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

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

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

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

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

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

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 ☒

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

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED NOVEMBER 30, ~~2017~~2018 AND ~~2016~~2017

AURA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE ~~SIX~~NINE MONTHS ENDED NOVEMBER 30, ~~2017~~2018 AND ~~2016~~2017
(Unaudited)

Unaudited supplemental disclosure of non-cash investing and financing activities:

~~During the nine months ended November 30, 2016, 950,000 shares of common stock were issued to settle a note payable balance of $150,000 plus accrued interest of $15,588.~~

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

In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the year ended February 28, ~~2017~~2018 filed on ~~September 18, 2017~~June 13, 2018 with the U.S. Securities and Exchange Commission.

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.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

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. We are currently evaluating the impact of adopting ASU No. 2016-02 on our financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principalNo. 2016-09, Compensation – Stock Compensation, or ~~an agent.~~ ASU ~~2016-08 clarifies that the analysis must focus on whether the entity has control~~No. 2016-09. The areas for simplification in this Update involve several aspects of the ~~goods~~accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or ~~services before they~~liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective ~~date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14,~~ for annual ~~reporting~~ periods beginning after December 15, ~~2017, including~~2016, and interim periods within those ~~years. The Company has not yet determined~~annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU ~~2016-08~~No. 2016-09 on ~~its financial statements.~~

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which amends the guidance on transition, collectability, non-cash consideration, and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The standard allows for both retrospective and modified retrospective methods of adoption. The Company has not yet determined the impact of ASU 2016-10 on itsour financial statements.

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.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017 (fiscal year 2019 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Financial Statements.

Certain reclassifications have been made to the comparative financial statements to conform to the current period presentation.

The accompanying ~~consolidated~~ financial statements have been prepared assuming that the Company will continue as a going concern. During the nine months ended November 30, ~~2017~~2018 and November 30, ~~2016,~~2017, the Company incurred losses of ~~$5,215,524~~$5,706,947 and ~~$3,535,724,~~$5,215,524, respectively and had negative cash flows from operating activities of ~~$2,064,340~~$1,902,151 and ~~$752,305,~~$2,064,340, respectively.

If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.

Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

During the next twelve months we intend to restart operations of our AuraGen/VIPER business both domestically and internationally. At the next ~~shareholders~~annual meeting the shareholders will vote for ~~an entire new slate of~~ five board candidates. The new board ~~when elected will~~intends to hire a new management team. In addition, we plan to acquire a new facility of approximately 45,000 square feet for operations, as well as rebuild the engineering, QA, and sales teams to support the ~~operation.~~operations. We anticipate being able to fund these additions in the upcoming fiscal year.

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. ~~This new note has~~The New Kenmont Note had a 1-year maturity date and iswas convertible into shares of common stock at the conversion price of ~~$0.75~~$1.38per share. As of the 1 for 7 reverse split 80% of this note was converted into stock at a price of $1.38 per share. The warrants ~~entitle the holder to acquire 1,449,333 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term.~~were subsequently exercised. The Company recorded $342,020 as a discount, which ~~will be~~was amortized over the life of the note. There is a remaining principle and interest balance of $378,490 as of November 30, 2018.

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. ~~This new note has~~The New LPD Note had a 1-year maturity date and iswas convertible into shares of common stock at the conversion price of ~~$0.75~~$1.38 per share. As of the 1 for 7 reverse split 80% of this note was converted into stock at a price of $1.38 per share. The warrants ~~entitle the holder to acquire 744,933 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term.~~were subsequently exercised. The Company recorded $175,793 as a discount, which will be amortized over the life of the note. There is a remaining principle and interest balance of $171,472 as of November 30, 2018.

On May 7, 2013, the Company entered into an agreement with an individual for the sale of a$750,000 of secured convertible note payable ~~in the original principal amount of $750,000~~(the “Note”) and warrants. ~~This note has~~The Note had a 1-year maturity date and iswas convertible into shares of common stock at the conversion price of ~~$0.75~~$1.38 per share. As of the 1 for 7 reverse split 80% of this note was converted into stock at a price of $1.38 per share. The warrants entitle the holder to acquire 1,000,000 shares ~~of common stock,~~and have an initial exercise price of ~~$0.75~~$1.38 per share and have a 7-year term. The Company recorded $235,985 as a discount, which will be amortized over the life of the note. There is a remaining principle and interest balance of $243,638 as of November 30, 2018.

On January 30, 2017, the Company entered into an amendment to the agreements described immediately above 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. The five secured creditors signing the amendment represented in excess of 95% of the total, secured debt. The amendment provided that all accrued and unpaid interest will be added to the principal amount. The amended notes provided for no interest from November 1, 2016 to February 14, 2018, the date on which the 1-for-7 reverse stock split became effective and 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 amendment also provides that if the Company enters into a “Qualified Financing” (defined as receipt by the Company of not less than $4,000,000 in aggregate gross proceeds from the sale of securities in one or a series of related transactions after the execution date), then the Company shall remit to the holder the “Cash Payment Amount” as set forth in the amendment.

On June 20, 2013, the Company entered into an agreement with four individuals for the sale of $325,000 of secured convertible notes payable ~~in the original amount of $325,000~~(the “Notes”) and warrants. ~~These~~The Notes ~~have~~had a 1-year maturity date and ~~are~~were convertible into shares of common stock at the conversion price of $0.50 per share. The warrants ~~entitle the holders to acquire 433,334 shares of common stock, have an initial exercise price of $0.75 per share, and have a 7-year term.~~were subsequently exercised. The Company recorded $63,622 as a discount, which will be amortized over the life of the notes. There is a remaining principle and interest balance of $278,638 as of November 30, 2018.

On August 19, 2013, the Company entered into an agreement with a member of its Board of Directors for the sale of $2,500,000 of ~~unsecured~~ convertible notes payable (the “BOD Notes”) and warrants. ~~These notes~~The BOD Notes carry a base interest rate of 9.5%, ~~have~~had a 4-year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. The warrants ~~entitle the holder to acquire 5,000,000 shares of common stock, have an initial exercise price of $0.75 per share and have a 7-year term.~~were subsequently exercised. The Company recorded $667,118 as a discount, which will be amortized over the life of the note.

~~All convertible notes payable are due within twelve months or have not been paid when originally due.~~

~~At February 28, 2013, the three other unsecured convertible promissory notes payable amounted to $1,447,938, net~~ There is a remaining principle and interest balance of ~~discounts~~$3,546,354 as of $402,063. These convertible notes bear interest at 7% per annum, and are convertible into common stock of the Company at $0.76 per share (as well as variable conversion rates as described below). These notes are due on August 10, 2017, October 2, 2017, and January 4, 2013. On May 7, 2013, the note due on January 4, 2013 was converted into a portion of the note due June 15, 2013, which carries an interest rate of 12%.

