Restatement of Previously Issued Financial Statements

12 Months Ended

Feb. 28, 2022

Condensed Financial Information Disclosure [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The financial statements for the year ended February 28, 2021 and certain balances as of February 29, 2020 have been restated. On May 31, 2022, our management determined the following:

● that the Company erroneously did not recognize a derivative warrant liability associated with warrants issued in prior years that included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. As such, the Company determined that the warrants fundamental transaction provision created a derivative liability pursuant to current accounting guidelines.

● that the Company had issued common stock in exchange for a settlement of debt to a former employee during fiscal 2018 and had erroneously not accounted for it until fiscal 2021.

● that the Company had granted stock options during fiscal 2021 which were erroneously not recorded.

The effects on the previously issued financial statements are as follows:

(A) In fiscal 2022, the Company recognized that previously issued warrants had characteristics of derivative liabilities. The Company determined the fair value of the warrant derivative liability as of February 29, 2020, was $947,271, and recorded the liability and its associated expense as a prior period adjustment to Accumulated Deficit in the amount of $947,271. Additionally, the warrant derivative liability was revalued at February 28, 2021 and the net increase in fair value of $419,103 was recorded as additional liability. The associated other net expense of $432,714 for the increase in fair value, partially offset by the gain on expiring warrants of $13,611, was recorded to the statement of operations.

(B) In fiscal 2022, the Company recognized that during fiscal 2021, the Company recorded the effect of issuing common stock for debt to a former employee when the issuance had occurred in fiscal 2018. To correct the timing of recording the transaction, the Company calculated the gain on the extinguishment of debt as of the February 28, 2018, issuance date in the amount of $256,044 and recorded the gain as a prior period adjustment to Accumulated Deficit. Additionally, the interest expense associated with the debt of $13,460 and gain on its extinguishment of $133,500 recorded in fiscal 2021 were reversed out of the statement of operations.

€ In fiscal 2022, the Company recognized that certain stock options granted during fiscal 2021 should have been fully or partially vested in the year of grant but had no share-based compensation expense recorded in fiscal 2021. To correct the timing of the expense recognition, the Company computed the amount of expense associated with the vesting as of February 28, 2021, and recorded an additional $258,636 of stock-based compensation expense to the statement of operations and is included in selling, general and administrative expenses.

Reclassifications

(1) In fiscal 2021, the Company presented interest accrued of $3,668 on its Economic Injury Disaster Loan as additional note payable principle.  In the accompanying fiscal 2022 financial statements, the Company has reclassified the accrued interest of $3,668 recorded in fiscal 2021 from notes payable to accrued interest.

(2) In fiscal 2021, the Company presented $2,713,652 of extinguishment of accrued wages and accounts payable as Other Income.  In the accompanying fiscal 2022 financial statements, the $2,713,652 has been reclassified to gain on extinguishment of debt.

The following table presents the effect of the restatements and reclassifications on the Company’s previously issued balance sheet:

	As of February 28, 2021
	As Previously Reported			Adjustments			Reclassifications			As Restated			Notes
Accrued expenses (including accrued interest)	$	1,288,107		$	-		$	3,668		$	1,291,775		[1]
Note payable		159,922			-			(3,668	)		156,255		[1]
Derivative warrant liability		-			1,366,375			-			1,366,375		[A]
Additional paid-in capital		446,126,640			(136,004	)		-			446,249,272		[B]
					258,636			-					[C]
Accumulated deficit	$	(465,883,499	)	$	(1,366,375	)	$	-		$	(467,372,506	)	[A]
					136,004			-					[B]
					(258,636	)		-					[C]

The following table presents the effect of the restatements and reclassifications on the Company’s previously issued statement of operations:

	As of February 28, 2021
	As Previously Reported		Adjustments			Reclassifications			As Restated			Notes
Selling, general and administrative expense	$	1,318,602	$	258,636		$	-		$	1,577,238		[C]
Interest expense		1,293,409		(13,460	)		-			1,279,949		[B]
Gain on extinguishment of debt		866,887		(133,500	)		2,713,652			3,447,039		[2]
Gain on extinguishment of derivative warrant liability		-		13,611			-			13,611		[A]
Change in fair value of derivative warrant liability		-		(432,714	)		-			(432,714	)	[A]
Other income		2,720,652		-			(2,713,652	)		7,000		[2]
Net income	$	842,528	$	(797,780	)	$	-		$	44,748
Net income per share, basic and diluted	$	0.01							$	0.00

The following table presents the effect of the restatements on the Company’s previously issued statement of shareholder deficit:

	Common Stock Shares			Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders’ Deficit
Balance, February 29, 2020, as previously reported		56,400,874		$	5,639	$	443,417,452	$	(466,726,027	)	$	(23,302,937	)
Prior period revisions		192,641			19		130,977		(691,227	)		(560,231	)
Corrections of errors		(4,469	)									-
Balance, February 29, 2020, as restated		56,589,046		$	5,658	$	443,548,428	$	(467,417,254	)	$	(23,863,168	)
Balance, February 28, 2021, as previously reported		71,107,442		$	7,109	$	446,126,640	$	(465,883,499	)	$	(19,749,750	)
Prior period revisions		-			-		122,632		(1,489,007	)		(1,366,375	)
Corrections of errors		(4,433	)									-
Balance, February 28, 2021, as restated		71,103,009		$	7,109	$	446,249,272	$	(467,372,506	)	$	(21,116,125	)

The following table presents the effect of the restatements and reclassifications on the Company’s previously issued statement of cash flows:

	As of February 28, 2021
	As Previously Reported			Adjustments			Reclassifications			As Restated			Notes
Cash flows from operating activities:
Net income	$	842,528		$	(797,780	)	$	-		$	44,748		[A] [B] [C]
Gain on extinguishment of liabilities		(3,585,639	)		133,500			5,100			(3,447,039	)	[B]
Gain on debt settlement								(71,775	)		(71,775	)
Gain on extinguishment of derivative warrant liability		-			(13,611	)		-			(13,611	)	[A]
Change in fair value of derivative warrant liability		-			432,714			-			432,714		[A]
Share-based compensation expense		193,750			258,636			-			452,386		[C]
Changes in working capital assets and liabilities:
Operating lease right-to-use asset		-			-			7,220			7,220
Accounts payable and accrued expenses		99,839			-			(185,308	)		(85,469	)	[1]
Accrued interest on notes payable		847,987			(13,460	)		251,983			1,086,510		[B] [1]
Operating lease liability		(10,564	)		-			(7,220	)		(17,784	)
Supplemental schedule of non-cash transactions:
Notes payable converted into shares of common stock	$	267,000		$	(267,000	)	$	-		$	-		[B]