UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



Form 10-K/A

(Amendment No. 3)



(Mark One)

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



For the fiscal year ended.................................................February
28, 2019



OR



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



For the transition period from..........................to.............................



Commission
file number........0-17249



AURA SYSTEMS, INC.(Exact name of registrant as specified in its charter)



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



10541 Ashdale St.,

Stanton, CA 90680

(Address of principal executive offices,
zip code)



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



Name of each exchange on which registered:
NoneSecurities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act: Common Stock



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ̈ No ☒



Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

Yes ☐ No ☒



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

Yes ☐ No ☒



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐



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



|Large accelerated filer  ☐ | Accelerated filer ☐         
|-------------------------- | ----------------------------
|Non-accelerated filer   ☐  | Smaller reporting company  ☒
|                           | Emerging growth company ☐   



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



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒



On October 9, 2019 the aggregate market
value of the voting stock held by non-affiliates of the Registrant was $13,412,759. The aggregate market value has been computed
by reference to the last sale price of the stock as quoted on the Pink Sheets quotation system on October 9, 2019. For purposes
of this calculation, voting stock held by officers, directors, and affiliates has been excluded.



On October 9, 2019, the Registrant had 54,181,786 shares of
common stock outstanding.



Documents incorporated by reference: None.




















TABLE OF CONTENTS



|PART I   |                                                                                                                      |   
|-------- | -------------------------------------------------------------------------------------------------------------------- | --
|         | ITEM 1. BUSINESS                                                                                                     | 3 
|         | ITEM 1A. RISK FACTORS                                                                                                | 12
|         | ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                                   | 18
|         | ITEM 2. PROPERTIES                                                                                                   | 18
|         | ITEM 3. LEGAL PROCEEDINGS                                                                                            | 18
|         | ITEM 4. MINE SAFETY DISCLOSURES                                                                                      | 19
|         |                                                                                                                      |   
|PART II  |                                                                                                                      |   
|         | ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 20
|         | ITEM 6. SELECTED FINANCIAL DATA                                                                                      | 21
|         | ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 21
|         | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                  | 25
|         | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  | 26
|         | ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                        | 26
|         | ITEM 9A.  CONTROLS AND PROCEDURES                                                                                    | 26
|         | ITEM 9B.  OTHER INFORMATION                                                                                          | 27
|         |                                                                                                                      |   
|PART III |                                                                                                                      |   
|         | ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                                     | 28
|         | ITEM 11. EXECUTIVE COMPENSATION                                                                                      | 33
|         | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS              | 34
|         | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                   | 36
|         | ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                     | 37
|         |                                                                                                                      |   
|PART IV  |                                                                                                                      |   
|         | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                     | 38
|         | ITEM 16. FORM 10-K SUMMARY                                                                                           | 38
|         | SIGNATURES                                                                                                           | 40



i







EXPLANATORY NOTE



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 in his
stead.  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. Aura refused to recognize the legal effectiveness of the consents and on April 8,
2019 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 Mr. 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.



The Company’s initial filing of its
Annual Report on Form 10-K for the fiscal year ended February 28, 2019 occurred on June 13, 2019. The Company filed Amendment No. 1
to its Annual Report on Form 10-K for the fiscal year ended February 28, 2019, also on June 13, 2019, to include XBRL Interactive
Data exhibits which were omitted due to a technical problem in the submission of the original Form 10-K. The Company’s initial
filing of its Annual Report on Form 10-K for the fiscal year ended February 28, 2019 as well as Amendment 1 to that report were
both filed prior to the Court order confirming the removal of Mssrs. Buschur, Yu and Anderson as directors of the Company and prior
to the termination of Melvin Gagerman as the Company’s Chief Executive Officer and Chief Financial Officer. Subsequent to
the filing of the initial Annual Report on Form 10-K to the fiscal year ended February 28, 2019 and Amendment No. 1 thereto, the
Company’s new management, in consultation with the Audit Committee of our Board of Directors, concluded that there was a
material weakness in internal control that existed as of February 28, 2019 and continued through June 2019, which resulted in the
misstatements explained below. A “material weakness” is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim
financial statements would not be prevented or detected on a timely basis.



Specifically, current management identified
that certain former individuals associated with the Company sought to misapply certain stock issuances and otherwise mischaracterize
certain 2019 financial results, all with the intent to manipulate the shareholder proxy contest commenced in March 2019 which sought
to remove Mssrs. Buschur, Anderson and Yu from the Company’s Board of Directors. These activities resulted in certain mischaracterizations
in the descriptions of various events, the omission of certain disclosures relating to certain named executive officers, the overstatement
of certain losses sustained by the Company and certain inaccuracies in the reported number of the Company’s outstanding shares
(the “Misstatements”). The Company has concluded that the financial impact of the Misstatements are not material to
any of its previously issued financial statements and that the correction of such Misstatements are not material to either the
three, six or nine-month periods ended May 31, August 31 or November 30, 2019, respectively.



The Company is filing this Amendment No.
2 to Annual Report on Form 10-K/A (this “Amendment”) for the purpose of restating our audited consolidated financial
statements and related disclosures for the fiscal year ended February 28, 2019. As required by Rule 12b-15 under the Securities
Exchange Act of 1934, the Company’s principal executive officer and principal financial officer are providing new currently
dated certifications. In addition, the Company is filing a new consent from KSP Inc. Accordingly, this Amendment amends Item 15.
“Exhibits, Financial Statement Schedules” in the Original 10-K to reflect the filing of the new certifications and
consent.





1







SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS



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



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



| | ● | Our ability to generate positive cash flow from operations;
| | - | -----------------------------------------------------------
| |   |                                                            

| | ● | Our ability to obtain additional financing to fund our
operations;
| | - | ------------------------------------------------------------------
| |   |                                                                   

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

| | ● | The impact of unfavorable results of legal proceedings;
| | - | -------------------------------------------------------
| |   |                                                        

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

| | ● | Our ability to compete effectively against competitors
offering different technologies;
| | - | ---------------------------------------------------------------------------------------
| |   |                                                                                        

| | ● | Our business development and operating development;
| | - | ---------------------------------------------------
| |   |                                                    

| | ● | Our expectations of growth in demand for our products;
and
| | - | ----------------------------------------------------------
| |   |                                                           

| | ● | Other risks described under the heading “Risk
Factors” in Part I, Item 1A of this Annual Report on Form 10-K/A
| | - | --------------------------------------------------------------------------------------------------------------







We do not intend
to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except to
the extent required by law. You should interpret all subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf as being expressly qualified by the cautionary statements in this Report. As a result, you should
not place undue reliance on these forward-looking statements.



References in this
Report to “we”, “us”, “the Company,” “Aura” or “Aura Systems” means
Aura Systems, Inc. As used herein, reference to “fiscal 2020” refers to the fiscal year ended February 29, 2020, reference
to “fiscal 2019” refers to the fiscal year ended February 28, 2019, reference to “fiscal 2018” refers to
the fiscal year ended February 28, 2018, reference to “fiscal 2017” refers to the fiscal year ended February 28, 2017,
reference to “fiscal 2016” refers to the fiscal year ended February 29, 2016, reference to “fiscal 2015”
refers to the fiscal year ended February 28, 2015, and reference to “fiscal 2014” refers to the fiscal year ended February
28, 2014.





2







PART I



ITEM 1. BUSINESS



Introduction



Aura Systems, Inc., is a Delaware corporation
that was founded in 1987. The Company designs, assembles, tests and sells our proprietary and patented axial flux induction machine
known as the AuraGen®for industrial and commercial applications and the VIPER for military applications (collectively
referred to as the “AuraGen”).



Our patented AuraGen®system
–– when applied as a generator –– uses an existing engine (of a vehicle or any other prime mover) to create
mechanical energy which is then converted into electric power by our system. Our control system is used to deliver such power to
the user. When used as an electric motor, our system delivers mechanical power to drive mechanical devices. During the first half
of fiscal 2016, the Company significantly reduced operations due to lack of financial resources. During the second half of fiscal
2016, the Company’s operations were further disrupted when the Company was forced to move from its facilities in Redondo
Beach, California to a smaller facility in Stanton, California. During fiscal 2017, the Company curtailed much of its engineering,
manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations. During fiscal 2018, the
Company successfully restructured in excess of $30 million of debt and held its first stockholder meeting since 2011. During fiscal
2019, the Company continued to focus on seeking new sources of financing and utilized a contract manufacturer to produce some initial
products. Since July 2019, the Company has focused its efforts on the sales and manufacturing of its products as well as rebuilding
relationships with its vendors and suppliers. Though these efforts, since July 1, 2019, the Company has shipping more than fifty
units and has built a backlog of approximately $450,000.



Traditional induction machines represent
a radial flux design and are the workhorse of industry due to their robustness, attractive cost, and easy control. However, radial
flux machines are also relatively heavy and bulky. Axial flux induction machines (such as the AuraGen®), on the
other hand, have all of the advantages of radial flux machines, but with the advantage of higher energy density. This results in
axial flux machines being smaller and lighter yet with equivalent performance. Unlike permanent magnet (“PM”) machines,
induction machines do not use any permanent magnets and therefore the controller can change the magnetic (B) fields since generally
the magnetic (B) field is proportionate to the voltage divided by the frequency (V/f). It is generally accepted that for PM machines,
as machine size grows, the magnetic losses increase proportionately, and partial load efficiency drops. On the other hand, with
induction machines, as the machine size grows, magnetic losses do not necessarily grow. Induction drives could offer an advantage
when high-performance is desired. The peak efficiency of an induction drive will be somewhat lower than with PM machines, but average
efficiency may actually increase.



The history of electric motors reveals
that the earliest machines were in fact axial flux machines. However, after the first radial flux machines were demonstrated in
the early 1900’s, such machines were accepted as 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 maintaining a uniform air gap and (v) providing a laminated rotor
that can stand the large centrifugal forces. Technological developments by Aura show that all of the historical objections for
axial flux machines can be addressed with developments in the design of such machines, as well as, the design of the proper manufacturing
processes and tooling.



3







The issue of the strong axial magnetic
attraction force between the stator and the rotor was addressed by Aura’s patented approach of using a topology of two stators
and a rotor sandwiched between them. This has been disclosed in Aura’s U.S. Patent 5,734,217 (March 1998), which expired
in March 2018, and U.S. Patent 6,157,175 (Dec. 2000). In addition to other benefits, the topology is such that the axial forces
on the bearings are very small and negligible.



The Company has also developed a cast rotor
for the axial flux machine as described in U.S. Patents 5,734,217 and 6,157,175. This rotor does not require any laminates and
provides the structural integrity to withstand very large centrifugal forces, while at the same time provides the proper electric
and magnetic properties.



The AuraGen®system
is composed of three primary subsystems (i) the patented axial flux alternator, (ii) the electronic control unit (“ECU”)
and (iii) mounting kit that is a mechanical interface between the alternator and the prime mover. The architecture of our ECU is
designed to separate the power generation from the power user, thus creating a flexible system that can support multi voltages
simultaneously. The system architecture is based on having a direct current (“DC”) power bus that is used to excite
the alternator and also to collect energy from the alternator. The user loads are supported from the power bus and not directly
from the alternator. This immediately leads to a load following design where the demand on the alternator at any moment in time
is equal to the demanded user load (up to the maximum alternator power capabilities). In addition, the output power is constructed
from the power bus with either a PWM based inverter for alternating current (“AC”) output, and/or, a unique patented
bi-direction power supply (“BDPS”) that acts as a DC to DC converter to provide different DC voltages as an output.
The BDPS provides the capability of adding power to the bus from a DC source such as batteries whenever sudden spikes or demands
occur. The BDPS also provides the seamless transition to maintain the power bus when the prime mover is turned off (batteries are
used to support the power bus).



After a lengthy development period, the
Company began commercializing the AuraGen® in late 1999 and early 2000. Our first commercial product was a
5,000-watt 120/240V AC machine, in 2001; we subsequently added an 8,000-watt configuration and also introduced the BDPS that allowed
us to provide simultaneously an AC/DC solution. In fiscal 2008, the Company introduced a system that generates up to 16,000-watts
of continuous power by combining two 8,000 watts’ systems (dual system). Today, the Company’s primary product line
consists of 5,000-watt, 10,000-watt and 20,000-watt systems, each of which is offered in AC, AC/DC and BDPS configurations.



Starting in 2017, the Company began reexamining
its strategic approach to the market and has identified key areas upon which to initially focus as the Company restarts operations.
The markets available for AuraGen®products are both vertical and horizontal in nature and cover numerous industries
and applications worldwide. As such, the Company has developed a strategy focused on existing markets for the AuraGen® products
as well as the formation of international joint ventures and other strategic partnerships to address local markets and needs. The
first such joint venture, Jiangsu Shengfeng Mobile Power Technology Co., Ltd. (“Jiangsu Shengfeng”), was entered into
during 2017 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 a total of 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 $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.



4







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. During fiscal 2019, the Company continued to address its financial
needs and began utilizing an outside contractor to manufacture the AuraGen®product. Utilizing contractors,
the Company shipped 13 units to customers during fiscal 2019. In July 2019, the Company began significantly increasing its engineering,
manufacturing and marketing activities. From July 1, 2019 through the date of this filing, we have shipped more than 50 units to
customers and have developed a backlog of orders for more than 70 units. For additional information regarding current orders held
by the Company, see Item 1 “Backlog” and Management’s Discussion and Analysis of Financial Condition and Results
of Operations” included elsewhere in this Annual Report on Form 10-K/A.



In March 2017, the Company signed a joint
venture agreement with a Chinese company to build, service and distribute AuraGen®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.



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, Mr. 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 Mr. 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.



The AuraGen®/VIPER



The AuraGen® is composed
of three basic subsystems. The first subsystem is the axial flux induction generator that is bolted to, and driven by, the vehicle’s
engine, PTO, or any other prime mover. The second subsystem is the ECU, which filters and conditions the electricity to provide
clean, steady voltages for both AC and DC power, and provides for variable speed applications as well as load following for increased
efficiency. The third subsystem consists of mounting brackets and supporting components for installation and integration of the
generator with the vehicle engine, PTO, or the prime mover.



The Company has power solutions for three
continuous power levels: (a) 5,000 watts; (b) 10,000 watts; (c) 20,000 watts via a single system.  All the AC power is pure
sine wave with total harmonic distortion of less than 2.1% and is available in 120 VAC and/or 230/240 VAC as well as 50/60
Hz and either single or three phases. In addition, the power generated on all models can be partitioned to provide simultaneous
AC and 14 or 28 VDC.  The AuraGen® power levels can be generated as the prime mover speed varies from
idle to maximum rated speed. The VIPER (the military version of the AuraGen®system) includes as an option
a complete power management system which (i) monitors in real time the batteries’ voltage and temperature, (ii) provides
a partition of the power between AC and DC simultaneously with the ability to be programmed from all AC to all DC, (iii) monitors
the RPM of the generator, (iv) monitors the temperatures of the generator and the ECU, (v) monitors the raw power generated, (vi)
monitors both the AC and DC loads as to voltage and current, (vii) provides programming of load prioritization and load shedding,
and (viii) monitors the voltage of the internal 400-800 VDC bus.



5







Mobile and Remote (not power grid connected) Power Industry



We believe that the mobile and remote power
generation market is large and growing. There are four basic market segments (i) military, (ii) stationary but remote commercial/industrial,
(iii) mobile commercial/industrial, and (iv) hybrid, electric and autonomous vehicles. The military market place is also divided
between mobile and stationary applications.



We believe that one of the fastest growing
segments in the military market place is On-Board-Exportable-Power (OBEP), which is electric power on vehicles that can be used
to support other than vehicle functions. The driver for the increased demand for on board power are numerous advance weapon systems
as well as increase in C4I functions (command, control, communication, computers and information). Currently, most on
board power is provided by Auxiliary Power Units (“APUs”) that are (i) large fuel users, (ii) bulky, (iii) heavy and
(iv) require constant maintenance. Militaries all over the world are seeking more efficient integrated power solutions for their
vehicles.



Similar to the military demands, the commercial
and industrial markets also require on board power to support modern computers, digital sensors and instruments as well as electrical
driven tools. Current automotive alternators cannot supply the existing demanded power and thus the common solution is the use
of APUs. These APUs can be environmentally unfriendly, substantial users of fuel, heavy, bulky and require constant maintenance
and scheduled service. Vehicles used in the telecommunications, utilities, public works, construction, catering, oil and gas industries,
emergency/rescue, and recreational vehicles rely heavily on mobile power for their daily work. Hybrid and electric vehicles by
their nature require significant amounts of on-board power to charge batteries as well as to operate electric motors.