~~During the quarter ended~~ November 30, 2017, the company entered into agreements with various individuals for the aggregate sale of $615,953 of unsecured convertible notes and warrants. Pursuant to the terms of these notes, such notes will be converted in their entirety into shares of common stock of the Company at the conversion price of $0.07 per share upon stockholder approval of a 1-for-7 reverse stock split. The warrants entitle the holders to acquire up to an aggregate of 132,000 shares of common stock and have an initial exercise price of $0.20 per share which will be adjusted to $1.40 per share upon stockholder approval of a 1-for-7 reverse stock split. The stockholders approved the reverse stock split at the Company’s stockholder meeting on January 11, 2018.

On August 10, 2012 the Company entered into an agreement with an individual for the sale of an unsecured convertible promissory note in the original principal amount of $1,000,000. This convertible promissory note is due and payable on August 10, 2017 and bears an interest rate is 7% per annum. Interest on the unpaid principal amount of this note is payable monthly in arrears, on the tenth day of each calendar month, commencing September 10, 2012. Interest is computed on the actual number of days elapsed over a 360-day year. The Holder has the right to convert any outstanding and unpaid principal portion of this convertible promissory note into shares of common stock. The company recorded $310,723 as a debt discount, which will be amortized over the life of the note.

On October 2, 2012 the Company entered into an agreement with an individual for the sale of an unsecured convertible promissory note in the original principal amount of $500,000. This convertible promissory note is due and payable on October 2, 2017 and bears an interest rate is 7% per annum. Interest on the unpaid principal amount of this note is payable monthly in arrears on the second day of each calendar month, commencing November 2, 2012. Interest is computed on the actual number of days elapsed over a 360-day year. The Holder has the right to convert any outstanding and unpaid principal portion of this convertible promissory note into shares of common stock. The company recorded $137,583 as a debt discount, which will be amortized over the life of the note.

On January 30, 2017 the Company entered into an agreement entitled First Amendment to Transaction Documents with five of seven of its secured creditors. These creditors hold a security interest in all of the Company’s assets except for its patents and other intellectual properties. The original agreement dated May 7, 2013 provided that if the holders of at least 75% of the stock issuable upon conversion of the convertible notes votes to amend the agreement, then such amendments will be binding on all the 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 amended agreement provides that all accrued and unpaid interest will be added to the principal amount, the amended notes bear interest at the rate of 0% through the sooner of (i) January 15, 2018 or (ii) the fifth business day following a stockholder meeting and 5% per annum thereafter, subject to reduction to comply with applicable law, and mature in 60 months from the effective date of a proposed 1-for-7 reverse stock split (which may only be effected if approved by the stockholders at the next annual meeting of stockholders). Upon certain financings, within five business days following stockholder approval of a 1-for-7 reverse stock split, the Company is obligated to make a payment to the holders of the amended notes in the amount of 20% of the outstanding secured notes. Upon the effectiveness of a proposed 1-for-7 reverse stock split, the remaining 80% balance of the amended notes is converted into shares of the Company’s common stock. After the effectiveness of a proposed 1-for-7 reverse stock split, the secured note holders may voluntarily convert the unpaid principal and interest thereon into the Company’s common stock at the conversion price of $1.40 per share.

On February 21, 2017, the Company entered into several Refinancing Agreements with a debt ~~refinancing agreements with several debt holders relating to aggregate unsecured debt~~holder totaling $2,237,456 including interest of $489,466. ~~This refinancing agreement waives any past~~The agreements waived all events of default and ~~provides~~provided for new five-year 5% convertible notes ~~which bear~~with no interest ~~through~~for the ~~sooner~~first six months. Upon the effective date of ~~(i) January 15,~~February 14, 2018 ~~or (ii)~~of the ~~fifth business day following a stockholder meeting and 5% per annum thereafter. Upon stockholder approval of a 1-for-7~~1 for 7 reverse stock split ~~these~~the notes ~~will be~~were converted into ~~a total of~~ 1,164,555 shares of common stock. ~~The notes also provide various default provisions.~~

~~The stockholders approved the reverse split at the Company’s stockholder meeting on January 11, 2018.~~

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

During the nine months ended November 30, 2018, we issued 742,857 warrants to members of our board of directors. The warrants have a term of five years and an exercise price of $1.40. The company recorded an expense of $312,072 for the issuance of these warrants. During the nine months ended November 30, 2018, we re-priced to $1.40 all outstanding employee options and warrants that had a previous exercise price greater than $1.40. The company recorded an expense of $105,352 as a result of the re-pricing.

During the nine months ended November 30, 2017, we issued 5,000,000 (714,268 shares post reverse split) shares of common stock for $1,000,000 in conjunction with our Chinese Joint Venture, we issued 5,116,959 (730,995 shares post reverse split) shares of common stock valued at $665,204 as part of a settlement agreement, and we issued 2,500,000 (357,142 shares post reverse split) shares of common stock valued at $325,000 in connection with a consulting agreement.

~~During the nine months ended November 30, 2016, we issued 950,000 shares of common stock as a settlement for a note payable balance of $150,000 plus accrued interest of $15,288.~~

During the nine months ended November 30, ~~2017,~~2018, there were no stock options granted to ~~employees.~~employees and 742,857 stock options with an exercise price of $1.40 per share granted to directors, which are set forth below under “Warrants.”

In September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan. Activity in this plan is as follows:

The exercise prices for the options outstanding at November 30, ~~2017,~~2018, and information relating to these options is as follows:

The exercise prices for the warrants outstanding at November 30, ~~2017,~~2018, and information relating to these warrants is as follows:

On January 24, 2017, the Company entered into a Debt Refinancing Agreement with Mr. ~~Warren~~ Breslow, ~~who served as~~ a former Director of the ~~Company from 2006 to 2017. Mr. Breslow resigned his position on our board in March 2017.~~Company. Pursuant to ~~this~~the agreement, both Mr. Breslow and the Company acknowledged that total debt owed to Mr. Breslow ~~and his affiliates~~ was $23,872,614 including $8,890,574 of accrued interest. Mr. Breslow agreed to cancel and forgive all interest due, waive ~~any past~~all events of default and sign a new five-year ~~unsecured~~ convertible note in the amount of ~~$14,982,041. This new note bears~~$14,982,041 providing for no interest ~~through the sooner~~for six months and interest of ~~(i) January 15, 2018 or (ii) the fifth business day following a shareholder meeting, and~~ 5% per annum ~~thereafter. This new~~thereafter payable monthly in arrears. The note also provides various default provisions. ~~The refinancing~~In accordance with the agreement, ~~further provides that~~on February 14, 2018, the effective date of the 1 for 7 reverse stock split $11,982,041 of ~~Mr. Breslow’s new~~the note ~~will be~~was converted into 7,403,705 shares of common stock ~~upon stockholder approval~~and the then accrued interest of ~~a 1-for-7 reverse stock split within eighteen months of entering into that agreement;~~$9,388,338 was forgiven. A new $3,000,000 note representing the remaining balance ~~may thereafter be converted~~was entered into due and payable in five years bearing interest at any time. In the absence of stockholder approval of a 1-for-7 reverse stock split within eighteen months, the refinancing agreement will become null and void. The Company has elected to continue to accrue interest on this agreement until such time as the 1-for-7 reverse stock split has been approved. The stockholders approved the reverse split at the Company’s stockholder meeting on January 11, 2018.5% per annum payable monthly in arrears.

