Notes Payable-Related Parties

3 Months Ended

May 31, 2022

Notes Payable Related Parties [Abstract]

NOTES PAYABLE-RELATED PARTIES

NOTE 9 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

	May 31, 2022		February 28, 2022
Unsecured notes payable
(a) Notes payable-Koppel (prior to restructuring)	$	-	$	5,607,323
Accrued interest-Koppel (prior to restructuring)		-		6,533,318
Note payable-Kopple (restructured)		11,089,169		-
Subtotal-Koppel		11,089,169		12,140,641
(b) Note payable- Gagerman		82,000		82,000
Accrued interest-Gagerman		75,494		73,428
Subtotal-Gagerman		157,494		155,428
(c) Note payable-Jiangsu Shengfeng		700,000		700,000
Total	$	11,946,663	$	12,996,069
Non-current		8,089,169		-
Current	$	3,857,494	$	12,996,069

(a) Kopple Notes

In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $6,107,323. Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. The notes were unsecured, bear interest at rates ranging from 5% and 15% per annum, and were due in fiscal 2014 through fiscal 2018. Kopple brought suit against the Company beginning in 2017 for repayment of the notes.

At February 28, 2022, the accrued interest due to Kopple totaled $6,533,318. Due to its significance, the balance of accrued interest is added to the note payable principal for presentation on the accompanying balance sheet as of February 28, 2022. As of February 28, 2022, the outstanding balance of the Kopple notes payable and accrued interest amounted to $12,140,641.

On March 14, 2022, the Company reached an agreement with Kopple to resolve all remaining litigation between them, including all amounts owed to Kopple under the notes. Under the terms of the settlement, the Company agreed to issue a new note and pay Kopple an aggregate amount of $10,000,000, including $3,000,000 to be paid in June 2022, which was subsequently extended to July 2022 (see Note 16), and granted Koppel warrants exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share. The Company used a Black-Scholes model to compute the fair value of the warrants which is estimated to be $1,051,473. The settlement provides for certain increases in the amount payable to Kopple and the right of such parties to enter judgment against the Company if the Company remains in uncured default in its payment obligations.

The Company assessed the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply. Per ASC 470-60, the carrying value of the restructured note remains the same as before the restructuring, reduced only by the fair value of the warrants issued in connection with the transaction. The Company determined that the future undiscounted cash flows of the restructured new Kopple note exceeded the carrying value, and accordingly, no gain was recognized, and no adjustment was made to the carrying value of the debt, other than the adjustment for the fair value of the warrants. Interest expense on the new Kopple note will be computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt.

(b) Note payable-Gagerman

In April 2014, the Company issued a note payable to Gagerman, former CEO and CFO of the Company, for $82,000. The note is an unsecured demand note and bears interest at a rate of 10% per annum. At May 31, 2022 and February 28, 2022, accrued interest on notes payable-Gagerman totaled $75,494 and $73,428, respectively, and is added to the note principal for presentation on the accompanying balance sheets. As of May 31, 2022 and February 28, 2022, the outstanding balance of the Gagerman notes payable and accrued interest amounted to $157,494 and $155,428, respectively.

(c) Jiangsu Shengfeng Note

On November 20, 2019, the Company reached an agreement with its joint venture partner Jiangsu Shengfeng regarding the return of $700,000 that had been advanced to the Company, and the Company issued a non-interest-bearing promissory note for $700,000 to be paid over a 11-month period beginning March 15, 2020, through February 15, 2021. As of May 31, 2022 and February 28, 2022, the principal due was $700,000.