The traditional available solutions for mobile and remote power
users are:



| | ● | Gensets (AKA APUs), Gensets are standalone power generation units that are not incorporated
into a vehicle and require external fuel, either gasoline or diesel, in order to generate electricity. Gensets (i) are generally
noisy and cumbersome to transport because of their weight and size, (ii) typically run at constant speed to generate 50 or 60 Hz
of AC power, (iii) must be operated at a significant part of the rated power to avoid wet staking, (iv) are significantly derated
in the presence of harmonics in the loads and (v) require significant scheduled maintenance and service. Genset technology has
been utilized since the 1950s.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | High-Output Alternators, High-output alternators are traditionally
found in trucks and commercial vehicles and the vehicle’s engine is used as the prime mover. All high-output alternators
provide their rated power at very high RPM and significantly less power at lower RPM. In addition, high-output alternators are
generally only 30% efficient at the low RPM range and increase to 50% efficiency at the high end of the RPM range. The power generated
by high-output alternators is 12 or 24 Volt DC and an inverter is required if AC power is needed. In addition, due to the low power
output at low RPMs, in order to get significant power, a throttle controller is used to speed-up the engine.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Inverters, Inverters are devices that invert DC to AC. Inverters as mobile power generators
are traditionally used in low power requirements, typically less than 2,500 watts, and do not have the ability to recharge the
batteries that are traditionally used as the source of power. Thus, typical inverter users require other means to recharge the
used batteries such as “shore-power” or gensets. More recently dynamic inverters became available. Dynamic inverters
use power from the alternator to augment power from the batteries and are able to achieve power levels in excess of 6,000 watts.
Dynamic inverters introduce significant stresses on both the batteries and alternators, which causes significant life shortening
for both. When the inverter is turned on, the alternator is switched off from the vehicle battery and tied into a transformer that
uses electronic controls to change the DC alternator inputs to AC inverter output. A separate transformer winding provides battery
charging so that fully regulated 120 Volt AC and 12 Volt DC power is available as long as the engine is running at high enough
RPM to provide power for the load and the battery charging. All dynamic inverters require a high-output alternator to be able to
output significant AC power. As is often the case, the limiting factor is the high-output alternator. In order to get stable output,
a very accurate throttle controller is also needed to maintain steady speed on the engine.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6







| | ● | Permanent-Magnet Alternators. Recently a number of companies have introduced alternators
using exotic permanent magnets. These alternators tend to have higher power generation capabilities than regular alternators at
lower engine RPM. In order to be practical in an under-the–hood environment (200oF) active cooling must be added,
since the magnets are demagnetized at approximately 176oF. There are other issues that require an active control system
that will add and subtract magnetic field strength as the engine RPM increases. Over 95% of the magnets used for electric machines
comes from China and, beginning in 2011, the price of these magnets has sky-rocketed. In addition, China started limiting export
of the magnets in order to have sufficient supplies for local consumption.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | 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. The most widely deployed fuel cells cost about $2,000 per kilowatt.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Batteries. Batteries convert stored chemical energy to electrical power.
| | - | ------------------------------------------------------------------------



Competition



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



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 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 divides essentially 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 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.



High Output Alternators-
There are many High Output Alternator manufacturers. Some of the better known 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 $700-850 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 (“PM”)
alternators. -A number of companies have introduced alternators using exotic NdFeB magnets (UQM technologies is one
of the better known). 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 expensive
and cumbersome active cooling since the magnets are demagnetized at approximately (176oF). To date, such machines have
been used mostly in wind-power generation applications.



7







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,
however, generally prohibitively expensive, and the most widely deployed fuel cells are estimated to cost significantly more
per kilowatt than alternative solutions.



Others-Symetron Technology
by Raser Inc. is sometimes mistaken for a new form of motor or generator. The Symetron technology is a variable frequency motor/generator
controller that uses numerous control schemes to optimize performance. The Symetron technology involves adaptive tuning to continuously
optimize motor and system efficiency for the speed and torque operating point.



The Symetron controller is a potential
competitor to variable speed motor controllers provided by such companies as of ABB, or Baldor-Electric Co.



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 patents.



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
considerable fuel every operating hour. In addition, the diesel solutions emit 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.



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 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®



We believe the AuraGen® system
to be a superior product due to its convenience, cost efficiency, fuel efficiency, reliability, flexibility in power output, quality
of the electricity generated, and its ability to provide the full power at variable speeds as well as provide load following architecture.



| | ● | Smaller Size and Weight. The AuraGen’s® patented breakthrough
design is more than 50% smaller and lighter as compared to traditional solutions of comparative output. This ultra-compact design
allows the AuraGen® to reside “under-the-hood” of most vehicles and to be powered by a vehicle’s
primary engine or power takeoff “PTO”. In comparison, traditional solutions are too large and bulky to be integrated
directly into most vehicles and, therefore, require their own independent power source.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Higher Efficiency. The AuraGen® power solution is also more efficient
than traditional solutions. due to the significant increase in efficiency of the AuraGen® design over conventional
designs Traditional alternators, for example, are at best 50% efficient and require approximately 1 gallon of fuel per each 7.6
kW-Hr. The AuraGen® system in comparison is approximately 80% efficient and requires approximately only 1 gallon
of fuel per each 12.16 kW-Hr. Thus, given a need for 10 kW of power, for example, the traditional solution will require approximately
1.3 gallons per hour of fuel while the AuraGen® solution will require only 0.83 gallons per hour for the same output.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8







The AuraGen®
solution is also a load-following solution that further increases efficiency. A load following solution is able to adjust the amount
of power output generated at any one moment to mirror the immediate demand. This is an important characteristic as power demands
generally fluctuate (sometimes dramatically). Traditional solutions, in comparison, are not load-following and simply provide power
at their maximum output rating at all times, irrespective of demand. By producing only that amount of power necessary to meet actual
demand, however, the AuraGen® becomes especially efficient whenever less than maximum power output is required.



| | ● | Variable Speed. The AuraGen® solution provides full power at near
idol. This means that, unlike most other traditional systems, the AuraGen® system’s ability to provide users
with full power is largely independent of the speed of the prime mover. The ability to operate at variable speed makes the Aura
solution very attractive when the speed of the prime mover varies and is unpredictable, such as in automotive applications. The
variable speed solution is a direct consequence of our system architecture where we separated the power generation from the power
delivery by the power bus.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Earth-Forward, Green Technology. The AuraGen® system is significantly
more environmentally-friendly than traditional generator and mobile power technology. Because of its extreme efficiency and resulting
small size, the AuraGen® system utilizes fewer resources to manufacture. Moreover, 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In applications, such as transport
refrigeration, use of the AuraGen® system eliminates the need for a separate auxiliary diesel engine to run the
refrigeration unit; because these auxiliary diesel engines are highly pollutive as to both emissions and noise, the AuraGen®
has the potential to meaningfully impact air and noise pollution levels in areas where it is employed.



| | ● | Durability; No Scheduled Maintenance. The AuraGen® is not sensitive
to temperature or altitude variations and generates the rated power at or near idle engine RPM. The AuraGen® also
does not require scheduled maintenance and is offered with a three-year warranty, compared to the typical one-year warranty available
for traditional solutions.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Targeted Markets



The Company has started to reexamine and
identify key markets upon which to initially focus as the Company plans to restart operations.



(i) One element of our business plan is
focused on electric transport refrigeration. The market is well understood and both social and economic forces are providing an
unprecedented opportunity to gain significant market share. Our immediate focus is on 20-k BTU/hr. midsize trucks and the 50-k
BTU/hr. trailers.



(ii) Another element of our business plan
is focused on our mobile power solution for military applications around the globe.



(iii) We also plan to seek joint venture
opportunities similar to the agreement we entered in China to explore other international opportunities.



Facilities, Manufacturing Process and Suppliers



During fiscal 2019, our facilities consisted
of approximately 20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita, California. The
Stanton facility is used for some assembly and testing of AuraGen®/VIPER systems and is rented on a month-to-month
basis. The rent for the Stanton facility is $10,000 per month and the storage facility is an additional $5,000 per month. Our current
Stanton facility is not sufficient to support the expected operations and the Company is planning to look for a new facility to
be used for limited production, testing, warehousing and engineering as well as needed office space for support staff. The Company
also rents temporary storage space on a month-to-month basis. Commencing in February 2019, the Company began renting approximately
300 square feet of office space in Irvine, California at a cost of $2,350 per month on a month-to-month basis. In July 2019, the
Company’s newly installed management ceased renting this office space.



9







Our Jiangsu Shengfeng joint venture, of
which the Company owns 49% and as further described in “Business—Introduction”, owns facilities of approximately
400,000 square feet, consisting of approximately 200,000 square feet of manufacturing space and 200,000 square feet of general
office and engineering space. The Jiangsu Shengfeng facilities are fully paid for and there is no monthly or annual rent associated
with these facilities. The Company is currently in default on its obligations to the joint venture by failing to deliver on a Purchase
order received in 2019 from the Joint Venture for approximately 100 systems, valued at approximately $1.25 million. Since assuming
control in June 2019, new management has been engaged in discussions with our joint venture partner in order to cure the default.



As the Company begun to increase 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 maintain an advantage over potential
competition. Our engineering, research and development costs for fiscal 2019 were approximately $500,000 compared to approximately
$100,000 in fiscal 2018.



We reduced research and development activities
in fiscal 2017 and fiscal 2018 due to a severe cash shortfall; however, in fiscal 2019 we started redesign work on our Electronic
Control Unit (“ECU”) to include state-of-the-art power electronics and processors. In September 2019 we successfully
tested and implemented this newly designed ECU which will begin to be delivered to customers during fiscal 2020.



We set an initial budget of approximately $750,000 for research
and development in fiscal 2020, dependent upon our ability to raise additional sources of funding. 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.



Patents and Intellectual Property



Our intellectual property portfolio consists of trademarks,
proprietary know-how, trade secrets, and patents.



In the area of electromagnetic technology,
we have developed numerous magnetic systems and designs that result in a significant increase of magnetic field density per unit
volume that can be converted into useful power energy or work. This increase in field density is a factor of three to four, which,
when incorporated into mechanical devices, could result in a significant reduction in size and cost of production for the same
performance.



The applications of these technological
advances are in machines used every day by industrial, commercial, and consumers. We have applied technology to numerous applications
in industrial machines, such as generators, motors, actuators, and linear motors.



We hold the following patents: Nos. 5,734,217;
6,157,175; 6,700,214; 6,700,802; 8,955,624; with expiration dates in 2018, 2020, 2024, 2024 and 2033 respectively.



At the end of fiscal 2013 and the first
quarter of fiscal 2014, we filed five new patent applications related to the AuraGen®. These new patent applications
are specifically designed to cover the (i) integration of the AuraGen® power solution with transport refrigeration,
(ii) the interface kit of the AuraGen® with prime movers, (iii) a water cooled AuraGen®solution
for situations where ventilation is not available, (iv) a unique cable system with safety protection to transfer high power between
two moving objects, and (v) a unique clamping of power electronic components to heat sink to ensure good thermal conductivity.



10







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 three full-time equivalent employees. Additionally, the Company engages independent contractors to support various areas of
the business. The independent contractors are used on an as-needed basis.



Significant Customers



As of June 13, 2019, the Company had no
significant customers other than an initial commitment of approximately $1.25 million to deliver AuraGen® systems
and components to our Chinese joint venture. As of the date of the filing of this Annual Report on Form 10-K/A, however, CBOL Corporation
of Chatsworth, California has become a significant customer.



Backlog



As of June 13, 2019, there were no significant
customers other than an initial order of AuraGen® systems and components representing approximately $1.25 million
from our Chinese joint venture. As of the date of the filing of this Annual Report on Form 10-K/A, however, the Company has a backlog
of approximately $450,000 not related to the joint venture. Management believes that as the Company solidifies additional financial
resources, significant additional backlog will develop. No assurances, however, can be given as to how long it will take the Company,
if at all, to develop a further backlog.



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.



11







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/A or our other filings with the SEC.



ITEM 1A. Risk Factors



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.



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, Mr. 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 Mr. 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 to utilize corporate resources to contest the shareholder action has consumed
the Company’s 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.



In each fiscal year since our reorganization
in 2006, we have reported losses.  Since the Company’s Chapter 11 Plan reorganization in 2006, we have spent considerable
amounts on, among other things, building market awareness and infrastructure for sales and distribution, enhancing our engineering
capabilities, perfecting an all-electric refrigeration transport system for midsize trucks, developing a 20 kW product, and developing
a nine-inch system capable of delivering approximately 4 kW of power.  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 recommence operations or be profitable in the future.  Even
if we recommence operations and achieve profitability, we may not be able to sustain it.



We will need additional capital in
the future to meet our obligations and financing may not be available.   During fiscal 2019, the Company attempted to
increase 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 recommence our operations.



As a result of our operating losses, we
have largely financed our operations through sales of our debt and equity securities. During fiscal 2017 and fiscal 2018, the Company
significantly reduced its engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial
obligations. During fiscal 2019, the Company’s engineering and manufacturing activities were still significantly limited
due to our inability to raise significant financing. In July 2019 we began significantly increasing our sales, engineering, manufacturing,
and marketing activities as well as to improve operations, but we continue to operate at negative cash flow.  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.   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.



12







Our independent public accounting
firm has included an explanatory paragraph in its opinion to the effect that there is substantial doubt about our ability to continue
as a going concern.



Our independent public accounting firm
has included an explanatory paragraph in its opinion to the effect that there is substantial doubt about our ability to continue
as a going concern.  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.



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 our technology and 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.



Market acceptance of our AuraGen®
product line is uncertain.  If a large enough market does not develop for our products, our business and the results
of our operations will be materially and adversely affected.



Our business is dependent upon sales generated
from our AuraGen®/VIPER family of products.  This product line utilizes advanced technology and has only recently
begun being used in the marketplace for selected applications.  We are dependent on the broad acceptance by businesses
and industry of our products.  Because the market for our product line is emerging, the potential size of this market
and the timing of its development cannot be predicted.  A significant market may fail to develop, or it may develop more
slowly than we anticipate, either of which will have a material adverse effect on our business and results of operations.



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.



13







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 are and may 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 are currently party to litigation
with a former director relating to approximately $9 million and approximately 3.15 million warrants which the director claims are
owed to him and his affiliates. An adverse ruling on these claims in this litigation would materially and adversely affect our
business results or operating and financial condition, dilute our shareholders’ equity interests in the Company and could
adversely affect our stock price.



The Company is presently engaged in a dispute
with a former director, 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 the then other present and former members of the Board of Directors in connection with these allegations. The Company believes
that it has valid defenses in these matters and believes that no warrants are due to Mr. Kopple or his affiliates. The Company
intends to vigorously defend against these claims. However, if Mr. Kopple were to prevail, an adverse ruling on these claims would
materially and adversely affect our business results or operating and financial condition, dilute our shareholders’ equity
interests in the Company and could adversely affect our stock price. See Item 3. “Legal Proceedings”, “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/A for additional information regarding the transactions
under dispute.



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 the AuraGen® family of products.  Because we have elected
to focus our business on a single product 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.



14







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 unable to locate and lease
a new facility for limited production, testing, warehousing, engineering and office space, it would have a material adverse effect
on our business and results of operations.



Our current Stanton facility is not sufficient
to support our expected operations in 2020. Accordingly, the Company is planning to look for a new facility that would be used
for limited production, testing, warehousing and engineering as well as needed office space for support staff. The inability to
locate a suitable facility could adversely affect our financial performance, business operations and growth. Appropriate locations
or financing for the lease of a new facility may not be available at reasonable costs or at all. Our failure to secure a new facility
will impede our business strategy.



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 amount 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 our more technically difficult 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.



15







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.



We face changes in global and local
economic conditions that may adversely affect consumer demand and spending, our manufacturing operations or sources of merchandise
and international operations.



Our industry is subject to variations in
the general economy and to uncertainty regarding future economic prospects. Such uncertainty, as well as other variations in global
economic conditions such as rising fuel costs, wage and benefit inflation, currency fluctuations, import and export tariffs and
increasing interest rates, may continue to cause inconsistent and unpredictable customer spending while increasing our own input
costs. In addition, this uncertainty has had, and may continue to have, an unprecedented negative impact on the global credit markets.  Credit
has tightened significantly in the last year, resulting in financing terms that are less attractive to borrowers, and in many cases,
the unavailability of certain types of debt financing. These risks, as well as industrial accidents or work stoppages, could also
severely disrupt our manufacturing operations, which could have a material adverse effect on our financial performance.



16







Our ability to obtain adequate supplies
or to control our costs may be adversely affected by events affecting international commerce and businesses located outside the
United States, including natural disasters, changes in international trade, central bank actions, changes in the relationship of
the U.S. dollar versus other currencies, labor availability and cost, and other governmental policies of the U.S. and the countries
from which we import our merchandise or in which we operate facilities. The inability to import products from certain foreign countries
or the imposition of significant tariffs could have a material adverse effect on our results of operations.



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



We expect to continue examining potential
joint ventures and strategic alliances as part of our long-term business strategy. 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.



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 a number of agreements with various key consultants which may makes those parities 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 or terrorism.



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.



17







While we are disclosing
in this amended report that our internal controls over financial reporting were not effective as of February 28, 2019, we are required
to comply with Section 404 on an annual basis including identifying those remedial actions the Company expects to implement
in the near-term to remediate the existing material weakness. The Company does not have the financial resources to fully comply
with all requirements of Section 404. If, in the future, we identify additional 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. Although we currently anticipate remediating the current material weakness and satisfying the requirements of Section 404
in a timely fashion, we cannot be certain as to the timing of completion for our future evaluation, testing and any required remediation. 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.