At November 30, ~~2017,~~2018, the balance in Notes Payable and accrued interest-related party, current, includes ~~$14,982,041 of unsecured notes payable~~$3,268,081 plus accrued interest of ~~$10,010,053~~$2,319,357 to Mr. ~~Breslow,~~Kopple (a former Board member), a ~~member of our Board of Directors, payable on demand, bearing interest at a rate of~~ 10% per annum. The balance was $14,982,041 plus accrued interest of $8,890,574 as of February 28, 2017. During the periods ended November 30, 2017 and November 30, 2016, interest amounting to $1,119,480 and $993,647 respectively, was incurred on these notes.shareholder. Related Parties Transactions also includes $82,000 of unsecured notes payable plus accrued interest of ~~$35,268 and $29,141~~$46,231 to our CEO pursuant to a demand note entered into on April 5, 2014 and an unsecured note payable to Mr. Kopple, another member of our Board of Directors in the total amount of $3,029,930 and $3,587,322 plus accrued interest of $2,040,533 and $2,098,616 pursuant to 10% demand note payable as of November 30, 2017 and February 28, 2017, respectively.2014. At November 30, ~~2017,~~2018, the balance in Convertible note payable and accrued interest-related party, long term, includes $2,000,000 of ~~secured~~unsecured convertible notes payable plus accrued interest of ~~$1,145,258~~$1,546,354 and an unsecured convertible note of $20,000 plus accrued interest of $2,160 to Mr. Kopple. Subscriptions receivable at November 30, 2018 includes $175,000 for the issuance of 357,143 shares which were previously issued. The balance in notes payable - long term, includes $3,000,000 to Mr. Breslow, a 20% shareholder.

During the nine months ended November 30, 2018, we issued 2,256,444 shares of common stock, valued at $2,280,964 to Harry Kurtzman on behalf of BetterSea LLC, a greater than 15% shareholder as part of the restructuring agreement. We issued an additional 5,108,291 shares of common stock valued at $1,992,251 to Harry Kurtzman on behalf of BetterSea LLC as a settlement for disputes. During the nine months ended November 30, 2018, BetterSea LLC billed the company $314,645 for services rendered and was paid $316,963. The company also employs the law firm of TMK Assoc., owned by the daughter of Harry Kurtzman, as its corporate attorney. In the nine months ended November 30, 2018, TMK Assoc. has billed the company $324,581 for services rendered and has been paid $279,351. During the nine months ended November 30, 2018, the company paid Mr. Si Ryong Yu $80,000 for consulting services. During the nine months ended November 30, 2018, the company received $1,225,000 from Elimelech Lowy, a greater than 40% shareholder as partial payment on a subscription receivable of $1,300,000 for stock issued in February 2018. The agreement had called for the stock to be paid for at the time of issuance.

Our facilities consist of approximately 20,000 rented square feet in Stanton, California. The Stanton facility is currently being used for small quantity assembly and testing using components that are produced by various suppliers as well as for general offices, engineering and warehousing. The rent for the Stanton facility is $10,000 per month. The facility is not sufficient for our near term anticipated needs and the Company is actively looking for a new facility. The Company arrangements for the Stanton facility are on a ~~month per month~~month-per-month rent.

~~On January 27,~~In March 2017, the Company entered into a joint venture ~~(JV) agreement~~ with a Chinese ~~company~~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, ~~market~~sell and ~~distribute~~service the AuraGen^® products within China. The limited license contributed 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 ~~mobile power products based on Aura’s patented technology solely for~~software elements directly from the ~~Peoples Republic~~Company. Jiangsu Shengfeng’s board of ~~China territories. The JV is owned 49%~~directors consists of three members appointed by the Company and ~~51%~~three appointed by ~~the~~our Chinese ~~company. The Company has contributed $250,000~~partner; Jiangsu Shengfeng’s CEO is appointed by our Chinese partner while its CFO and ~~a license to specific technology~~director for quality assurance and ~~the Chinese company is required to contribute $9,750,000.~~ control are appointed by Aura.

In addition, ~~the~~our Chinese ~~company will invest~~partner invested $2,000,000 in Aura common stock at ~~$0.20~~$1.40 per share for a total of ~~10,000,000~~1,428,571 shares of common ~~stock. Additionally, the Chinese company will~~stock and is required to purchase a minimum of $1,250,000 of product from the Company supported by letters of credit for distribution until ~~the joint venture~~their factory is built, ~~equipped,~~equipment installed, and ~~staffed. In order to assure proper training of joint venture personnel,~~staff hired and properly trained by Aura personnel. Aura has also committed to supply ~~instructional~~ personnel for six months at no cost other than ~~reimbursement~~to reimburse 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.

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.

In June 2016, the Company became one of several defendants named in a lawsuit filed by two of seven secured creditors demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. The Company entered into an amended agreement with the five other secured creditors representing in excess of 95% of the total secured debt. In August 2018 the two secured creditors who brought suit against the Company were awarded approximately $240,000 at trial. The Company intends to appeal this award.

The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $5.4 million and approximately 223.14 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 Directors~~ Mr. Gagerman (currently not a director) and director Mr. Diaz-Verson, Jr. together with former ~~Directors~~directors Mr. Breslow and Mr. Howsmon in connection with these allegations. Mssrs. Diaz-Verson, Jr., Breslow and Howsmon have each been dismissed from this suit. The Company believes that it has valid defenses in these matters and intends to vigorously defend against these claims.

In April 2018, the Company filed suit against its former counsel, Kilpatrick Townsend &Stockton LLP relating to various acts of malpractice and breach of fiduciary duty committed by the firm in connection with its representation of Aura. In June 2018, Kilpatrick Townsend &Stockton LLP filed a cross-complaint against the Company claiming approximately $400,000 in allegedly unpaid legal fees. The Company believes that it has valid defenses to these claims and intends to vigorously defend against these claims.

The Company has a dispute with its former landlord and vacated its former premises prior to the end of its lease. The premises have been released to a third party and no action has been filed against the Company, nor does the Company believe it has any liability. Further while the Company believes it has claims against the landlord based on their actions, the Company has nonetheless elected to accrue the amount due for unpaid rent.

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

Forward Looking Statements

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

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

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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;

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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;

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Our ability to compete effectively against competitors offering different technologies;

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Our business development and operating development;

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Our expectations of growth in demand for our products; and

●

Other risks described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those risks discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended February 28, ~~2017~~2018 (as the same may be updated from time to time in subsequent quarterly reports), which discussion is incorporated herein by this reference.

We do not intend to update or revise any forward-looking statements, whether 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.

