in infrastructure, major structures, and industries all around the world. Each year, *almost 30 million* motors are sold for industrial use alone2. Electric motors find application in a variety of equipment throughout industry. Common industrial applications include: (i) compressors, (ii) fans and blowers, (iii) heavy duty equipment, (iv) HVAC systems, (v) pumps and (vi) machine tools (lathes and mills, etc.).

The universal global trend for electrification has created in addition to the industrial demand for motors a very large demand for motors used in electric transportation for vehicles, planes, and boats (“EV”). In such applications, one or more electric motors are used for propulsion. Most electric motors currently used for electric mobility employ high energy permanent magnets3 due to their high efficiency and small size. The magnetic material is usually sintered neodymium–iron–boron (NdFeB) made or processed in China.

It is expected that over *100 million* electric motors will be required per year by 2032 to meet the demand for the growing EV market4.

For Electric Vehicle applications, AAFIM provide efficiencies that are equal to or higher than ones provided by the best high energy permanent magnet solution (“PM”). AAFIM are smaller, have higher reliability, are more robust, have larger operating speed range, are not limited to 100 degrees C operating temperature for the equivalent PM machine. In addition, AAFIM costs are significantly lower than the equivalent PM machines.

The history of electric machines reveals that the earliest machines were, in fact, axial flux machines. However, after the first radial flux machines were demonstrated in the beginning of the 20th century, radial flux machines were accepted as the mainstream configuration. The reason for shelving the axial flux machines were multifold and can be summarized as follows: (i) strong axial magnetic attraction force between the stator and the rotor, (ii) fabrication difficulties such as cutting the slots in laminated cores, (iii) high cost involved in manufacturing the laminated stator core, (iv) difficulties in assembling the machine and keeping a uniform air gap and (v) providing a laminated rotor that can withstand the large centripetal forces.

|  |  |
| ---: | --- |
| 1 | Markets & Markets Electric Motor Market Published Date: November 2020 \| Report Code: EP 3882 |
| 2 | Precedence Research October 6, 2021 |
| 3 | Will rare earth be eliminated in EV motor-Dr. James Edmondson November 2, 2020 |
| 4 | Emerging Electric Motor Technologies for the EV Market September 28, 2021 Luke Gear |

1

In recent years there has been great interest in axial flux topology for numerous industrial, commercial, and electric mobility motor and power generation applications. However, to date the commercial focus in axial flux motors has been designs using rare earth permanent magnets (“PM”). The use of rare earth permanent magnets in axial flux topology can be attributed to the historical belief that it is “*difficult to manufacture a laminated rotor with a cage winding for an axial flux machine. If the cage windings are replaced with nonmagnetic high conductivity (Cu or AL) homogenous disk or steel disk coated with Cu layer, the performance of the machine drastically deteriorates” (*Axial Flux Permanent Magnet Brushless Machines *by* Jacek F Gieras, Rong-Jie Wang and Maarten K Kamper 2008).

*Aura Systems with its axial flux induction technology solved the issues related to the rotor back in 2002 and has shipped over 11,000 axial flux induction machines in the 5-15 kW range to numerous military and commercial users*. Aura’s proprietary rotor does not require any laminates and provides the structural integrity to withstand very large centripetal forces while, at the same time, providing the proper electric and magnetic properties without the usual issues associated with a solid rotor or a steel disk coated with a copper layer.

ID TechEX research forecasts a huge increase in demand of axial flux motors over the next 10 years, with first applications in high performance vehicles and certain hybrid applications5.

*Aura has during the last few years optimized its axial flux induction machine technology (no PM) where the performance (efficiency, torque, energy density) is now equal to or greater than the very best of both axial and radial permanent magnet machines. Of course, this is done using only copper and steel with aluminum for housing at a fraction of the cost of equivalent PM machines.*

Aura’s Axial Flux Induction technology is the culmination of decades of cutting-edge electromagnetic research and more than $150 million in development by Aura scientists and engineers. Aura’s axial flux induction technology used for mobile power generation was first used in a combat zone by U.S. forces in the U.N actions in the Balkans and since then, the U.S. military has used it in combat zones in both Iraq and Afghanistan. To date the Company shipped over 11,000 systems for mobile power applications in the 5-15 kW range of which over 3,000 systems were for various military applications.

Aura’s Axial Flux Induction Machine has inherited advantages such as (i) no rare earth or any other kind of permanent magnets, (ii) significantly less copper (60% less) than equivalent traditional induction motors, (iii) significantly higher energy density, (iv) fewer overall materials, and (v) high efficiency. In addition, being an induction machine, Aura’s solution does not have any brushes or commutators and therefore do not have any potential for sparks.

Aura’s Axial Flux induction (“AAFIM”) Competitive Edge

- Performance- AAFIM provides the highest power density across all other known motor technologies with energy density of more than 76 kW/liter for machines in the 250-kW range. In addition, Aura’s solution provides efficiencies that are higher than any other solutions for commercial and industrial applications. For 250 kW EV applications Aura’s designs show efficiency of 97.5%. AAFIM solution also has significantly lower rotor inertia than other solutions. This increases the machine efficiency even further since it requires less input torque to move the rotor.
- Size and weight-Aura’s solution is significantly smaller in volume and has lower weight than any known solution for equivalent power rated machines (even includes PM machines). When compared to traditional radial flux (“RF”) induction machines, AAFIM has less than 50 % of the weight and more than 50% reduction in volume. The AAFIM pancake design creates a solution that can be integrated with vehicles and boats for seamless exportable power.
- Cost-AAFIM provides a significant cost advantage over equivalent induction and PM machines. The cost advantage comes from (a) the higher energy density which means less materials and (b) in the case of PM machines significant cost advantage for equivalent machines by just elimination of the permanent magnets. When compared to radial flux induction, Aura’s solution uses approximately 60% less copper. Due to the fractional materials used and the simple manufacturing processes Aura’s high-performance machines are less expensive to manufacture than other equivalent machines.
- Other Advantages-Aura’s solution is extremely reliable with the only components to wear out are the bearings. AAFIM do not require any scheduled maintenance and the only materials used are copper and steel for the active components and aluminum for the housing. These materials are readily available everywhere and are not controlled by any country or political group. In addition to the performance, Aura’s rotor lends itself to mass manufacturing. Many of Aura’s axial flux induction machines have been operating for twenty years and have shown remarkable reliability.

5 Emerging Electric Motor Technologies for the EV Market September 28, 2021 Luke Gear Electric motors

After a lengthy development period, the Company first began commercializing the AuraGen® in late 1999 and early 2000. In 2001, the first commercial AuraGen® product was a 4-pole machine which, when combined with our proprietary and patented Electronic Control Unit (“ECU”), generated 5 kW of exportable 120/240 VAC power. We subsequently added a 6-pole configuration and introduced our patented bi-directional power supply that provided for 8.5 kW watts of exportable power with the capability of providing both alternating (“AC”) and direct (“DC”) power simultaneously. In Fiscal 2008, the Company introduced an AuraGen® system that generated up to 17 kW of continuous power by combining two 8.5 kW systems on a single shaft. Starting in July 2019, we began to redesign and upgrade the ECU and develop new axial flux generator configurations. As a result of such efforts, our redesigned ECU allows us to replace the old 5 kW solution with a 6.5 kW solution using the same 4-pole generator as well as to upgrade the output of the 6-pole machine from 8.5 kW to 15 kW.

Our more recent efforts have also resulted in the development of the following upgraded optimum designs:

| Power level | Operating speed (RPM) | Diameter (active) mm/in | Application | Axial length (active) mm/in | Efficiency |
| --- | --- | --- | --- | --- | --- |
| **4 kW** | **3,600** | **130/5.12** | **Water Pump** | **90/3.54** | **91+%** |
| **10 kW** | **2,500-13,000** | **175/6.89** | **Mobile power** | **105/4.13** | **92+%** |
| **30 kW** | **2,500-13,000** | **220/8.66** | **Mobile Power** | **89/3.5** | **93+%** |
| **250 kW** | **5,000 base-20,000** | **220/8.66** | **Electric Vehicles** | **86/3.4** | **97.5%** |

In March 2019, stockholders of the Company represented a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald Buschur, William Anderson and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora Lavut, Mr. David Mann, and Dr. Robert Lempert as directors of the Company in their stead. Because of Aura’s refusal to recognize the legal effectiveness of the consents, in April 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents. 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. See Item 3, Legal Proceedings for more information. Following this ruling by the Court of Chancery, the newly confirmed Board of Directors terminated the employment of Melvin Gagerman, who had served as CEO and CFO of the Company since 2006, and installed Ms. Lavut as President, Mr. Mann as Chief Financial Officer and Dr. Lempert as Secretary of the Company. In February 2022, Mr. Steven Willett was appointed the Company’s CFO.

### Impact of the COVID-19 Pandemic

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 entirety of Fiscal 2021, Fiscal 2022 and Fiscal 2023 were significantly reduced, thus impacting our results of operations during these fiscal periods.

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:

- Careful monitoring of operating expenses including wages and salaries;
- Enhanced cleaning and disinfection procedures at our facilities, 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.

As of the filing of this Annual Report on Form 10-K on May 26, 2023, 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 effectiveness of vaccination programs 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 due, for example, to variant strains of the COVID-19 having an adverse impact, then it can further increase the difficulty of planning for operations and may require us to take further actions as it relates to costs and liquidity. These and other potential impacts of the COVID-19 pandemic will continue to adversely impact our results for the current year, Fiscal 2024, and that impact could be material.

### Business Arrangements

During Fiscal 2018 and Fiscal 2019, the Company’s engineering, manufacturing, sales, and marketing activities were reduced while we focused on renegotiating numerous financial obligations. During this time, the Company’s agreements with numerous customers, third party vendors, and organizations and entities material to the operation of the Company business were canceled, delayed or terminated. During Fiscal 2018, the Company successfully restructured in excess of $30 million of debt. Also, during Fiscal 2018, the Company signed a joint venture agreement with a Chinese company to build, service and distribute AuraGen® mobile power products in China. Under the Jiangsu Shengfeng joint venture agreement, the Chinese partner owns 51% of the joint venture and the Company owns 49%. The Chinese partner contributed a total of approximately $9.75 million to the venture principally in the form of facilities, equipment, and approximately $500,000 of working capital while the Company contributed $250,000 in cash as well as a limited license. The limited license sold to the joint venture, however, does not permit the venture to manufacture the AuraGen® rotor; rather, the joint venture is required to purchase all rotor subassemblies as well as certain software elements directly from the Company. During Fiscal 2018, Jiangsu Shengfeng placed a $1,000,000 order with the Company including a $700,000 advance payment of which the Company has failed to deliver product in accordance with the order received. On November 20, 2019, the Company reached a preliminary agreement with Jiangsu Shengfeng regarding the return of $700,000 previously advanced to the Company. The preliminary agreement reached consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 was to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. The preliminary agreement was subject to the JV continuous operation. However, starting in January 2020 the JV was shut down by the Chinese authority due to the COVID-19 virus, and as of the date of this filing, the JV operation has not restarted. As of February 28, 2023, the unpaid balance of $700,000 was reported as part of notes payables – related party in the accompanying financial statements. During Fiscal 2020, the Company recorded an impairment expense of $250,000 to fully write-off the Jiangsu Shengfeng investment due to the uncertainty of the operation.

