NOTE
5 – NOTES PAYABLE
Notes
payable consisted of the following:
|
|
February 28, 2019
|
|
|
February 28, 2018
|
|
|
|
|
|
|
|
|
Demand promissory notes payable with six individuals, carrying an interest rate of 10% (see Demand Promissory Notes below)
|
|
$
|
777,537
|
|
|
$
|
777,537
|
|
Note payable – related party, carrying an interest rate of 5% - see note 6, Breslow Note, for further details
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 10
th
of each month with the principal payment due on the maturity date. On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018. See 7% Convertible Promissory Notes – Dalrymple August 2012 for further details.
|
|
|
264,462
|
|
|
|
264,462
|
|
Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2
nd
of each month with the principal payment due on the maturity date. On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018. See 7% Convertible Promissory Notes – Dalrymple October 2012 for further details.
|
|
|
133,178
|
|
|
|
133,178
|
|
Senior secured convertible notes dated May 7, 2013, due May 7, 2014, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 12% with interest due on the last day of the month. On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018. See Convertible Debt – Kenmont Capital Partners, LPD Investments and Guenther for further details.
|
|
|
945,825
|
|
|
|
757,155
|
|
Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.50per share. On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018. See Convertible Debt – Dresner and Lempert for further details.
|
|
|
78,182
|
|
|
|
78,182
|
|
|
|
|
1,421,647
|
|
|
|
1,232,977
|
|
Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.50per share. On January 30, 2017, this note was amended providing, among other things, for the conversion of 80% of the principal and accrued interest into common stock at $1.386 per share conditioned on the occurrence of certain future events the last of which was completed on February 14, 2018. See Convertible Debt – Abdou and Abdou for further details.
|
|
|
125,000
|
|
|
|
125,000
|
|
Convertible notes dated April 2016 thru February 2017 with B&H TEL LLC. The notes carry an interest rate of 5% and might be converted into the company shares of common if the shareholders approve a 7:1 reverse stock split. The note holder has elected not to convert and to have the note paid over an eleven-month period. The first payment of $50,000 was paid in April 2018 with the balance of the note being assumed by a third party and converted into stock as of February 28, 2019.
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
125,000
|
|
|
|
625,000
|
|
|
|
|
5,324,184
|
|
|
|
5,635,514
|
|
Less: Current portion
|
|
$
|
902,537
|
|
|
$
|
1,402,537
|
|
Long-term portion
|
|
$
|
4,421,647
|
|
|
$
|
4,232,977
|
|
DEMAND
PROMISSORY NOTES
The
Demand Promissory Notes are six individual notes issued in 2015 that are payable on demand with an interest rate of 10% per annum.
The principal amount of each note and the person/entity they are payable to are as follows: $10,000 Mr. Zeitlin, a former director
of the Company; $30,000 Mr. Sook; $461,537 Mr. Macleod, a former president of the Company; $267,000 Mr. Veen, an employee of the
Company; $4,500 Mr. Howsmon, a former director of the Company; $4,500 El Pais, an entity controlled by Salvador Diaz, a current
director of the Company.
CONVERTIBLE
DEBT
Kenmont
Capital Partners
On
May 7, 2013, the Company transferred 4 notes payable with a total principal value of $1,000,000 together with accrued interest,
and consulting fees to a senior secured convertible note with a principal value of $1,087,000 (“New Kenmont Note”)
and warrants to Kenmont Capital Partners LP. The New Kenmont Note had a 1-year maturity date and was convertible into shares of
common stock at the conversion price of $0.75 per share. The warrants were subsequently exercised. The Company recorded $342,020
as a discount, which has been fully amortized. There is a remaining balance of $549,954 as of February 28, 2019.
LPD
Investments
On
May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to
a senior secured convertible note with a principal value of $558,700 (“New LPD Note”) and warrants to LPD Investments,
Ltd. The New LPD Note had a 1-year maturity date and was convertible into shares of common stock at the conversion price of $0.75
per share. The warrants were subsequently exercised. The Company recorded $175,793 as a discount, which has been fully amortized.
There is a remaining balance of $163,677 as of February 28, 2019.