ITEM 1B. UNRESOLVED STAFF COMMENTS



None



ITEM 2. PROPERTIES



Our current facilities consist of approximately
20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita, California. The Stanton facility
is currently used for some testing of AuraGen® systems. The facility is rented on a month-to-month basis. The
rent for the Stanton facility is $10,000 per month and the storage facility is additional $5,000 per month. The Company also rents
temporary storage space on a month-to-month basis. In February 2019, the Company also began renting approximately 300 square feet
of office space in Irvine, California at a cost of $2,350 per month on a month-to-month basis. In July 2019, under the newly installed
management team, the Company ceased renting this supplemental office space. Our current Stanton facility is not sufficient to support
the expected operations in 2020. Accordingly, the Company is planning to look for a new facility that would be used for limited
production, testing, warehousing and engineering as well as needed office space for support staff.



Our Jiangsu Shengfeng joint venture, of
which the Company owns 49% and as further described in “Business—Introduction”, owns facilities of approximately
400,000 square feet, consisting of approximately 200,000 square feet of manufacturing space and 200,000 square feet of general
office and engineering space. The Jiangsu Shengfeng facilities are fully paid for and there is no monthly or annual rent associated
with these facilities.



ITEM 3. LEGAL PROCEEDINGS



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



18







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.



In 2016, the Company and the Company’s
former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed by two secured creditors
demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. In September 2018 the court entered
a judgment of approximately $235,000 plus legal fees in favor of the two secured creditors. The Company subsequently appealed this
judgment and, in September 2019, executed a settlement agreement with these creditors for an aggregate principle amount of approximately
$315,000; such principle accruing simple interest at a rate of 10% per annum. In accordance with the settlement agreement, the
Company committed to a payment plan consisting of (a) an initial payment of $20,000 (b) installment payments of $10,000 per month
continuing for a period of 12 months, and (c) a final payment due on November 15, 2020 to include all remaining unpaid principle
and accrued interest.



The Company is presently engaged in a dispute
with one of its former directors, Robert Kopple, relating to approximately $9.5 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 former 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/A 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 alleging 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 in excess of $400,000 in allegedly unpaid legal fees. In January 2019, the Company reached a settlement
with Kilpatrick Townsend & Stockton LLP, pursuant to which, among other things, Kilpatrick Townsend & Stockton LLP agreed
to dismiss its cross-complaint and waive all unpaid legal fees. The action and the cross-complaint were both subsequently dismissed.



In February 2018, the Company failed to
issue shares of stock contractually owed to BetterSea, LLC (“BetterSea”), one of the Company’s long-standing
technical consultants. On August 15, 2018, 7,364,735 restricted shares were issued in fulfillment of this contractual obligation
based on the then-outstanding closing quote of the stock. The issuance of the shares was previously reported by the Company. The
Company also paid $20,000 in legal fees on behalf of BetterSea related to legal expense associated with the Company’s delays
in the issuance of the stock.



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, Mr. 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 Mr. 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.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.





19







PART II



ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Our shares are quoted on the Pink Sheets
operated by OTC Markets, Inc. under the symbol “AUSI”. Set forth below are high and low bid prices for our common stock
for each quarterly period in the two most recent fiscal years. Such quotations reflect inter-dealer prices, without retail mark-up,
markdown or commissions and may not necessarily represent actual transactions in the common stock. We had approximately 3,400 stockholders
of record as of August 20, 2019.



|Period                                 |  | High |      |  | Low |  
|-------------------------------------- |  | ---- | ---- |  | --- | -
|                                       |  |      |      |  |     |  
|Fiscal 2018                            |  |      |      |  |     |  
|First Quarter ended May 31, 2017       |  | $    | 1.26 |  |     | $
|Second Quarter ended August 31, 2017   |  | $    | 1.19 |  |     | $
|Third Quarter ended November 30, 2017  |  | $    | 0.91 |  |     | $
|Fourth Quarter ended February 28, 2018 |  | $    | 1.47 |  |     | $
|                                       |  |      |      |  |     |  
|Fiscal 2019                            |  |      |      |  |     |  
|First Quarter ended May 31, 2018       |  | $    | 0.74 |  |     | $
|Second Quarter ended August 31, 2018   |  | $    | 0.50 |  |     | $
|Third Quarter ended November 30, 2018  |  | $    | 0.35 |  |     | $
|Fourth Quarter ended February 28, 2019 |  | $    | 0.58 |  |     | $



On August 20, 2019, the reported closing sales price for our
common stock was $0.39.



Dividend Policy



We have not paid any dividends on our common
stock and we do not anticipate paying any dividends on our common stock in the foreseeable future.



Sales of Unregistered Securities



During the year ended February 28, 2019,
we issued approximately 12,277,000 shares of common stock for a total of $3,834,402, inclusive of 1,638,312 shares of common stock
in settlement of $584,642 of debt.



As of February 28, 2018, the Company had
a subscription receivable that consisted of a $1.3 million receivable for 2,653,061 shares of the Company’s common stock.
Following resolution of a dispute regarding the Company’s failure to issue certain shares due to the investor from a previous
investment, $1,000,000 was delivered in April 2018, and the balance was paid in December 2018. During fiscal 2019 the Company received
$1,150,000 in cash from the investor with the balance of $150,000 being applied through the assumption of the B&H note.



20







In February 2018, the Company failed to
issue shares of stock contractually owed to BetterSea, LLC (“BetterSea”), one of the Company’s technical consultants.
On August 15, 2018, 7,364,735 restricted shares were issued in fulfillment of this contractual obligation based on the then-outstanding
closing quote of the stock. The issuance of the shares was previously reported by the Company. The Company also paid $20,000 in
legal fees on behalf of BetterSea related to legal expense associated with the Company’s delays in the issuance of the stock.



Funds raised were for general corporate
working capital purposes. All such securities were issued and sold in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act of 1933, and the certificates representing such securities contain a restrictive legend reflecting
the limitations on future transfer of those securities. The offer and sale of these securities was made without public solicitation
or advertising. The investors represented to us that they were knowledgeable and sophisticated and were experienced in business
and financial matters so as to be capable of evaluating an investment in our securities and were an “accredited investor”
within the meaning of Regulation D promulgated under the Securities Act of 1933. Each of these investors was afforded full access
to information regarding our business.



Repurchases of Equity Securities



We did not repurchase any shares of
our common stock during the fourth quarter of fiscal 2019.



ITEM 6. SELECTED FINANCIAL DATA



As a smaller reporting company, we
are not required to provide disclosure under this Item 6.



ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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



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



In fiscal 2018, we successfully eliminated
approximately 68% of our total indebtedness. Specifically, our secured creditors converted approximately $5.73 million of secured
debt into approximately 4.1 million shares of our common stock. The converted debt represented approximately 80% of the total secured
debt of the Company. The balance of the secured debt (approximately $960,000) is to be paid to the secured creditors in cash if
we raise at least $4.0 million in proceeds through new equity offerings in one or a series of related offerings. Additionally,
in fiscal 2018, approximately $12.77 million of unsecured debt was converted into approximately 9.3 million shares of the Company’s
common stock and approximately $12.3 million of unsecured debt was forgiven. In total, during fiscal 2018, we eliminated a total
of approximately $30.23 million of debt.



As of the date of this filing, Robert Kopple,
our former Vice Chairman of the Board, is the only significant unsecured note holder that has not agreed to restructure his debt.
Mr. Kopple claims that he and his affiliates are owed approximately $9.5 million on terms significantly preferable to other similarly
situated unsecured creditors. We dispute Mr. Kopple’s claims. See “Item 3. Legal Proceedings” included elsewhere
in this Annual Report on Form 10-K/A for information regarding the dispute with Mr. Kopple regarding these transactions. Mr. Kopple
has not accepted our numerous offers to restructure this debt.



21







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



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



Our business is based on the exploitation
of our patented mobile power solution known as the AuraGen® for commercial and industrial applications and the VIPER
for military applications. Our business model consists of two major components; (i) sales and marketing, (ii) design and engineering.



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



(ii) The second component of our business
model is focused on the design of new products and engineering support for the sales activities described above. The engineering
support consists of the introduction of new features for our AuraGen®solution such as higher power, different
voltages, three phase options, shore power systems, higher current solutions as well as interface kits for different platforms.
After suspending the majority of our engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous
financial obligations in fiscal 2018 and 2019, we expect modest engineering activities budgeted at approximately $750,000 during
the fiscal 2020 year.



Critical Accounting Policies and Estimates



Our management’s discussion and analysis
of our financial conditions and results of operations are based upon our consolidated 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. On an on-going basis, we evaluate
our estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical
experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe
that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated
financial statements.



Revenue Recognition



We adopted Accounting Standards Codification
(“ASC”) 606. ASC 606, Revenue from Contracts with Customers, establishes principles for reporting information about
the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods
or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services
to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods
or services recognized as performance obligations are satisfied.



We have assessed the impact of the guidance
by performing the following five steps analysis:



Step 1: Identify the
contract

Step 2: Identify the
performance obligations

Step 3: Determine the
transaction price

Step 4: Allocate the
transaction price

Step 5: Recognize revenue



22







Inventory Valuation and Classification



Inventories are valued at the lower of
cost (first-in, first-out) or market, on a standard cost basis. We review the components of inventory on a regular basis for excess
or obsolete inventory based on estimated future usage and sales. We have minimally operated and therefore have only produced minimal
product since late 2015. As a result, while we believe that a portion of the inventory has value, we are unable to substantiate
its demand and market value and as a result we have elected to reserve it in its entirety as of February 28, 2019 and February
28, 2018.



Stock-Based Compensation



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



We account for stock option and warrant
grants issued and vesting to non-employees in accordance with FASB ASC 505-50, “Equity Based Payments to Non-Employees”,
whereas the fair value of the equity-based compensation is based upon the measurement date as determined at the earlier of either
(a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn
the equity instruments is complete.



For the past, several years and in accordance
with established public company accounting practice, we have consistently utilized the Black-Scholes option-pricing model to calculate
the fair value of stock options and warrants issued as compensation, primarily to management, employees, and directors.  The
Black-Scholes option-pricing model is a widely-accepted method of valuation that public companies typically utilize to calculate
the fair value of options and warrants that they issue in such circumstances.



Results of Operations



Fiscal 2019 compared to Fiscal 2018



Revenues



We had revenues of $39,274 and $0 in the
years ended February 28, 2019 and February 28, 2018, respectively. Commencing in late 2015, the Company’s operations were
reduced. Since July 2019 new management has significantly begun to increase sales, manufacturing and marketing operations.



Cost of Goods



Cost of goods sold were $170,263 and $0
in the years ended February 28, 2019 and February 28, 2018, respectively. We continue to fully reserve all inventory items due
to our inability to show salability on a going forward basis. Therefore, all items purchased for the manufacture of our products
that are not used in the current year are reserved for and charged to cost of goods sold.



Engineering, Research and Development



Engineering, research and development costs
increased $391,957 to $494,636 in fiscal 2019 from $102,679 in fiscal 2018. The increase is a result of expenses incurred in the
process of designing a new electronic control unit (“ECU”) for our AuraGen® products as well as sustaining
engineering expenses related to the expansion of manufacturing capability.



Selling, General and Administrative Expense



Selling, general and administrative expenses
decreased approximately $2,213,292 to $3,590,045 in fiscal 2019 from $5,803,337 in fiscal 2018 due primarily to reduced scope of
operations and reduced legal expenses.



Non-Operating Income and Expense



Net interest expense decreased to $1,078,873
in fiscal 2019 from $5,482,393 in fiscal 2018, a decrease of $4,403,520, as a result of the restructuring implemented in February
2018 whereby approximately $17.5 million of our debt was converted into equity. We recorded a gain on debt settlement in fiscal
2019 of approximately $2.7 million as we determined that certain accounts payable items older than four years and for which collection
efforts were abandoned did not have to be paid and were removed from our balance sheet. In fiscal 2018, gain on debt settlement
consisted of approximately $13.1 million as a result of our financial restructuring.



23







Net Income/Loss



We had a net loss of $2,502,431 in the
year ended February 28, 2019 compared to income of $1,700,649 in the year ended February 28, 2018, due to the gain recorded in
relation to the debt forgiveness described above.



Liquidity and Capital Resources



In fiscal 2019, we had a loss of approximately
$2.5 million and had negative cash flows from operations of approximately $2.5 million.



At February 28, 2019, we had cash of approximately
$358,000, compared to cash of approximately $748,000 at February 28, 2018. Working capital at February 28, 2019 was a $17.2 million
deficit as compared to a $20.6 million deficit at the end of the prior fiscal year. Accounts payable decreased $2.7 million due
primarily to the elimination of certain accounts payable that were more than four years old. At February 28, 2019 and 2018, we
had no accounts receivable. In fiscal 2019 we made no acquisitions of property and equipment.



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, we
issued 3.3 million shares of common stock for cash totaling $0.9 million and 9.0 million shares of common stock in settlement of
$2.9 million of debt. For the year ended February 28, 2018, we issued 4.1 million shares of common stock for cash totaling $3.3
million and 21.1 million shares of common stock valued at $19.5 million for the settlement of debt.



As of February 28, 2018, the Company had
a subscription receivable that consisted of a $1.3 million receivable for 2,653,061 shares of the Company’s common stock.
Following resolution of a dispute regarding the Company’s failure to issue certain shares due to the investor from a previous
investment, $1,000,000 was delivered in April 2018, and the balance was paid in December 2018. During fiscal 2019 the Company received
$1,150,000 in cash from the investor with the balance of $150,000 being applied through the assumption of the B&H note.



In February 2018, we failed to issue shares
of stock contractually owed to BetterSea, LLC (“BetterSea”), one of our long-time technical consultants. On August
15, 2018, 7,364,735 restricted shares were issued in fulfillment of this contractual obligation based on the then-outstanding closing
quote of the stock. We also paid $20,000 in legal fees on behalf of BetterSea related to legal expense associated with the delay
in the issuance of the stock.



During the year
ended February 28, 2018 we issued 135,714 shares of common stock in settlement of a note payable in the amount of $150,000 plus
accrued interest of $15,288.



In the past, in order to maintain liquidity,
we have 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. We cannot assure you that additional
financing will be available at the times or in the amounts required to keep the business operating. Based on a cash flow analysis
performed by management, we estimate that we will need an additional $2.5 million to support operations for the fiscal year ending
February 29, 2020. 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 would also be forced
to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current
business plan and ultimately our viability as a Company.



Kopple Debt -Robert
Kopple, who was a Company director from September 2013 through January 11, 2018, claims that we owe him and certain affiliated
parties an aggregate of approximately $5.35 million in principal and interest, and warrants to purchase 3,273,886 shares of our
common stock at a price of $0.70 per share, as a result of various loans made by Mr. Kopple and his affiliates (collectively, the
“Kopple Parties”) to us between 2013 and 2016.



24







In addition, Mr. Kopple claims we owe him
approximately $3.34 million in principal and accrued interest for a $2 million convertible note. On or about March 23, 2013, the
Kopple Parties made various cash advances to us in the aggregate original principal amount of $2,500,000, evidenced by an unsecured
convertible note (the “Original Kopple Note”) with the right to convert outstanding principal and accrued and unpaid
interest at $3.50 per share (post 1:7 reverse split). On or around June 20, 2014, $500,000 of the Original Kopple Note was reclassified
as a short-term note, the principal amount of the Original Kopple Note was reduced from $2.5 million to $2.0 million and the Original
Kopple Note was amended to provide that an event of default under the June 2014 Agreement (as described and defined below) would
also constitute an event of default under the Original Kopple Note.



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



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



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



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.



Going Concern.



Our independent auditor has expressed doubt
about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business
plan, raise capital and generate revenues. See Report of Independent Registered Public Accounting Firm on page F-1, together with
the Company’s audited consolidated financial statements for the fiscal year ended February 28, 2019.



ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As a smaller reporting company, we are not required to provide
the information required by this Item 7A.



25







ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



See Index to Consolidated Financial Statements at page F-1.



ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



Not applicable.



ITEM 9A. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



The Company maintains disclosure controls
and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act
of 1934, is recorded, processed, summarized and reported within the specified time periods. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management,
including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.



At the time of the filing of the initial
Annual Report on Form 10-K on June 13, 2019 for the period ended February 28, 2019, our then-Chief Executive Officer and then-Chief
Financial Officer, Melvin Gagerman, concluded that our disclosure controls and procedures were effective as of February 28, 2019.
Subsequent to that conclusion, our current President and our current Chief Financial Officer have concluded that, as a result of
the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were
not effective as of February 28, 2019 or at the time of the filing of the initial Annual Report on Form 10-K for year ending February
28, 2019 on June 13, 2019.



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, 2019. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control-Integrated Framework. Based on this assessment, and on those criteria, the Company’s former management concluded
that the Company’s internal control over financial reporting was effective as of February 28, 2019. Our new management has
subsequently concluded that there was a material weakness in internal control that existed as of February 28, 2019. A “material
weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of annual or interim financial statements would not be prevented or detected
on a timely basis.



26







Specifically, current management identified
that certain former individuals associated with the Company misapplied certain equity transactions among other misstatements described
below, all with the intent to manipulate the shareholder proxy contest commenced in March 2019 seeking to remove Mssrs. Buschur,
Anderson and Yu from the Company’s Board of Directors. These activities resulted in certain mischaracterizations in the descriptions
of various events, the improper recording of approximately $2.0 million related to stock issuances, and other misstatements. (the
“Misstatements”). As a result, we have concluded that we did not maintain effective internal control over financial
reporting as of February 28, 2019 based on the criteria in Internal Control-Integrated Framework issued by COSO.