In Fiscal 2020 stockholders of the Company successfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s Board of Directors and elected Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company in their stead. See Item 3, Legal Proceedings for more information. Also, in Fiscal 2020, Melvin Gagerman, Aura’s CEO and CFO since 2006, was replaced. In July 2019 Ms. Lavut succeeded Mr. Gagerman as President and Mr. Mann succeeded Mr. Gagerman as CFO. Dr. Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019. In February 2022, Mr. Steven Willett was appointed CFO. During the second half of Fiscal 2020, the Company began significantly increasing its engineering, manufacturing and marketing activities. Since July 8, 2019, the date of the management change, through the end of Fiscal year 2023, the Company has shipped approximately 155 units.

### Recent Developments.

Beginning in Fiscal 2020, a novel strain of coronavirus commonly referred to as COVID-19 emerged and spread rapidly across the globe, including throughout all major geographies in which we operate (North America, Europe, and Asia), resulting in adverse economic conditions and business disruptions, as well as significant volatility in global financial markets. Governments worldwide have imposed varying degrees of preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such factors, among others, have resulted in a significant decline in spending and resource availability. Additionally, during this period of uncertainty, companies across a wide array of industries have implemented various initiatives to reduce operating expenses and preserve cash balances, including work furloughs, reduced pay, and severance actions, which could lower consumers’ disposable income levels or willingness to purchase discretionary items.

As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our corporate facilities as have our customers, suppliers, and vendors, resulting in significant adverse impacts to our operating results. Resurgences in certain parts of the world resulted in further business disruptions periodically throughout Fiscal 2022 and Fiscal 2021. Such disruptions have continued into Fiscal 2023, impacting our business.

Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. Accordingly, we cannot predict for how long and to what extent the pandemic will impact our business operations or the global economy as a whole.

### The AuraGen®/VIPER Product Overview:

### Markets Served by the AuraGen®/VIPER

#### Induction Motor Applications

Aura’s axial flux induction machine can be used as either an electric motor or generator as described above. Due to the inherit advantages of Aura’s axial flux induction machine, such as (i) no rare earth or any other kind of permanent magnets, (ii) significantly less copper (60% less) than equivalent traditional induction motors (iii) higher energy density and (iv) fewer overall materials, we believe Aura’s axial flux induction motor can be used across a wide range of industries and applications. Because even a small percent increase in motor efficiency translates to a market-wide savings of tens of billions of dollars per year and because Aura’s axial flux motor design is more efficient than equivalent radial flux induction motors, we believe that with the proper financial resources, over time, we can capture a reasonable share of the global electric motor market.

Electric motor are the main users of electricity, accounting for approximately 53% of the global demand for electricity. Over 65% of the energy used to support electric motors is used for industrial motor systems.6 The *industrial electric motor market* is expected to grow from an estimated USD 113.3 billion in 2020 to *USD 169.1 billion by 2026,* at a CAGR of 6.9% during the forecast period.72. The increase in global electricity consumption, and the use of electrical equipment and machines in different industries and the renewables sector are major factors driving growth in the electric motor market during the forecast period.

Electric motors are employed in infrastructure, major structures, and industries all around the world. Each year, approximal 30 million motors are sold for industrial use alone.8 Electric motors find application in a variety of equipment throughout industry. Common industrial applications include: (i) compressors, (ii) fans and blowers, (iii) heavy duty equipment, (iv) HVAC systems, (v) pumps and (vi) machine tools (laths and mills etc.) *Electric motors and generators are one of the most important tools in modern day life.*

Numerous studies show a high potential for energy efficiency improvement in motor systems. Specifically, system optimization approaches which address the entire motor system demonstrate high potential for energy savings. For most countries the saving potentials for energy efficiency improvements in motor systems with best available technology lie between *9 and 13 percent* of the national industrial electricity demand.9

*Aura’s machines use approximately 60% less copper, are approximately 1/3 the size and weight and are more efficient than the equivalent traditional radial flux (“RF”) induction machine.*

*When compared to radial and axial flux permanent magnet machines, Aura machines are less expensive to manufacture, do not use any rare earths, do not use any permanent magnets, are not dependent on supply from China, are more robust, have a higher operating speed range, have lower maintenance, have a longer lifetime, and are generally smaller, lighter and higher in efficiency.*

#### EV applications

The universal global trend for electrification has created in addition to the industrial demand for motors also a very large demand for motors used in electric transportation for vehicles, planes, and boats (“EV”). In such applications, one or more electric motors are used for propulsion. The power to drive the electric motors is generally a battery system or fuel cell. Both batteries and fuel cells convert some form of fuel to electricity through some chemical process. EVs include, but are not limited to, road and off-road vehicles, surface and underwater vessels, electric aircraft, and electric spacecraft.

|  |  |
| ---: | --- |
| 6 | Identification of Technoeconomic Opportunities with the Use of Premium Efficiency Motors as Alternative for Developing Countries -Julio R. Gómez etc. Published: October 16, 2020 |
| 7 | Markets & Markets Electric Motor Market Published Date: Nov 2020 \| Report Code: EP 3882 |
| 8 | Precedence Research October 6, 2021 |
| 9 | Energy efficiency in electric motor systems- UN industrial Development Organization Venna 2012 |

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It is rather interesting to note that, while electric motors have been around for more than 200 years, technical information on electric motors in EVs is very scarce and generally only found in niche technology sites. Most EV literature only notes the motor’s relative quietness, its torque response, its simplicity, and long-term low maintenance requirements. Most of the space dedicated to the powertrain (motor, motor- controller and some cases a gear box) is focuses, instead, on the battery—its size and weight, where it sits, the range, how long it takes to fully charge, etc. Yet, the majority function of the battery system is to support the electric motors and its controller.

In addition to the batteries, the electric motor and supporting power electronics are critical components of EV drivetrain. It is expected that over 100 million electric motors will be required per year by 2032 to meet the demand for the growing EV market10 (where would all the rare earths come from to support 100 million motors per year?).

The global Electric Vehicle Market size is projected to grow from 4 million units in 2021 to 34.76 million units by 2030.11 The AC motor (most power by alternating current) is expected to witness the fastest growth in the electric motor market during the forecast period.

The global electric powertrain market (electric motor, plus motor controller plus a gear box) size is projected to surpass around US$ 200 billion by 2027 and growing at a CAGR 13.8%. The motor/generator component expected to show lucrative growth over the analysis period attributed to the escalated penetration of plug-in hybrid battery electric vehicle (“PHEV”) and battery electric vehicle (“BEV”) across the globe.12

There are several key performance metrics for electric motors. Power and torque density enables improved driving dynamics in a smaller and lighter package, with weight and space being at a premium in EVs. Another critical area is efficiency. Improving efficiency means that less energy stored in the battery is wasted when accelerating the vehicle, resulting in improved range from the same battery capacity. Smaller motor system weight will also contribute to increase in range since less weight needs to be moved.

Most electric motors currently used for electric mobility employ high energy permanent magnets.13 The magnetic material is usually sintered neodymium–iron–boron (NdFeB) made or processed in China. Neodymium is one of the rare earth elements. China has around a third of all rare earth reserves and around 80% of global production.14 In 1987 the Chinese President Deng Xiaoping famously said, “*the middle East has Oil; China has rare earths”*. An Oxford Analytics Expert briefing on July 30, 2020, states that “(i) Permanent Magnets will account for 3⁄4 of rare earth demand by 2030 up from 1⁄4 in 2020 and (ii)Electric vehicles and offshore wind will drive demand and be most vulnerable to ***supply shocks”.***

Permanent magnet (“PM”) machines can be extremely light in weight and highly efficient. In PM machines the magnetic field B is fixed by the magnets and the only way to change this is with a bucking field. These bucking currents result in increase in temperature that could affect the magnetization of the permanent magnets.

In PM machines the operating temperature must be kept at below 100oC because at that temperature the magnets start to lose some of their magnetization and at 180oC they become completely demagnetized. However, in EV applications at low speed, one needs to use a lot of current (generating high heat) to get the required torque; similarly, at high speeds one needs a lot of current for the bucking fields to reduce the B field. Thus, PM machines for electric mobility require a very complex cooling system. All the components in the machine are designed for maximum specifications but operationally the machine is limited by temperature requirements of the magnets. The cost of such machines is high due to (i) The permanent magnets, (ii) the complex cooling system and (iii) complex controller.

|  |  |
| ---: | --- |
| 10 | Emerging Electric Motor Technologies for the EV Market Sep 28, 2021 Luke Gear |
| 11 | Market & market Electric Vehicle Market May 2021 Report code AT4907 |
| 12 | Precedence research June 9, 2021 |
| 13 | Will rare earth be eliminated in EV motor-Dr. James Edmondson Nov 2-2020 |
| 14 | Vikendi December 29, 2021 |

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In addition to the cost issues, the permanent magnets are subject to the economic and political control of China. *There is always the possible situation that China economically weaponizes rare earth and stops sending the refined product to the U.S so they cannot be used in weapon systems or commercial applications such as electric vehicles.****15*** *In the past during political disputes China threatened to cease export of rare earths.****16***

As to environmental, rare-earth magnets used in EV applications are responsible for major environmental pollution. The extraction of rare earths “*produce mountains of* toxic waste*, with high risk of environmental and health hazards. For every ton of rare earth produced, the mining process yields 13-kg of dust, 9,600-12,000 cubic meters of waste gas, 75 cubic meters of wastewater, and one ton of radioactive residue. This stems from the fact that rare earth element ores* have *metals that, when mixed with leaching pond chemicals, contaminate air, water, and soil. Most worrying is that rare earth ores are often* laced *with radioactive thorium and uranium, which result in especially detrimental health effects. Overall, for every ton of rare earth,* 2,000 tons of toxic waste *are produced.”*17

*Unlike the PM machines, Aura’s axial flux induction machines do not use any permanent magnets and therefore the controller can change the B fields since B is proportionate to the voltage divided by the frequency (V/f). Thus, the Aura machine, when operated with a smart inverter, has an advantage over a PM machine. The Aura machine has a smaller volume, equal or better efficiency, more reliable and a large cost advantage. This advantage becomes increasingly important as performance is increased.*