Overview

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 three major components: (i) sales and marketing, (ii) engineering, and (iii) customer service and support.

(i) Our sales and marketing approach is 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) transport refrigeration, and (b) U.S. Military applications.

(ii) The second component of our business model is focused on the engineering support for the sales activities described above. The engineering support consists of the introduction of new features for our AuraGen/VIPER solution such as higher power, different voltages, three phase options, shore power systems, higher current solutions as well as interface kits for different platforms.

(iii) The third component of our business model is customer service. In fiscal 2018, we expect to rehire several previously trained field engineers to support our product in North America. In addition, we are working closely with our Chinese Joint Venture partner to train their staff to support our products overseas.

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 disrupted when the Company was forced to move from its facilities in Redondo Beach, California to a smaller facility in Stanton, California. Operations during the second half of fiscal 2016 were sporadic. During fiscal 2017 and fiscal 2018, the Company suspended its engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations.

~~The~~In fiscal 2018, the Company ~~has been successful~~successfully eliminated approximately 68% of its total indebtedness.

Specifically, in ~~restructuring its~~fiscal 2018, our secured creditors converted approximately $5.73 million of secured debt ~~and has reached an agreement with its secured creditors whereby all defaults and penalties have been waived and 80% of the secured debt will be converted~~ into approximately 4.1 million shares of the Company’s common ~~stock as soon as~~stock. The converted debt represents approximately 80% of the ~~Company holds an annual meeting~~total secured debt of ~~stockholders to elect a new board of directors.~~the Company. The balance of the secured debt (the remaining approximate 20%), is to be paid to the secured creditors in cash ~~within five business days following stockholder approval of a 1-for-7 reverse stock split provided that certain financings milestones have been reached by~~if the ~~Company. Upon conversion, the converting secured creditors will receive approximately 3.9 million new common shares in exchange for approximately $5.73 million of converting debt.~~

~~The~~ Company has also been successful in restructuring approximately $27.5 million of unsecured debt. Various unsecured creditors have agreed to waive all defaults and penalties, to forgive an aggregate of approximately $9.3raises at least $4.0 million in ~~debt, and convert an aggregate of~~proceeds through new equity offerings. Additionally, in fiscal 2018, approximately ~~$15.2~~12.77 million of unsecured debt was converted into approximately ~~10.2~~9.3 million shares of the Company’s common ~~shares.~~ stock and approximately $12.3 million of unsecured debt was forgiven. In total, during fiscal 2018, the Company therefore eliminated a total of approximately $30.23 million of debt.

As of the date of this ~~filing,~~Report, Robert Kopple, the Company’s former Vice Chairman of the Board, is the only significant unsecured note holder that has not agreed to restructure his debt. Mr. Kopple claims ~~to be~~that he and his affiliates are owed approximately ~~$5.4~~$5.35 million on terms significantly preferable to other similarly-situated unsecured creditors. The Company disputes Mr. Kopple’s claims. See “Item 3. Legal Proceedings” included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2018 for information regarding the dispute with Mr. Kopple regarding these transactions. Mr. Kopple has not accepted the Company’s ~~offer~~numerous offers to restructure this ~~debt to-date.~~debt.

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

The Company is planning to restart operations with a new management team and is presently in the process of identifying candidates for Chief Financial Officer and Chief Executive Officer. Currently, the Company has a contractual agreement for $1.25 million of orders for the AuraGen^® product to fill during the next eight months and anticipates that it may receive significant additional orders once the Company is back in operation.

Our ~~financial statements included in this report have been prepared~~business is based on the ~~assumption that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as a result~~exploitation of our ~~losses from operations, there is substantial doubt about our ability to continue~~patented mobile power solution known as ~~a going concern.~~the AuraGen for commercial and industrial applications and the VIPER for military applications. Our independent auditors, in their report on the Company’s financial statements for the year ended February 28, 2017 expressed substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverabilitybusiness model consists of three major components; (i) sales and ~~classification of assets or the amount~~marketing, (ii) engineering, and ~~classification of liabilities that may result from our possible inability to continue as a going concern.~~(iii) customer service and support.

(i) Our ~~ability to continue as a going concern~~sales and marketing approach is ~~dependent upon the successful achievement~~composed of ~~profitable operations,~~direct sales in North America and the ~~ability to generate sufficient cash from operations~~use of agents, distributors and ~~obtain financing resources to meet~~joint ventures for sales internationally. In North America, our ~~obligations. There~~primary focus is ~~no assurance that such efforts will be successful.~~in (a) transport refrigeration, and (b) U.S. Military applications.

~~Our current level~~(ii) The second component of our business model is focused on the engineering support for the sales ~~reflects our efforts to introduce a new product into the marketplace. Until recently, many purchases~~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 engineering, manufacturing, sales, and marketing activities to focus on renegotiating numerous financial obligations in fiscal 2017 and 2018, we expect modest engineering activities budgeted at approximately $750,000 during the fiscal 2019 year.

(iii) The third component of our business model is customer service. In fiscal 2019, we expect to rehire several previously trained field engineers to support our product ~~were for evaluation purposes. Recently~~in North America. In addition, we ~~started~~are working closely with our Chinese Joint Venture partner to ~~receive repeat orders for larger quantities as different organizations are integrating~~train their staff to support our products ~~into their vehicles. We seek to achieve profitable operations by obtaining market acceptance of the AuraGen~~^® ~~as a competitive - if not superior - product providing mobile power anywhere anytime. There can be no assurance that this success will be achieved.~~overseas.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition 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 are required to make judgments based on historical experience and future expectations, as to the reliability of shipments made to our customers. These judgments are required to assess the propriety of the recognition of revenue based on Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition,” and related guidance. Because sales are currently in limited volume and many sales are for evaluative purposes, we have not booked a general reserve for returns. We will consider an appropriate level of reserve for product returns when our sales increase to commercial levels.

Inventory Valuation and Classification

Inventories consist primarily of components and completed units for our AuraGen^® product. Inventories are valued at the lower of cost (first-in, first-out) or market. Provision is made for estimated amounts of current inventories that will ultimately become obsolete due to changes in the product itself or vehicle engine types that go out of production. Management believes that existing inventories can, and will, be sold in the future without significant costs to upgrade it to current models and that the valuation of the inventories accurately reflects the realizable values of these assets. The AuraGen^® product being sold currently is not technologically different from those in current use. Existing finished goods inventories can be upgraded to the current model with only a small amount of materials and manpower. We make these assessments based on the following factors: i) existing orders, ii) age of the inventory, iii) historical experience and iv) our expectations as to future sales. If expected sales volumes do not materialize, there would be a material impact on our financial statements.

Valuation of Long-Lived Assets

Long-lived assets, consisting primarily of property and equipment, and patents and trademarks, comprise a portion of our total assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values August not be recoverable. Recoverability of assets is measured by a comparison of the carrying value of an asset to the future net cash flows expected to be generated by those assets. Net cash flows are estimated based on expectations as to the realize-ability of the asset. Factors that could trigger a review include significant changes in the manner of an asset’s use or our overall strategy.

