See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to these unaudited financial statements.

AURA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited and Restated)

See accompanying notes to these unaudited financial statements.

CONDENSED AURA SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS’ DEFICIT

(Unaudited)(Unaudited and Restated)

See accompanying notes to these unaudited financial statements.

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

NOTE 1 – NATURE OFORGANIZATION AND OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of 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.

Basis of Presentation NOTE 2 – ACCOUNTING POLICIES (restated)

Accounting principles

In the opinion of management, the unauditedaccompanying balance sheets and related interim condensed financial statements reflectof income and comprehensive income, and cash flows include all adjustments, consisting only of a normal recurring nature that areitems, necessary for atheir fair presentation of the results for the interim periods presented. However, the results of operations included in such financial statements may not necessary be indicative of annual results.

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Amended Form 10-Q/A, should be read in conjunction with the Company’s audited financial statements and notes theretoinformation included in the Company’s Amended Annual Report on Form 10-K10-K/A for the year ended February 29, 2020 (“Fiscal 2020”)28, 2019 filed on October 24, 2019 with the United States Securities and Exchange Commission (“SEC”) on July 13, 2020 (“2020 Form 10-K.”).

Our fiscal year ends on the last day of February. Accordingly, the current fiscal year is ending on February 28, 2021; we refer to the current fiscal as (“Fiscal 2021”). The prior fiscal year is Fiscal 2020.

Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in our financial statements included in Company’s 2020 Form 10-K. During the three and six-months ended August 31, 2020, the Company recognized aggregate gains of approximately $2.7 million in connection with the cancellation of certain accounts payable balances and accrued payroll related to unpaid wages and salaries and approximately $0.9 million in connection with demand promissory notes with three persons for which the respective statute of limitations periods have expired.

Earnings Per Share

The following table sets forth the basic and dilutive earnings per share for the three and six-months ended August 31, 2020. The dilutive earning per share includes only the dilutive incremental effect of additional shares issued on an “as if converted basis” in relation to the convertible notes payable principle amounts outstanding as of August 31, 2020 (see Notes 3 and 6).

Use of 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.

ReclassificationsRecently Issued Accounting Pronouncements

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. The Company evaluated the impact of the adoption of Topic 842 effective for the nine-months ended November 30, 2019 and the impact was none on the Condensed 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

Re-classifications

Certain prior period amountsreclassifications have been reclassifiedmade to the comparative financial statements to conform to the current yearperiod presentation.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement The balance sheet as of Credit Losses on Financial Instrument. SubsequentFebruary 28, 2019, presented herein, includes a reclassification of $1,008,328 for accrued expense in relation to the issuance of ASU 2016-13, the FASB clarified the guidance through several ASUs. The collective new guidance (ASC 326) generally requires entitiesa related party obligation from accrued expenses to use a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect. The entity’s estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts. ASC 326 is effective for annual and interim fiscal reporting periods beginning after December 15, 2022, with early adoption permitted for annual reporting periods beginning after December 15, 2018. The Company is continuing to evaluate the expected impact of this ASC 326 but does not expect it to have a material impact on its financial statements upon adoption.separate caption accrued expenses-related party.

NOTE 23 – GOING CONCERN (restated)

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The unaudited condensed financial statements ofDuring the nine months ended November 30, 2019 and 2018, the Company do not include any adjustments relatingreported net losses of $1,660,997 and $3,715,207, respectively, and had negative cash flows from operating activities of $490,578 and $1,902,151, respectively. The Company reclassified in the three-months ended November 30, 2019 approximately $0.3 million related to the recoverability and classification of recorded assets, orshares issued to the amounts and classifications of liabilities that might be necessary should the Company be unable to continueCompany’s president in August 2019 as a going concern. other expense (see Note 5).

If the Company is unable to generate profits on a sustained basis 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.

Beginning with the second quarter of fiscal year 2020, we increased operations of our AuraGen^®/VIPER business and revenue forduring the threesecond and six-months ended August 31,third quarters of fiscal 2020, was $5,000 and $53,633, respectively,the Company recognized approximately $745,000 in revenue as compared to $348,075approximately $39,000 of revenue in the comparable periodsnine-month period ended November 30, 2018. We plan to lease or acquire a new facility of Fiscalapproximately 50,000 square feet to support operations during the remainder of fiscal 2020.