Accordingly, management has restated the
Company’s financial statements and related notes to the financial statements in this Annual Report on Form 10-K/A (i) approximately
$2.0 million erroneously recorded as additional paid in capital (ii) an unrecorded adjustment of $100,000 in relation to an overstated
accounts payable amount (iii) other unrecorded accruals of approximately $40,000 in relation to unrecorded expenses incurred in
fiscal 2019; (iv) understating the number of common shares held by shareholders seeking the removal of Mssrs. Buschur, Anderson
and Yu through the proxy contest commenced in March 2019 by approximately 1.5 million shares; (v) overstating basic and diluted
loss per share for the fiscal year ended February 28, 2019 by approximately $0.05 per common share and (vi) classifying cash receipts
of approximately $68,000 related to the issuance of a fixed number of shares as a current liability and not additional paid-in
capital. The restated financials contained elsewhere in this Report also include the effect of a September 2019 agreement (subsequent
event) with a lender which clarified the amount that the Company must record as a liability for reimbursable legal fees (see note
14 to the financial statements).



The Company has concluded that the financial
impact of the Misstatements is not material to any of its previously issued financial statements.



Remediation Plan



We are finalizing a plan to remediate this
material weakness with the oversight of the Audit Committee of the Board of Directors and are currently implementing actions to
address the underlying causes of the material weakness. The following describes the steps that we have taken and plan to take to
remediate the material weakness: (i) upgrade the current financial systems to newer technology and (ii) recruit and retain qualified
accounting professionals to ensure compliance with general accepted accounting standards as established in the United States (“GAAP”)
and United States Securities and Exchange Commission (“SEC”) rules and regulations.



We believe the measures described above
and others that may be identified and implemented in future periods will strengthen our internal control over financial reporting
and remediate the identified material weakness. However, additional steps may be required, and we may decide to take additional
action to address control deficiencies or determine to modify certain of the remediation measures identified above.



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 quarter ended February 28, 2019, that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



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.



ITEM 9B. OTHER INFORMATION



None





27







PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



Directors and Executive Officers



On January 11, 2018, at the annual stockholder
meeting, Roland Bopp, Ronald J. Buschur, Michael Paritee, Jonathan Sloane and Gary Wells, were elected as directors. During February
and March 2018, as applicable, Messrs. Sloane, Bopp and Buschur each resigned as a director. During March 2018, Michael Sawruk,
John M. Cochran and Jeffrey D. Cowan became directors. The Board of Directors terminated the employment of Melvin Gagerman in March
2018 and Dr. Timothy B. O’Brien became interim Chief Executive Officer and Mr. Timothy O’Toole became interim Chief
Financial Officer. On March 29, 2018, stockholders delivered a written consent removing Messrs. Wells, Paritee, Sawruk, Cochran
and Cowan from the Board of Directors and appointing Mssrs. Gary Douglas, William Anderson and Salvador Diaz-Versón, Jr.
Following the removal of Messrs. Wells, Paritee, Sawruk, Cochran and Cowan, Dr. O’Brien and Mr. O’Toole were terminated
as officers of the Company and Melvin Gagerman was rehired. In July 2018, the Board of Directors appointed Ronald Buschur and Si
Ryong Yu to fill the two then-existing vacancies on the Board of Directors.



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 in his
stead.  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. As a result of Aura’s refused to recognize the legal effectiveness of the consents,
on April 8, 2019, 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 Mr. 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. On July 9, 2019 the employment of Melvin Gagerman was again terminated.
See Item 3, Legal Proceedings for more information.



28









The following table sets forth the names,
ages and offices of all of our directors and executive officers. Our officers are appointed by, and serve at the pleasure of, the
Board of Directors. The stockholders at the annual meeting elect our directors to serve until the next meeting.



|Name                          |  | Age |  | Title                                                                                                                                          
|----------------------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|Melvin Gagerman (1)           |  | 76  |  | Chief Executive Officer, Chief Financial Officer and Secretary                                                                                 
|Kevin Michaels (2)            |  | 60  |  | Treasury Officer                                                                                                                               
|William Anderson (3)          |  | 72  |  | Director, Chairman of the Compensation Committee and member of the Nominating Committee                                                        
|Gary Douglas (4)              |  | 72  |  | Director, Member of the Audit Committee                                                                                                        
|Salvador Diaz-Verson, Jr. (4) |  | 61  |  | Director, Chairman of the Audit Committee                                                                                                      
|Ronald J. Buschur (5)         |  | 55  |  | Chairman of the Board and Member of the Nominating Committee                                                                                   
|Si Ryong Yu (5)               |  | 71  |  | Director                                                                                                                                       
|David Mann (6)                |  | 48  |  | Chief Financial Officer, Director, Chairman of the Compensation Committee, Member of the Nominating Committee and Member of the Audit Committee
|Cipora Lavut (6)              |  | 63  |  | President, Chairman of the Board, Member of Nominating Committee and Member of the Compensation Committee                                      
|Robert Lempert (6)            |  | 76  |  | Secretary, Director, Chairman of the Nominating Committee, Member of the Audit Committee and Member of the Compensation Committee              





|(1) | On March 30, 2018, the Board re-appointed Mr. Gagerman as Chief Executive Officer, Chief Financial Officer and Secretary on an interim basis after he had been terminated by the immediate previous Board. Mr. Gagerman was terminated again on July 9, 2019.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Mr. Michaels began serving as the Company’s Treasury Officer in or about February 2019; he was terminated in July 2019.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(3) | Mr. Anderson was appointed to the Board of Directors on March 29, 2018 by a written consent executed by stockholders. On March 27, 2019, stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Mr. Anderson from the Company’s Board of Directors. Because of Aura’s refusal to recognize the legal effectiveness of the consent, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware seeking an order confirming the validity of the removal. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that Mr. Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent.                                                                                                                                                                                                                                                         
|(4) | Mr. Douglas and Mr. Diaz-Verson, Jr. were appointed to the Board of Directors on March 29, 2018 by the written consent of stockholders holding a majority of the Company’s shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(5) | On July 3, 2018, the Board of Directors appointed Mr. Ronald Buschur and Mr. Si Ryong Yu to fill two vacancies on the Board of Directors of the Company. On March 26, 2019, stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Mr. Buschur from the Company’s Board of Directors and on March 27, 2019 those same stockholders delivered a signed written consent to the Company removing Mr. Yu from the Company’s Board of Directors. 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 seeking an order confirming the validity of the removals. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that Mr. Buschur and Mr. Yu had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written consent.                                                     
|(6) | On March 26, 2019, stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company electing Ms. Lavut to the Company’s Board of Directors and on March 27, 2019 those same stockholders delivered a signed written consent to the Company electing Mr. Mann and Dr. Lempert to the Company’s Board of Directors. 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 seeking an order confirming the validity of the elections. On July 8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that 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. In July 2018, the Board of Directors appointed Ms. Lavut President and Chairman of the Board, appointed Mr. Mann as Chief Financial Officer and appointed Dr. Lempert as Secretary.



29







Biographical information with respect to our directors and executive
officer is provided below.



Melvin Gagerman.Mr.
Gagerman is a formerly-licensed CPA who previously served as a director of the Company from 2006 to January 2018. Mr. Gagerman
also served as Chief Executive Officer and Chief Financial Officer of the Company until March 28, 2018, when he was terminated
by the then-seated Board of Directors. Mr. Gagerman was subsequently re-appointed as Chief Executive Officer, Chief Financial Officer
and Secretary on an interim basis. Mr. Gagerman was terminated on July 9, 2019. As Chief Executive Officer Mr. Gagerman was responsible
for formulating policies, defining values, directing operations and defining corporate culture. Prior to joining Aura, Mr. Gagerman
served as the Chief Executive Officer of a number of companies including Surface Protection Industries and Applause. Mr. Gagerman
has also served as Managing Partner of Good, Gagerman & Berns, an accounting firm, National Audit Partner for Laventhol and
Horwath, and Audit Supervisor at Coopers and Lybrand.



Kevin Michaels. Mr. Michaels
began serving as the Company’s Treasury Officer in February 2019. As Treasury Officer, Mr. Michaels was responsible for day-to-day
financial operations and had signature authority over the Company’s bank accounts. Mr. Michaels holds degrees from both University
of California, Los Angeles and the University of Southern California. From 1996 to 2013, Mr. Michaels held a number of positions
at Powerwave Technologies Inc., including Vice President, Finance and Chief Financial Officer and Secretary of Powerwave Technologies
Inc. In January 2013, Powerwave Technologies, Inc. filed for Chapter 11 bankruptcy protection and in June 2013 Powerwave Technologies
filed for liquidation under Chapter 7 of the United States Bankruptcy Code.



Salvador Diaz-Versón, Jr. Mr.
Diaz-Versón, Jr. was elected as a director on March 29, 2018. Previously, he served as a director of the Company from 1997-2005
and again from June 2007 until January 2018. Mr. Diaz-Versón, Jr. is the founder, Chairman and President of Diaz-Verson
Capital Investments, Inc., and was a registered investment advisor with the Securities and Exchange Commission until 2009.
Mr. Diaz-Versón, Jr. served as President and member of the board of directors of American Family Corporation (AFLAC, INC.)
from 1976 until 1992. Mr. Diaz-Versón, Jr. served as President and Chief Investment Officer of American Family Life
Assurance Company, a subsidiary of AFLAC, Inc. He is currently Chairman of Miramar Securities. Mr. Diaz-Versón, Jr.
has received two presidential appointments to the Christopher Columbus Fellowship Foundation; first by President George H.W. Bush
in 1992 and subsequently by President Clinton in 2000. Mr. Diaz-Versón, Jr. is a trustee of the Florida State University
Foundation and is a national trustee of the Boys and Girls Club of America. He also serves as a trustee of Clark Atlanta University.
Mr. Diaz-Versón, Jr. is a graduate of Florida State University and was selected as a director in view of his lengthy
experience in managing companies and his knowledge of capital investments.



William Anderson. Mr. Anderson
was elected as a director on March 29, 2018 and was subsequently removed by a vote of more than 25.7 million shares. Mr. Anderson
holds a BS from Columbia University in Industrial Engineering & Operations Research and an MBA from Harvard Business School.
Prior to his current entrepreneurial activities, Mr. Anderson was Chief Marketing and Chief Merchandising Officer with global responsibility
for Carrefour and CEO of @Carrefour, which was Carrefour’s initial foray into e-commerce. Mr. Anderson has held senior executive
positions in numerous companies such as Hardlines at Kmart Corporation, Federated Department Stores, Ames Department Stores and
Oshman’s Sporting Goods. He is also an experienced start-up entrepreneur, having founded Domain Home Furnishings, Leisure
Concepts Management, and Gluuteny, Inc., with private equity backing. Mr. Anderson is and has served on numerous boards of directors
including: Xoran Technologies; Wind Point Partners, OpTier; Domain (of which he is also a co-founder) a Bain Capital & Bessemer
Venture Partners retailer. In 2014, Mr. Anderson became a Vistage International Chair and formed a CEO peer-group in Philadelphia.



Ronald J. Buschur.Mr.
Buschur was appointed as a Director of the Company in July 2018 by the then-seated Board of Directors to fill a vacancy existing
on the Board at the time. Previously, he served as a director of the Company from January 18, 2018 until his resignation in late-March
2018. Mr. Buschur was elected Chairman of the Board in September 2018. In 2019, Mr. Buschur was removed by a vote of more than
25.7 million shares. Mr. Buschur holds a BA from University of Phoenix in Business Management and an AA from ITT Technical Institute.
Mr. Buschur served as Chief Operating Officer of Powerwave Technologies, Inc. from 2001 to 2005, and thereafter as Chief Executive
Officer and a director until April 2013. Powerwave Technologies, Inc. filed for Chapter 11 bankruptcy protection on January 28,
2013. Powerwave Technologies filed for liquidation under Chapter 7 of the United States Bankruptcy Code on June 10, 2013.



Gary Douglas. Mr. Douglas
was elected as a director on March 29, 2018. Mr. Gary Douglas has a BBA in Management degree, with extensive experience in cooperate
communication and investment banking. He is a principal in Douglas Strategic Communications LLC, a marketing strategy and communications
consultancy, and Ex officio Chairman of Picture Marketing, Inc., a digital marketing company. Mr. Douglas also formally served
as Chief Marketing Officer of O’Melveny Consulting LLP, a unit of a global law firm. He also served as President of SP/Hambros
America and Division President of Geneva Learning Systems and Group Vice President of Business Development for the five Geneva
Companies, both SP/Hambros and The Geneva companies were middle market investment bankers. Mr. Douglas brings to the Board extensive
experience in cooperate communication and investment banking.



30







Si Ryong Yu. Mr. Si
Ryong Yu was appointed as a Director of the Company in July 2018 by the then-seated Board of Directors to fill a vacancy existing
on the Board at the time. Mr. Yu was subsequently removed by a vote of more than 25.7 million shares. He was an outside consultant
to the Company from 2009 to March 27. 2019. Prior to serving as a consultant to the Company, Mr. Yu served as CEO of ST Microelectronics
and, from 1997 to 2001, held the position of Senior Managing Director at Daewoo Electronics Company where he had, among other roles,
complete management responsibility for manufacturing of electronic systems across the globe with factories in Eastern Europe, Latin
America and Asia. Mr. Yu holds a degree in Electrical Engineering from Seoul National University.



Cipora Lavut. Ms. Lavut
was one of Aura’s original founding members. From 1987 to 2002 Ms. Lavut served on Aura’s Board and as a Senior
Vice President. During this period, Ms. Lavut was instrumental to Aura receiving large contracts from The Boeing Company,
Litton Industries and the United States Air Force. Ms. Lavut also provided critical investor relations and marketing support
during this time. Ms. Lavut left Aura in 2002. At the request of Aura’s then Board of Directors and management, in 2006
Ms. Lavut returned to Aura as Vice President in charge of investors relations and corporate communication. In January 2016,
Ms. Lavut left the Company to pursue other business ventures. Ms. Lavut presently provides marketing and business consulting
to a variety of retail and service-oriented businesses. She holds a degree from California State University, Northridge.



Robert Lempert. Dr. Lempert
graduated from the University of Pennsylvania and conducted his residency at the Albert Einstein Medical Center in Philadelphia.
Dr. Lempert also served as a Captain in the U.S. Army and previously served on the Company’s Board from November 28,
2017 (when he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Dr. Lempert
has been a significant investor, shareholder and an active advocate of Aura’s technology for more than 20 years.



David Mann. Mr. Mann has
been Vice President of Marketing for Mann Marketing, a manufacturing and import company, since 1990 and the Vice President of Sales
of that company since 2007. From 2000 until 2007, Mr. Mann also served as Vice President of Operations. Mr. Mann has
extensive experience dealing with all aspects of marketing and sales, as well as suppliers in both North America and China. Mr. Mann
has been an investor in the Aura since 2007 and previously served as a director of the Company from November 28, 2017 (when
he was appointed by the then-Board to fill one of the two existing vacancies) until January 11, 2018. Mr. Mann holds
a degree in Business Administration from College St. Laurent, Montreal, Canada.



Delinquent Section 16(a) Reports



Our shares of common stock are registered
under the Securities Exchange Act of 1934, and therefore our executive officers and directors and persons who beneficially own
more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports
of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms
3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange
Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such
forms received by us, and to the best of our knowledge, no executive officers, directors and persons holding greater than 10% of
our issued and outstanding stock have filed the required reports during the year ended February 28, 2019, except as follows: Ronald
Buschur and Si Ryong Yu each filed a late Form 3 in connection with their appointment as directors in July 2018.



Code of Ethics



We have adopted a Code of Ethics applicable
to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department.
This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.aurasystems.com
in the Investor Relations section. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment
to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of
such provision of our Code of Ethics by posting such information on our website within four business days of the date of such amendment
or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date
of the waiver will also be disclosed.



31











Family
Relationships



None
of our directors or executive officers is related to one another.



Committees
of the Board of Directors



The
Board maintains the following committees to assist it in discharging its oversight responsibilities.



Audit
Committee. The Audit Committee does not have a formal charter but is responsible primarily for overseeing the services performed
by our independent registered public accounting firm, evaluating our accounting policies and system of internal controls, and
reviewing our annual and quarterly reports before filing with the Securities and Exchange Commission. The current members of the
Audit Committee are Mr. Salvador Diaz Versón Jr., Mr. David Mann, Dr. Robert Lempert and Mr. Gary Douglas. The Board of
Directors has determined that the Audit Committee does not have a member who is an “audit committee financial expert”
as such term is defined by the rules and regulations of the Securities and Exchange Commission. While the Board recognizes that
the Board members serving on the Audit Committee do not meet the qualifications required of an “audit committee financial
expert,” the Board believes that the appointment of a new director to the Board of Directors and to the Audit Committee
at this time is not necessary as the level of financial knowledge and experience of the current member of the Audit Committee,
including such member’s ability to read and understand fundamental financial statements, is sufficient to adequately discharge
the Audit Committee’s responsibilities



Compensation
Committee. The Compensation Committee does not have a formal charter but reviews and recommends to the full Board the amounts
and types of compensation to be paid to the Chairman and Chief Executive Officer; reviews and approves the amounts and types of
compensation to be paid to our other executive officers and the non-employee directors; reviews and approves, on behalf of the
Board, salary, bonus and equity guidelines for our other employees; and administers our equity plans. The Compensation Committee
is currently comprised of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert.