Guenther
On
May 7, 2013, the Company entered into an agreement with an individual, Mr. Guenther, for the sale of $750,000 of secured convertible
note payable (the “Note”) and warrants. The Note had a 1-year maturity date and was convertible into shares of common
stock at the conversion price of $0.75 per share. The warrants entitle the holder to acquire 1,000,000 shares and have an initial
exercise price of $0.75 per share and have a 7-year term. The Company recorded $235,985 as a discount, which has been fully amortized.
There is a remaining balance of $232,194 as of February 28, 2019.
Dresner
and Lempert
On
June 20, 2013, the Company entered into an agreement with two individuals, Mr. Dresner and Mr. Lempert, for the sale of $200,000
of secured convertible notes payable (the “Notes”) and warrants. The Notes had a 1-year maturity date and were convertible
into shares of common stock at the conversion price of $0.50 per share. The warrants were subsequently exercised. The Company
recorded $39,152 as a discount, which has been fully amortized. There is a remaining balance of $78,182 as of February 28, 2019.
Abdou
and Abdou
On
June 20, 2013, the Company entered into an agreement with two individuals, Mr. Abdou and Mr. Abdou, for the sale of $125,000 of
secured convertible notes payable (the “Notes”) and warrants. The Notes had a 1-year maturity date and were convertible
into shares of common stock at the conversion price of $0.50 per share. The warrants were subsequently exercised. The Company
recorded $24,470 as a discount, which has been fully amortized. There is a remaining balance of $125,000 as of February 28, 2019.
Kopple
Notes
On
August 19, 2013, the Company entered into an agreement with Robert Kopple, a former member of its Board of Directors for the sale
of $2,500,000 of convertible notes payable (the “Kopple Notes”) and warrants. The Kopple Notes carry a base interest
rate of 9.5%, have a 4-year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per
share. The warrants were subsequently exercised. The Company recorded $667,118 as a discount, which has been fully amortized.
The Company also entered into a demand note payable with this individual in the amount of $20,000, which bears interest at a rate
of 5%. As of February 28, 2019, the balance of the $2,000,000 note including interest is $3,621,944, and the balance of the demand
note payable including interest is $22,410. The total owed under these two notes is $3,644,354.
7%
Convertible Promissory Notes:
Dalrymple
– August 2012
On
August 10, 2012 the Company entered into an agreement with an individual, Mr. Dalrymple, for the sale of $1,000,000
of unsecured Convertible Promissory Note. The Convertible Promissory Note balance together with all accrued interest thereon was
due and payable on August 10, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing
date. The Company recorded $310,723 as a debt discount, which will be amortized over the life of the note
.
There
is a remaining balance of $264,462 as of February 28, 2019.
Dalrymple
– October 2012
On
October 2, 2012 the Company entered into an agreement with an individual, Mr. Dalrymple, for the sale of $500,000 of
unsecured Convertible Promissory Note. This Convertible Promissory Note balance together with all accrued interest thereon was
due and payable on October 2, 2017and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing
date. The Company recorded $137,583 as a debt discount, which will be amortized over the life of the note
.
There
is a remaining balance of $133,178 as of February 28, 2019.
On January 30, 2017 the Company entered
into an agreement entitled First Amendment to Transaction Documents with five of seven secured creditors holding a security interest
in all of the Company’s assets except for its patents and other intellectual properties. These creditors are the seven listed
above under Convertible Debt and include the following: Kenmont Capital Partners, LPD Investments, Guenther, Dresner, Lempert
and Abdou and Abdou. All of the creditors entered into the January 30, 2017 agreement with the exception of Mr. Abdou and Mr.
Abdou. The original agreement dated May 7, 2013 provided that if at least 75% of the stock issuable upon conversion of the convertible
notes votes to amend the agreement and/or waive any conditions or defaults, then any such amendments or waivers shall be binding
on all secured creditors. The five secured creditors signing the amendment total in excess of 95% of the issuable stock upon conversion
and, therefore the agreement is binding on all seven of the secured creditors. The agreement provided that all accrued and unpaid
interest will be added to the principal amount. The amended note provided for no interest from November 1, 2016 to February 14,
2018, the date at which the 1-for-7 reverse stock split became effective at which time 80% of the total debt including accrued
interest was converted into shares of common stock and a new five year 5% per annum convertible note was issued for the remainder.