Specific asset categories are treated as follows:

Accounts Receivable: We record an allowance for doubtful accounts based on our expectation of collect-ability of current and past due accounts receivable.

Property, Plant and Equipment: We depreciate our property and equipment over various useful lives ranging from five to ten years. Adjustments are made as warranted when market conditions and values indicate that the current value of an asset is less than its net book value.

When we determine that an asset is impaired, we measure any such impairment by discounting an asset’s realizable value to the present using a discount rate appropriate to the perceived risk in realizing such value. When we determine that an impaired asset has no foreseeable realizable value, we write such asset down to zero.

Results of Operations

Nine months ended November 30, ~~2017~~2018 compared to nine months ended November 30, ~~2016~~2017

Net revenues were $39,274 for the nine months ended November 30, 2018 (the “Nine Months FY2019”) compared to $0 for the nine months ended November 30, 2017 (the “Nine Months ~~FY 2018”) and the nine months ended November 30, 2016 (the “Nine Months FY 2017”~~FY2018”). ~~The Company has virtually ceased operations due to a lack of adequate financial resources to conduct operations.~~

Cost of goods were $0$110,026 in the Nine Months ~~FY 2018 and~~FY2019 compared to $0 for the Nine Months ~~FY 2017 as a result of the virtual cessation of operations as noted above.~~FY2018.

Engineering, research and development expenses ~~decreased $8,959 (26%~~increased $277,043 (1,097%) to $302,293 in the Nine Months FY2019 from $25,250 in the Nine Months FY ~~2018 from $34,209 in the Nine Months FY 2017.~~2018. All the expense in the current year period is due to the Company redesigning the ECU for the Auragen system.

Selling, general and administrative expense increased ~~$434,273(33%~~$3,036,032 (173%) to $4,789,451 in the Nine Months FY2019 from $1,753,419 in the Nine Months ~~FY 2018 from $1,319,146 in the Nine Months FY 2017.~~FY2018. The increase is primarily attributable to the value of the stock and warrants issued in the amount of $2,431,077 and an increase in legal expenses of approximately ~~$445,000.~~$260,000.

Net interest expense in the Nine Months ~~FY 2018 increased $373,899 (17%~~FY2019 decreased $1,779,730 (68%) to ~~$2,628,323~~$848,593 from ~~$2,254,424~~$2,628,323 in the Nine Months ~~FY 2017.~~FY2018 as a result of the restructuring in the fourth quarter of the prior year that eliminated a substantial amount of debt.

Our net loss for the Nine Months ~~FY 2018~~FY2019 increased ~~$1,679,800~~$491,423 to ~~$5,215,524~~$5,706,947 from ~~$3,535,724~~$5,215,524 in the Nine Months ~~FY 2017.~~FY2018.

Three months ended November 30, ~~2017~~2018 compared to three months ended November 30, ~~2016~~2017

Net revenues were $0 for the three months ended November 30, ~~2017~~2018 (the “Third Quarter ~~FY 2018”~~FY2019”) ~~and~~compared to $0 for the three months ended November 30, ~~2016~~2017 (the “Third Quarter ~~FY 2017”~~FY2018”). ~~The Company has virtually ceased operations due to a lack of funding.~~

Cost of goods were $0$37,032 in the Third Quarter ~~FY 2018 and~~FY2019 compared to $0 for the Third Quarter ~~FY 2017 as a result of the virtual cessation of operations as noted above.~~FY2018.

Engineering, research and development expenses increased ~~$24,929~~$113,167 to $138,417 in the Third Quarter FY2019 from $25,250 in the Third Quarter FY ~~2018 from $321 in the Third Quarter FY 2017.~~2018. All the expense in the current year period is due to the Company redesigning the ECU for the Auragen system.

Selling, general and administrative expense ~~increased $351,891 (75%~~decreased $121,287 (11%) to $790,985 in the Third Quarter FY2019 from $822,616 in the Third Quarter ~~FY 2018 from $470,725 in the Third Quarter FY 2017.~~FY2018.

Net interest expense in the Third Quarter ~~FY 2018 increased $199,598 (33%~~FY2019 decreased $507,051 (63%) to ~~$802,272~~$295,221 from ~~$602,674~~$802,272 in the Third Quarter ~~FY 2017.~~FY2018 as a result of the restructuring in the fourth quarter of the prior year that eliminated a substantial amount of debt.

Our net loss for the Third Quarter ~~FY 2018 increased $587,814~~FY2019 decreased $530,343 to ~~$1,661,534~~$1,310,445 from ~~$1,073,720~~$1,661,534 in the Third Quarter ~~FY 2017.~~FY2018.

Liquidity and Capital Resources

We had cash of approximately ~~$1,178,000~~$21,000 and ~~$256,000~~$748,000 as of November 30, ~~2017,~~2018, and February 28, ~~2017,~~2018, respectively. We had a working capital deficit at November 30, ~~2017,~~2018, and February 28, ~~2017~~2018 of ~~$56,107,466~~$20,452,425 and ~~$52,809,884,~~$20,682,519, respectively. The working capital deficit includes notes payable and accrued interest to related parties of ~~$30,364,278~~$9,284,183 and ~~$29,669,693~~$8,696,665 as of November 30 and February 28, ~~2017,~~2018, respectively.

Net cash used in operations for the nine months ended November 30, ~~2017,~~2018, was ~~$3,123,197, an increase~~$1,902,151, a decrease of ~~$2,370,892~~$162,189 from the comparable period in the prior fiscal year. ~~Net cash used in investing activities consists of our investment of $250,000 in our Chinese joint venture.~~ Net cash provided by financing activities during the nine months ended November 30, ~~2017,~~2018, was ~~$4,295,481,~~$1,175,000, resulting from net proceeds from ~~notes payable~~subscriptions receivable of ~~$2,295,481, the issuance~~$1,225,000 partially offset by a payment of ~~common stock for $1,000,000, and an investor advance of $1,000,000.~~$50,000 on a note payable.

There were no acquisitions of property and equipment induring the Nine months ~~FY 2018~~FY2019 or the Nine months ~~FY 2017.~~FY2018.

Accrued expenses as of November 30, ~~2017~~2018 increased ~~$1,000,319~~$111,863 to ~~$6,939,570~~$3,323,498 from ~~$5,939,251~~$3,211,635 as of February 28, ~~2017.~~2018. Approximately ~~$1,335,000~~$2,225,000 of accrued expenses is salaries accrued but unpaid to certain ~~employees~~current and ~~ex-employees~~former employees due to a lack of resources, and approximately $500,000 is accrued but unused vacation ~~time~~ earned by employees.