Nominating
Committee. The Nominating Committee does not have a formal charter but assists the Board in identifying qualified individuals
to become directors, determines the composition of the Board and its committees, monitors the process to assess the Board’s
effectiveness and helps develop and implement our corporate governance guidelines. The Nominating Committee also considers nominees
proposed by stockholders. The Nominating Committee currently consists of Mr. David Mann, Ms. Cipora Lavut and Dr. Robert Lempert.



Director
Compensation



Although
we do not currently compensate our directors in cash for their service as members of our Board of Directors, the Board may, in
its discretion, elect to compensate directors for attending Board and Committee meetings and to reimburse directors for out-of-pocket
expenses incurred in connection with attending such meetings. Additionally, our directors are eligible to receive stock options
under the 2011 Directors and Executive Officer Stock Option Plan. During fiscal 2019, none of the Directors received any stock
options. There are no payments due to any directors upon their resignation or retirement as members of the Board.



32







ITEM
11. EXECUTIVE COMPENSATION



The
following table sets forth the compensation earned by or paid to the principal executive officer and the two most highly compensated
executive officers, other than the principal executive officer, (the “named executive officers”) during the fiscal
years ended February 28, 2019 and 2018.



2019
Summary Compensation Table



|Name
    and Principal Position                          |  | Fiscal
     Year |  | Salary
     ($)(2) |         |  | Option
    Awards ($) (3) |  |   | Non-Equity
     Incentive  Compensation  (3) |  |  | All
    Other Compensation  ($) |  |  | Total
    ($) |       
|-------------------------------------------------------- |  | ---------------- |  | ------------------ | ------- |  | ------------------------- |  | - | -------------------------------------------- |  |  | ------------------------------- |  |  | ------------- | ------
|                                                         |  |                  |  |                    |         |  |                           |  |   |                                              |  |  |                                 |  |  |               |       
|Melvin Gagerman (1)                                      |  | 2018             |  |                    | 32,000  |  |                           |  | - |                                              |  |  | -                               |  |  |               | 2,000 
|Chief Executive
    Officer,
    Chief Financial Officer |  | 2019             |  |                    | 192,000 |  |                           |  | - |                                              |  |  | -                               |  |  |               | 31,661
|Kevin Michaels (4)                                       |  |                  |  |                    |         |  |                           |  |   |                                              |  |  |                                 |  |  |               |       
|Treasury Officer                                         |  | 2019             |  |                    | 0       |  |                           |  | - |                                              |  |  | -                               |  |  |               |       

| | (1) | Mr.
                                         Gagerman was elected Chairman and Chief Financial Officer effective February 1, 2006
                                         and was elected President and Chief Executive Officer effective May 25, 2006. On March
                                         28, 2018, Mr. Gagerman was terminated by the then-seated Board of Directors but was subsequently
                                         re-appointed. Mr. Gagerman was permanently terminated on July 9, 2019.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Mr.
Gagerman’s 2006 employment contract expired in 2014. During fiscal year 2018, Mr. Gagerman received a total of $32,000 in
compensation; Mr. Gagerman did not receive a salary during the period from March 1, 2016 through January 11, 2018, however, on
January 11, 2018 the Board of Directors authorized the Company to pay Mr. Gagerman a salary of $16,000 per month plus various
benefits. As previously reported by the Company, on January 11, 2018 the Board of Directors authorized the Company to pay Mr.
Gagerman a monthly salary of $16,000 and to provide Mr. Gagerman with health and life insurance benefits commensurate with those
given to all other employees. No other benefits or compensation were authorized by the Board of Directors.



| | (2) | Represents
                                         an auto-allowance of $1,000 per month for two months.
| | --- | ---------------------------------------------------------------------------------------------------------



| | (3) | Represents
                                         an auto-allowance of $1,000 per month for 12 months and the reimbursement of $19,661
                                         in personal health expenses for Mr. Gagerman and his spouse. No other employees received
                                         similar benefits.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Mr.
                                         Michaels began serving as Treasury Officer in February 2019; he was terminated in July
                                         2019. Mr. Michaels received $41,000 in compensation after February 28, 2019.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Outstanding
Equity Awards at 2019 Fiscal Year-End



Neither
Mr. Gagerman nor Mr. Michaels have outstanding stock option awards as of February 28, 2019.



Option
Exercises and Stock Vesting During 2019



No
stock options were exercised during fiscal 2019 by the individuals named in the Summary Compensation Table. No stock awards were
issued during fiscal 2019.



Employment
Contracts, Termination of Employment Contracts and Change in Control Arrangements



We
do not currently have any employment agreements with any of our Named Executive Officers. As previously reported, on January 11,
2018, the Board of Directors authorized the Company to pay Melvin Gagerman a monthly salary of $16,000 and to provide Mr. Gagerman
with health and life insurance benefits commensurate with those given to all other employees. No other benefits or compensation
to Mr. Gagerman was authorized by the Board of Directors.



Potential
Payments to the Named Executive Officers Upon Termination or Change in Control



None
of the named executive officers is entitled to any payments or benefits upon termination, whether by change in control or otherwise,
other than benefits available generally to all employees.



33







ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The
following table sets forth, to the extent of our knowledge, certain information regarding our common stock owned as of February
28, 2019 (i) by each person who is known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each
of our Directors and the named executive officers in the Summary Compensation Table, and (iii) by all Directors and current executive
officers as a group:



Beneficial
Ownership Table



|Beneficial
    Owner (1)                                                               |  | Number
    of  Shares of Common Stock |            |  | Percent
    of Common Stock (1) | 
|-------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- |  | ------------------------------- | 
|Melvin
    Gagerman (2)                                                                |  |                                       | 1,113,829  |  |                                 | 
|Kevin Michaels                                                                         |  |                                       | 0          |  |                                 | 
|William Anderson                                                                       |  |                                       | 2,857      |  |                                 | 
|Salvador Diaz-Verson,
    Jr. (3)                                                      |  |                                       | 296,664    |  |                                 | 
|Gary Douglas (4)                                                                       |  |                                       | 220,000    |  |                                 | 
|Sri Ryong Yu                                                                           |  |                                       | 0          |  |                                 | 
|Ronald J. Buschur                                                                      |  |                                       | 0          |  |                                 | 
|Cipora Lavut (5)                                                                       |  |                                       | 541,117    |  |                                 | 
|David Mann (6)                                                                         |  |                                       | 1,736,884  |  |                                 | 
|Robert Lempert (7)                                                                     |  |                                       | 291,963    |  |                                 | 
|All current executive
    officers and Directors as a group (five) (3) (4) (5) (6) (7) |  |                                       | 3,086,628  |  |                                 | 
|                                                                                       |  |                                       |            |  |                                 | 
|5% Stockholders                                                                        |  |                                       |            |  |                                 | 
|Warren Breslow (8)                                                                     |  |                                       | 8,359,195  |  |                                 | 
|Robert Kopple (9)                                                                      |  |                                       | 3,133,737  |  |                                 | 
|Elimelech Lowy (10)                                                                    |  |                                       | 11,737,363 |  |                                 | 
|Zvi (Harry) Kurtzman
    (11)                                                          |  |                                       | 8,400,450  |  |                                 | 



| | * | Less
    than 1% of outstanding shares.
| | - | ---------------------------------------



34







| | (1) | Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission.
The calculation of the percentage of beneficial ownership is based upon 54,181,786 shares of common stock outstanding on October
9, 2019. In computing the number of shares beneficially owned by any stockholder and the percentage ownership of such stockholder,
shares of common stock which may be acquired by a such stockholder upon exercise or conversion of warrants or options which are
currently exercisable or exercisable within 60 days of October 9, 2019, are deemed to be exercised and outstanding. Such shares,
however, are not deemed outstanding for purposes of computing the beneficial ownership percentage of any other person. Shares issuable
upon exercise of warrants and options which are subject to stockholder approval are not deemed outstanding for purposes of determining
beneficial ownership. Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting
and investment power with respect to all shares of common stock shown as beneficially owned by them. The mailing address for each
of the officers and directors is c/o Aura Systems, Inc., 10541 Ashdale St., Stanton, CA 90680.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes 810,751 warrants and options exercisable within 60 days of August 20, 2019.
| | --- | ------------------------------------------------------------------------------------



| | (3) | Including 255,848 warrants and options exercisable within 60 days of August 20, 2019.
| | --- | -------------------------------------------------------------------------------------



| | (4) | 200,000 warrants and options exercisable within 60 days of August 20, 2019.
| | --- | ---------------------------------------------------------------------------



| | (5) | Includes warrants to purchase 51,661 shares exercisable within 60 days of August 20, 2019.
| | --- | ------------------------------------------------------------------------------------------



| | (6) | Includes warrants to purchase 393,769 shares exercisable within 60 days of August 20, 2019 as well
as 1,343,115 shares, 891,204 of which Mr. Mann has sole dispositive power and approximately 272,320 of which, Mr. Mann holds a
power of attorney to vote such shares.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Includes warrants to purchase 100,000 shares exercisable within 60 days of August 20, 2019.
| | --- | -------------------------------------------------------------------------------------------



| | (8) | Includes warrants to purchase 666,000 shares exercisable within 60 days of August 20, 2019.
| | --- | -------------------------------------------------------------------------------------------



| | (9) | Based on a Schedule 13D filed by Mr. Kopple with the SEC on September 11, 2013. The business address
of Mr. Kopple is 10866 Wilshire Blvd., Suite 1500, Los Angeles, California 90024. The Company is also presently engaged in a dispute
with Mr. Kopple that includes a claim regarding approximately 3.278 million warrants which Mr. Kopple claims to be owed to him
and his affiliates by the Company. The Company believes that it has valid defenses against Mr. Kopple’s claims and that no
warrants are issuable to Mr. Kopple.  Accordingly, the amount reflected herein does not include the warrants in dispute.
See Item 3. “Legal Proceedings”, “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/A for additional information regarding the transactions under dispute.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Includes warrants to purchase 4,092,877 shares exercisable within 60 days of August 20, 2019 as
well as 11,737,363 shares, 4,189,670 of which Mr. Lowy has sole dispositive power and approximately 6,547,693 of which, Mr. Lowy
holds a power of attorney to vote such shares.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Includes options to purchase 485,714 shares and warrants to purchase 111,438 shares exercisable
within 60 days of August 20, 2019.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------



35







Securities
Authorized for Issuance Under Equity Compensation Plans as of February 28, 2019



Equity
Compensation Plan Information as of February 28, 2019





|                                                         |  | a.                                                                                                     |           |  | b.                                                                        |   |      | c.                                                                                                                                                          | 
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ | --------- |  | ------------------------------------------------------------------------- | - | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Plan Category                                            |  | Number of  Securities to be  Issued
    Upon  Exercise of  Outstanding  Options,  Warrants and  Rights |           |  | Weighted  Average  Exercise Price
     for Options,  Warrants and  Rights |   |      | Number of Securities  Remaining Available
     For Future Issuances  Under Equity  Compensation Plans  (Excluding Securities  Reflected in Column 
    (a.) | 
|Equity compensation plans approved by equity holders     |  |                                                                                                        | 1,032,000 |  |                                                                           | $ | 1.40 |                                                                                                                                                             | 
|                                                         |  |                                                                                                        |           |  |                                                                           |   |      |                                                                                                                                                             | 
|Equity compensation plans not approved by equity holders |  |                                                                                                        | 2,221,428 |  |                                                                           | $ | 1.40 |                                                                                                                                                             | 





| | (1) | Reflects
options under the 2006 Stock Option Plan. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable
for up to an aggregate number of shares of common stock equal to the greater of (i) 3,000,000 shares of common stock, or (ii)
10% of the number of shares of common stock outstanding from time to time. The numbers in this table are as of February 28, 2019.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For
additional information regarding options and warrants, see Note 10 to our financial statements appearing elsewhere in this report.



ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Related
Transactions



During
fiscal 2019, Si Ryong Yu, a Director of the Company, was paid an aggregate of $90,000 in consulting fees. See the related transactions
disclosure under “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/A.



Review
and Approval of Related Party Transactions



Our
Audit Committee is responsible for the review and approval of all related party transactions required to be disclosed to the public
under SEC rules. This procedure, which is contained in the written charter of our Audit Committee, has been established by our
Board of Directors in order to serve the interests of our shareholders. Related party transactions are reviewed and approved by
the Audit Committee on a case-by-case basis. Under existing, unwritten policy no related party transaction can be approved by
the Audit Committee unless it is first determined that the terms of such transaction is on terms no less favorable to us than
could be obtained from an unaffiliated third party on an arms-length basis and is otherwise in our best interest.



36







Director
Independence



Using
the definition of “independence” included in the listing rules of The Nasdaq Stock Market, our Board has determined
that Salvador Diaz-Versón, Jr. and Gary Douglas are both independent directors.



ITEM
14. PRINCIPAL ACCOUNTING FEES AND DISCLOSURES



The
following table sets forth the aggregate fees billed to us by KSP Group, Inc. for the years ended February 28, 2018, and 2019:



|                   |  | Year Ended February 28, |       
|------------------ |  | ----------------------- | ------
|                   |  | 2019                    |       
|Audit Fees         |  | $                       | 55,000
|Audit-related fees |  |                         | -     
|Tax fees           |  |                         | -     
|All other fees     |  |                         | -     
|                   |  |                         |       
|Total              |  | $                       | 55,000



As
defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the
audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are
normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years;
(ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably
related to the performance of the audit or review of our financial statements and are not reported under “audit fees;”
(iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice,
and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant,
other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”



Audit
Fees



Services
provided to us by KSP Group, Inc. with respect the audit of our annual financial statements and review of our annual reports on
Form 10-K and for reviews of the financial statements are included in our quarterly reports on Form 10-Q for the first three quarters
of the year ended February 28, 2019.



Audit
Related Fees



KSP
Group, Inc. did not provide any professional services to us during fiscal 2019 or fiscal 2018 which would constitute “audit
related fees”.



Tax
Fees



KSP
Group, Inc. did not provide any professional services to us during fiscal 2019 which would constitute “tax fees”.



All
Other Fees



KSP
Group, Inc. did not provide any professional services to us during fiscal 2019 or fiscal 2018 which would constitute “other
fees”.



37







Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors



Under
the SEC’s rules, the Audit Committee is required to pre-approve the audit and permissible non-audit services performed by
the independent registered public accounting firm in order to ensure that they do not impair the auditors’ independence.
The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client
and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public
accounting firm.



Consistent
with the SEC’s rules, the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent
auditors. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally
provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee
regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the
services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During fiscal
2018 and 2017 all services provided by KSP Group, Inc. were pre-approved by the Audit Committee in accordance with this policy.



There
were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for
the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time,
permanent employees.



PART
IV



ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES



Documents
filed as part of this Form 10-K:



| | 1. | Financial
Statements
| | -- | --------------------



See
Index to Consolidated Financial Statements at page F-1



| | 2. | Financial
Statement Schedules
| | -- | -----------------------------



See
Index to Consolidated Financial Statements at page F-1



| | 3. | Exhibits
| | -- | --------



See
Exhibit Index



ITEM
16. FORM 10-K SUMMARY



None.