The new amended and restated senior convertible notes have a maturity date of January 30, 2022. The five creditors and the Company
entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment to Transaction Documents on April
8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7 reverse stock split, which was completed
on February 14, 2018. The amended and restated senior convertible notes also require the Company to make a “Required Cash
Payment” as defined in the agreement if the Company receives at least $4,000,000 in aggregate gross proceeds from the sale
of equity securities (including securities convertible into equity securities) of the Company in one or a series of related transactions.
The Required Cash Payment is equal to the current outstanding balance of the notes, which was $1,149,007 at February 28, 2019,
plus any outstanding accrued interest.
NOTE
6 – RELATED PARTIES TRANSACTIONS
Breslow
Note
On
January 24, 2017 the Company entered into a Debt Refinancing Agreement with Mr. Breslow, a former Director of the Company. Pursuant
to the agreement, both Mr. Breslow and the Company acknowledged that total debt owed to Mr. Breslow was $23,872,614 including
$8,890,574 of accrued interest. Mr. Breslow agreed to cancel and forgive all interest due, waive all events of default and sign
a new five-year convertible note in the amount of $14,982,041 providing for no interest for six months and interest of 5% per
annum thereafter payable monthly in arrears. The note also provides various default provisions. In accordance with the agreement,
on February 14, 2018, the effective date of the 1-for-7 reverse stock split, $11,982,041 of the note was converted into 7,403,705
shares of common stock and the then accrued interest of $9,388,338 was forgiven. A new $3,000,000 five-year note representing
the remaining balance was entered into. The note bears interest at a rate of 5% per annum payable monthly in arrears.
Kopple
Note
At
February 28, 2019, the balance in Notes Payable and accrued interest-related party, current of $6,026,087, includes $3,268,081
plus accrued interest of $2,438,765 to Mr. Kopple (a former Board member), a 10% shareholder. Related Parties Transactions also
includes $82,000 of unsecured notes payable plus accrued interest of $48,289 to Melvin Gagerman, our CEO, pursuant to a demand
note entered into on April 5, 2014. At February 28, 2019, the balance in Convertible note payable and accrued interest-related
party, includes $2,000,000 of unsecured convertible notes payable plus accrued interest of $1,621,944 and an unsecured convertible
note of $20,000 plus accrued interest of $2,410 to Mr. Kopple.
NOTE
7 – ACCRUED EXPENSES
Accrued
expenses at February 28, 2019 and February 28, 2018 consisted of the following:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Accrued payroll and related expenses
|
|
$
|
2,732,019
|
|
|
$
|
2,775,312
|
|
Accrued interest
|
|
|
538,644
|
|
|
|
401,323
|
|
Other
|
|
|
112,706
|
|
|
|
35,000
|
|
Total
|
|
$
|
3,383,369
|
|
|
$
|
3,211,635
|
|
Accrued
payroll and related expenses consist of salaries and vacation time accrued but not paid to employees due to our lack of financial
resources.
NOTE
8 – COMMITMENTS & CONTINGENCIES
Leases
Our
facilities consist of approximately 20,000 rented square feet in Stanton, California and a storage facility located in Santa Clarita,
California. The Stanton facility is used for small quantity assembly and testing using components that are produced by various
suppliers as well as for general offices, engineering and warehousing. The rent for the Stanton facility is $10,000 per month
and the rent on the storage facility is $5,000 per month. The Company also rents temporary space on a month-to-month basis. The
Stanton and Santa Clarita facilities are short-term leases and are not sufficient to support the expected future operations and
the Company is planning to eventually look for a new facility to be used for limited production, testing, engineering, warehousing
as well as support staff.
Joint
Venture
In
March 2017 the Company entered into a joint venture with a Chinese partner to form Jiangsu Shengfeng Mobile Power Technology Co.,
Ltd. (“Jiangsu Shengfeng”) to address the Chinese market. Under the Jiangsu Shengfeng joint venture agreement, Aura
owns 49% of the venture and our Chinese partner owns 51%. The Chinese partner is to contribute approximately $9.25 million to
the venture –– principally in the form of facilities and equipment as wells as approximately $500,000 in cash. The
Company contributed to the venture in the form of $250,000 in cash as well as a limited license to the joint venture to manufacture,
sell and service the AuraGen
®
products within China. The limited license sold to the Jiangsu Shengfeng joint venture,
however, does not permit Jiangsu Shengfeng 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. Jiangsu Shengfeng’s
board of directors consists of three members appointed by the Company and three appointed by our Chinese partner; Jiangsu Shengfeng’s
CEO is appointed by our Chinese partner while its CFO and director for quality assurance and control are appointed by Aura.