NOTE 34 – NOTES PAYABLE

Non-related party and related party notesNotes payable transaction consisted of the following:

Demand Promissory Notes and Notes Payable

DEMAND PROMISSORY NOTES

The Demand Promissory Notes at August 31 and February 29, 2020 are for one and four individuals, respectively,six individual notes issued in September 2015 that are payable on demand with an interest rate of 10% per annum.

As At February 28, 2019, the principal amount of August 31, 2020,each note and the principle amount owedperson/entity they are payable to theare 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 was $10,000.

(see Note 8). In November 2019, the second quarter of fiscal year 2021, liabilities with respect to $758,537 in principal plus $385,349 inprinciple and accrued interest owed to Messrs. Howsmon and Diaz, respectively, in the amounts of $4,500 and $2,079, respectively, were reversed assettled by the related statute of limitations were determined to have expired. This reversal resulted in an aggregate reduction of current liabilities of $1,143,886, the recording of an issuance of 192,64132,895 shares of common stock onto each person by applying a price of $0.20 per share.

In February 2018, the Condensed Balance SheetCompany 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 August 31, 2020, and the recognitiondate of $871,887 as gain on extinguishmentthis filing. The Company’s new management team is in the process of debt oninvestigating the Condensed Statements of Operations for the three and six-months ended August 31, 2020.

Abdou and Abdoucircumstances surrounding Mr. Veen.

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, 2019. 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 Messrs. 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 of in favor of the Messrs. Abdou. The Company subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for a principal amount of $325,000, of which approximately $180,000 and $215,000 were outstanding as of August 31 and February 29, 2020, respectively.

Paycheck Protection Plan Loan

During April 2020, the Company ceased operations for approximately 6 weeks in compliance with State of California and the County of Orange public health pronouncements associated with the COVID-19 pandemic. On April 23, 2020, we obtained a Paycheck Protection Program (“PPP”) loan in the amount of approximately $74,400 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, rent and other qualifying expenses. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part. As of August 31, 2020, $37,202 was classified as notes payable, non-current and $37,203 was classified as part of notes payable, current portion.CONVERTIBLE DEBT

Economic Injury Disaster Loan

Entities negatively impacted by the COVID-19 pandemic were eligible to apply for loans sponsored by the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EIDL Loan”) program. On July 1, 2020, the Company received cash proceeds of $149,900 under this program. The proceeds can be used to fund payroll, healthcare benefits, rent and other qualifying expenses, and the loan is not subject to a loan forgiveness provision. The standard EIDL Loan repayment terms include: interest accrues at 3.75% per annum effective July 1, 2020; the payment schedule contains a one-year deferral period on initial principle and interest payments; the loan term is thirty years; The Company pledged the assets of the Company as collateral for the loan; and there is no prepayment penalty or fees. As of August 31, 2020, the amount outstanding including accrued interest of $941 is $150,841 and is classified as part of notes payable, non-current on the August 31, 2020 balance sheet.

Convertible Notes Payable

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 wasis a remaining principal balance of $549,954 as of August 31 and February 29, 2020, respectively.November 30, 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 principal balance of $163,677 as of August 31 and February 29, 2020, respectively.November 30, 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 principal balance of $232,194 as of August 31 and February 29, 2020, respectively.November 30, 2019.

Dresner and Lempert

On June 20, 2013, the Company entered into an agreement with two individuals, Mr. Dresner and Dr.Mr. Lempert, a current board member, 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. During Fiscal 2020, Dr. Lempert converted his share of the amount outstanding into common shares and theThere is a remaining principal balance outstanding of $59,506 as of August 31November 30, 2019. On November 27, 2019, the principal amount owed to Mr. Lempert of $18,676 and February 29, 2020, respectively, is for Dresner exclusively.accrued interest of $1,825 were settled by the issuance of 102,503 shares of common stock to Mr. Lempert at the price of $0.20 per share (see Note 8).

