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Commitments & Contingencies
12 Months Ended
Feb. 28, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS & CONTINGENCIES

NOTE 8 – COMMITMENTS & CONTINGENCIES

 

Leases

 

Our facilities consist of approximately 20,000 rented square feet in Stanton, California and a storage facility located in Santa Clarita, California. The Stanton facility is used for small quantity assembly and testing using components that are produced by various suppliers as well as for general offices, engineering and warehousing. The rent for the Stanton facility is $10,000 per month and the rent on the storage facility is $5,000 per month. The Company also rents temporary space on a month-to-month basis. The Stanton and Santa Clarita facilities are short-term leases and are not sufficient to support the expected future operations and the Company is planning to eventually look for a new facility to be used for limited production, testing, engineering, warehousing as well as support staff.

 

Joint Venture

 

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

 

In addition, the Chinese company invested $2,000,000 in Aura at $1.40 per share for a total of 1,428,571 shares of common stock and is required to purchase a minimum of $1,250,000 of product form the Company supported by letters of credit for distribution until their factory is built, equipment installed, and staff hired and properly trained by Aura personnel. Aura has also committed to supply personnel for six months at no cost other than to be reimbursed for travel, room and board. This commitment has been fulfilled and Aura is under no further obligation to supply personnel at no cost. The agreement was subject to the approval of the Chinese Government which was received in April 2017.

 

Contingencies

 

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

 

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

 

The Company and the Company’s Chief Executive Officer, Melvin Gagerman, are among several defendants named in a lawsuit filed by two secured creditors demanding repayment of loans totaling $125,000 plus accrued interest and exemplary damages. In January 2017, the Company entered into an agreement with all secured creditors other than the two plaintiffs. However, because secured creditors holding in excess of 97% of the issuable stock upon conversion have executed the agreement, the agreement is binding on all of the secured creditors, including the two plaintiffs. That agreement, among other provisions, waives all past events of default. It is the Company’s position that the two plaintiffs are not entitled to any payment or other relief at this time and therefore that they have no valid claim against the Company or Mr. Gagerman. In March 2017, plaintiffs moved for partial summary adjudication against the Company and Mr. Gagerman; however, the Court denied plaintiff’s motion. Thereafter, the Court sustained demurrers by Mr. Gagerman and the Company; as a result of these successful demurrers, in February, /2017. Mr. Gagerman was dismissed from the suit altogether and all claims against the Company but one have been dismissed by the Court as well. In September 2018 the court entered a judgement of approximately $235,000 in favor of the two secured creditors. The Company has filed an appeal which is currently pending.

 

The Company is presently engaged in a dispute with one of its former directors, Robert Kopple, relating to approximately $9 million and approximately 3.15 million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. In July 2017, Mr. Kopple filed suit against the Company as well as against current director Mr. Diaz-Verson and former directors Mr. Breslow and Mr. Howsmon, as well as Mr. Gagerman, the current CEO (not a director) in connection with these allegations. In 2018, the Court sustained demurrers by Mr. Diaz-Verson, Mr. Breslow, Mr. Howsmon and Mr. Gagerman and as a result of these successful demurrers, all four of these defendants have been dismissed from the suit. While the Company believes that it has certain valid defenses in these matters, the Company is currently in settlement discussions with Mr. Kopple. If the settlement negotiation is unsuccessful, the Company intends to vigorously defend against these claims. See “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K for additional information regarding the transactions under dispute with Mr. Kopple.

 

In April 2018, the Company filed suit against its former counsel, Kilpatrick Townsend &Stockton LLP relating to various acts of malpractice and breach of fiduciary duty committed by the firm in connection with its representation of Aura. In June 2018, Kilpatrick Townsend &Stockton LLP filed a cross-complaint against the Company claiming approximately $400,000 in allegedly unpaid legal fees. The Company has reached a settlement agreement with Kilpatrick Townsend & Stockton LLP on January 11, 2019 which released the claims of all parties and ended all litigation between the parties.

 

In February 2018, the Company failed to issue approximately 2.3 million shares of stock contractually owed to BetterSea, LLC (“BetterSea”), which is wholly owned by Mr. Zvi “Harry” Kurtzman. Mr. Kurtzman then proceeded to sue the Company for failing to issue the required stock to BetterSea LLC. The required stock was then issued in the name of Zvi Kurtzman on August 15, 2018, along with an additional 5,108,291 shares (approximately 12% of the then outstanding shares of the Company) for not having issued the shares quickly enough and for the fact that the price of the stock had decreased. The Company also paid $20,000 in legal fees on behalf of Mr. Kurtzman related to this lawsuit.

 

On April 8, 2019, a complaint (the “Action”) was filed in the Court of Chancery in the State of Delaware (“Court”) against the Company by Cipora Lavut, Robert Lempert, David Mann, Peter Dalrymple and Zvi (Harry) Kurtzman, stockholders of the Company, alleging that stockholder consents removing Ron Buschur, Si Ryong Yu and William Anderson from the Board of Directors and appointing Lavut, Mann and Lempert were valid and effective (the “Consents”). The Consents were delivered by Mr. Kurtzman shortly after the Company advised Mr. Kurtzman that the Company would not renew a consulting agreement with BetterSea LLC, a company controlled by Harry Kurtzman.

 

On April 16, 2019, Mr. Dalrymple revoked his approval of the Consents and requested to be removed as a plaintiff in the Action, which was granted by the Court on April 24, 2019. Subsequently, another stockholder also revoked his approval of the Consents. Pursuant to its counterclaim filed with the Court, the Company denies that the Consents are valid as they were not executed by stockholders representing the requisite number of shares held of record to effectuate the actions in the Consents, they fail to satisfy the requirements of the Company’s Certificate of Incorporation, Bylaws and the Delaware General Corporation Law and the plaintiff’s claims are barred by the doctrine of unclean hands. On April 18, 2019, the Court issued a Status Quo Order providing that the Board of Directors will consist of the current incumbent directors, Si Ryong Yu, Ronald Buschur, William Anderson, Gary Douglas and Salvador Diaz-Version, Jr., pending further decision by the Court, that Cipora Lavut, Robert Lempert, and David Mann are not members of the Board, pending further order of the court, and that the current Board may not take certain actions outside the ordinary course of business without notice to the plaintiffs. On May 15, 2019, the plaintiffs filed another action in Court requesting the Company to hold an annual stockholder meeting. On May 20, 2019, the Company filed a letter with the Court requesting the Court to lift the Status Quo Order in light of actions taken by plaintiffs. The Company advised the Court that it was willing to hold an annual meeting as soon as reasonably practicable, but it was prevented from doing so by the Status Quo Order issued at plaintiffs’ request. On May 24, 2019, the Court revised the Status Quo Order, deleting a provision that prevented the Company from taking action that required a Board vote without prior notice and another provision that prevented the Board from taking action that could result in any changes to the members or size of the Board without prior notice. The Court also reduced the time of notice for certain actions related to the Company’s debt. The remaining provisions of the Status Quo Order remain in place. On June 4, 2019, the Company announced that it will hold an annual stockholder meeting on August 26, 2019. A hearing on the validity of the Consents is scheduled for June 28, 2019.