38







INDEX
TO EXHIBITS



Description
of Documents



|3.1     | Amended and Restated Certificate of Incorporation of Aura Systems, Inc. (Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Form 10-K filed on June 15, 2009)                                                                                                                                                                        
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(a)  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated February 14, 2018(Incorporated by reference to Exhibit 3.1 to Aura Systems, Inc.’s Current Report on Form 8-K filed on February 21, 2018)                                                                                                                 
|3.2     | Amended and Restated Bylaws of Aura Systems, Inc. (Incorporated by reference to Exhibit 3.2 to Aura Systems, Inc.’s Report on Form 10-K filed on June 15, 2009)                                                                                                                                                                                    
|10.1*   | Aura Systems, Inc. 2006 Stock Option Plan (Incorporated by reference to Exhibit 10.4 to Aura System, Inc.’s Form 10-K filed on March 25, 2008)                                                                                                                                                                                                     
|10.2*   | Form of Aura Systems, Inc. Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.5 to Aura System, Inc.’s Form 10-K filed on March 25, 2008)                                                                                                                                                                               
|10.3    | Second Amendment to Transaction Documents dated March 14, 2017 among Registrant and those persons who have signed the signature page thereto (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017)                                                                           
|10.4    | Third Amendment to Transaction Documents dated April 8, 2017 among Registrant and those persons who have signed the signature page thereto (Incorporated by reference to Exhibit 10.2 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017)                                                                             
|10.5    | Second Amendment to Debt Refinancing Agreement dated April 9, 2017 by and between Aura Systems, Inc., on the one hand, and Warren Breslow and the Survivor’s Trust Under the Warren L. Breslow Trust, on the other hand (Incorporated by reference to Exhibit 10.3 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017)
|10.6    | First Amendment to Unsecured Convertible Promissory Note dated June 15, 2017 by and between the Survivor’s Trust Under the Warren L. Breslow Trust and the Registrant (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Quarterly Report on Form 10-Q filed on October 25, 2017)                                                  
|10.7    | Agreement entered into on June 19, 2017 between Aura Systems Inc. and BetterSea LLC (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Current Report on Form 8-K/A filed on May 9, 2018)                                                                                                                                          
|10.8    | Financing Letter of Agreement dated June 20, 2014 between Aura Systems, Inc. and KF Business Ventures, LP, joined by its affiliate Kopple Family Partnership, LP (Incorporated by reference to Exhibit 10.31 to Aura Systems, Inc.’s Form 10-K for the period ended February 28, 2015)**                                                           
|10.9    | Unsecured Promissory Note dated June 20, 2014 by Aura Systems, Inc. in favor of KF Business Ventures, LP in the original principal amount of $2,915,206.11 (Incorporated by reference to Exhibit A to Exhibit 10.31 to Aura Systems, Inc.’s Form 10-K for the period ended February 28, 2015)**                                                    
|10.10   | Form of Warrant by Aura Systems, Inc. to KF Business Ventures, LP (Incorporated by reference to Exhibit B to Exhibit 10.31 to Aura Systems, Inc.’s Form 10-K for the period ended February 28, 2015)**                                                                                                                                             
|10.11   | Sino-Foreign Cooperative Joint Venture Contract dated January 27, 2017 between Aura Systems, Inc. and Jiangsu AoLunTe Electrical Machinery Industrial Col, Ltd. (Incorporated by reference to Exhibit 10.1 to Aura Systems, Inc.’s Form 8-K filed on February 1, 2017)                                                                             
|10.12*  | Aura Systems, Inc. Directors and Executive Officers Stock Option Plan (Incorporated by reference to Exhibit 10.67 to Aura Systems, Inc.’s Form S-1 filed on November 30, 2011)                                                                                                                                                                     
|14.1    | Code of Ethics (Incorporated by reference to Exhibit 14.1 to Aura Systems, Inc.’s Annual Report on Form 10-K filed on June 13, 2018)                                                                                                                                                                                                               
|31.1    | CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        
|31.2    | CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                        
|32.1    | Certification pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                   
|101.INS | XBRL
    Instance Document                                                                                                                                                                                                                                                                                                                         
|101.SCH | XBRL
    Schema Document                                                                                                                                                                                                                                                                                                                           
|101.CAL | XBRL
    Calculation Linkbase Document                                                                                                                                                                                                                                                                                                             
|101.LAB | Label
    Linkbase Document                                                                                                                                                                                                                                                                                                                        
|101.PRE | Presentation
    Linkbase Document                                                                                                                                                                                                                                                                                                                 



| | * | Indicates
a management contract or compensatory plan or arrangement.
| | - | --------------------------------------------------------------------



| | ** | See
Item 3. “Legal Proceedings” and Item 12. “Security Ownership of Certain Beneficial Owners and Management”
included elsewhere in this Annual Report on Form 10-K/A for information on the dispute with Mr. Kopple regarding these exhibits.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.



39







Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.



AURA
SYSTEMS, INC.



|Dated: | March
    13, 2020   | 
|------ | -------------------- | 
|       |                      | 
|By:    | /s/
    Cipora Lavut | 
|       | Cipora
    Lavut     | 
|       | President            | 



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.



|Signatures                                              |  | Title                                                     |  | Date              
|------------------------------------------------------- |  | --------------------------------------------------------- |  | ------------------
|                                                        |  |                                                           |  |                   
|/s/
    Cipora Lavut                                    |  | President
    (Principal Executive Officer), Board Chair  |  | March
    13, 2020
|Cipora
    Lavut                                        |  |                                                           |  |                   
|                                                        |  |                                                           |  |                   
|/s/
                                         David Mann |  | Chief
    Financial Officer (Principal Financial Officer, |  | March 13, 2020    
|David
    Mann                                          |  | Principal Accounting Officer), Director                   |  |                   
|                                                        |  |                                                           |  |                   
|/s/
    Robert Lempert                                  |  | Director                                                  |  | March
    13, 2020
|Robert
    Lempert                                      |  |                                                           |  |                   
|                                                        |  |                                                           |  |                   
|/s/
    Gary Douglas                                    |  | Director                                                  |  | March
    13, 2020
|Gary
    Douglas                                        |  |                                                           |  |                   
|                                                        |  |                                                           |  |                   
|/s/
    Salvador Diaz-Verson, Jr.                       |  | Director                                                  |  | March
    13, 2020
|Salvador
    Diaz-Verson, Jr.                           |  |                                                           |  |                   



40







Index
to Financial Statements



|Report of Independent Registered Public Accounting Firm                                   | F-2        
|----------------------------------------------------------------------------------------- | -----------
|                                                                                          |            
|Financial
    Statements of Aura Systems, Inc.:                                           |            
|                                                                                          |            
|Balance Sheets as of February 28, 2019 and February 28, 2018                              | F-4        
|Statements of Operations - Years ended February 28, 2019 and February 28, 2018            | F-5        
|Statements of Stockholders’ Deficit - Years ended February 28, 2019 and February 28, 2018 | F-6        
|Statements of Cash Flows - Years ended February 28, 2019 and February 28, 2018            | F-7        
|Notes to Financial Statements                                                             | F-8
to F-24



F-1







| |  | 5757 W Century Blvd, Suite 303,
        Los Angeles, CA 90045
        Tel +1(714) 325-1721
        Fax +1(310) 410-0371
| |  | -----------------------------------------------------------------------------------------------------------------------





Accountants and Consultants



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors
of

Aura Systems, Inc.



Opinion on the Financial Statements



We have audited the accompanying balance
sheets of Aura Systems (the Company) as of February 28, 2019 and 2018, and the related statements of operations, stockholders’
equity (deficit), and cash flows for each of the years in the two years in the period then ended, and the related notes (collectively
referred to as the financial statements).



In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of February 28, 2019 and 2018, and the results
of its operations and its cash flows for the two years in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.



Consideration of the Company’s
Ability to Continue as a Going Concern



The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements,
the Company has historically incurred loss since inception, has negative cash flow from operation, and the Company may not have
sufficient working capital or outside financing available to meet its planned operating activities over the next twelve months.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans
regarding these matters are described in Note 10 to the financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



Basis for Opinion



These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.





F-2









| |  | 5757 W Century Blvd, Suite 303,
        Los Angeles, CA 90045
        Tel +1(714) 325-1721
        Fax +1(310) 410-0371
| |  | -----------------------------------------------------------------------------------------------------------------------





Accountants and Consultants



We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.



/s/ KSP Group,
Inc.

CERTIFIED PUBLIC ACCOUNTANTS



We have served as the
Company’s auditor since 2017.



As
discussed in note 13, the Company restated its financial statements for the year ended February 28, 2019



Los Angeles, CA

June 12, 2019 except for
Notes 2, 5,6,7,8,910,11, and 14 which are as of October 23, 2019



F-3







AURA
SYSTEMS, INC.

BALANCE
SHEETS



|                                                                                                                                                                                           |  | As of             |              |   | As of             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------------ | - | ----------------- | -
|                                                                                                                                                                                           |  | February 28,
2019 |              |   | February 28,
2018 |  
|                                                                                                                                                                                           |  | Restated          |              |   |                   |  
|Assets                                                                                                                                                                                     |  |                   |              |   |                   |  
|Current assets                                                                                                                                                                             |  |                   |              |   |                   |  
|Cash and cash equivalents                                                                                                                                                                  |  | $                 | 358,209      |   |                   | $
|Other current assets                                                                                                                                                                       |  |                   | 59,849       |   |                   |  
|Total current assets                                                                                                                                                                       |  |                   | 418,058      |   |                   |  
|Investment in joint venture                                                                                                                                                                |  |                   | 250,000      |   |                   |  
|Total assets                                                                                                                                                                               |  | $                 | 668,058      |   |                   | $
|                                                                                                                                                                                           |  |                   |              |   |                   |  
|Liabilities & Shareholders’ Deficit                                                                                                                                                        |  |                   |              |   |                   |  
|Current liabilities                                                                                                                                                                        |  |                   |              |   |                   |  
|Accounts payable                                                                                                                                                                           |  | $                 | 2,635,664    |   |                   | $
|Accrued expenses                                                                                                                                                                           |  |                   | 3,205,456    |   |                   |  
|Customer advances                                                                                                                                                                          |  |                   | 1,136,542    |   |                   |  
|Shares to be issued                                                                                                                                                                        |  |                   | -            |   |                   |  
|Notes payable, current portion                                                                                                                                                             |  |                   | 847,537      |   |                   |  
|Convertible notes payable and accrued interest-related party, net of discount                                                                                                              |  |                   | 3,644,354    |   |                   |  
|Convertible notes payable, net of discount                                                                                                                                                 |  |                   | -            |   |                   |  
|Notes payable and accrued interest-related party                                                                                                                                           |  |                   | 6,156,375    |   |                   |  
|Total current liabilities                                                                                                                                                                  |  |                   | 17,625,929   |   |                   |  
|Notes payable-related party                                                                                                                                                                |  |                   | 3,000,000    |   |                   |  
|Note payable                                                                                                                                                                               |  |                   | 215,181      |   |                   |  
|Convertible notes payable                                                                                                                                                                  |  |                   | 1,421,647    |   |                   |  
|Total liabilities                                                                                                                                                                          |  |                   | 22,262,757   |   |                   |  
|                                                                                                                                                                                           |  |                   |              |   |                   |  
|Commitments and contingencies                                                                                                                                                              |  |                   | -            |   |                   |  
|                                                                                                                                                                                           |  |                   |              |   |                   |  
|Shareholders’ deficit                                                                                                                                                                      |  |                   |              |   |                   |  
|Common stock: $0.0001 par value; 150,000,000 shares authorized at February 28, 2019 and 2018; 53,714,145 and 41,437,035 issued and outstanding at February 28, 2019 and 2018, respectively |  |                   | 5,371        |   |                   |  
|Additional paid-in capital                                                                                                                                                                 |  |                   | 442,519,092  |   |                   |  
|Subscription receivable                                                                                                                                                                    |  |                   | -            |   |                   |  
|Accumulated deficit                                                                                                                                                                        |  |                   | (464,119,161 | ) |                   |  
|Total shareholders’ deficit                                                                                                                                                                |  |                   | (21,594,699  | ) |                   |  
|Total liabilities and shareholders’ deficit                                                                                                                                                |  | $                 | 668,058      |   |                   | $



The accompanying notes are an integral
part of these financial statements



F-4







AURA
SYSTEMS, INC.

STATEMENTS
OF OPERATIONS



|                                             |  | For the Year Ended |            |   | For the Year Ended |  
|-------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                             |  | February 28,
 2019 |            |   | February 28,
2018  |  
|                                             |  |                    | Restated   |   |                    |  
|Net revenue                                  |  | $                  | 39,274     |   |                    | $
|Cost of goods sold                           |  |                    | 170,263    |   |                    |  
|Gross profit                                 |  |                    | (130,989   | ) |                    |  
|Operating expenses                           |  |                    |            |   |                    |  
|Engineering, research & development          |  |                    | 494,636    |   |                    |  
|Selling, general & administration            |  |                    | 3,590,045  |   |                    |  
|Total operating expenses                     |  |                    | 4,084,681  |   |                    |  
|Loss from operations                         |  |                    | (4,215,670 | ) |                    |  
|Other income (expense)                       |  |                    |            |   |                    |  
|Interest expense, net                        |  |                    | (1,078,873 | ) |                    |  
|Gain on debt settlement                      |  |                    | 2,747,298  |   |                    |  
|Other (expense)                              |  |                    | 44,813     |   |                    |  
|Total income (expense)                       |  |                    | 1,713,238  |   |                    |  
|Net income (loss)                            |  | $                  | (2,502,431 | ) |                    | $
|                                             |  |                    |            |   |                    |  
|Net income (loss) per share                  |  | $                  | (0.05      | ) |                    | $
|Basic weighted average shares outstanding    |  |                    | 45,920,670 |   |                    |  
|Diluted income (loss) per share              |  | $                  | (0.05      | ) |                    | $
|Dilutive weighted average shares outstanding |  |                    | 45,920,670 |   |                    |  



The accompanying notes are an integral
part of these financial statements



F-5







AURA
SYSTEMS INC.

STATEMENTS
OF SHAREHOLDERS’ DEFICIT

FOR
THE YEARS ENDED FEBRUARY 28, 2019 AND 2018

Restated
for Year Ended February 28, 2019



|                                             |  | Common Stock Shares |            |  | Common Stock Amount |   |       | Additional Paid-In Capital |  |   | Subscription Receivable |  |  | Accumulated Deficit |            |   | Total Shareholders’ Deficit |  
|-------------------------------------------- |  | ------------------- | ---------- |  | ------------------- | - | ----- | -------------------------- |  | - | ----------------------- |  |  | ------------------- | ---------- | - | --------------------------- | -
|Balance, February 28, 2017                   |  |                     | 16,284,492 |  |                     | $ | 1,629 |                            |  | $ | 410,509,367             |  |  | $                   | -          |   |                             | $
|Shares issued for cash                       |  |                     | 4,081,633  |  |                     |   | 408   |                            |  |   | 3,299,592               |  |  |                     | (1,300,000 | ) |                             |  
|Shares issued for debt settlement            |  |                     | 19,963,767 |  |                     |   | 1,996 |                            |  |   | 18,467,578              |  |  |                     | -          |   |                             |  
|Shares issued for services                   |  |                     | 928,572    |  |                     |   | 93    |                            |  |   | 884,907                 |  |  |                     | -          |   |                             |  
|Shares issued for accounts payable           |  |                     | 178,571    |  |                     |   | 18    |                            |  |   | 174,982                 |  |  |                     | -          |   |                             |  
|Warrant expense                              |  |                     | -          |  |                     |   | -     |                            |  |   | 4,910,665               |  |  |                     | -          |   |                             |  
|Net income                                   |  |                     | -          |  |                     |   | -     |                            |  |   |                         |  |  |                     | -          |   |                             |  
|Balance, February 28, 2018                   |  |                     | 41,437,035 |  |                     | $ | 4,144 |                            |  | $ | 438,247,091             |  |  | $                   | (1,300,000 | ) |                             | $
|                                             |  |                     |            |  |                     |   |       |                            |  |   |                         |  |  |                     |            |   |                             |  
|Shares issued for cash                       |  |                     | 3,274,063  |  |                     |   | 327   |                            |  |   | 967,961                 |  |  |                     | 1,300,000  |   |                             |  
|Shares issued for settlement (restated)      |  |                     | 5,108,291  |  |                     |   | 511   |                            |  |   | -                       |  |  |                     | -          |   |                             |  
|Prior year shares to be issued               |  |                     | 2,256,444  |  |                     |   | 226   |                            |  |   | 2,280,735               |  |  |                     | -          |   |                             |  
|Shares issued for debt settlement (restated) |  |                     | 1,419,562  |  |                     |   | 141   |                            |  |   | 476,072                 |  |  |                     | -          |   |                             |  
|Shares issued for accounts payable           |  |                     | 218,750    |  |                     |   | 22    |                            |  |   | 108,407                 |  |  |                     | -          |   |                             |  
|Shares cancelled (restated)                  |  |                     | -          |  |                     |   | -     |                            |  |   | -                       |  |  |                     | -          |   |                             |  
|Warrant expense                              |  |                     | -          |  |                     |   | -     |                            |  |   | 438,826                 |  |  |                     | -          |   |                             |  
|Net loss (restated)                          |  |                     | -          |  |                     |   | -     |                            |  |   | -                       |  |  |                     | -          |   |                             |  
|Balance, February 28, 2019 (restated)        |  |                     | 53,714,145 |  |                     | $ | 5,371 |                            |  | $ | 442,519,092             |  |  | $                   | -          |   |                             | $





The accompanying notes are an integral
part of these financial statements



F-6







AURA SYSTEMS, INC.