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 the Messrs. 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 Messrs. Abdou. The Company subsequently appealed this judgment and, in September 2019, reached a settlement agreement with these creditors for an aggregate principal amount of approximately $315,000. There is a remaining principal balance of approximately $245,000 as of November 30, 2019 following principal payments of aggregate $40,000 during the third quarter of fiscal 2020 and the proceeds from the November 2019 sales of approximately 111,000 shares held by Messrs. Abdou in the amount of $30,000 applied to the principle amount of the note.

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”) that were subsequently adjusted in 2014 to $2,000,000 of convertible notes and related 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 $3.50 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 November 30, 2019, the balance of the $2,000,000 note including interest is $3,849,978, and the balance of the demand note payable including interest is $23,173. The total owed under these two notes is $3,873,151.

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. On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%.  The Company recorded $310,723 as a debt discount, which will be amortized over the life of the note. There is a remaining principal balance of $264,462 as of August 31 and February 29, 2020, respectively.November 30, 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, 2017 and the annual interest rate was 7% per annum and was due to be repaid 5 years from the closing date. On January 11, 2018, the note was renegotiated with a final payment date of January 11, 2023 with an annual interest rate of 5%. The Company recorded $137,583 as a debt discount, which will be amortized over the life of the note. There is a remaining principal balance of $133,178 as of August 31 and February 29, 2020, respectively.November 30, 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 Mr. M. Abdou and Mr. W. Abdou. All of the creditors entered into the January 30, 2017 agreement with the exception of Mr. W. Abdou and Mr. M.the Messrs. 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 approval was obtained in Januarycompleted 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 approximately $1,005,000 as of August 31 and February 29, 2020, respectively,$1,092,542 at November 30, 2019, plus any outstanding accrued interest.

NOTE 45 – ACCRUED EXPENSES (restated)

Accrued expenses consisted of the following as of the period referenced below:following:

Accrued payroll and related expenses consist primarily of salaries and vacation time accrued but not paid to employees due to our lack of financial resources. InAlso, on August 28, 2019, the board approved a stock issuance of 1,030,385 to Cipora Lavut, the Company’s President, at a fair value of $329,723, for full satisfaction of prior amounts owed to her up to August 28, 2019. This amount was recorded as a reduction of accrued payroll expense in the second quarter but determined in the third quarter of fiscal year 2021, liabilities with respect2020 to approximately $1.3 million in accrued payroll and related expenses were reversedbe accounted for as the related statute of limitation periods were determined to have expired.other expense.

NOTE 56 – INVENTORY

During fiscal 2019 and at February 28, 2019, the Company fully reserved its usable inventory on the basis that production and revenues during the fiscal years 2017 to 2019 were nil and future production requirements were uncertain. During fiscal 2020, the Company has increased production of its AuraGen product and has generated approximately $745,000 in current year revenues. As a result, the Company recognized approximately $53,000 of inventory on its balance sheet as of November 30, 2019 consisting of $44,500 of raw materials, $4,600 of work in process and $3,900 of finished goods inventory.

NOTE 7 – SHAREHOLDERS’ EQUITY (restated)

Common Stock

During the three and six-monthsnine months ended August 31, 2020,November 30, 2019, the Company issued 3,866,664 and 5,224,9972,581,875 shares of common stock respectively, for $580,000$658,737, of which 1,030,385 was issued in satisfaction of amounts owed to Cipora Lavut of $329,723, 168,475 shares were issued to three persons in settlement of $33,660 of debt principle and $815,000accrued interest, and 1,383,015 shares and 10,000 warrants were issued for cash in cash, respectively. the amount of $295,354. The aggregate 10,000 warrants were issued to three investors with immediate vesting, an exercise price of $1.40, and a 5-year term. In October 2019, 1,065,051 shares previously issued in error to a former debtholder were cancelled.