In
addition, the Chinese company invested $2,000,000 in Aura at $1.40 per share for a total of 1,428,571 shares of common stock and
is required to purchase a minimum of $1,250,000 of product form the Company supported by letters of credit for distribution until
their factory is built, equipment installed, and staff hired and properly trained by Aura personnel. Aura has also committed to
supply personnel for six months at no cost other than to be reimbursed for travel, room and board. This commitment has been fulfilled
and Aura is under no further obligation to supply personnel at no cost. The agreement was subject to the approval of the Chinese
Government which was received in April 2017.
Contingencies
We
are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have
not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these
claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the
loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is
subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more
of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s
consolidated 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. The Company believes that this award does not reflect the amount owed which is significantly lower and is exploring
all its options and available remedies and is working toward an offer to settle this matter.
The
Company and the Company’s Chief Executive Officer, Melvin Gagerman, are among several defendants named in a lawsuit filed
by two secured creditors demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. In January
2017, the Company entered into an agreement with all secured creditors other than the two plaintiffs. However, because secured
creditors holding in excess of 97% of the issuable stock upon conversion have executed the agreement, the agreement is binding
on all of the secured creditors, including the two plaintiffs. That agreement, among other provisions, waives all past events
of default. It is the Company’s position that the two plaintiffs are not entitled to any payment or other relief at this
time and therefore that they have no valid claim against the Company or Mr. Gagerman. In March 2017, plaintiffs moved for partial
summary adjudication against the Company and Mr. Gagerman; however, the Court denied plaintiff’s motion. Thereafter, the
Court sustained demurrers by Mr. Gagerman and the Company; as a result of these successful demurrers, in February, /2017. Mr.
Gagerman was dismissed from the suit altogether and all claims against the Company but one have been dismissed by the Court as
well. In September 2018 the court entered a judgement of approximately $235,000 in favor of the two secured creditors. The Company
has filed an appeal which is currently pending.
The
Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $9 million
and approximately 3.15 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017,
Mr. Kopple filed suit against the Company as well as against current director Mr. Diaz-Verson and former directors Mr. Breslow
and Mr. Howsmon, as well as Mr. Gagerman, the current CEO (not a director) in connection with these allegations. In 2018, the
Court sustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers,
all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses
in these matters, the Company is currently in settlement discussions with Mr. Kopple. If the settlement negotiation is unsuccessful,
the Company intends to vigorously defend against these claims. See “Liquidity and Capital Resources” in “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this
Annual Report on Form 10-K for additional information regarding the transactions under dispute with Mr. Kopple.
In
April 2018, the Company filed suit against its former counsel, Kilpatrick Townsend &Stockton LLP relating to various acts
of malpractice and breach of fiduciary duty committed by the firm in connection with its representation of Aura. In June 2018,
Kilpatrick Townsend &Stockton LLP filed a cross-complaint against the Company claiming approximately $400,000 in allegedly
unpaid legal fees. The Company has reached a settlement agreement with Kilpatrick Townsend & Stockton LLP on January 11, 2019
which released the claims of all parties and ended all litigation between the parties.
In
February 2018, the Company failed to issue approximately 2.3 million shares of stock contractually owed to BetterSea, LLC (“BetterSea”),
which is wholly owned by Mr. Zvi “Harry” Kurtzman. Mr. Kurtzman then proceeded to sue the Company for failing to issue
the required stock to BetterSea LLC. The required stock was then issued in the name of Zvi Kurtzman on August 15, 2018, along
with an additional 5,108,291 shares (approximately 12% of the then outstanding shares of the Company) for not having issued the
shares quickly enough and for the fact that the price of the stock had decreased. The Company also paid $20,000 in legal fees
on behalf of Mr. Kurtzman related to this lawsuit.
On
April 8, 2019, a complaint (the “Action”) was filed in the Court of Chancery in the State of Delaware (“Court”)
against the Company by Cipora Lavut, Robert Lempert, David Mann, Peter Dalrymple and Zvi (Harry) Kurtzman, stockholders of the
Company, alleging that stockholder consents removing Ron Buschur, Si Ryong Yu and William Anderson from the Board of Directors
and appointing Lavut, Mann and Lempert were valid and effective (the “Consents”). The Consents were delivered by Mr.