Net proceeds from the issuance of debt totaled $2,295,481 in the nine months FY 2018, compared with $841,504 in the nine months FY 2017. As of November 30, 2017, the total amount owing a board member is $14,982,040 plus accrued interest of approximately $10,010,053. We also owe another Board member a total of $5,288,081 plus accrued interest of approximately $3,217,903. If the Board members were to demand repayment, we do not currently have the resources to make the payments.

The Company had a deficit of ~~$55,853,966~~$24,435,402 in shareholders’ equity as of November 30, ~~2017,~~2018, compared to ~~$52,806,384~~$24,665,496 as of February 28, ~~2017.~~

2018.

Since 2002 substantially all of our revenues from operations have been derived from sales of the AuraGen^®. The cash flow generated from our operations to date has not been sufficient to fund our working capital needs, and we cannot predict when operating cash flow will be sufficient to fund working capital needs.

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 require additional debt or equity financing to fund ongoing operations. The issuance of additional shares of equity in connection with any such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise needed funds, we would also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company.

Capital Transactions

During the nine months ended November 30, 2017, we issued 5,000,000 (714,286 post split) shares of common stock for $1,000,000 in conjunction with our Chinese Joint Venture, we issued ~~5,116,959~~5,116,959(730,994 post split) shares of common stock valued at $665,204 as part of a settlement agreement, and we issued 2,500,000 (357,143 post split) shares of common stock valued at $325,000 in connection with a consulting agreement.

~~During the nine months ended November 30, 2016, we issued 950,000 shares of common stock to settle a note payable balance of $150,000 plus accrued interest of $15,588.~~

Inventories

Inventories consist primarily of components and completed units of 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, and based on then anticipated sales, we purchased, prior to fiscal 2001, a substantial inventory of components at volume prices. Since sales did not meet such expectations, we have been selling product from this inventory for several years.

Most of our inventory consists of a variety of (i) metallic, mechanical components, and (ii) electrical components including metallic chassis to hold the assembled electrical systems. The vast majority of mechanical components are not aged and most of the electrical components are also not aged. The components that are aged are related to the prime mover/Generator interface that may not be in demand any longer.

In the past we have offered and ship three different basic models of systems; (i) a 5 kW based ~~systems,~~system, (ii) an 8.5 kW based system and (iii) a 16 kW based systems (two 8.5 kW systems configured in tandem back-to-back). Each of these systems can be configured with different options such as 110 VAC only, 220 VAC only, 24 VDC only, 12 VDC only and AC/DC combinations of the same or different voltages. In addition, the system can be configured with single phase, split phase or three-phase output.

A number of the mechanical components are common to all three of the above configurations, while others are very specific. For example, the stators and rotors for the 5 kW systems are different from the 8.5 kW systems, but the housings are the same. Similarly, the electrical components consist of some parts that are geared for a specific configuration while others are generic and can be used for all of the configurations. The electrical chassis are also interchangeable between the 5 kW and 8.5 kW configurations. Due to the nature and mix of the product being sold, frequently, the 5 kW electrical systems are upgraded to 8.5 kW systems by replacing some components.

From the above description one can understand that the inventory consists of numerous components and subassemblies but not finished systems; therefore, each system that is sold and shipped to a customer is built from some components that are in inventory and others that need to be purchased to be able to configure the required system.

8.5 kW systems represent the majority of product previously shipped. These systems are built by using existing inventory subassemblies and parts, including some that can be used for both 5 kW and 8.5 kW systems, and additional parts that are purchased to provide the required configuration. Typically, such systems are built using approximately 20 to 25 percent of existing inventory and approximately 75% of additional parts that are purchased.

However, most of the systems sold to the Korean military consist of 5 kW systems. They have been purchasing approximately 100 systems per year and have indicated to us that they will continue to do so for the next five years. To date we have shipped over 500 such systems (in this case 100% of the rotors and stators are used from existing inventory and over 50% of the electrical parts are also from inventory).

In addition to the above, we have encountered demand for different and unique configurations that require the purchase of additional parts.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our fiscal quarter ended November 30, ~~2017,~~2018, which have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Please refer to Item 3, “Legal Proceedings,” in our Annual Report on Form 10-K for the year ended February 28, 2018 for a description. 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 2016, the Company was sued by a former employee for a work-related injury. The plaintiff is seeking $45,000. The Company has made the plaintiff a settlement offer which, as of the date of this filing, has not been accepted.

In November 2016, the Company was sued by a former customer for approximately $111,712 relating to an alleged failure by the Company to partially deliver against an advanced payment. In connection with its claims, the plaintiff has asserted that by virtue of the Company’s failure to fully deliver upon the contracted order, the plaintiff has obtained a perpetual worldwide license to utilize the Company’s actuator technology. The Company disputes the plaintiff’s claims and believes that it holds various claims against the plaintiff. In April 2017, the plaintiff’s action was involuntarily dismissed by the court although plaintiff sought to have the dismissal set aside on the grounds of attorney error. In June 2017, the court granted plaintiff’s motion and the Company intends to oppose this action and file a counterclaim.

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

~~The Company~~ and the Company’s Chief Executive Officer, Melvin Gagerman, ~~are among~~became two of several defendants named in a lawsuit filed by two secured creditors demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. In January 2017, the Company entered into an agreement with all secured creditors other than the two plaintiffs. However, because secured creditors holding in excess of 97% of the issuable stock upon conversion have executed the agreement, the agreement is binding on all of the secured creditors, including the two plaintiffs. That agreement, among other provisions, ~~waives~~waived all past events of default. ~~It is~~In October 2017 the ~~Company’s position that~~court dismissed the ~~two~~plaintiffs’ claims for exemplary damages, leaving only contract claims. In August 2018, the plaintiffs ~~are not entitled~~were awarded approximately$240,000 at trial. The Company intends to ~~any payment or other relief at~~appeal this ~~time~~award.

In April 2018, the Company filed suit against its former counsel, Kilpatrick Townsend &Stockton LLP relating to various acts of malpractice and ~~therefore that they have no valid claim~~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 or Mr. Gagerman. In March 2017, plaintiffs moved for partial summary adjudication against the Company and Mr. Gagerman; however, the Court denied plaintiff’s motion. Thereafter, the Court sustained demurrers by Mr. Gagerman and the Company but granted plaintiffs leave to amend. In response to the plaintiffs’ second amended complaint, both the Company and Mr. Gagerman intend to further demurrer seeking dismissal of this action.

~~In June 2015, the landlord of the Company’s primary facility~~claiming approximately $400,000 in Redondo Beach, California initiated litigation against us seeking to terminate the Company’s lease and require the Company to vacate the premises prior to the scheduled lease end. As a result of that litigation, the Company was forced to vacate its primary facility and relocate to its present facility in Stanton, California. To date, no action seeking damages or any other amount has been filed against the Company by the landlord, nor does the Company believe it has any further liability to the landlord.

The Company is presently engaged in a dispute with one of its directors, Robert Kopple, relating to approximately $5.4 million and approximately 22 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 Directors Mr. Gagerman and Mr. Diaz-Verson together with former Directors Mr. Breslow and Mr. Howsmon in connection with these allegations.allegedly unpaid legal fees. The Company believes that it has valid defenses into these ~~matters~~claims and intends to vigorously defend against these claims.