#### Mobile and Remote Power Applications

The global generator sales market was $20.3 billion in 2019 and is estimated to reach $27.16 billion by 2027 (Fortune Business Insight). Most industries dealing with construction and infrastructure rely on mobile generators to support modern computers, digital sensors and instruments as well as electrical driven tools. Current automotive alternators cannot supply the existing demanded power for many such applications and thus the common solution is the use of stand-alone gensets (often referred to a “Auxiliary Power Units” or simply “APUs”). These APUs, however, (i) consume large amounts of fuel, (ii) are heavy and bulky and accordingly must often be towed on trailers, and (iii) require constant maintenance. Additionally, traditional APUs are generally not considered to be environmentally friendly power solutions based on their high fuel consumption, loud operating noise levels, and the emissions they secrete into the air. *In comparison, the AuraGen® system is small and light enough to generally be integrated directly into existing vehicles, does not require maintenance, nor do they require any set-up or tear-down time. In addition, there is no heavy lifting required and to contact with hot surfaces. The AuraGen® operation when integrated in a vehicle or a boat is completely seamless and transparent to the user.*

Likewise, for law enforcement, emergency responders and militaries alike, mobile power is generally a necessity. Indeed, one of the fastest growing segments for mobile power is the military marketplace for On-Board-Exportable-Power (OBEP), which is electric power on vehicles that can be used to support non-vehicle functions such as weapon systems and C4I functions (command, control, communication, computers and information). Currently, most on-board power is provided by APUs. Given the drawbacks of APUs, however, militaries, law enforcement and first responders all over the world are seeking more efficient integrated power solutions for their vehicles.

In addition, numerous leisure users are increasingly demanding mobile power for use of air-conditioning, appliances and other amenities.

|  |  |
| ---: | --- |
| 15 | China Maintains Dominance in Rare Earth Production-National defense 9/8/21 by Stew Magnuson |
| 16 | Supercomputers Predict rare earth Market Vulnerability-National defense 9/9/21 by Stew Magnuson |
| 17 | Not so “green” technology: the complicated legacy of rare earth mining 12.Aug.2021 Harvard International Review |

7

Beside stand-alone gensets (often referred to “auxiliary power units” or simply “APU” s), all automotive users rely on integrated alternators in their vehicles for such things as navigation systems, electric seating, electric windows, sound/ phone systems and lights. In 2019 alone, 87.9 million passenger vehicles were sold globally18 (each one used an alternator). The market for automotive alternators is presently dominated mainly by four companies: Denso, Valeo, Mitsubishi Electric, and Hitachi Automotive. These companies jointly control nearly 80% of the global market. *The compact size and significant increase in efficiency of the AuraGen® provides an ideal replacement (fit and form) for high output automotive alternators while offering higher efficiency, longer lifetime and the flexibility of multi types of voltage both AC and DC. Recently, the Company completed the design for a 10-kW alternator with diameter of less than 8 inches and axial length of less than 6 inches. The new 10 kW alternator will provide the full 10 kW power at alternator speeds of 2,500-13,000 rpm with efficiency higher than 92%.*

The AuraGen® solution increase in efficiency over traditional generators, when combined with our load following architecture and the ability to provide both AC and -48VDC simultaneously makes our solution very attractive to cell towers operators that depend on diesel power. Our solution has the potential for a significant reduction in diesel fuel consumption for such an application.

### Competition

The Company is involved in the application of its AuraGen® technology to electric motors and mobile power. Therefore, it faces substantial competition from companies offering different technologies.

#### Electric Motors

There are four (4) basic approaches for electrical machines: (i) the rotor can be electrically excited such that it creates a magnetic field with constant orientation (as in synchronous machines) that usually uses brushes and or commutators; (ii) the shape of the rotor can induce reluctance variations in the stator (as in switched reluctance machines); (iii) the rotor can be permanently magnetized with permanent magnets (“PM “) as in brushless DC machines; and (iv) the rotor field can be induced from the stator due to the rotor’s structure as in induction machines. Our axial flux technology is an induction machine.

*Brushed machines* are machines in which the rotor coil is supplied with current through brushes. Unlike commutators, brushes only transfer electric current to a moving rotor; commutators also provide switching of the current direction. Large, brushed machines which are run with DC to the stator windings at synchronous speed are the most common generator in power plants because they also supply reactive power to the grid. They can be started by the turbine and can generate power at constant speed without a controller. This type of machine is often referred to in the literature as a “synchronous machine”.

*Reluctance machines* have no windings in the rotor, only a ferromagnetic material shaped so that “electromagnets” in the stator can “grab” the teeth in the rotor resulting in a slight movement. The electromagnets are then turned off, while another set of electromagnets is turned on to move the stator further. Reluctance machines are also sometimes referred to as “step motors” as a result of the step-like movement. These machines are suited for low speed and accurate position control. Reluctance machines can be supplied with PMs in the stator to improve performance. The “electromagnet” is then “turned off” by sending a negative current to the coil. When the current is positive the magnet and the current cooperate to create a stronger magnetic field, which will improve the reluctance machine’s maximum torque without increasing the current’s maximum absolute value.

*PM machines* have permanent magnets in the rotor which set up a magnetic field. The magnetic field is created by modern PMs (Neodymium Iron Boron magnets “NeFeB”), which means that PM machines have a higher torque/volume and torque/weight ratio than machines with rotor coils under continuous operation.

In general, it is usually possible to overload electric machines for a short time until the current in the coils heats parts of the machine to a temperature which causes damage. However, PM machines are very sensitive to such overloads because too high of a current in the coils can create a magnetic field strong enough to demagnetize the magnets. The majority (80%) of NeFeB magnets are produced in China. Magnax and many other are examples of Companies using such an approach.

18 Motor Intelligence. Automotive alternator market growth trends forecast 2021-2026

*AC induction machine (no PM)* is the most common electrical machine in use today. A changing magnetic field in the stator induces a current in the rotor. The current in the rotor produces its own magnetic field, which then interacts with the magnetic field of the stator, causing the rotor to turn. The name induction comes from the fact that current is induced in the rotor by the changing magnetic field of the stator. Radial flux induction machines have been the workhorse of industry due to their robustness, attractive cost, and ease of control; however, they are relatively, heavy and bulky. On the other hand, Aura’s axial flux (“AF”) induction machines, have all of the advantages of the radial flux machines but with the advantage of higher energy density and higher efficiency resulting in a smaller and lighter machine with equivalent or better performance. *Unlike the PM machines, induction machines do not use any permanent magnets and therefore the controller can change the B fields since B is proportionate to the voltage divided by the frequency (V/f).*

Although our axial flux induction technology provides significant advantages in both cost (significant less copper, steel and aluminum), size/weight and performance, most of our competitors have far greater financial, technical, and marketing resources than we have. They have larger budgets for research, new product development and marketing, and have long-standing customer relationships.

Key players in the market are (i) Nidec Motor Corporation, (ii) ABB Ltd., (iii) Siemens AG, (iv) WEG Electric Corp, (v) Regal Beloit Corporation, (vi) Wolong, and (vii) Teco Westinghouse.

#### Generators

#### There are five basic approaches used in mobile generators.

*Gensets AKA APU.* Portable generators meet the large market need for auxiliary power. Millions of units per year are sold in North America alone, and millions more are sold across the world to meet market demands for 1 to 20 Kilowatts of portable power. The market for these power levels addresses the commercial, leisure and residential markets, and is essentially divided into: (a) higher power, higher quality and higher price commercial level units; and (b) lower power, lower quality and lower price level units. Gensets provide the strongest competition across the widest marketplace for auxiliary power. Onan, Honda, Generac and Kohler, among others, are well established and respected brand names in the genset market for higher reliability auxiliary power generation. There are over 40 registered genset-manufacturing companies in the United States.

Some of the key suppliers are Caterpillar (US), Cummins (US), Rolls-Royce Holdings (UK), Atlas Copco (Sweden), Mitsubishi Heavy Industries, Ltd. (Japan), Yanmar (Japan), Generac (US), ABB (Switzerland), Siemens Energy (Germany), Weichai Group (China), Kohler Co. (US), Kirloskar Oil Engines Ltd. (India), Denyo (Japan), and Sterling & Wilson (India),

*High Output Alternators.* There are many High Output Alternator manufacturers. Some of the better-known ones are Delco-Remy, Bosh, Nippon Densu, Hitachi, Mitsubishi and Prestolite. All alternators provide their rated power at very high RPM and significantly less power at lower RPM. In addition, alternators are generally only 30% efficient at the low RPM range and increase to 50% efficiency at the high RPM range.

*Inverters.* There are many inverter manufacturers across the globe; the best known one is Xentrex. The pricing of industrial grade sine wave inverters is approximately $400 per kilowatt plus the cost of a high output alternator (estimated at $1,000) and a good throttle controller (estimated in the range of $250-500).

*Permanent-Magnet Alternators.* A number of companies have introduced alternators using exotic rare earth Neodymium (NdFeB) magnets. These alternators tend to have higher power generation capabilities than regular alternators at lower RPM. Unfortunately, PM machines with NdFeB magnets are very sensitive to temperature and, unlike the AuraGen®, cannot survive the typical under-the-hood environment (200oF+). In order to apply such devices for automotive applications one must add an active cooling system to keep the magnets from demagnetizing at approximately 200oF. In addition, most of the rare earth magnets (NeFeB) are manufactured in China and are subject to potential political and economic pressure.

In addition to the temperature challenges of such machines, there are other issues involving active control of the magnetic field. The main disadvantage of PM generators is the difficulty of output voltage regulation to compensate for speed and load variation due to the lack of a simple means of field control.

*Fuel Cells.* Fuel cells are solid-state devices that produce electricity by combining a fuel containing hydrogen with oxygen. They have a wide range of applications and can be used in place of the internal combustion engine and traditional lead-acid and lithium-ion batteries. These systems are generally more expensive. The most widely deployed fuel cells are estimated to cost significantly more per kilowatt than alternative solutions.

#### Others

Evans Electric in Australia has introduced an axial flux machine with a complete conductive rotor. Such a machine was first introduced by Brinner more than 20 years ago and was abandoned because the rotor lacked the required rigidity to withstand the magnetic and centrifugal forces. The Brinner machine is cited in Aura’s issued patents.

Numerous companies are introducing axial flux machines; however, they generally use rare earth NeFeB magnets (made in China) and are thus not induction machines but rather permanent magnet machines. Some of the better-known companies are YASA, EVO, Magnax and Phi Power.