During the three and six-monthssix months ended August 31, 2019,2018 (restated), the Company issued 501,765 and 658,0157,364,735 shares of common stock, respectively, for $100,353 and $150,353 in cash, respectively. During August 2019, 1,030,385 shares were issued for a settlement valued at $329,723 and during August 2020, 192,641$2,280,964, in fulfillment of a contractual obligation owed to BetterSea, LLC. The number of shares were issued was 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 connectionlegal fees related to legal expense associated with the Veen settlement (see Note 3).Company’s delays in the issuance of the stock.

During the nine months ended November 30, 2018, the Company issued 742,857 warrants to a member of its 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, the Company re-priced to $1.40 all outstanding employee stock 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.

Employee Stock Options and Warrants

The 2006 Employee Stock Option Plan

In September 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan, subject to shareholder approval, which was obtained at a special shareholders meeting in 2009. Under the 2006 Plan, the Company may grant options for up to the greater of three millionThree Million (3,000,000) or 10% of the number of shares of the Common Stock of Aura from time to time outstanding. AsThe shares of February 29, 2020,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 August 31, 2020, therethey typically vest over a three-year period. No options were no stock options outstanding.issued during the nine-month period ended November 30, 2019. Activity in the plan for the nine-month period ended November 30, 2019 is as follows:

Information regarding the options outstanding and exercisable as of November 30, 2019 follows:

The 2011 Director and Executive Officers Stock Option Plan

In October 2011 shareholders approved the 2011 Director and Executive Officers Stock Option Plan at the Company’s annual meeting. Under the 2011 Plan, the Company may grant options for up to 15% of the number of shares of Common Stock of the Company from time to time outstanding, with a contractual option term of five-years, and a vesting period not less than six-months and one day following date of grant. In the six-months ended August 31, 2020,outstanding. Pursuant to this plan, the Board or a committee of Directors approved grantsthe Board may grant an option to any person who is elected or appointed a director or executive officer of 250,000 stock options to each board member for an aggregate of 1,250,000 options, with anthe Company. The exercise price of $0.25 pereach option andshall be at aleast equal to the fair market pricevalue of $0.16such shares on March 19, 2020, the date of grant. The following table provides the assumptions required to apply the Black-Scholes Merton option model to determine the fair valueterm of the stock options as of the grant date:

The aggregate fair value of the 1,250,000 options granted in March 2020 is $194,000, or $0.155 per option, with $96,477 and $174,076 recorded as part of sales, general and administration expense during the three and six-months ended August 31, 2020, respectively. No stock-based compensation expense was recorded during Fiscal 2020.

The following tables provide additional information regarding stock options outstanding and exercisable under the 2011 Director and Executive Officers Stock Option Plan:

Warrants

Historically, warrants have been issued to investors and others for services and enticements to invest funds with the Company. Generally, these warrants fully vest immediately or within a 90-day period from the date of grant and have an expiration date of five-years from the date of grant. With grants dated prior to Fiscal 2021, an exercise price of $1.40 has been used with all warrants. No warrants were issuedmay not be greater than five years. Activity in the six-monthsplan for the nine-month period ended August 31, 2020.November 30, 2019 is as follows:

Warrants

Activity in issued and outstanding warrants is as follows for the six-months ended August 31, 2020:follows:

Other information related toInformation regarding the warrants outstanding and exercisable as of August 31, 2020 follows:November 30, 2019 follows 

NOTE 68 – RELATED PARTIES TRANSACTIONS

Notes payable-related party, non-current - $3,000,000 on the condensed balance sheets as of August 31 and February 29, 2020 consists of the Breslow Note as described below:

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 sixnine 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 convertible five-year note representing the remaining balance was entered into at a conversion rate of $1.40.into. The note bears interest at a rate of 5% per annum payable monthly in arrears with accrued interest of $338,527 and $262,911 recorded as accrued interest-related party (see Note 4) as of August 31 and February 29, 2020, respectively.arrears.