ITEM 1A. Risk ~~Factors.~~Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s ~~annual report~~Annual Report on Form 10-K for the year ended February 28, ~~2017.~~2018.

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

~~During the quarter ended November 30, 2017, we did not issue any shares of common stock.~~

All of the sales of unregistered securities are believed to be exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 as these offerings were a private placement to a limited number of qualified investors without public solicitation or advertising.

None.

ITEM 3. Defaults Upon Senior Securities.

We have commitments to pay investors and lenders $40,553,920 comprising principal and accrued interest on various convertible notes, non-convertible notes and loans payable through November 30, 2017. Due to our lack of financial resources, the Company was unable to make various required principal and interest payments under a number of notes payable, and in 2017, the Company has been successful in restructuring a total of approximately $33.7 million of debt (the “Restructured Debt”) through agreements reached with all of the Company’s secured creditors and the majority of the Company’s unsecured creditors. Pursuant to these restructuring agreements, any and all defaults and penalties with respect to the Restructured Debt have been waived, approximately $9.3 million in accrued interest has been forgiven, and approximately $20.9 million will be converted into approximately 14.1 million shares of the Company’s common stock upon stockholder approval of a 1-for-7 reverse stock split and the election a new board of directors. Prior to the restricting of the Restructured Debt, the Company was in potential default on $13,535,679 of debt. However, as of the date of filing, all notes payable other than $7,289,838 have been restructured and any potential defaults with respect to this restructured amount have been resolved.

As of the date of this filing, Robert Kopple, the Company’s former Vice Chairman of the Board, is the only significant unsecured note holder that has not agreed to restructure his debt. Mr. Kopple claims to be owed approximately $5.4 million plus interest and approximately 22 million warrants on terms significantly preferable to other similarly-situated unsecured creditors. To-date, Mr. Kopple has not accepted the Company’s multiple offers to restructure his debt. The Company is presently engaged in a dispute with Mr. Kopple relating to the debt and securities which Mr. Kopple claims to be owed to him and his affiliates by the Company. See, “Note 3 – Notes Payable”, and “Note 5 – Related Parties Transactions”~~, “Note 8 –Subsequent Events”~~ to the Company’s condensed financial statements and “Liquidity and Capital Resources” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this quarterly report on Form 10-Q for additional information regarding amounts that may be owed under the Company’s notes payable and the recent restructuring of certain Company debt.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information.

None.

ITEM 6. Exhibits

31.1	Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.

31.2	Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.

32.1	Certification of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Schema Document

101.CAL	XBRL Calculation Linkbase Document

101.DEF	XBRL Definition Linkbase

101.LAB	XBRL Label Linkbase Document

101.PRE	XBRL Presentation Linkbase Document

SIGNATURES

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

Date: January 22, 2019	AURA SYSTEMS, INC.
	(Registrant)

	~~Date: January 19, 2018~~

	By:	/s/ Melvin Gagerman
		Melvin Gagerman
		Acting Chief Financial Officer
		(Principal Financial and Accounting Officer and
		Duly Authorized Officer)

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

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

Class		Outstanding January ~~16, 2018~~14, 2019
Common Stock, par value $0.0001 per share		~~126,608,391~~48,801,770 shares

	As of November 30,			As of February 28,			As of November 30,			As of February 28,
	2017			2017			2018			2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,178,153		$	255,869		$	20,857		$	748,008
Other current assets		6,588			2,894			50,969			42,165
Total current assets		1,184,741			258,763			71,826			790,173

Deposits		3,500			3,500
Investment in Joint Venture		250,000			-			250,000			250,000

Total assets	$	1,438,241		$	262,263		$	321,826		$	1,040,173

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	4,827,902		$	4,943,559		$	5,427,491		$	5,377,259
Accrued expenses		7,082,010			5,939,251			3,323,498			3,211,635
Customer advances		670,751			641,751			1,136,542			503,632
Investor advance		1,000,000			-
Shares to be issued								-			2,280,964
Notes payable		3,413,058			4,776,938			777,537			777,537
Convertible note payable and accrued interest-related party, net of discount		3,304,445			2,920,172			3,568,514			3,342,685
Convertible notes payable, net of discount		6,629,763			4,177,283			575,000			625,000
Notes payable and accrued interest- related party		30,364,278			29,669,693			5,715,669			5,353,980

Total current liabilities		57,292,207			53,068,647			20,524,251			21,472,692

Note payable-related party								3,000,000			3,000,000
Convertible notes payable								1,232,977			1,232,977

Total liabilities		57,292,207			53,068,647			24,757,228			25,705,669

Commitments and contingencies

Stockholders’ deficit:
Common stock, $0.0001 par value; 150,000,000 shares authorized at November 30 and February 28, 2017; 126,608,391 and 113,991,432 issued and outstanding at November 30 and February 28, 2017, respectively		12,661			11,399
Common stock, $0.0001 par value; 150,000,000 shares authorized at November 30 and February 28, 2018; 48,801,770 and 41,437,035 issued and outstanding at November 30 and February 28, 2018, respectively								4,881			4,144
Subscription receivable								(75,000	)		(1,300,000	)
Additional paid-in capital		412,666,277			410,499,597			442,958,394			438,247,091
Accumulated deficit		(468,532,904	)		(463,317,380	)		(467,323,677	)		(461,616,731	)

Total stockholders’ deficit		(55,853,966	)		(52,806,384	)		(24,435,402	)		(24,665,496	)

Total liabilities and stockholders’ deficit	$	1,438,241		$	262,263		$	321,826		$	1,040,173

	Three Months ended November 30,						Nine Months ended November 30,						Three Months ended November 30,						Nine Months ended November 30,
	2017			2016			2017			2016			2018			2017			2018			2017

Net Revenues	$	-		$	-		$	-		$	-		$	-		$	-		$	39,274		$	-

Cost of goods sold		-			-			-			-			37,032			-			110,026			-

Gross Profit		-			-			-			-			37,032			-			(70,752	)		-

Expenses
Engineering, research and development expenses		25,250			321			25,250			34,209			138,417			25,250			302,293			25,250
Selling, general and administrative expenses		822,616			470,725			1,753,419			1,319,146			790,985			822,616			4,789,451			1,753,419
Total costs and expenses		847,866			471,046			1,778,669			1,353,355			928,402			847,866			5,091,744			1,778,669

Loss from operations		(847,866	)		(471,046	)		(1,778,669	)		(1,353,355	)		(966,434	)		(847,866	)		(5,162,496	)		(1,778,669	)

Other (income) and expense
Interest expense, net		802,272			602,674			2,628,323			2,254,424			295,221			802,272			848,593			2,628,323
Gain on debt settlement		-			-			-			(70,288
Other (income) expense, net		11,396			-			808,532			(1,767	)		48,789			11,396			(304,142	)		808,532
Total other (income) expense		813,668			602,674			3,436,855			2,182,369			344,011			813,668			544,451			3,436,855
Net Loss	$	(1,661,534	)	$	(1,073,720	)	$	(5,215,524	)	$	(3,535,724	)	$	(1,310,445	)	$	(1,661,534	)	$	(5,706,947	)	$	(5,215,524	)

Total basic and diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.03	)	$	(0.03	)	$	(0.07	)	$	(0.13	)	$	(0.28	)
Weighted average shares used to compute basic and diluted income (loss) per share		126,608,391			113,951,432			125,324,765			113,916,887			48,801,770			18,086,913			44,356,148			17,903,538

Index			Page No.