Most of our competitors have far greater financial, technical, and marketing resources than we have. They have larger budgets for research, new product development and marketing, and have long-standing customer relationships. We also compete with many larger and more established companies in the hiring and retention of qualified personnel. Our financial condition has limited our ability to market the AuraGen®.

The AuraGen® uses a different technology and because our product is radically different from traditionally available mobile power solutions, users may require lengthy evaluation periods to gain confidence in the product. OEMs and large fleet users also typically require considerable time to make changes to their planning and production.

### Competitive Advantages of the AuraGen® Axial Flux Induction technology

*As a motor*-Aura’s Axial Flux (“AF”) induction motor/generator is increasingly attracting attention from high impact potential users seeking advantages over conventional motors, particularly for Electric Vehicle applications. These advantages include (i) compact construction, (ii) better power to weight ratio, (iii) shorter axial length, (iv) better efficiency, (v) better torque to volume and weight ratio, (vi) very high utilization of active materials (less than 60% of the copper) and (vii) excellent ventilation and cooling. Induction machines (i) do not use any rare earth elements and have no permanent magnets. Due to their flat shape, lower weight and compact construction, Aura’s axial flux motors are ideal for pumps, fans, food processors, HVHC, etc. An axial flux machine is also preferred in applications where the rotor can be integrated with the rotating part of mechanical loads.

The AuraGen® motor’s operational range is between -40 and 340-degrees F; therefore, it is suitable to operate in a harsh environment.

*As an alternator.* Aura’s induction machine provides significant advantages in power generation, particularly in mobile applications. Its smaller volume and higher efficiency, when combined with the geometric shape means it can be integrated with existing vehicles and boats. Such integrated solutions do not require set up time. There are no heavy weights to lift (gensets), usable cargo space is optimized and there is no need for separate fuel/containers. Remarkably, there is no scheduled maintenance required.

The AuraGen® alternator’s operational range is between -40- and 340-degrees F; therefore, it is suitable for operating under the hood of a vehicle where the ambient temperature can easily be above 200 degrees F.

***Earth-Forward, Green Technology***. The AuraGen® system is significantly more environmentally friendly than traditional motors and generators. Because of its extreme efficiency and smaller size, the AuraGen® system utilizes fewer resources and materials to manufacture (in particular less than 60% of the copper). When used in power generation, the AuraGen® uses a vehicle’s primary automotive engine, which is already highly regulated for environmental protection. Traditional mobile power solutions, in comparison, use small, less efficient, auxiliary engines that produce significantly higher levels of emissions per unit of power output than the automobile engine.

***Durability; No Scheduled Maintenance***. The AuraGen® motor/generator solution does not require any scheduled maintenance. The historical failure rate for Aura’s machines over a 20-year period is less than 0.5%. The bearings are rated for 28,000 hours.

Aura’s axial flux induction (no PM) can be summarized as:

- *Disruptive since it addresses the entire field of electrical motors and generators by providing a solution that* ***is smaller, lighter, more efficient, cost less to manufacture and*** *does not use any permanent magnets.*
- *Aura has demonstrated mass production of this technology with more than 11,000 machines.*
- *The market opportunity for industrial applications of Aura’s motors/generators is more than $100 billion per year.*
- *The EV powertrain business opportunity for the Aura’s is a significant percentage of the* ***$200+ billion per year projected business.***
- *The economic value proposition is well defined in terms of cost, performance and size.*
- *The Aura solution provides* ***significant global reduction in the use of raw materials*** *such as copper, steel, and aluminum.*
- *The higher efficiency of Aura’s motor, when used in a manufacturing environment, can* ***lead to a noticeable reduction in the global consumption of energy.***
- *When used for mobile power generation, Aura’s technology leads to a* ***significant reduction in global pollution*** *by being able to reduce and, in many situations, eliminate completely small diesel and gasoline engines used in power generation.*
- *When used for* ***electric vehicles, the smaller size, weight, and increased efficiency could lead to an increase in range and/or reduced battery weight.***
- *When used in remote stand-alone diesel power generation such as cell towers, Aura’s increased efficiency, lower rotor inertia, voltages flexibility and load-following architecture results in a* ***significant reduction in fuel usage (and, of course, reduced pollution).***
- *Aura’s significantly (65% less) lower rotor inertia and variable speed capabilities make Aura’s solution ideal for small hydro applications that are currently being ignored because of construction cost, low head, and slow flow situations.*

### Targeted Market

The Company is re-examining and identifying new key markets to focus on as the Company expands operations.

The global drive for electrification is in search of better more effective electric motors. The recent realization by many potential users of such motors that permanent magnet motors are depending on NeFeB rare earth magnets from China has created a need for alternative to the PM motors. Our axial flux induction machine is a solution that does not use any magnets and has the required performance characteristic as well as fit and form for numerous applications.

### Electric motors

*Electric motors* for industrial applications. We have completed the design of 4 kW and 10 kW machines. The designs show significantly increased efficiency as compared to equivalent other designs, and in addition they are a fraction of the size and weight, use approximately 50-60% less copper and cost less to manufacture.

*Electric motors for electric delivery trucks.* We are exploring the use of our axial flux induction machine to be integrated into electric delivery trucks. This application would require 150 to 350 kW machines that will use 800VDC buss system. We now have an initial electromagnetic design for a 150-kW with over 96% efficiency. We expect to have an optimized design by the fourth quarter of 2023.

*Electric motors for high end electric cars.* We are exploring the use of our axial flux induction machine to be integrated into high end electric cars. This application would require approximately 250-300-kW machine that will use 800VDC buss system and will operate at 20,000 RPM. We now have a completed axial flux induction (no PM) design with energy density of 77 kW per liter (the best other known design is approximately 40 kW/liter using rare earth permanent magnets) and efficiency of 97.5%. Our optimized design has an active diameter of 220 mm (8.66 inches) and active axial length of 86 mm (3.4 inches).

*Drive motors for electric boats-* We started to explore the possibility of using our axial flux induction machine as a drive motor for small to medium electric boats.

### Mobile power generation

*Military market.* One focused market for the Company’s VIPER solution is military applications. The global military land vehicles market is expected to grow by 29% through 2022, increasing to $30.33 billion by 2022.19 While traditional markets for military vehicles such as the U.S. are choosing to upgrade and maintain existing fleets rather than replace aging vehicles, other regions are looking to purchase new units, which also provides maintenance and upgrade opportunities. The active number of military vehicles was estimated at over 408,000 in 2012 and is expected to increase to slightly over 418,000 by 2021. New vehicle procurement is expected to decline in western defense and increase in emerging markets of APAC and the Middle East.

*Automotive alternators.* In 2019, 87.9 million units of passenger cars were sold globally,20 each one used an alternator. The market for automotive alternators is dominated mainly by four companies: Denso, Valeo, Mitsubishi Electric, and Hitachi Automotive. These companies jointly control nearly 80% of the global market. The compact size and significant increase in efficiency of the AuraGen® provides an ideal replacement (fit and form) for high output automotive alternators.

*Diesel based cell towers*. According to Statista (Technology and telecommunication Thomas Alsop sept 22, 2020), in 2019, there were 395,562 mobile wireless cell sites in the United States, with a large amount of investment going toward 5G-ready cell sites and antennas as per the source. Phil Marshall, chief research officer at Tolaga Research, estimates the global number of base stations at 6.5 million sites, while Chinese equipment vendor Huawei puts the number at 7 million. Many of the cell sites are powered by diesel generators. The AuraGen® solution increase in efficiency over traditional generators, when combined with our load following architecture and the ability to provide both AC and -48VDC simultaneously makes our solution very attractive to cell towers operators that depend on diesel power. Our solution has the potential for significant diesel fuel savings in such an application.

*Transport Refrigeration (“TRU”)*. The main competitors for the all-electric TRU are traditional diesel-based solutions provided by Thermo-king and Carrier. The diesel based comparable systems provided by Thermo-king and Carrier are somewhat less expensive than our AuraGen® all-electric solution, however the diesel solutions require frequent maintenance and the utilization of a separate diesel engine that consumes additional fuel every operating hour. In addition, the diesel solution emits harmful emissions that have been recognized by the U.S. Environmental Protection Agency, California’s Air Resource Board and others as dangerous pollutants and are increasingly subject to federal and state regulations. A CARB 2015 report “Technology Assessment Transport refrigeration” cites and provides an analysis of our solution that can be applied for significant pollution reduction and fuel savings for truck-based transport refrigeration.

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| 19 | John Keller July 10, 2014 Military and Aerospace Electronics |
| 20 | Motor Intelligence. Automotive alternator market growth trends forecast 2021-2026 |

12

### Facilities, Manufacturing Process and Suppliers

During Fiscal 2023 and Fiscal 2022, the Company occupied approximately 18,000 square feet of space in Lake Forest, California. In early Fiscal 2022 the Company consolidated all its administrative offices and operations into this new modern stand-alone facility. The Lake Forest facility is subject to a lease agreement with a 66-month lease period effective from February 2021, through August 31, 2026. The monthly base lease rate for the Lake Forest Facility is currently $23,533 per month with a 3% annual escalation. We expect to expand operations next year that will require additional space.

As the Company continues to expand operations, we will need to renew relationships and contracts with our suppliers or locate suitable new suppliers for subassemblies and other components.

### Research and Development

We believe that ongoing research and development is important to the success of our product in order to utilize the most recent technology, develop additional products and additional uses for existing products, stay current with changes in vehicle manufacture and design and to maintain an advantage over potential competition. Our engineering, research and development costs for Fiscal 2023 was approximately $0.9 million compared to approximately $0.6 million in Fiscal 2022. In Fiscal 2023 we have completed the design for (i) 4 kW motor for water pump applications, (ii) a new optimized 10 kW mobile power solution smaller and higher efficiency of the older design, (iii) a new 30 kW optimized mobile power solution and (iv) a 250-kW motor solution for EV applications. In addition, during fiscal 2023 we made significant engineering progress in the design of novel innovative active cooling solutions for very high energy density motors and generators. We expect to finalize this innovation during the second quarter of 2023.

### Patents and Intellectual Property

Our intellectual property portfolio consists of trademarks, proprietary know-how, trade secrets, and patents. Historically the Company obtained over 70 patents in electromagnetic and electrooptical technologies.

The basic philosophy followed by Aura is to build layers of defense to protect the Company’s IP. This is achieved through the development of fundamental patents and surrounds them with application patents. The detailed fabrication of the rotor is kept as a trade secret since this is a critical component in Aura’s proprietary intellectual assets.

The challenges of implementing a patent philosophy are based on cost. Patent maintenance costs are expensive, particularly international patents. In order to maximize a limited budget, our approach is to first file a number of new US patents. This will provide a year before international patents need to be filed.