STATEMENTS OF CASH FLOWS



|                                                                           |  | For the Year Ended |            |   | For the Year Ended |  
|-------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                                           |  | February 28, 
2019 |            |   | February 28, 
2018 |  
|                                                                           |  | Restated           |            |   |                    |  
|Net Income (loss)                                                          |  | $                  | (2,502,431 | ) |                    | $
|Adjustments to reconcile net loss to cash used in
    operating activities |  |                    |            |   |                    |  
|FMV of warrants issued for services                                        |  |                    | 438,826    |   |                    |  
|Amortization of debt discount                                              |  |                    | -          |   |                    |  
|Gain on settlement of debt                                                 |  |                    | (3,370,942 | ) |                    |  
|Stock issued for legal settlement                                          |  |                    | 26,724     |   |                    |  
|Stock issued for services                                                  |  |                    | -          |   |                    |  
|(Increase) decrease in                                                     |  |                    | -          |   |                    |  
|Other current assets                                                       |  |                    | (17,684    | ) |                    |  
|Increase (decrease) in                                                     |  |                    | -          |   |                    |  
|Accts payable and accrued exp                                              |  |                    | 2,334,512  |   |                    |  
|Customer advances                                                          |  |                    | 632,910    |   |                    |  
|Cash used in operating activities                                          |  |                    | (2,458,085 | ) |                    |  
|Cash flows from investing activities                                       |  |                    |            |   |                    |  
|Investment in joint venture                                                |  |                    | -          |   |                    |  
|Cash flows from financing activities                                       |  |                    |            |   |                    |  
|Issuance of common stock                                                   |  |                    | 968,286    |   |                    |  
|Payment on notes payable                                                   |  |                    | (50,000    | ) |                    |  
|Proceeds from subscription AR                                              |  |                    | 1,150,000  |   |                    |  
|Proceeds from convertible note payable                                     |  |                    | -          |   |                    |  
|Cash provided by financing activities                                      |  |                    | 2,068,286  |   |                    |  
|                                                                           |  |                    |            |   |                    |  
|Net incr (decr) in cash and cash equivalents                               |  |                    | (389,799   | ) |                    |  
|Beginning cash                                                             |  |                    | 748,008    |   |                    |  
|Ending cash                                                                |  |                    | 358,209    |   |                    |  
|Supplemental schedule of non-cash financing and investing activities:      |  |                    |            |   |                    |  
|Accounts payable converted into shares of common stock                     |  |                    | 108,430    |   |                    |  
|Notes payable converted into shares of common stock                        |  |                    | 450,000    |   |                    |  
|Conversion of convertible shares into shares of common stock               |  |                    | -          |   |                    |  



The
accompanying notes are an integral part of these financial statements



F-7







AURA
SYSTEMS, INC.

NOTES
TO FINANCIAL STATEMENTS

February
28, 2019

Restated



NOTE
1 – ORGANIZATION AND OPERATIONS



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



NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (restated)



Revenue
Recognition



The
Company adopted Accounting Standards Codification (“ASC”) 606. ASC 606, Revenue from Contracts with Customers, establishes
principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the
entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue
to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled
to receive in exchange for those goods or services recognized as performance obligations are satisfied.



The
Company has assessed the impact of the guidance by performing the following five steps analysis:



Step
1: Identify the contract

Step
2: Identify the performance obligations

Step
3: Determine the transaction price

Step
4: Allocate the transaction price

Step
5: Recognize revenue



Cash
and Cash Equivalents



Cash
and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less. We have not experienced any losses in such accounts and believe we are not exposed
to any significant risk on cash and cash equivalents.



Inventories



Inventories
are valued at the lower of cost (first-in, first-out) or market, on a standard cost basis. We review the components of inventory
on a regular basis for excess or obsolete inventory based on estimated future usage and sales. As further described in Note 3,
due to historical reasons, we are holding inventories in excess of what we expect to sell in the next fiscal year. The Company
has minimally operated and therefore has only produced minimal product since late 2015. As a result, while the Company believes
that a portion of the inventory has value, we are unable to substantiate its demand and market value and as a result have elected
to reserve it in its entirety as of February 28, 2019 and February 28, 2018.



Stock-Based
Compensation



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



F-8







The
Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with FASB ASC 505-50, “Equity
Based Payments to Non-Employees”, whereas the fair value of the equity-based compensation is based upon the measurement
date as determined at the earlier of either (a) the date at which a performance commitment is reached or (b) at the
date at which the necessary performance to earn the equity instruments is complete.



In
accordance with established public company accounting practice, the Company has consistently utilized the Black-Scholes option-pricing
model to calculate the fair value of stock options and warrants issued as compensation, primarily to management, employees, and
directors.  The Black-Scholes option-pricing model is a widely-accepted method of valuation that public companies typically
utilize to calculate the fair value of options and warrants that they issue in such circumstances.



Fair
Value of Financial Instruments



The
Company measures our financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”.
The carrying values of accounts receivable, accounts payable, current notes payable, accrued expenses and other liabilities approximate
fair value due to the short-term maturities of these instruments. The carrying amounts of long-term convertible notes payable
approximate their respective fair values because of their current interest rates payable and other features of such debt in relation
to current market conditions.



Income
Taxes



The
Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes”. Under FASB ASC 740, deferred income
taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and
their financial statement reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense
for the period, if any, and the change during the period in deferred tax assets and liabilities.



The
Company has significant income tax net operating losses; however, due to the uncertainty of the realizability of the related deferred
tax asset and other deferred tax assets, a valuation allowance equal to the amount of deferred tax assets has been established
at February 28, 2019 and February 28, 2018.



FASB
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax
benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable
based on its technical merit.



Earnings
(Loss) per Share



The
Company utilize FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings
(loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per
share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common
shares available upon exercise of stock options and warrants using the treasury stock method, except for periods of operating
loss for which no common share equivalents are included because their effect would be anti-dilutive.



Estimates



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



F-9







Recently
Issued Accounting Pronouncements (restated)



In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes
Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from
leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments
in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. Our assessment of the impact of adopting ASU No. 2016-02 as of the first interim period following December 15, 2018, for
the three month period ending May 31, 2019, is none with respect to a retrospective adjustment to accumulated deficit as of February
28, 2019 and prospective amounts to be recorded as an asset or lease liability for the interim period ending May 31, 2019, respectively.



In
June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Statements,” which requires companies
to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader
range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting
periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not
yet determined the potential effects of the adoption of ASU 2016-13 on its Financial Statements.



The
Company adopted Accounting Standards Codification (“ASC”) 606. ASC 606, Revenue from Contracts with Customers, establishes
principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the
entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue
to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled
to receive in exchange for those goods or services recognized as performance obligations are satisfied.



The
Company has assessed the impact of the guidance by performing the following five steps analysis:



Step
1: Identify the contract

Step
2: Identify the performance obligations

Step
3: Determine the transaction price

Step
4: Allocate the transaction price

Step
5: Recognize revenue



NOTE
3 – INVENTORIES



Inventories
at February 28, 2019 and 2018 consisted of the following:



|                  |  | 2019 |            |   | 2018 |  
|----------------- |  | ---- | ---------- | - | ---- | -
|                  |  |      |            |   |      |  
|Raw materials     |  | $    | 1,932,050  |   |      | $
|Finished goods    |  |      | 1,651,283  |   |      |  
|                  |  |      |            |   |      |  
|                  |  |      | 3,583,333  |   |      |  
|Inventory reserve |  |      | (3,583,333 | ) |      |  
|                  |  |      |            |   |      |  
|Inventories       |  | $    | -          |   |      | $



Inventories
consist primarily of components and completed units for the Company’s AuraGen® product.



Early
in our AuraGen® program, we determined it was most cost-effective to outsource production of components and
subassemblies to volume-oriented manufacturers, rather than produce these parts in-house. As a result of this decision, a substantial
inventory of components at volume prices, a portion of which was then assembled into finished AuraGen® units.
We have been selling product from this inventory for several years. Management has analyzed its inventories based on its current
business plan, current potential orders for future delivery, potential obsolescence and pending proposals with prospective customers
and has determined we do not expect to realize all of its inventories within the next year. As described in Note 2 above, while
the Company believes the inventory has some value, it has elected to fully reserve the inventory due to the inability of determining
the demand and, therefore, fair market value at February 28, 2019 and 2018 is zero, respectively.



NOTE
4 – OTHER CURRENT ASSETS



Other
current assets of $59,849 and $42,165 are comprised primarily of vendor advances of $57,777 and $42,165 as of February 28, 2019
and February 28, 2018, respectively.





F-10







NOTE
5 – NOTES PAYABLE (restated)



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   |  |                       | $
|Note payable – related party, carrying an interest rate of 5% - see Note 6, Breslow Note, for further details                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                       | 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 10th 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   |  |                       |  
|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 2nd 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   |  |                       |  
|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   |  |                       |  
|Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.50 per 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    |  |                       |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                       | 1,421,647 |  |                       |  
|Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.50 per 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.
                                                                                                   
                                                                                In 2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants in a lawsuit filed by 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. In September 2018 the court entered a judgment of approximately $235,000 plus legal fees in favor of the two secured creditors. The Company subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for an aggregate principle amount of $315,000, including $80,000 of plaintiff’s legal expenses, and initial payment of $20,000 on October 1, 2019, a payment schedule for monthly repayments of $10,000 commencing on October 15, 2019 and continuing for 12 months, and a final payment due on November 15, 2020. |  |                       | 285,000   |  |                       |  
|Convertible notes dated April 2016 thru February 2017 with B&H TEL LLC. The notes carry an interest rate of 5% and may 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 common stock as of February 28, 2019.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                       | -         |  |                       |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                       | 285,000   |  |                       |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                       | 5,484,184 |  |                       |  
|Less: Current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $                     | 847,537   |  |                       | $
|Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $                     | 4,636,647 |  |                       | $





F-11







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; $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.



In
February 2018, the Company issued 192,641 shares of its common stock to Steven Veen in satisfaction of $267,000 in debt. Despite
this issuance, Mr. Veen claims to continue to be entitled to repayment of the $267,000 debt. Mr. Veen has, to-date, not surrendered
the shares issued to him in fulfillment of the debt he claims to be still owed and continues to own the 192,641 shares as of the
date of this filing. The Company’s new management team is in the process of investigating the circumstances surrounding
Mr. Veen.



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



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.



F-12







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. W. Abdou and Mr. M. Abdou. The original agreement dated May 7, 2013 provided that if at least 75% of the stock issuable
upon conversion of the convertible notes votes to amend the agreement and/or waive any conditions or defaults, then any such amendments
or waivers shall be binding on all secured creditors. The five secured creditors signing the amendment total in excess of 95%
of the issuable stock upon conversion and, therefore the agreement is binding on all seven of the secured creditors. The agreement
provided that all accrued and unpaid interest will be added to the principal amount. The amended note provided for no interest
from November 1, 2016 to February 14, 2018, the date at which the 1-for-7 reverse stock split became effective at which time 80%
of the total debt including accrued interest was converted into shares of common stock and a new five year 5% per annum convertible
note was issued for the remainder. The new amended and restated senior convertible notes have a maturity date of January 30, 2022.
The five creditors and the Company entered into a Second Amendment to Transaction Documents on March 14, 2017 and a Third Amendment
to Transaction Documents on April 8, 2017, both of which extended the required date of the stockholder approval of the 1-for-7
reverse stock split, which was completed on February 14, 2018. The amended and restated senior convertible notes also require
the Company to make a “Required Cash Payment” as defined in the agreement if the Company receives at least $4,000,000
in aggregate gross proceeds from the sale of equity securities (including securities convertible into equity securities) of the
Company in one or a series of related transactions. The Required Cash Payment is equal to the current outstanding balance of the
notes, which was $1,149,007 at February 28, 2019, plus any outstanding accrued interest.



NOTE
6 – RELATED PARTIES TRANSACTIONS (restated)



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
Notes

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. 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.



Gagerman
Note

Related
parties transactions also includes $82,000 of unsecured notes payable plus accrued interest of $48,289 owed to Melvin Gagerman,
the Company’s former CEO, pursuant to a demand note entered into on April 5, 2014.



F-13







NOTE
7 – ACCRUED EXPENSES (restated)



Accrued
expenses at February 28, 2019 (restated) and 2018 consisted of the following:



|                                     |  | 2019     |           |  | 2018 |  
|------------------------------------ |  | -------- | --------- |  | ---- | -
|                                     |  | Restated |           |  |      |  
|Accrued payroll and related expenses |  | $        | 2,732,019 |  |      | $
|Accrued interest                     |  |          | 428,625   |  |      |  
|Other (restated)                     |  |          | 44,812    |  |      |  
|Total                                |  | $        | 3,205,456 |  |      | $



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 (Restated)



Leases



Our
facilities consist of approximately 20,000 square feet in Stanton, California and an additional storage facility in Santa Clarita,
California. The Stanton facility is used for some assembly and testing of AuraGen®/VIPER systems and is rented
on a month-to-month basis. The rent for the Stanton facility is $10,000 per month and the storage facility is an additional $5,000
per month. Our current Stanton facility is not sufficient to support the expected operations and the Company is planning to look
for a new facility to be used for limited production, testing, warehousing and engineering as well as needed office space for
support staff. The Company also rents temporary storage space on a month-to-month basis. Commencing in February 2019, the Company
began renting approximately 300 square feet of office space in Irvine, California at a cost of $ 2,350 per month on a month-to-month
basis. In July 2019, the Company ceased renting this office space.



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 contributed 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, Jiangsu Shengfeng 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. Mr. Song the majority shareholder of the Chinese part
of the joint venture also invested $2,000,000 in Aura’s common shares at a price of $1.40 per share.



F-14







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.



In
2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among several other defendants
in a lawsuit filed by 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. In September
2018 the court entered a judgment of approximately $235,000 in favor of the two secured creditors. The Company subsequently appealed
this judgment and, in September 2019, reached a settlement agreement with these creditors (see note 14)



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 former 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 alleging 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 in excess of $400,000 in allegedly unpaid legal
fees. In January 2019, the Company reached a settlement with Kilpatrick Townsend & Stockton LLP, pursuant to which, among
other things, Kilpatrick Townsend & Stockton LLP agreed to dismiss its cross-complaint and waive all unpaid legal fees. The
action and the cross-complaint were both subsequently dismissed.



In
February 2018, the Company failed to issue shares of stock contractually owed to BetterSea, LLC (“BetterSea”), one
of the Company’s long-standing technical consultants. On August 15, 2018, 7,364,735 restricted shares were issued in fulfillment
of this contractual obligation based on the then-outstanding closing quote of the stock. The issuance of the shares was previously
reported by the Company. The Company also paid $20,000 in legal fees on behalf of BetterSea related to legal expense associated
with the Company’s delays in the issuance of the stock. During the fiscal year ended February 28, 2019 and incorrectly reported
on Form 10-K, issued on June 13, 2019, the Company overstated, as part of additional paid-in capital on the balance sheet as of
February 28, 2019, the value of the 7,364,735 restricted shares issued to BetterSea by $1,991,739. In the balance sheet contained
in this amended and restated report, the amount of $1,991,739 was reversed as a restatement of additional paid-in capital (see
Note 13),



F-15







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, Mr. 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 Mr. 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.



NOTE
9 – STOCKHOLDERS’ DEFICIT (restated)



Common
Stock



At
February 28, 2019 and 2018, the Company 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 3.3 million shares of common stock for cash totaling $1.0 million and 9.0
million shares of common stock in settlement of $2.9 million of debt. For the year ended February 28, 2018, the Company issued
4.1 million shares of common stock for cash totaling $3.3 million and 21.1 million shares of common stock valued at $19.5 million
for the settlement of debt.



As
of February 28, 2018, the Company had a subscription receivable that consisted of a $1.3 million receivable for 2,653,061 shares
of the Company’s common stock. Following resolution of a dispute regarding the Company’s failure to issue certain
shares due to the investor from a previous investment, $1,000,000 was delivered in April 2018, and $150,000 was paid later in
fiscal 2019. During fiscal 2019 the Company received $1,150,000 in cash from the investor with the balance of $150,000 being applied
through the assumption of the B&H note.



In
February 2018, the Company failed to issue shares of stock contractually owed to BetterSea, LLC (“BetterSea”), one
of the Company’s technical consultants. On August 15, 2018, 7,364,735 restricted shares were issued in fulfillment of this
contractual obligation based on the then-outstanding closing quote of the stock. The issuance of the shares was previously reported
by the Company. The Company also paid $20,000 in legal fees on behalf of BetterSea related to legal expense associated with the
Company’s delays in the issuance of the stock.



Employee
Stock Options



The
2006 Employee Stock Option Plan



In
September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan (“2006 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. No options under the 2006 Plan have been
issued since 2016.



F-16







The
2011 Director and Executive Officers Stock Option Plan



In
October 2011 shareholders approved the 2011 Director and Executive Officers Stock Option Plan (“2011 Plan”) at the
Company’s annual meeting. Under the 2011 Plan, the Company may grant options, or warrants, 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.