PART I. FINANCIAL INFORMATION			1

	ITEM 1.	Financial Statements (Unaudited)	1

		Balance Sheets as of November 30, ~~2017~~2018 and February 28, ~~2017~~2018	1

		Statements of Operations for the Three and Nine ~~months~~Months Ended November 30, ~~2017~~2018 and ~~2016~~2017	2

		Statements of Cash Flows for the ~~Three and~~ Nine ~~months~~Months Ended November 30, ~~2017~~2018 and ~~2016~~2017	3

		Notes to Consolidated Financial Statements	4

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	17

	ITEM 4.	Controls and Procedures	17

PART II. OTHER INFORMATION			18

	ITEM 1.	Legal Proceedings	18

	ITEM 1A.	Risk Factors	18

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18

	ITEM 3.	Defaults Upon Senior Securities	19

	ITEM 4.	Mine Safety Disclosures	19

	ITEM 5.	Other Information	19

	ITEM 6.	Exhibits	19

	SIGNATURES AND CERTIFICATIONS		20

	Nine Months Ended November 30,
	2017			2016
Cash flow from operating activities:
Net Loss	$	(5,215,524	)	$	(3,535,724	)
Adjustments to reconcile Net loss to net cash used in operating activities		-			-
Amortization of debt discount		43,417			192,330
Gain on debt settlement		-			(70,288	)
FMV of warrants issued for services		177,737			-
Stock issued for services		990,205			-
(Increase) decrease in:
Accounts receivable		-			2,115
Other current assets and deposit		(3,694	)		100,101
Increase (decrease) in:
Accounts payable, customer deposit and accrued expenses		1,943,520			2,559,161
Net cash used in operations		(2,064,340	)		(752,305	)

Investing Activities:
Investment in Joint Venture		(250,000	)		-
Net cash used in investing activities		(250,000	)		-

Financing activities:
Issuance of common stock		1,000,000			-
Proceeds from notes payable-net		-			641,490
Proceeds from convertible notes payable		1,434,593			-
Payment to notes payable		(197,970	)		-
Proceeds from notes payable-related party, net		-			200,014
Investor Advance		1,000,000			-
Net cash provided by financing activities:		3,236,623			841,504

Net increase in cash & cash equivalents		922,284			89,199

Cash and cash equivalents at beginning of period		255,869			22,175

Cash and cash equivalents at end of period	$	1,178,153		$	111,374
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	-		$	-
Income taxes		-			-

	November 30, 2017		February 28, 2017

Demand notes payable, at 10% and 16%	$	3,413,058	$	3,782,238
Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 10^th of each month with the principal payment due on the maturity date. To-date, the Company has not made any interest payments as set forth in this note.		1,000,000		972,632
Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2^nd of each month with the principal payment due on the maturity date. To-date, the Company has not made any interest payments as set forth in this note.		500,000		483,951
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 note was not repaid.		2,395,700		2,395,700
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. The note was not repaid.		325,000		325,000
Convertible notes dated April 2016 thru November 2017. The notes carry an interest rate of 5% and might be converted into shares of Company’s common stock if the shareholders approve a 1:7’ reverse stock split.		2,409,063		994,700

		10,042,821		8,954,221

Less: Current portion	$	10,042,821	$	8,954,221

Long-term portion	$	-	$	-

	November 30, 2018		February 28, 2018

Notes payable, at 10% and 5%	$	3,777,537	$	3,777,537
Convertible Promissory Note dated August 10, 2012 with an interest rate of 5% per annum. 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. Further details are provided below.		264,462		264,462
Convertible Promissory Note dated October 2, 2012 with an interest rate of 5% per annum. 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. Further details are provided below.		133,178		133,178
Senior secured convertible notes dated May 7, 2013 with an interest rate of 5% per annum. 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. Further details are provided below.		757,155		757,155
Senior secured convertible notes dated June 20, 2013 with an interest are of 5% per annum 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. Further details are provided below.		203,182		203,182
Convertible notes dated April 2016 thru February 2017 with an interest rate of 5% per annum. Although the notes were required to be converted into shares of common stock upon shareholder approval of the 7:1 reverse stock split that occurred on February 14, 2018 per the terms of the note agreement, the company chose to allow the note holder not to convert and to have the note paid over an eleven-month period. A single payment of $50,000 was made in April 2018.		450,000		500,000
		5,585,514		5,635,514

Less: Current portion	$	1,352,537	$	1,402,537

Long-term portion	$	4,232,977	$	4,232,977

	2006 Plan						2006 Plan
	Weighted- Average Exercise Price		Aggregate Intrinsic Value		Number of Options		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Number of Options
Outstanding, February 28, 2017		$0.75-$1.00	$	0.00		7,224,000
Outstanding, February 28, 2018							$	1.40	$	0.00		1,032,000
Cancelled		-		-		-				-
Granted		-		-		-		-		-		-
Outstanding, November 30, 2017		$0.75-$1.00	$	0.00		7,224,000
Outstanding, November 30, 2018							$	1.40	$	0.00		1,032,000

	Number of Shares		Exercise Prices		Number of Shares		Exercise Prices
Outstanding, February 28, 2017		26,454,021		$0.10-$1.00
Outstanding, February 28, 2018						8,743,505		$0.70-$1.40
Granted		1,400,000	$	.20		742,857	$	1.40
Exercised		-		-		-		-
Cancelled		406,941		1.00
Outstanding, November 30, 2017		27,447,080		$0.10-$1.00
Outstanding, November 30, 2018						9,486,362		$0.70-$1.40

Range of Exercise Prices	Stock Warrants Outstanding		Stock Warrants Exercisable		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price of Warrants Outstanding		Weighted- Average Exercise Price of Warrants Exercisable		Intrinsic Value
$0.20		1,400,000		1,400,000		51 months	$	0.20	$	0.20	$	0.00
$0.10-$0.75		18,381,012		18,381,012		41 months	$	0.55	$	0.41	$	0.00
$0.75		1,082,734		1,082,734		39 months	$	0.75	$	0.75	$	0.00
$0.75		1,000,000		1,000,000		29 months	$	0.75	$	0.75	$	0.00
$0.75-$1.00		5,583,334		5,583,334		26 months	$	0.75	$	0.75	$	0.00

		27,447,080		27,447,080