Current active patents are (i) Patent 8720618 Issued date 5/3/2014, (ii) Patent 6700214 Issued date 3/2/2004, and (iii) Patent 6700802 Issued date 3/2/2004.

We expect over the next 12 months to file new technology patent applications covering:

1\. **Topology (several patents)**

Using different number of stators (one or more) and rotors (one or more) to reach wide range of speed and torque. Also, utilization of optimal topology makes capability to achieve high power/torque density which is a key component for the electric vehicle (EV) and electric airplane (EA) industries.

2\. **Stacking**

Using new laminations, the hysteresis and eddy current losses decrease. So, a capability is made to increase the efficiency of these machines as the most important parameter for electric machines evaluation. Moreover, these laminations deliver higher saturation profile to reach high torque density which is very important for the EV and EA industries.

3\. **Winding (several patents)**

New winding patterns can be made to increase current density for increasing the torque density and the power density.

4\. **Cooling system (several patents)**

Development of novel cooling systems which make better heat dissipation is used to reach highest torque and power density.

5\. **Vibration and noise (several patents)**

Implementation of new methods for vibration and noise reduction is the key component for electric machines which are used in home appliances, EV and EA.

6\. **Materials**

Using new developed alloys help to decrease losses, increase efficiency, magnify torque, and power density. The alloy steel used in the stator cores, alloy casting used for rotor and alloy aluminum used for enclosure have essential influences on the machine performance.

### 7\. Advanced Automotive alternator

Current air-cooled automotive alternators are power limited to around 1.5 kW. A new design using Aura’s axial flux induction will increase the power to 3.5-5 kW at the same size as current automotive alternators at a lower reduced cost.

### 8\. Integration of inverter components with motor (2 in 1 integration)

Higher integration will lead to better overall efficiency and smaller packaging.

In addition, we also plan to file specific motor application patents for (i) Drone usage, (ii) Pump usage, (iii) Compressors, (iv) Fans and Blower usage, (v) Machine tools usage, (vi) Specific 2-and 4-wheel EV usage and (vii) Airplane/air taxi applications.

For mobile power applications we plan to file a number of patent applications for (i) military usage, (ii) Hybrid APU, (iii) diesel power Cell tower usage, (iv)water treatment plants and (v) marine usage.

### Government Regulation

We are subject to laws and regulations that affect the Company’s activities, which include, but are not limited to, the areas of labor, intellectual property and ownership and infringement, tax, import and export requirements, environmental, and health and safety. As we recommence operations, our operations will again be subject to federal, state and local laws and regulations governing the occupational health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety. We expect to expend resources to maintain compliance with OSHA requirements and industry best practices.

### Employees

As of the date of this filing, the Company has a total of eight (8) full-time employees in research and development, sales, operations and administration. Additionally, the Company engages independent contractors, on an as-needed basis, to support various areas of the business. During Fiscal 2023 we engaged two independent contractors to support engineering developments, and during Fiscal 2022 we engaged three independent contractors, two to support engineering developments, and one for accounting support.

### Significant Customers

In Fiscal 2023, one significant customer, CBOL, accounted for 55% of revenues. In Fiscal 2022, there were four customers that accounted for over 10% individually of the Company’s revenues, however no customer is considered significant.

### Backlog

As of the date of the filing of this Annual Report on Form 10-K, the Company has approximately $15K in backlog of orders. In addition, during March 2023, the Company entered into an agreement with Hippo Multipower(“Hippo”) to provide a minimum of 525 units over the next three (3) years of the Company’s proprietary Axial Flux Induction Motors to Hippo in support of their contract with the US government. The value of this minimum quantity of units is approximately $8.5 million. Deliveries under this contract are expected to begin during the second quarter of the Company’s Fiscal 2024.

### Raw Materials

The most important raw materials we use in manufacturing our products are steel, copper, and aluminum. Raw materials are purchased both domestically and outside the United States. We have no significant long-term supply contracts. When possible, we maintain a number of sources for our raw materials, which we believe contribute to our ability to obtain competitive pricing. The cost of some of our raw materials and shipping costs are dependent on petroleum cost. Higher material prices, cost of petroleum, and costs of sourced products could have an adverse effect on margins.

We enter into standard purchase agreements with certain foreign and domestic suppliers to source selected products. The terms of these arrangements are customary for the industry and do not contain any long-term contractual obligations on our behalf.

### Available Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “SEC” or the “Commission”). These materials can be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials may also be obtained by mail at prescribed rates from the SEC’s Public Reference Room at the above address. Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

On our website, www.aurasystems.com, we provide free of charge our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments thereto, as soon as reasonably practicable after they have been electronically filed or furnished to the SEC. Information contained on our website is not part of this Annual Report on Form 10-K or our other filings with the SEC.

## Risk factors

As filed, 36,169 characters.

***We have been a party to litigation, a consent solicitation and a proxy contest with shareholders controlling a majority of the Company’s stock, which is costly and time-consuming and has had a material adverse effect on our business, results of operations and financial condition and could adversely affect our stock price.***

In March 2019, stockholders of the Company representing a majority of the outstanding shares of the Company’s common stock delivered signed written consents to the Company removing Ronald Buschur, William Anderson and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company. 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. 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. Aura’s refusal to recognize the legal effectiveness of the consents and the decision by the Company’s former leadership team to utilize corporate resources to vigorously contest the shareholder action has consumed significant financial resources, temporarily stagnated operations, and resulted in substantial costs, all of which had a material adverse effect on our business, operating results and financial condition.

### We have a history of losses, and we may not be profitable in any future period.

Except for Fiscal 2018 and Fiscal 2021, in each fiscal year since our reorganization in 2006, we have reported losses. For Fiscal year 2023, we recorded a net loss of $3.4 million. We continue to need substantial funds for the development of new products, enhancement of existing products and in order to expand sales. However, sales of our products have not increased as we expected them to and may never increase to the level that we need to expand our operations, or even to sustain them. We can provide no assurance as to when, or if, we will be profitable in the future. Even if we achieve profitability, we may not be able to sustain it.

***Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.***

During the fiscal year ended February 28, 2023, the Company incurred a net loss of approximately $3.4 million and had negative cash flows from operating activities of approximately $3.1 million and at February 28, 2023, had a stockholders deficit of approximately $20.3 million and a working capital deficit of approximately $13.7 million. In addition, as of February 28, 2023, notes payable with an aggregate balance of $5.1 million and accrued interest of $1.1 million are past due. These factors raise substantial doubts about the Company’s ability to continue as a going concern within one year of the date that these financial statements are issued. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended February 28, 2023, with respect to this uncertainty. We do not have any sufficient committed sources of capital and do not know whether additional financing will be available when needed on terms that are acceptable, if at all. This going concern statement from our independent public accounting firm may discourage some investors from purchasing our stock or providing alternative capital financing. The failure to satisfy our capital requirements will adversely affect our business, financial condition, results of operations and prospects.

***The effects of a pandemic or widespread outbreak of an illness, such as the COVID-19 pandemic, has had and could continue to have a material adverse impact on our business, results of operations and financial condition.***

The outbreak of COVID-19 was declared a pandemic by the World Health Organization (“WHO”) during our fourth quarter of Fiscal 2020 and continues to impact our operations and cash flows up to the filing date of this Annual Report for Fiscal 2023. We have implemented measures to mitigate the impact of the COVID-19 pandemic. We expect our Fiscal 2024 results of operations to be less impacted, however still adversely affected by the COVID-19 pandemic.

As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our corporate facilities, as have our customers, partners, suppliers, and vendors, as described in Item 1 — “*Business — Recent Developments.”* Collectively, these disruptions have had a material adverse impact on our business throughout Fiscal 2023 and Fiscal 2022. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. Accordingly, we cannot predict for how long and to what extent this crisis will continue to impact our business operations or the global economy as a whole. Potential impacts to our business include, but are not limited to:

- our ability to successfully execute our long-term growth strategy;
- potential declines in the level of purchases of products, including our products, caused by higher unemployment and lower disposal income levels, travel and social gathering restrictions, work-from-home arrangements, or other factors beyond our control;
- our ability to generate sufficient cash flows to support our operations, including repayment of our debt obligations as they become due;
- the potential loss of one or more of our significant customers or partners, or the loss of a large number of smaller customers or partners, if they are not able to withstand prolonged periods of adverse economic conditions, and our ability to collect outstanding receivables;
- temporary closures or other operational restrictions of our facilities;
- supply chain disruptions resulting from closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas, including any related cost increases;
- our ability to access capital markets and maintain compliance with covenants associated with our existing debt instruments, as well as the ability of our key customers, suppliers, and vendors to do the same with regard to their own obligations;
- additional costs to protect the health and safety of our employees, customers, and communities, such as more frequent and thorough cleanings of our facilities and supplying personal protection equipment;
- diversion of management attention and resources from ongoing business activities and/or a decrease in employee morale; and
- our ability to maintain an effective system of internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002.

Additional discussion related to the various risks and uncertainties described above is included elsewhere within this “Risk Factors” section of our Form 10-K.

**We derive a substantial portion of our revenues from customers in industries susceptible to trends and factors affecting those industries, including the COVID-19 pandemic.**

Our axial flux induction technology is geared toward industrial, commercial and EV motor users, and in addition, our mobile power solution is geared to end-markets such as commercial vehicles, communications, transportation industries, and consumer and industrial equipment markets. Factors negatively affecting these industries also negatively affect our business, financial condition and results of operations. Any adverse occurrence, including industry slowdown, recession, costly or constraining regulations, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and results of operations.

As a result of the COVID-19 pandemic, global vehicle production has decreased, and some manufacturers have completely shut down manufacturing operations in some countries and regions, including the United States and Europe. As a result, we have experienced, and are likely to continue to experience, delays in the production and distribution of our products and the loss of sales. If the global economic effects caused by the COVID-19 pandemic continue or increase, overall customer demand may continue to decrease which could have a further adverse effect on our business, results of operations and financial condition.

***We will need additional capital in the future to meet our obligations and financing may not be available. During Fiscal 2023 and Fiscal 2022, the Company increased its engineering and manufacturing activities, but it still struggled with meeting its financial requirements. If we cannot obtain additional capital, we will not be able to continue our operations.***

As a result of our operating losses, we have largely financed our operations through sales of our equity securities. Beginning with Fiscal 2017, the Company significantly reduced its engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations and conserving cash. For Fiscal 2023 and Fiscal 2022, we had approximately $3.1 million negative and $2.6 million negative cash flows from operations, respectively, due primarily to the impact of the COVID-19 pandemic. The Company’s engineering and manufacturing activities remained limited due to our inability to increase sales and raise significant amounts of new financing. Our ability to continue as a going concern is directly dependent upon our ability to obtain additional operating capital and generating sufficient operating cash flow. The impacts of the COVID-19 pandemic, increased interest rates and inflation have caused significant uncertainty and volatility in the credit markets and there can be no assurance that lenders or investors will make additional commitments to provide financing to us under current circumstances. As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our prospects. If we are unable to obtain additional funding as and when we need it, we will not be able to recommence operations or undertake our planned expansion.