Activity
in the 2006 Plan is restated as follows:



|                               |  | Number
    of  Shares |           |   | Exercise
     Prices |   |      | Weighted
     Average  Intrinsic Value | 
|------------------------------ |  | --------------------- | --------- | - | -------------------- | - | ---- | -------------------------------------- | 
|Outstanding, February 28, 2018 |  |                       | 1,032,000 |   |                      | $ | 1.40 |                                        | 
|Granted                        |  |                       | -         |   |                      |   | -    |                                        | 
|Exercised                      |  |                       | -         |   |                      |   | -    |                                        | 
|Cancelled                      |  |                       | (385,000  | ) |                      | $ | 1.40 |                                        | 
|Outstanding, February 28, 2019 |  |                       | 647,000   |   |                      | $ | 1.40 |                                        | 



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             
|$                               | 1.40 |  |                    



Warrants



Activity
in the 2011 Plan for issued and outstanding warrants is as follows:



|                               |  | Number
    of Shares |            |   | Exercise
    Prices |  
|------------------------------ |  | -------------------- | ---------- | - | ------------------- | -
|Outstanding, February 28, 2018 |  |                      | 8,743,505  |   |                     | $
|Granted                        |  |                      | 645,957    |   |                     | $
|Exercised                      |  |                      | -          |   |                     |  
|Cancelled                      |  |                      | (1,898,475 | ) |                     | $
|Outstanding, February 28, 2019 |  |                      | 7,490,987  |   |                     | $



The
exercise prices and information related to the warrants under the 2011 Plan outstanding at February 28, 2019 is as follows:



|Range
    of  Exercise Price |      |  | Stock
     Warrants 
    Outstanding |  |           | Stock
     Warrants 
    Exercisable |  |  | Weighted
     Average  Remaining  Contractual  Life |  | Weighted
     Average  Exercise Price of Warrants  Outstanding |           |  | Weighted
                                         Average Exercise Price of Warrants Exercisable |     
|---------------------------- | ---- |  | ------------------------------------ |  | --------- | ------------------------------------ |  |  | --------------------------------------------------- |  | -------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------------------------------ | ----
|$                            | 1.40 |  |                                      |  | 7,490,987 |                                      |  |  | 7,485,987                                           |  |                                                                | 3.50 Yrs. |  | $                                                                                                | 1.40



F-17







NOTE
10 – GOING CONCERN (restated)



The
accompanying restated consolidated financial statements have been prepared assuming that the Company will continue as a going
concern.  During the fiscal years ended February 28, 2019 and February 28, 2018, the Company incurred a loss of $2,502,431
and income of $1,700,649, respectively, and had negative cash flows from operating activities of $2,458,086 and $2,809,484, respectively.



In
the event 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 further 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 increase 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 an 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 |  |      |  
|                           |  |      |     |  |      |  
|Total                      |  |      | 800 |  |      |  
|                           |  |      |     |  |      |  
|Deferred                   |  |      |     |  |      |  
|Federal                    |  |      | -   |  |      |  
|State                      |  |      | -   |  |      |  
|                           |  |      |     |  |      |  
|Total                      |  |      | -   |  |      |  
|Total Income Tax Provision |  |      |     |  |      |  
|                           |  | $    | 800 |  |      | $



F-18







The
provision for income tax is included with other expense in the accompanying consolidated financial statements.



|                                           |  | 2019 |       |   | 2018 | 
|------------------------------------------ |  | ---- | ----- | - | ---- | 
|                                           |  |      |       |   |      | 
|Expected tax benefit                       |  |      | 21.0  | % |      | 
|State income taxes, net of federal benefit |  |      | 6.0   |   |      | 
|Changes in valuation allowance             |  |      | (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 |  |      | 52,800,000  |   |      |  
|Valuation allowance                                                                                                                                  |  |      | (52,800,000 | ) |      |  
|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 $251,425,000 for federal purposes, which expire through
2039, and $41,006,000 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 Company does not manage
or hold any of the plan assets. The Company does not currently intend to fund this plan.





F-19







NOTE
13 – FINANCIAL STATEMENT RESTATEMENTS



The
financial statement restatement and amended amounts included in this amended report are described below along with comparison
to financial statement amounts previously reported on Form 10-K, issued on June 13, 2019 for the year ended February 28, 2019:



| | i. | Accounts
                                         payable and selling, general & administration expense were understated by $31,395,
                                         respectively, with respect to unrecorded expense related to outside consultant and legal
                                         expense incurred during fiscal year 2019.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ii. | Additional
                                         paid-in capital and selling, general & administration expense were overstated by
                                         $1,991,740, respectively, due to an incorrect fair value associated with common shares
                                         issued during 2019 to BetterSea, a technical consultant to the Company (see Note 8).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iii. | Accounts
                                         payable was overstated and gain on debt settlement was understated by $100,000, respectively,
                                         with respect to amounts incorrectly recorded as an accounts payable due to a vendor.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iv. | Restated
                                         basic and diluted loss per share for the year ended February 28, 2019 reduced by $0.05
                                         due to the reduced restated net loss for the same period and the restated weighted average
                                         number of common shares outstanding for the same period increased by 272,428 shares.
                                         The balance sheet at February 28, 2019 was restated for common shares outstanding from
                                         52,082,083 to 53,714,145.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | v. | Notes
                                         payable, general & administration expense, gain on debt settlement and additional
                                         paid-in capital are amended to include $80,162 in accrued legal expense and recognition
                                         of a net loss of $26,212 related to the issuance of 111,092 common shares in connection
                                         with the September 2019 Agreement Regarding Payment of Court Judgment in Installments,
                                         On Timeline, And Staying Execution (“Abdou Payment Agreement”), in which
                                         the Company was held liable for payment of such expense (see note 14) over a period ending
                                         November 15, 2020. In addition to the legal expenses of $80,162, the Company is reclassifying
                                         the principle amount of $125,000 from convertible notes payable and $110,000 of accrued
                                         interest reported previously as part of accrued expenses to note payable on the balance
                                         sheet as of February 28, 2019, including that portion due within twelve months from February
                                         28, 2019 of $70,000 as part of notes payable, current portion.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | vi. | Additional
                                         paid-in capital was understated by and accrued expense was overstated by $67,893 as a
                                         result of cash payments received by the Company prior to February 28, 2019 for a definitive
                                         number of common shares and recorded as a liability.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-20







|Balance Sheet                                                                                                                                                                                         |  | Previously |              |   | Restatement |   |            |   |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ------------ | - | ----------- | - | ---------- | - | ---------- | 
|as of February 28, 2019                                                                                                                                                                               |  | Reported   |              |   | Adjustment  |   |            |   | Restated   | 
|Assets                                                                                                                                                                                                |  |            |              |   |             |   |            |   |            | 
|Current assets                                                                                                                                                                                        |  |            |              |   |             |   |            |   |            | 
|Cash and cash equivalents                                                                                                                                                                             |  | $          | 358,209      |   |             | $ | -          |   |            | 
|Other current assets                                                                                                                                                                                  |  |            | 59,849       |   |             |   | -          |   |            | 
|Total current assets                                                                                                                                                                                  |  |            | 418,058      |   |             |   | -          |   |            | 
|Investment in joint venture                                                                                                                                                                           |  |            | 250,000      |   |             |   | -          |   |            | 
|Total assets                                                                                                                                                                                          |  | $          | 668,058      |   |             | $ | -          |   |            | 
|                                                                                                                                                                                                      |  | $          |              |   |             |   |            |   |            | 
|Liabilities & Shareholders’ Deficit                                                                                                                                                                   |  |            |              |   |             |   |            |   |            | 
|Current liabilities                                                                                                                                                                                   |  |            |              |   |             |   |            |   |            | 
|Accounts payable                                                                                                                                                                                      |  | $          | 2,704,269    |   |             | $ | (68,605    | ) | i, iii     | 
|Accrued expenses                                                                                                                                                                                      |  |            | 3,383,369    |   |             |   | (177,912   | ) | v,vi       | 
|Customer advances                                                                                                                                                                                     |  |            | 1,136,542    |   |             |   | -          |   |            | 
|Shares to be issued                                                                                                                                                                                   |  |            | -            |   |             |   | -          |   |            | 
|Notes payable, current portion                                                                                                                                                                        |  |            | 777,537      |   |             |   | 70,000     |   | v.         | 
|Convertible notes payable and accrued interest-related party, net of discount                                                                                                                         |  |            | 3,644,354    |   |             |   | -          |   |            | 
|Convertible notes payable, net of discount                                                                                                                                                            |  |            | 125,000      |   |             |   | (125,000   | ) | v.         | 
|Notes payable and accrued interest-related party                                                                                                                                                      |  |            | 6,156,375    |   |             |   | -          |   |            | 
|Total current liabilities                                                                                                                                                                             |  |            | 17,927,446   |   |             |   | (301,517   | ) |            | 
|Notes payable-related party                                                                                                                                                                           |  |            | 3,000,000    |   |             |   | -          |   |            | 
|Note payable                                                                                                                                                                                          |  |            | -            |   |             |   | 215,181    |   | v.         | 
|Convertible notes payable                                                                                                                                                                             |  |            | 1,421,647    |   |             |   | -          |   |            | 
|Total liabilities                                                                                                                                                                                     |  |            | 22,349,093   |   |             |   | (86,336    | ) |            | 
|                                                                                                                                                                                                      |  |            |              |   |             |   |            |   |            | 
|Commitments and contingencies                                                                                                                                                                         |  |            | -            |   |             |   | -          |   |            | 
|                                                                                                                                                                                                      |  |            |              |   |             |   |            |   |            | 
|Shareholders’ deficit                                                                                                                                                                                 |  |            |              |   |             |   |            |   |            | 
|Common stock: $0.0001 par value; 150,000,000 shares authorized at February 28, 2019 and 2018; 53,714,145 (restated) and 41,437,035 issued and outstanding at February 28, 2019 and 2018, respectively |  |            | 5,209        |   |             |   | 162        |   | iv,v.      | 
|Additional paid-in capital                                                                                                                                                                            |  |            | 444,386,887  |   |             |   | (1,867,795 | ) | ii,v,vi    | 
|Subscription receivable                                                                                                                                                                               |  |            | -            |   |             |   | -          |   |            | 
|Accumulated deficit                                                                                                                                                                                   |  |            | (466,073,131 | ) |             |   | 1,953,970  |   | i,ii,iii,v | 
|Total shareholders’ deficit                                                                                                                                                                           |  |            | (21,681,035  | ) |             |   | 86,336     |   |            | 
|Total liabilities and shareholders’ deficit                                                                                                                                                           |  | $          | 668,058      |   |             | $ | (0         | ) |            | 



F-21







|Statement
    of Operations                  |  | Previously |            |   | Restatement |   |            |   |          | 
|-------------------------------------------- |  | ---------- | ---------- | - | ----------- | - | ---------- | - | -------- | 
|for
    the year ended February 28, 2019     |  | Reported   |            |   | Adjustment  |   |            |   | Restated | 
|                                             |  |            |            |   |             |   |            |   |          | 
|Net revenue                                  |  | $          | 39,274     |   |             | $ | -          |   |          | 
|Cost of goods sold                           |  |            | 170,263    |   |             |   | -          |   |          | 
|Gross profit                                 |  |            | (130,989   | ) |             |   | -          |   |          | 
|Operating expenses                           |  |            |            |   |             |   |            |   |          | 
|Engineering, research & development          |  |            | 494,636    |   |             |   | -          |   |          | 
|Selling, general & administration            |  |            | 5,470,228  |   |             |   | (1,880,183 | ) | i,ii,v   | 
|Total operating expenses                     |  |            | 5,964,863  |   |             |   | (1,880,183 | ) |          | 
|Loss from operations                         |  |            | (6,095,853 | ) |             |   | 1,880,183  |   |          | 
|Other income (expense)                       |  |            |            |   |             |   |            |   |          | 
|Interest expense, net                        |  |            | (1,078,873 | ) |             |   | -          |   |          | 
|Gain on debt settlement                      |  |            | 2,673,511  |   |             |   | 73,787     |   | iii,v    | 
|Other (expense)                              |  |            | 44,813     |   |             |   | -          |   |          | 
|Total income (expense)                       |  |            | 1,639,451  |   |             |   | 73,787     |   |          | 
|Net income (loss)                            |  | $          | (4,456,401 | ) |             | $ | 1,953,970  |   |          | 
|                                             |  |            |            |   |             |   |            |   |          | 
|Net income (loss) per share                  |  | $          | (0.10      | ) |             | $ | 0.05       |   | iv       | 
|Basic weighted average shares outstanding    |  |            | 45,648,202 |   |             |   | 272,468    |   | iv       | 
|Diluted income (loss) per share              |  | $          | (0.10      | ) |             | $ | 0.05       |   | iv       | 
|Dilutive weighted average shares outstanding |  |            | 45,648,202 |   |             |   | 272,468    |   | iv       | 



F-22







|Statement
    of Cash Flows                                                |  | Previously |            |   | Restatement |   |            |   |            | 
|-------------------------------------------------------------------------- |  | ---------- | ---------- | - | ----------- | - | ---------- | - | ---------- | 
|for
    the year ended February 28, 2019                                   |  | Reported   |            |   | Adjustment  |   |            |   | Restated   | 
|                                                                           |  |            |            |   |             |   |            |   |            | 
|Net Income (loss)                                                          |  | $          | (4,456,401 | ) |             | $ | 1,953,970  |   | ii,iii,I,v | 
|Adjustments to reconcile net loss to cash used in
    operating activities |  |            |            |   |             |   |            |   |            | 
|FMV of warrants issued for services                                        |  |            | 438,826    |   |             |   | (0         | ) |            | 
|Amortization of debt discount                                              |  |            | -          |   |             |   | -          |   |            | 
|Gain on settlement of debt                                                 |  |            | (3,270,942 | ) |             |   | (100,000   | ) | iii        | 
|Stock issued for legal settlement                                          |  |            | 1,992,251  |   |             |   | (1,965,527 | ) | ii,v.      | 
|Stock issued for services                                                  |  |            | -          |   |             |   | -          |   |            | 
|(Increase) decrease in                                                     |  |            | -          |   |             |   | -          |   |            | 
|Other current assets                                                       |  |            | (17,684    | ) |             |   | (0         | ) |            | 
|Increase (decrease) in                                                     |  |            | -          |   |             |   | -          |   |            | 
|Accts payable and accrued exp                                              |  |            | 2,215,741  |   |             |   | 118,771    |   | iii,
i     | 
|Customer advances                                                          |  |            | 632,910    |   |             |   | 0          |   |            | 
|Cash used in operating activities                                          |  |            | (2,465,299 | ) |             |   | 7,214      |   |            | 
|Cash flows from investing activities                                       |  |            |            |   |             |   |            |   |            | 
|Investment in joint venture                                                |  |            | -          |   |             |   | -          |   |            | 
|Cash flows from financing activities                                       |  |            |            |   |             |   |            |   |            | 
|Issuance of common stock                                                   |  |            | 900,500    |   |             |   | 67,785     |   | vi.        | 
|Payment on notes payable                                                   |  |            | (50,000    | ) |             |   | -          |   |            | 
|Proceeds from subscription AR                                              |  |            | 1,225,000  |   |             |   | (75,000    | ) | vi.        | 
|Proceeds from convertible note payable                                     |  |            | -          |   |             |   | -          |   |            | 
|Cash provided by financing activities                                      |  |            | 2,075,500  |   |             |   | (7,215     | ) |            | 
|                                                                           |  |            |            |   |             |   |            |   |            | 
|Net incr (decr) in cash and cash equiv                                     |  |            | (389,799   | ) |             |   | (1         | ) |            | 
|Beginning cash                                                             |  |            | 748,008    |   |             |   | -          |   |            | 
|Ending cash                                                                |  | $          | 358,209    |   |             | $ | (1         | ) |            | 
|                                                                           |  |            |            |   |             |   |            |   |            | 
|Supplemental schedule of non-cash financing and investing activities:      |  |            |            |   |             |   |            |   |            | 
|Accounts payable converted into shares of common stock                     |  |            | 108,430    |   |             |   | -          |   |            | 
|Notes payable converted into shares of common stock                        |  |            | 420,000    |   |             |   | 30,000     |   |            | 



F-23







NOTE
14 – SUBSEQUENT EVENTS



In
2016, the Company and the Company’s former Chief Executive Officer, Melvin Gagerman, were named among other defendants in
a lawsuit filed by two secured creditors (M. Abdou and W. Abdou) demanding repayment of loans totaling $125,000 plus accrued interest
and exemplary damages. In September 2018, the court entered a judgment (“September Judgment”) of approximately $235,000
plus legal fees in favor of the two secured creditors. The Company subsequently appealed this judgment and, in September 2019,
reached an agreement with these creditors to implement a payment plan in accordance with the September Judgment on the following
settlement terms: (i) the aggregate principle amount of the debt consisting of unpaid principle, accrued interest and reimbursable
legal expenses of $80,162 is approximately $315,000 (ii) a simple per annum interest rate of 10% would apply during future periods
on the principle amount (iii) the Company would make an initial $20,000 payment (iv) an installment payment plan pursuant to which
the Company would make $10,000 monthly payments commencing on October 15, 2019 and continuing for a period of one-year (v) on
November 15, 2020, the Company will make a final payment covering all unpaid principle and interest amounts (vi) the creditors’
agree to sell the approximate 111,000 shares of the Company’s common shares held by them for $30,000 and apply those proceeds
to the outstanding principle amount of $315,000 initially due to them.



Accordingly,
the Company recorded in the restated financial statements as of February 28, 2019 (i) additional legal expense of $80,162 (ii)
reclassified the original principle amount of $125,000 from convertible notes payable to notes payable (iii) reclassified approximately
$110,000 of accrued interest from accrued expense to notes payable (iv) recorded the legal expense of $80,162 to note payable
(v) recorded a gain to settlement of debt of $30,000 on the Statement of Operations for the year ended February 28, 2019 and a
corresponding reduction to note payable and (vi) recorded a loss to settlement of debt of $56,212 related to the fair value of
the 111,092 shares at February 28, 2019 that were sold by the creditor to a third party with the proceeds of $30,000 applied to
the principle amount. These subsequent event adjustments reflect the fact that the September Judgment had occurred in fiscal 2019
and that the Abdou Payment Agreement, dated in September 2019 and prior to the issuance of this Amended Report on Form 10-K/A,
provided additional information about an event that occurred prior to February 28, 2019.





F-24