NotesKopple Note

At November 30, 2019, the balance in notes payable and accrued interest-related party, current - $11,752,402 on the condensed balance sheet as of August 31 and $11,333,960 as of February 29, 2020$6,551,591, consists primarily of the Kopple Notes,(a former Board member) note of $6,415,109 and the Gagerman Note and the Jiangsu Shengfeng Note as set forth below:

note of $136,482 (see below). The Kopple Notes

Asnote has a principal balance of August 31, and February 29, 2020, the principal amount owed to Robert Kopple (former Vice-Chairman of our Board) of $5,607,323 was unchanged. As of August 31, 2020,$3,587,322 plus accrued interest of $5,302,419 was owed to Mr. Kopple for a total$2,827,787. At November 30, 2019, the balance of $10,909,742. As of February 29, 2020, accrued interest of $4,887,610 was owed to Mr. Kopple for a total balance of $10,494,933.

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 ofin convertible notes payable (the “Kopple Notes��) and warrants. The Kopple Notes carried a base interest rateaccrued interest-related party consists of 9.5%, have a 4-year maturity date and were convertible into shares of common stock at the conversion price of $3.50 per share (conversion feature expired in 2017). 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% per annum.

Gagerman Note

On August 31, 2020, the Gagerman note consisted of $82,000$2,000,000 of unsecured noteconvertible notes payable plus accrued interest of $60,660 for a total$1,849,978 and an unsecured convertible note of $20,000 plus accrued interest of $3,173 to Mr. Kopple.

Gagerman Note

The notes payable and accrued interest-related party, currrent balance also includes $82,000 of unsecured notes payable plus accrued interest of $54,482 owed to Melvin Gagerman, of $142,660, the Company’s former CEO and CFO, pursuant to a demand note entered into on April 5, 2014. Interest accrues at 10% per annum. On February 29, 2020, the amount owed to Gagerman was $139,026.

Jiangsu Shengfeng NoteOther Related Party Transactions

OnIn November 20, 2019, two members of the Company entered into a preliminary agreementboard of directors, Messrs. Diaz-Verson and Lempert, agreed to cancel their outstanding debt with Jiangsu Shengfeng, the Company’s Chinese joint venture, to return $700,000 previously advanced to the Company in September 2018the amounts of $6,579 and $20,500, respectively, in exchange for 32,895 and 102,503 shares of common stock at a conversion price of $0.20 per share. On the dates of the exchange, November 26 and November 27, 2019, respectively, the closing prices of the Company’s common stock was $0.21 and $0.22 per share, respectively (see Note 4). The loss on extinguishment of debt of approximately $2,700 was recorded as part of customer advance on the balance sheet as of February 28, 2019. Following this agreement which would consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 would be paid over a 12-month period. Principal loan amount on August 31, 2020 and February 29, 2020 was $700,000, respectively, and is classified as part of notes payable and accrued interest-related party, current on the balance sheets as of August 31, 2020.additional paid-in-capital.

Accrued expense-related party – In the second quarter of fiscal year 2021, liabilities with respect to approximately $1,008,000 in accrued payroll and related expenses to former officers of the Company were reversed to other income in the Condensed Statement of Operations for the three and six-months ended August 31, 2020 as the related statute of limitation periods were determined to have expired.

NOTE 79 – COMMITMENTS & CONTINGENCIES

Leases

Our facilities consist of approximately 20,000 square feet in Stanton, California and prior to July 31, 2020, an additional storage facility in Santa Clarita, California. The Stanton facility is used for some assembly and testing of AuraGen®AuraGen^®/VIPER systems and is rented on a month-to-month basis atbasis. The rent for the Stanton facility is $10,000 per month. Prior to July 2020,month and the Company paidstorage facility is an additional $5,000 per month, both on a month-to-month basis, forbasis. Our current Stanton facility is not sufficient to support the Santa Clarita storage facility. Following the closure of this facility,expected operations and the Company is currently rentingevaluating new facility options 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 approximately 1,000 square feet of temporary offsite storage space at a monthly cost of approximately $2,500.

basis. Commencing in February 2019, and ending in July 2019, the Company rentedbegan 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.

Following the adoption of Topic 842, Leases, as of the start of Fiscalfiscal year 2020, the Company determined that there was no impact on its Condensed Financial Statements during the fiscal yearnine-month period ended February 29, 2020, and as of August 31, 2020, it is management’s intention to vacate the existing facilities and consolidate operations at a different location as soon as practical.November 30, 2019. The standard requires entities to evaluate all lease transactions including leases previously classified as operating leases, and, if required under Topic 842, a right-to-use asset and a corresponding lease liability tomay be recorded on the balance sheet in the period in which a lease commences.