***If we do not receive additional financing when and as needed, we may not be able to continue the research, development and commercialization of our technology and products. In that case, our business and results of operations would be materially and adversely affected.***

Our capital requirements have been and will continue to be significant. We will require substantial additional funds in excess of our current financial resources for research, development and commercialization of products, to obtain and maintain patents and other intellectual property rights in these technologies and products, and for working capital and other purposes, the timing and amount of which are difficult to ascertain. When and as we need additional funds, such funds may not be available on commercially reasonable terms or at all. If we cannot obtain additional funding when and as needed, our business and results of operation would be materially and adversely affected.

***Our intellectual property rights are valuable, and any inability or failure to protect them could reduce the value of our products, services and brand, which would have a material adverse effect on our business.***

Our patents, trademarks, and all of our other intellectual property rights are important assets for us. There are events that are outside of our control that pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Due to our lack of financial resources, we may not be able to adequately protect our technology portfolio or apply for new patents to extend our intellectual property portfolio. The expiration of patents in our patent portfolio may also have an adverse effect on our business. Any significant impairment of our intellectual property rights could harm our business and or our ability to compete. Protecting our intellectual property rights is costly and time consuming and we may need to resort to litigation to enforce our patent rights or to determine the scope and validity of third-party intellectual property rights and we may not have the financial resources to pay for such litigation. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.

We seek to obtain patent protection for our innovations. It is possible, however, that some of these innovations may not be protectable. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important. Furthermore, there is always the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable. Our inability or failure to protect our intellectual property rights could have a material adverse effect on our business by reducing the value of our products, services and brand.

***We occasionally become subject to commercial disputes that could harm our business by distracting our management from the operation of our business, by increasing our expenses and, if we do not prevail, by subjecting us to potential monetary damages and other remedies.***

From time to time, we are engaged in disputes regarding our commercial transactions. These disputes could result in monetary damages or other remedies that could adversely impact our financial position or operations. Even if we prevail in these disputes, they may distract our management from operating our business and the cost of defending these disputes would reduce our operating results.

***We have been named as a party in various legal proceedings, and we may be named in additional litigation, all of which will require significant management time and attention, result in significant legal expenses and may result in an unfavorable outcome, which could have a material adverse effect on our business, operating results and financial condition.***

We have been and may in the future become subject to various legal proceedings and claims that arise in or outside the ordinary course of business. Certain current lawsuits and pending proceedings are described under Part I, Item 3. “Legal Proceedings.”

The results of these lawsuits and future legal proceedings cannot be predicted with certainty. Also, our insurance coverage may be insufficient or not provide any coverage at all for certain claims, our assets may be insufficient to cover any amounts that exceed our insurance coverage, and we may have to pay damage awards or otherwise may enter into settlement arrangements in connection with such claims. Any such payments or settlement arrangements in current or future litigation could have a material adverse effect on our business, operating results or financial condition. Even if the plaintiffs’ claims are not successful, current future litigation could result in substantial costs and significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results or financial condition. In addition, such lawsuits may make it more difficult to finance our operations.

### We have substantial indebtedness and obligations to pay interest.

We currently have, and will likely continue to have, a substantial amount of indebtedness and obligations to pay interest from various financing and settlement arrangements. Our indebtedness and interest obligations could, among other things, make it more difficult for us to satisfy our debt obligations, require us to use a large portion of our cash flow from operations to repay and service our debt or otherwise create liquidity problems, limit our flexibility to adjust to market conditions, and place us at a competitive disadvantage. As of February 28, 2023, we had total notes payable debt outstanding plus accrued interest of approximately $18.0 million, of which $10.6 million was short term. As of February 28, 2023, notes payable with an aggregate balance of $5.1 million and accrued interest of $1.1 million are past due,

In March 2022, the Company reached a settlement that resolved the various claims asserted against us by former director, Robert Kopple, and his affiliated entities. In July 2017, Mr. Kopple and his affiliates brought suit against the Company relating to more than $13 million and the current equivalent of more than approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed to be owed to them pursuant to various agreements with the Company entered into between 2013-2016. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10 million over a period of seven years, including $3 million initial payment in June 2022. $150,000 was paid in June 2022, and the balance of the initial payment of $2.85 million was extended to May 29, 2023. In exchange for the extension, the Company paid extension and forbearance fees of $165,000 in cash and accrued deferred forbearance fees of $430,000. Beginning January 2023, interest accrues on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of approximately 3.3 million shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement. See Item 3. “Legal Proceedings”, “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Footnote 9 “Notes Payable-Related Parties” and Footnote 17 “Subsequent Events “in the Notes to Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the transactions.

We expect to obtain the money to pay our expenses and pay the principal and interest on our indebtedness from cash flow from our operations and from securities offerings. Accordingly, our ability to meet our obligations depends on our future performance and capital-raising activities, which will be affected by financial, business, economic and other factors, many of which are beyond our control. If our cash flow and capital resources prove inadequate to allow us to pay the principal and interest on our debt and meet our other obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations, restructure or refinance our debt, which we may be unable to do on acceptable terms and forego attractive business opportunities. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.

***Our business is not diversified. If we cannot increase market acceptance of our products, modify our products and services, or compete with new technologies, we may never be profitable.***

We currently focus all of our resources on the successful commercialization of our axial flux induction motors and AuraGen® mobile power family of products. Because we have elected to focus our business on a single technology line rather than diversifying into other areas, our success will be dependent upon the commercial success of these products. If we are unable to increase market acceptance of our products, if we are unable to modify our products and services on a timely basis so that we lose customers, or if new technologies make our technology obsolete, we may never be profitable.

***Most of our competitors are larger and better financed than we are and have a greater presence in the marketplace. Our business may be adversely affected by industry competition.***

Both in the U.S. and internationally, the industries in which we operate are extremely competitive. We face substantial competition from companies that have a long history of offering traditional auxiliary power units (portable generators), traditional automotive alternators, and inverters (a device that inverts battery direct current electricity to alternating current). Most of our competitors have substantially greater financial resources, spend considerably larger sums than we spend on research, new product development and marketing, and have long-standing customer relationships. Furthermore, we must compete with many larger and better-established companies in the hiring and retention of qualified personnel. Although we believe we have significant technological advantages over our competitors, realizing and maintaining such advantages will require us to develop customer relationships and will also depend on market acceptance of our products. We may not have the financial resources, technical expertise, or marketing and support capabilities to compete successfully, which would materially and adversely affect our business.

***We may not be able to establish an effective distribution network or strategic OEM relationships; in which case our sales will not increase as expected and our financial condition and results of operations would be adversely affected.***

We are in the very beginning stages of developing our distribution network and establishing strategic relationships with original equipment manufacturer (OEM) customers. We may not be able to identify appropriate distributors or OEM customers on a timely basis. The distributors with which we partner may not focus adequate resources on selling our products or may otherwise be unsuccessful in selling them. In addition, we cannot assure you that we will be able to establish OEM relationships on favorable terms or at all. The lack of success of distributors or OEM customers in marketing our products would adversely affect our financial condition and results of operations.

***If we are successful in executing our business plan to grow our business, our failure to efficiently manage our growth could have an adverse effect on our business.***

If we are successful in executing our business plan, we may experience growth in our business that could place a significant strain on our management and other resources. Our ability to manage this growth will require us to successfully assimilate new employees, improve existing management information systems and reorganize our operations. If we fail to manage growth efficiently, our business could be adversely affected.

***We may experience delays in product shipments and increased product costs because we depend on third party manufacturers for certain product components. Delays in product shipment or an inability to replace certain suppliers could have a material adverse effect on our business and results of operations.***

We currently do not have the capability to manufacture most of the AuraGen® components on a commercial scale. Therefore, we rely extensively on contracts with third party manufacturers for such components. The use of third-party manufacturers increases the risk of delay of shipments to our customers and increases the risk of higher costs if our manufacturers are not available when required. Our suppliers and manufacturers may not supply us with a sufficient number of components or components of adequate quality, which would delay production of our product. We do not currently have written agreements with any suppliers. Furthermore, those suppliers who make certain components may not be easily replaced. Any of these disruptions in the supply of components could have a material adverse effect on our business or results of operations. Furthermore, we are monitoring the impact of the COVID-19 pandemic on the operations of the Company, particularly with respect to possible delays and other disruptions to the supply-chain.

***Although we generally aim to use standard parts and components for our products, some of our components are currently available only from limited sources.***

We may experience delays in production of the AuraGen® if we fail to identify alternate vendors, or if any parts supply is interrupted or reduced or if there is a significant increase in production costs, each of which could materially adversely and affect our business and operations.

***We will need to renew sources of component supplies to meet increases in demand for the AuraGen®. There is no assurance that our suppliers can or will supply the components to us on favorable terms or at all.***

As we recommence our operations and in order to meet future demand for AuraGen® systems, we will need to renew contracts or form new contracts with our prior manufacturers and suppliers or locate other suitable manufacturers and suppliers for subassemblies and other components. Recently, we entered into discussions with several of our prior suppliers and we are in the process of negotiating settlements of old payables and arranging new supply contracts. Although we believe that there are a number of potential manufacturers and suppliers of the components, we cannot guarantee that contracts for components can be obtained on favorable terms or at all. Any material adverse change in terms of the purchase of these components could increase our cost of goods.

***We need to invest in tooling to have a more extensive line of products. If we cannot expand our tooling, it may not be possible for us to expand our operations.***

We are currently limited in the products that we are able to manufacture because of the limitations of our tooling capabilities. In order to have a broader line of products that address industrial and commercial needs, we must make a significant investment in additional tooling or pursue new alternatives to replace traditional tooling. We do not currently have the funds required to acquire new tooling or to obtain replacements and no assurances can be given that we will have the required funds in the future. If we do not acquire the required funds for tooling or replacement tooling, we may not be able to expand our product line to meet industrial and commercial needs.