Kurtzman shortly after the Company advised Mr. Kurtzman that the Company would not renew a consulting agreement with BetterSea
LLC, a company controlled by Harry Kurtzman.
On
April 16, 2019, Mr. Dalrymple revoked his approval of the Consents and requested to be removed as a plaintiff in the Action, which
was granted by the Court on April 24, 2019. Subsequently, another stockholder also revoked his approval of the Consents. Pursuant
to its counterclaim filed with the Court, the Company denies that the Consents are valid as they were not executed by stockholders
representing the requisite number of shares held of record to effectuate the actions in the Consents, they fail to satisfy the
requirements of the Company’s Certificate of Incorporation, Bylaws and the Delaware General Corporation Law and the plaintiff’s
claims are barred by the doctrine of unclean hands. On April 18, 2019, the Court issued a Status Quo Order providing that the
Board of Directors will consist of the current incumbent directors, Si Ryong Yu, Ronald Buschur, William Anderson, Gary Douglas
and Salvador Diaz-Version, Jr., pending further decision by the Court, that Cipora Lavut, Robert Lempert, and David Mann are not
members of the Board, pending further order of the court, and that the current Board may not take certain actions outside the
ordinary course of business without notice to the plaintiffs. On May 15, 2019, the plaintiffs filed another action in Court requesting
the Company to hold an annual stockholder meeting. On May 20, 2019, the Company filed a letter with the Court requesting the Court
to lift the Status Quo Order in light of actions taken by plaintiffs. The Company advised the Court that it was willing to hold
an annual meeting as soon as reasonably practicable, but it was prevented from doing so by the Status Quo Order issued at plaintiffs’
request. On May 24, 2019, the Court revised the Status Quo Order, deleting a provision that prevented the Company from taking
action that required a Board vote without prior notice and another provision that prevented the Board from taking action that
could result in any changes to the members or size of the Board without prior notice. The Court also reduced the time of notice
for certain actions related to the Company’s debt. The remaining provisions of the Status Quo Order remain in place. On
June 4, 2019, the Company announced that it will hold an annual stockholder meeting on August 26, 2019. A hearing on the validity
of the Consents is scheduled for June 28, 2019.
NOTE
9 – STOCKHOLDERS’ DEFICIT
Common
Stock
At
February 28, 2019 and February 28, 2018, we had 150,000,000 shares of $0.0001 par value common stock authorized for issuance.
During the year ended February 28, 2019 the Company issued:
|
●
|
2,814,063
shares of common stock for $900,500,
|
|
●
|
5,108,291
shares of common stock in settlement valued at $1,992,250,
|
|
●
|
2,256,444
shares of common stock for prior year stock to be issued valued at $2,280,964,
|
|
●
|
1,312,500
shares of common stock for debt settlement of $420,000, and
|
|
●
|
218,750
shares of common stock in settlement of $108,430 of accounts payable.
|
During
the year ended February 28, 2018 the Company issued:
|
●
|
1,428,572
shares of common stock for $2,000,000,
|
|
●
|
19,963,767
shares of common stock in settlement valued at $18,469,574,
|
|
●
|
928,572
shares of common stock for services valued at $885,000 at the market value on the issuance
dates
|
|
●
|
2,653,061
shares of common stock for a subscription receivable of $1,300,000, and
|
|
●
|
178,571
shares of common stock in settlement of $175,000 of accounts payable.
|
Subscription
receivable at February 28, 2018, consisted of a $1.3 million receivable for 2,653,061 shares of the Company’s common stock from
a greater than 20% shareholder, Elimelech Lowy. Per the terms of the settlement agreement with Mr. Lowy, as soon as the Company
shareholders approved the -1-for-7 reverse stock split and elected a new Board of Directors, Mr. Lowy was to provide the Company
with the additional $1.3 million. The shareholders approved the reverse split and elected a new Board of Directors on January
11, 2018. While the terms of the agreement called for Mr, Lowy to provide the Company with the $1.3 million by February 28, 2018,
the first payment was not received until April 27, 2018, and the balance was not paid until December 2018. During fiscal 2019
the company received $1,225,000 in cash from Mr. Lowy with the balance of $75,000 being applied through the assumption of the
B&H note by Yakov Lowy, a relative of Elimelech Lowy. While Mr. Lowy was in default of the agreement, no action was taken
by the Company. The Company issued to Mr. Lowy 2,653,061 shares of common stock on February 28, 2019.