Joint Venture

In March 2017 the Company entered into a joint venture with a Chinese partner to form Jiangsu Shengfeng Mobile Power Technology Co., Ltd. (“Jiangsu Shengfeng”) to address the Chinese market. Under the Jiangsu Shengfeng joint venture agreement, Aura owns 49% of the venture and our Chinese partner owns 51%. The Chinese partner is to contribute approximately $9.25 million to the venture –– principally in the form of facilities and equipment as wells as approximately $500,000 in cash. The Company contributed to the venture in the form of $250,000 in cash as well as a limited license to the joint venture to manufacture, sell and service the AuraGen^® products within China. The limited license sold to the Jiangsu Shengfeng joint venture, however, does not permit Jiangsu Shengfeng to manufacture the AuraGen^® rotor; rather, the joint venture is required to purchase all rotor subassemblies as well as certain software elements directly from the Company. Jiangsu Shengfeng’s board of directors consists of three members appointed by the Company and three appointed by our Chinese partner; Jiangsu Shengfeng’s CEO is appointed by our Chinese partner while its CFO and director for quality assurance and control are appointed by Aura.

In addition, Jiangsu Shengfeng is required to purchase a minimum of $1,250,000 of product from 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. During fiscal 2019, Jiangsu Shengfeng placed a $1,000,000 order with the Company including a $700,000 advance payment. Aura has also committed to supply personnel for nine 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 partner of the joint venture, invested $2,000,000 in Aura’s common shares at a price of $1.40 per share. On November 20, 2019, the Company reached a preliminary agreement with Jiangsu Shengfeng, the Company’s Chinese joint venture regarding the return of $700,000 previously advanced to the Company in September 2018 and previously recorded as a customer advance on the balance sheet as of February 28, 2019. The preliminary agreement reached consists of a non-interest-bearing promissory note and a payment plan pursuant to which the $700,000 is paid over a 12-month period beginning March 15, 2020 and February 15, 2021. In the balance sheet as of November 30, 2019, the amount of $700,000 was reclassified to notes payable.

Contingencies

We are subject to the legal proceedings and claims discussed below as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our management evaluates our exposure to these claims and proceedings individually and in the aggregate and evaluates potential losses on such litigation if the amount of the loss is estimable and the loss is probable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected. The Company settled certain matters subsequent to year end that did not individually or in the aggregate have a material impact on the Company’s financial condition or operating results.

In 2017, the Company’s former COO was awarded approximately $238,000 in accrued salary and related charges by the California labor board. The Company believes that this award does not reflect the amount owed which is significantly lower and is exploring all its options and available remedies and is working toward an offer to settle this matter.

The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $10.6$10 million (representing approximately $5.4 million loaned to the Company over the course of 2013 to 2016; approximately $170,000 Mr. Kopple claims to have advanced or paid to third parties on Aura’s behalf; and approximately $5 million Mr. Kopple claims to be owed for interest, loan fees and late payment charges) and approximately 3.333.15 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, ourthe former CEO and(not a former director,director) in connection with these allegations. In 2018, the Court dismissedsustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with Mr. Kopple. However, to-date, no

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 has been reachedwith 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. On August 15, 2018, 7,364,735 restricted shares were issued in large part because Mr. Kopple continues to demand that as partfulfillment of any such settlement, he receive unilateral control over significant aspectsthis contractual obligation based on the then-outstanding closing quote of the Company’s financial and management functions such as, but not limitedstock. The issuance of the shares was previously reported by the Company. The Company also paid $20,000 in legal fees related to the right to unilaterally directlegal expense associated with the Company’s ordinary business expenditures and requiringdelays in the Company to seek his approval for the hiring of nearly all personnel, all to the exclusionissuance of the Company’s management team and stockholder-elected Board of Directors. The Company believes that allowing Mr. Kopple such level of operational control over the Company without any accountability would be highly detrimental to the Company and is incompatible with the Board of Directors’ duties to shareholders and creditors as a whole.stock.