***We are subject to government regulation that may restrict our ability to use certain suppliers outside the U.S. or to sell our products into certain countries. If we cannot obtain the required approval from government agencies, then our business may be adversely affected.***

We depend on third party suppliers for our parts and components, some of which are located outside of the United States. In the event that some of these suppliers are barred from selling their products in the United States, or cannot meet other U.S. government regulations, we would need to locate other suppliers, which could delay or prevent us from shipping product to our customers. We use copper, steel and aluminum in our product and in the event of government regulations or restrictions of these materials we may experience a shortage of these materials to manufacture our product. Furthermore, U.S. law restricts us from selling products in some potential foreign markets without U.S. government approval. If we cannot obtain the required approvals from government agencies to obtain materials or contract with suppliers or if we are restricted by government regulation from selling our products into certain countries, our business may be adversely affected.

***Acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business.***

In March 2017, we entered into a joint venture agreement with a Chinese partner. This joint venture arrangement and other transactions and arrangements involve significant challenges and risks, including that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that we have difficulty integrating and retaining new employees, business systems, and technology, or that they distract management from our other businesses. If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement. The success of these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products and services or develop compelling new ones. It may take longer than expected to realize the full benefits from these transactions and arrangements, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may ultimately be smaller than we expected. These events could adversely affect our operating results or financial condition. During Fiscal 2020, the joint venture ceased operation in compliance with the Chinese government’s COVID-19 policies. As a result, during Fiscal 2020 the Company recorded an impairment expense of $250,000 writing-off the Jiangsu Shengfeng investment due to operational and future cash-flow uncertainties associated with AuraGen® market development prospects in China through the joint venture.

***We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.***

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. We are currently in default under several agreements with various key consultants which may make those parties unwilling to continue to work with the Company. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees and consultants. The incentives to attract, retain and motivate employees and consultants provided by our ability to pay competitive salaries and rates as well as offering additional incentives such as stock option grants or by future arrangements may not be as effective as in the past. If we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively.

***Our business is subject to the risks of earthquakes and other natural catastrophic events, and to interruptions by man-made problems such as computer viruses, terrorism, or pandemics.***

Our corporate headquarters and our research and development operations are located in the State of California in regions known for seismic activity. A significant natural disaster, such as an earthquake, in this region could have a material adverse effect on our business, financial condition and results of operations. In addition, our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. Any such event could have a material adverse effect on our business, financial condition and results of operations.

***Failure to maintain effective internal controls over financial reporting could adversely affect our business and the market price of our Common Stock.***

Pursuant to rules adopted by the SEC under the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal controls over financial reporting and provide a management report on our internal controls over financial reporting in all annual reports. This report contains, among other matters, a statement as to whether our internal controls over financial reporting are effective and the disclosure of any material weaknesses in our internal controls over financial reporting identified by management. Section 404 also requires our independent registered public accounting firm to audit the effectiveness of our internal control over financial reporting.

As described in ITEM 9A, Controls and Procedures contained herein in this Annual Report, management concluded that the Company’s internal controls over financial reporting were not effective for the Fiscal year ended February 28, 2022 and identified material weaknesses in its financial reporting internal controls. The Company implemented a plan to remediate the material weaknesses in Fiscal 2023, and has concluded that as of February 28, 2023 its internal controls over financial reporting were effective. While the Company believes it has addressed and remediated the material weaknesses, there can be no guarantee that other weaknesses in its financial reporting controls will not be identified in the future. Presently, the Company does not have the financial resources to fully comply with all requirements of Section 404. If, in the future, we identify one or more material weaknesses in our internal controls over financial reporting during this continuous evaluation process, our management may not be able to assert that such internal controls are effective. Therefore, if we are unable to assert that our internal controls over financial reporting are effective in the future, or if our auditors are unable to attest that our internal controls are effective or they are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our business and the market price of our Common Stock.

***Trading on the OTC Markets is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.***

Our common stock is quoted on the Pink Sheets of the OTC Markets. Trading in stock quoted on the OTC Markets is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Markets is not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the New York Stock Exchange. These factors may result in investors having difficulty reselling any shares of our common stock.

## Properties

As filed, 447 characters.

Effective February 28, 2021, the Company vacated its previous Stanton California facility and other temporary storage facilities and consolidated its administrative offices and operations, including warehousing space, within an approximately 18,000 square feet facility in Lake Forest, California under a rental agreement that commenced on February 15, 2021 and covers a 66-month rental period effective from February 2021 through August 31, 2026.

## Legal proceedings

As filed, 6,950 characters.

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. The Company settled certain matters subsequent to year end that did not individually or in the aggregate, have a material impact on the Company’s financial condition or operating results.

In 2017, the Company’s former COO was awarded approximately $238,000 in accrued salary and related charges by the California labor board. In August 2021, the Company reached a settlement by which the Company agreed to pay approximately $330,000, representing the principal award plus accrued interest. As of the time of this filing, the Company has paid approximately $271,600 toward the settlement amount. The remaining balance of approximately $58,400 is to be paid no later than September 1, 2023 and accrues interest of 10% per annum until paid.

Between July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to more than $13 million and the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed should have been originally issued to them pursuant to various agreements with the Company entered to between 2013-2016. In March 2022, the Company reached a settlement with the Kopple Parties that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10 million over a period of seven years, including $3 million initial payment to be paid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2.85 million was extended to May 29, 2023, In exchange for the extension, the Company was required to pay $165,000 in extension and forbearance fees in cash and $430,000 in accrued forbearance fees. Beginning in January 2023, interest accrues on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of approximately 3.3 million shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement. As of the date of this report, the Company has not yet paid the full $3,000,000 installment due to Kopple, having made an initial payment of $150,000 in June 2022. (See Part IV, Item 15, Note 9 and Note 17 to the Financial Statements).

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.

In June 2022, Melvin Gagerman, the Company’s former CEO and CFO whose employment with Aura was permanently terminated in July 2019, brought suit against the Company for repayment of an allegedly unsecured demand promissory note in the principal amount of $82,000 which he claims was entered into in April 2014 and bears interest at a rate of 10% per annum. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when he was the Company’s CEO, CFO, Corporate Secretary and Chairman of Aura’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman and has filed a cross-complaint against him for, among things, conversion, violation of California Business& Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against Aura, including without limitation, Gagerman’s actions in opposing the valid 2019 stockholder consent action.

## Management's discussion and analysis

As filed, 24,595 characters.

### Forward Looking Statements.

*This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Report immediately prior to “Item 1”.*

### Overview

Our business is based on the exploitation of our Axial Flux Induction Motor solution and mobile power known as the AuraGen® for commercial and industrial applications and the VIPER for military applications. Our business model consists of two major components: (i) sales and marketing, (ii) design and engineering. Our sales and marketing approaches are composed of direct sales in North America and the use of agents and distributors in other areas. In North America, our primary focus is in (a) mobile exportable power applications, (b) EV motor applications, (c) U.S. Military applications and (d) industrial/commercial motor as well as mobile power applications. The second component of our business model is focused on the design of new products and engineering support for the sales activities described above. The engineering support consists of the introduction of new optimized power levels for electric motors and new features for our AuraGen®/VIPER solution such as higher power/torque solutions, and different input and output voltages (DC and AC input and output versions).

In Fiscal 2020 stockholders of the Company successfully removed Ronald Buschur, William Anderson and Si Ryong Yu from the Company’s Board of Directors and elected Ms. Cipora Lavut, Mr. David Mann and Dr. Robert Lempert as directors of the Company in their stead. See Item 3, Legal Proceedings for more information. Also, in Fiscal 2020, Melvin Gagerman –– Aura’s CEO and CFO since 2006 –– was replaced. In July 2019 Ms. Lavut succeeded Mr. Gagerman as President and Mr. Mann succeeded Mr. Gagerman as CFO. Dr. Lempert was appointed as Secretary of the Company by the Board of Directors also in July 2019. In the second half of Fiscal 2020, the company began significantly increasing its engineering, manufacturing and marketing activities. From July 8, 2019, the date of the change in management, through the end of Fiscal 2023, the Company shipped approximately 150 units to. Although our operations were impacted in Fiscal 2023, Fiscal 2022 and Fiscal 2021 by the COVID-19 pandemic, during these periods we continued to expand our engineering and manufacturing capabilities. See “Item 1. Business. Impact of the COVID-19 Pandemic” included elsewhere in this Annual Report on Form 10-K for information regarding the impact of COVID-19 on our operations. Our engineering, research and development costs for Fiscal 2023 and Fiscal 2022 were approximately $850,000 and $611,000, respectively.

During Fiscal 2018 and Fiscal 2019, the Company’s engineering, manufacturing, sales, and marketing activities were reduced while we focused on renegotiating numerous financial obligations. During this time, the Company’s agreements with numerous customers, third party vendors, and organizations and entities material to the operation of the Company business were canceled, delayed or terminated. During Fiscal 2018, the Company successfully restructured in excess of $30 million of debt. Robert Kopple, our former Vice Chairman of the Board, was the only significant unsecured note holder that did not executed formal agreements regarding the restructure of his debt. See “Item 3. Legal Proceedings” included elsewhere in this Annual Report on Form 10-K for information regarding the dispute with Mr. Kopple regarding these transactions. In March 2022, the Company reached a settlement that resolves the various claims asserted against us by Mr. Kopple and his affiliated entities. In July 2017, Mr. Kopple and his affiliates brought suit against the Company relating to more than $13 million and the current equivalent of more than approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed to be owed to them pursuant to various agreements with the Company entered into between 2013-2016. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10 million over a period of seven years, including $3 million initial payment to be paid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2.85 million was extended to May 29, 2023. In exchange for the extension, the Company was required to pay $165,000 in extension and forbearance fees in cash and $430,000 in accrued forbearance fees. Beginning in January 2023, interest accrues on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of approximately 3.3 million shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement. (See Part IV, Item 15, Notes 9 and 17 to the Financial Statements)

### 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 Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. To determine revenue recognition under ASC 606, an entity performs the following five-steps (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-steps to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

In accordance with ASC 606, we recognize revenue, net of discounts, for our generator sets at time of product delivery to the domestic distributor (i.e. point-in-time), which also corresponds to the passage of legal title to the customer and the satisfaction of our performance obligations to the customer. Our payment terms are cash payment due upon delivery and typically includes a 2% price discount off the selling price in accordance with 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 a 24-month assurance-type warranty covering material and manufacturing defects, which we account for under the guidance of ASC 460, *Guarantee.*

### Inventories

Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, on an average cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up.

### Leases

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments.

### Share-Based Compensation

The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services. The Company periodically issues stock options and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs. Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for services.

### 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, Fiscal 2021, Fiscal 2022 and Fiscal 2023 were significantly reduced, thus impacting our results of operations during these periods.

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 continue to adversely impact our results for the first quarter of Fiscal 2023, as well as the full Fiscal year, and that impact could be material.