In
February 2018, the Company failed to issue approximately 2.3 million shares of stock contractually owed to BetterSea, LLC (“BetterSea”),
which is wholly owned by Mr. Zvi “Harry” Kurtzman. Mr. Kurtzman then proceeded to sue the Company for failing to issue
the required stock to BetterSea LLC. The required stock was then issued in the name of Zvi Kurtzman on August 15, 2018, along
with an additional 5,108,291 shares (approximately 12% of the then outstanding shares of the Company) for not having issued the
shares quickly enough and for the fact that the price of the stock had decreased.
Employee
Stock Options
The
2006 Employee Stock Option Plan
In
September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan, subject to shareholder approval, which was
obtained at a special shareholders meeting in 2009. Under the 2006 Plan, the Company may grant options for up to the greater of
Three Million (3,000,000) or 10% of the number of shares of the Common Stock of Aura from time to time outstanding. The shares
of Common Stock available under the 2006 Plan was increased to the greater of Ten Million shares (10,000,000) or 15% of the number
of shares of Common Stock of Aura from time to time outstanding at the October 2011 shareholders meeting. The exercise price of
each option shall be at least equal to the fair market value of such shares on the date of grant. The term of the options may
not be greater than ten years, and they typically vest over a three-year period. The plan expired in 2016 and no options have
been issued since that time.
The
2011 Director and Executive Officers Stock Option Plan
In
October 2011 shareholders approved the 2011 Director and Executive Officers Stock Option Plan at the Company’s annual meeting.
Under the 2011 Plan, the Company may grant options for up to 15% of the number of shares of Common Stock of the Company from time
to time outstanding. Pursuant to this plan, the Board or a committee of the Board may grant an option to any person who is elected
or appointed a director or executive officer of the Company. The exercise price of each option shall be at least equal to the
fair market value of such shares on the date of grant. The term of the options may not be greater than five years. The plan will
expire in 2021.
Activity
in the plans is as follows:
|
|
2006 Plan
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Number of
Options
|
|
Outstanding, February 28, 2018
|
|
$
|
1.40
|
|
|
$
|
0.00
|
|
|
|
1,032,000
|
|
Cancelled
|
|
$
|
1.40
|
|
|
|
-
|
|
|
|
(94,751
|
)
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, February 28, 2019
|
|
$
|
1.40
|
|
|
$
|
0.00
|
|
|
|
937,429
|
|
The
exercise prices for the options outstanding at February 28, 2019, and information relating to these options is as follows:
Options Outstanding
|
|
Exercisable Options
|
Range
of Exercise Price
|
|
Number
|
|
|
Weighted
Average
Remaining
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
$1.40
|
|
|
937,429
|
|
|
|
1.00 year
|
|
|
$
|
1.40
|
|
|
1.00 year
|
|
|
937,429
|
|
|
$
|
1.40
|
|
Warrants
Activity
in issued and outstanding warrants is as follows:
|
|
Number
of Shares
|
|
|
Exercise
Prices
|
|
Outstanding, February 28, 2018
|
|
|
8,743,505
|
|
|
$
|
0.70-$1.40
|
|
Granted
|
|
|
767,857
|
|
|
$
|
1.40
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
|
|
|
|
|
|
Outstanding, February 28, 2019
|
|
|
9,511,362
|
|
|
$
|
0.70-$1.40
|
|
The
exercise prices for the warrants outstanding at February 28, 2019, and information relating to these warrants is as follows:
Range
of Exercise
Prices
|
|
Stock
Warrants
Outstanding
|
|
|
Stock
Warrants
Exercisable
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Weighted-
Average
Exercise
Price of
Warrants
Outstanding
|
|
|
Weighted-
Average
Exercise
Price of
Warrants
Exercisable
|
|
|
Intrinsic
Value
|
|
$
|
1.40
|
|
|
767,857
|
|
|
|
767,857
|
|
|
49 months
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
|
$
|
0.00
|
|
$
|
1.40
|
|
|
5,154,646
|
|
|
|
5,154,646
|
|
|
48 months
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
|
$
|
0.00
|
|
$
|
0.70-$1.40
|
|
|
2,783,002
|
|
|
|
2,783,002
|
|
|
25 months
|
|
$
|
1.20
|
|
|
$
|
1.20
|
|
|
$
|
0.00
|
|
$
|
1.40
|
|
|
154,666
|
|
|
|
154,666
|
|
|
24 months
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
|
$
|
0.00
|
|
$
|
1.40
|
|
|
651,191
|
|
|
|
651,191
|
|
|
11
months
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,511,362
|
|
|
|
9,511,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
10 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
During the years ended February 28, 2019 and February 28, 2018, the Company incurred losses of $4,456,401 and had income
of $1,700,649, respectively, and had negative cash flows from operating activities of $2,465,299 and $2,809,484, respectively.