In May 2018, Shelley Scholnick dba JB Transporters brought suit against the Company claiming ongoing fees in excess of $52,000 owed for the storage of the Company’s property. Notably, in June 2017, the Company had brought suit against J.B. Moving & Delivery, a business operated and controlled by a relative of Scholnick, Jacob Binstok, for damages suffered by the Company as a result of the defendant’s improper storage of the Company’s property and improper refusal to return such property. In 2018, the Company successfully received a judgment against J.B. Moving & Delivery in the amount of approximately $114,000. In April 2020, Aura and Scholnick entered into a Confidential Settlement and Release Agreement wherein (i) the 2018 action initiated by Scholnick against Aura was resolved with no amounts owing by Aura and the complaint and cross-complaint were subsequently dismissed with prejudice; and (ii) theThe Company disputes that any amount owingis now owed to Aura pursuant to the judgment against J.B. Moving and Delivery was compromised and resolved through a single lump-sum payment to Aura.Scholnick.

On March 26, 2019, various stockholders of the Company controlling a combined total of more than 27.5 million shares delivered a signed written consent to the Company removing Ronald Buschur as a member of the Company’s Board and electing Cipora Lavut as a director of the Company. On March 27, 2019, those same stockholders delivered a further signed written consent to the Company removing William Anderson and Si Ryong Yu as members of the Company’s Board and electing Robert Lempert and David Mann as directors of the Company. These written consents represented a majority of the outstanding shares of the Company’s common stock as of March 26, 2019 and March 27, 2019, respectively. Because of Aura’s refusal to recognize the legal effectiveness of the consents, on April 8, 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents and declaring that Aura’s Board consists of Ms. Lavut, Mr. Mann, Dr.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 Dr.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. As a result

NOTE 10 – FINANCIAL STATEMENT RESTATEMENTS (Restated)

Restatement of prior management’s unsuccessful opposition to this stockholders’ action filedthe Annual Report for the Fiscal Year Ended February 28, 2019

The Company issued an amended report on Form 10-K/A on October 24, 2019 for the fiscal year ended February 28, 2019 that corrected misstatements of its financial statements as of February 28, 2019. The following tables describe one of those misstatements, which should have been recorded in the Court of Chancery, such stockholders may be potentially entitled to recoup their litigation costs from the Company under Delaware’s corporate benefit doctrine and/or other legal provisions. To-date, no final determination has been made as to the amount of recoupment, if any, to which such stockholders may be entitled.nine-months ended November 30, 2018.

AURA SYSTEMS, INC.
STATEMENT OF OPERATIONS (RESTATED)
FOR THE NINE-MONTHS ENDED NOVEMBER 30, 2018

AURA SYSTEMS, INC.
STATEMENT OF CASH FLOWS (RESTATED)
FOR THE NINE-MONTHS ENDED NOVEMBER 30, 2018

Restatement of the Quarterly Report on Form 10-Q for the Three and Nine-Months Ended November 30, 2019

In the three and nine-month period ended November 30, 2019, the Company reported on its Quarterly Report on Form 10-Q net income of approximately $1.5 million and $0.6 million, respectively, attributed to $2.2 million of other income in connection with the cancellation of liabilities. These adjustments, all of which were booked in the third quarter, were related to the cancellation of the following liabilities: accounts payable ($0.3 million), unpaid wages and salaries ($1.5 million) and customer advances ($0.4 million). Also booked in the same quarter was a cancellation of approximately $1.0 million of unpaid wages and salaries owed to a former chief executive officer, a related party, that was accounted for as a capital transaction resulting in an adjustment to additional paid in capital of the same amount.

The following tabular presentations set forth the effect of the restatements on the original amounts reported on the Quarterly Report on Form 10-Q for the three and nine-months ended November 30, 2019, filed on January 14, 2020, and the restated amounts contained herein on this Amended Quarterly Report.

AURA SYSTEMS, INC.
BALANCE SHEETS

AURA SYSTEMS, INC.
STATEMENTS OF OPERATIONS