### Results of Operations

### Fiscal 2023 compared to Fiscal 2022

#### Revenues

Revenues in Fiscal 2023 were approximately $71,000 as compared to the Fiscal 2022 period of approximately $100,000, a reduction of approximately 29%. Fiscal 2023 revenues consisted principally of the delivery of 9 AuraGen®/VIPER systems, 7 of which were to a single distributor customer. Fiscal 2022 revenues consisted principally of the delivery of 8 AuraGen®/VIPER systems, including the initial units of the Company’s new design. We believe that the low levels of revenue in both Fiscal 2023 and Fiscal 2022 were the result of being impacted significantly by the COVID-19 pandemic and its impact on the global economy.

#### Cost of Goods

Cost of goods sold was approximately $88,000 and $124,000 in the years ended February 28, 2023, and February 28, 2022, respectively. During Fiscal 2023, we benefited from the utilization of fully reserved inventory to deliver 9 units and recorded material cost at 32% of sales value, direct labor at 43% of sales value and other overheads at 44% of sales. Additionally, the Company recorded an inventory write-down of $4,000 to cost of goods sold, which resulted in a negative gross margin of approximately $17,000 in Fiscal 2023. The disproportionate increase in manufacturing overhead costs resulted from higher depreciation and systems costs without an offsetting increase in production volumes. During Fiscal 2022, we benefited from the utilization of fully reserved inventory to deliver 8 units and recorded material cost at 31% of sales value, direct labor at 41% of sales value and other overheads at 16% of sales. Additionally, the Company recorded an inventory write-down of $36,000 to cost of goods sold, which resulted in a negative gross margin of approximately $24,000 in Fiscal 2022. While both the FY 2023 and FY 2022 periods benefited from the utilization of inventory that was previously fully reserved, the new design ECU units fabricated in those periods did include the costs of new electronics boards. As production levels increase over time, the amount of recoverable inventory will decline and the amount of direct material recorded within cost of goods sold will increase, reducing the gross profit contribution of units of sales.

#### Engineering, Research and Development

Engineering, research and development costs increased to approximately $850,000 in Fiscal 2023 from approximately $611,000 in Fiscal 2022, an increase of approximately $239,000 or 39%. The increase is a result of the Company’s augmented engineering activities, including (i) successfully recruiting new additions to the engineering staff; (ii) licensing of modeling and design software tools for the full 12-month period; as well as (iii) additional expenses incurred in the process of designing, fabricating and testing the new version of our electronic control unit (“ECU”) for our AuraGen®/VIPER products.

#### Selling, General and Administrative Expense

Selling, general and administrative expenses decreased approximately $159,000, or 6%, to $2,636,000 in Fiscal 2023 from $2,795,000 in Fiscal 2022 due to several factors. Most notable of these was a decrease in non-cash share-based compensation of approximately $612,000 as all stock options completed vesting in Fiscal 2022 with no new grants in Fiscal 2023. This was partially offset by (i) increased salary and wage-related expenses of approximately $400,000, including higher expenses related to the sales team as well as a full year of costs for the Company’s CFO; and (ii) increased depreciation and software license related costs of approximately $55,000 associated with equipment and computer systems acquired in late Fiscal 2022 and in Fiscal 2023.

#### Non-Operating Income, Interest Expense and Tax Provision

Net interest expense decreased significantly to approximately $727,000 in Fiscal 2023 from approximately $1,272,000 in Fiscal 2022, a decrease of approximately $545,000, or 43%. This is principally a result of the settlement of the litigation with Robert Kopple and his affiliates. Under the terms of the settlement, no interest was to accrue until payment of the initial $3 million, which was extended to May 2023. In exchange for the extensions, the company recorded $335,000 of fees which are being categorized as interest, plus note interest of approximately $52,000. The aggregate Kopple-related interest in Fiscal 2023 of approximately $387,000 compares to the Fiscal year 2022 Kopple-related interest of approximately $823,000, a 53% reduction.

Extinguishment gains and favorable changes in the fair value of the Company’s derivative warrant liabilities aggregated to an approximately $819,000 positive impact for the Company in Fiscal 2023, an approximate $281,000 increase from the aggregate approximately $538,000 positive impact in Fiscal 2022. The favorable fair value changes and extinguishment gains in Fiscal 2023 were principally associated with the expiration of approximately 4.7 million warrants in February 2023.

During Fiscal 2022, the Company recorded other income of approximately $167,000 for the forgiveness of principal and accrued interest on two Payroll Protection Program (“PPP”) loans. The PPP loans provided for up to 100% forgiveness of the debt if the proceeds were used for specifically authorized expenditures. Both of the PPP loans were forgiven at 100% of principal plus accrued interest.

#### Net Loss

We recorded net losses of approximately $3,410,000 and $3,992,000 in the Fiscal years ended February 28, 2023 and February 28, 2022, respectively, or an increase of income of approximately $582,000 due to several factors as note above: (i) Fiscal 2023 included the lower interest expense of approximately $545,000; (ii) approximately $110,000 greater non-operating gains related to changes in the fair value of derivatives liabilities and extinguishment of warrants; (iii) decreased operating expenses in selling, marketing and general and administrative of approximately $159,000; and (iv)increased engineering and R&D expenses of approximately $239,000 partially offsetting the other income improvements,

### Liquidity and Capital Resources

For the year ended February 28, 2023, we recorded a net loss of approximately $3.4 million and used cash in operations of approximately $3.1 million and at February 28, 2023, had a stockholders’ deficit of approximately $20.3 million. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of these financial statements. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s February 28, 2023, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern.

The net loss in Fiscal 2023 was approximately $582,000 less as compared to Fiscal 2022 due to several offsetting items, but most notably reduced interest expense of approximately $545,000. Fiscal 2022 also included additional expenditures to ramp up the Company’s engineering, R&D, selling and administrative activities. A significant factor in both periods contributing to the negative operating cash flows is the low level of operating activities caused principally by the COVID-19 pandemic. As a result of the impacts of the COVID-19 pandemic, we may be required to raise additional capital and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, and our future prospects.

At February 28, 2023, we had cash of approximately $15,000, compared to cash of approximately $150,000 at February 28, 2022. Subsequent to February 28, 2023, the Company issued 2,334,847 shares of common stock in exchange for cash proceeds of $770,120. Working capital deficit at February 28, 2023 was a $13.7 million deficit as compared to an $21.7 million deficit at the end of the prior fiscal year. The principal reasons for the decrease in the deficit is the March 2022 settlement agreement the Company reached with a related party note holder (Kopple) to resolve all outstanding litigation between them related to notes payable and accrued interest of $12.1 million. The February 28, 2023 financial statements reflect the reclassification to non-current of $7.1 million of the debt to Robert Kopple and his affiliated entities (collectively the “Kopple Parties”) as a result of the settlement. At February 28, 2023 and February 28, 2022, we had no significant accounts receivable.

Prior to Fiscal 2020, in order to maintain liquidity, we relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and will require additional debt or equity financing to fund ongoing operations. Based on a cash flow analysis performed by management, we estimate that we will need an additional $6 million to maintain existing operations for Fiscal 2024 and increase the volume of shipments to customers. We cannot assure the reader that additional financing will be available nor that the commercial targets will be met in the amounts required to keep the business operating. The issuance of additional shares of equity in connection with such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise the needed funds, we will also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company.

Between July 2017 and March 2022, the Company was engaged in litigation with a former director, Robert Kopple, relating to more than $13 million and the current equivalent of the approximately 23 million warrants, exercisable for seven years at a price of $0.10 per share, which Mr. Kopple and his affiliated entities (collectively the “Kopple Parties”) claimed should have been originally issued to them pursuant to various agreements with the Company entered to between 2013-2016. In March 2022, the Company reached a settlement with the Kopple Parties that resolved all claims asserted against the Company without any admission, concession or finding of any fault, liability or wrongdoing on the part of the Company. Under the terms of the settlement, the Company agreed to pay an aggregate amount of $10 million over a period of seven years, including $3 million initial payment to be paid in June 2022. $150 was paid in June 2022, and the balance of the initial payment of $2.85 million was extended to May 29, 2023. In exchange for the extension, the Company was required to pay $165,000 in extension and forbearance fees in cash and $430,000 in accrued forbearance fees. Beginning in January 2023, interest accrues on the unpaid balance at a rate of 6%, compounded annually. All amounts, including all accrued interest and deferred fees, are to be paid no later than eight years from the date of the initial payment. The Kopple Parties have also received seven-year warrants to purchase up to an aggregate of approximately 3.3 million shares of our common stock at a price of $0.85 per share. The settlement also provides for standard mutual general release provisions and includes customary representations, warranties, and covenants, including certain increases in the amount payable to the Kopple Parties and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations under the settlement.

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

See “Item 3. Legal Proceedings” and “Part IV, Item 15, Note 9 and Note 17 to the Financial Statements” included elsewhere in this Annual Report on Form 10-K for information regarding the dispute and settlement with Mr. Kopple regarding these transactions.

## Controls and procedures

As filed, 7,471 characters.

### Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15I and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our President and Chief Financial Officer concluded as of February 28, 2023, that our disclosure controls and procedures were effective..

### Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2023. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on these assessments, and on those criteria, the Company’s management concluded that as of February 28, 2023, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

#### Remediation of Prior Material Weaknesses

We previously identified and disclosed in our Form 10-K filed for the year ended February 28, 2022, as well as, in our subsequent quarterly reports, a deficiency in internal control over financial reporting that existed relating to (1) ineffective controls over transactions for debt issuances to provide for review of all terms in a timely and accurate manner, to ensure reporting is in conformity with generally accepted accounting principles and properly reflected in the financial results; and (2) ineffective controls over transactions for issuances of common stock, options, and warrants to provide for review of all terms in a timely and accurate manner, to ensure reporting is in conformity with generally accepted accounting principles and properly reflected in the financial results. We increased our personnel resources and technical accounting expertise within the accounting function with the hiring of a new Chief Financial Officer in 2022. We intend to hire one or more additional personnel for the finance and accounting function which will provide additional manpower to perform timely and complete reviews of debt and equity transactions consistent with control objectives to further improve our personnel resources and technical accounting expertise. We have prepared written policies and procedures for accounting and financial reporting, establishing a formal process to account for all transactions, including equity and debt transactions. We plan to continue adding additional policies to further enhance reporting controls and procedures. We have upgraded our existing financial system to a more robust enterprise resource planning and financial reporting system. We plan to incorporate the processes specific to the new system into the aforementioned written procedures during the coming fiscal year. As a result of these actions, as described below, the management team has concluded that the material weaknesses identified for the year ended February 28, 2022, have been remediated as of February 28, 2023.

### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal year ended February 28, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, other than the improvements noted above.

### Inherent Limitations on Effectiveness of Controls

The Company does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Filed May 26, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-043575. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.