If
the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements,
it may have to curtail its business sharply or cease business altogether.
Substantial
additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing
and business development activities. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient
cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately
to attain profitability.
During
the next twelve months we intend to continue to attempt to restart the Company’s operations and focus on the sale of our
AuraGen
®
products both domestically and internationally and to hire a new management team. In addition, we plan
to locate to a new facility for operations, as well as, rebuild the engineering and sales teams as well as utilizing third party
contractors to support the operation. We anticipate being able to obtain new sources of funding to support these actions in the
upcoming fiscal year.
NOTE
11 – INCOME TAXES
The
Company did not record any income tax expense due to the net loss during the year ended February 28, 2019 and the income recorded
during the year ended February 28, 2018 that was offset by net operating loss carryforwards. The actual tax benefit differs from
the expected tax benefit computed by applying the combined United States corporate tax rate and the State of California tax rate
of 6% to loss before income taxes as follows for the years ended February 28, 2019 and February 28, 2018:
|
|
2019
|
|
|
2018
|
|
Current:
|
|
$
|
|
|
|
$
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
Total Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
$
|
800
|
|
|
$
|
800
|
|
The
provision for income tax is included with other expense in the accompanying consolidated financial statements.
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Expected tax benefit
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State income taxes, net of federal benefit
|
|
|
6.0
|
|
|
|
6.0
|
|
Changes in valuation allowance
|
|
|
(27.0
|
)
|
|
|
(27.0
|
)
|
Total
|
|
|
-%
|
|
|
|
-
|
%
|
The
following table summarizes the significant components of our deferred tax asset at February 28, 2019 and February 28, 2018:
|
|
2019
|
|
|
2018
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Primarily relating to net operating loss carry-forwards, but also reserves for inventory and accounts receivable, stock-based compensation and other
|
|
|
53,000,000
|
|
|
|
66,000,000
|
|
Valuation allowance
|
|
|
(53,000,000
|
)
|
|
|
(66,000,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
We
recorded an allowance of 100% for deferred tax assets due to the uncertainty of its realization.
At
February 28, 2019, we had operating loss carry-forwards of approximately $253,000,000 for federal purposes, which expire through
2039, and $43,000,000 for state purposes, which expire through 2039.
We
follow FASB ASC 740 related to uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income
tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. At
February 28, 2019 and February 28, 2018, we have no unrecognized tax benefits.
Our
continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of February
28, 2019, and February 28, 2018, we have no accrued interest and penalties related to uncertain tax positions.
We
are subject to taxation in the U.S. and California. Our tax years for 2013 and forward are subject to examination by our tax authorities.
We are not currently under examination by any tax authority.
The
Company has failed to file its’ California tax returns for the years ended February 28, 2015 thru February 28, 2018 due
to its’ inability to pay the minimum franchise tax payment.
NOTE
12 – EMPLOYEE BENEFIT PLANS
The
Company has previously sponsored two employee benefit plans: The Employee Stock Ownership Plan (the “ESOP”) and a 401(k)
plan.
The
ESOP was qualified discretionary employee stock ownership plan that covers substantially all employees. We have not made any contributions
to the ESOP since fiscal year 2011 and there are no assets in the plan and the Company does not currently intent to restart the
plan.
We
sponsored a voluntary, defined contribution 401(k) plan. The plan provided for salary reduction contributions by employees and
matching contributions by us of 100% of the first 4% of the employees’ pre-tax contributions. The last matching contributions
made to the plan were $31,766 in fiscal year 2015 and no contributions have been made since. The Company does not manage or hold
any of the plan assets. The Company does not currently intend to fund this plan.
The
Company has failed to file the forms 5500 related to the 401(k) plan due to its’ inability to pay the associated fees.