Restatement of Previously Issued Unaudited Condensed Financial Statements for the Three Months Ended May 31, 2021

3 Months Ended

May 31, 2022

Condensed Financial Information Disclosure [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 2021

The unaudited condensed financial statements for the three months ended May 31, 2021 and certain balances as of February 28, 2021 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 by prior management 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 by prior management had characteristics of derivative liabilities. The Company determined the fair value of the warrant derivative liability, including its initial recording and revaluation for changes in fair value and expiring warrants, as of February 28, 2021, was $1,366,375, and recorded the liability and its associated expense as a prior period adjustment to Accumulated Deficit in the amount of $1,366,375. Additionally, the warrant derivative liability was revalued at May 31, 2021 and the net decrease in fair value of $127,420 was recorded as a reduction to the liability. The associated other income of $127,420 was recorded to the statement of operations and consisted of a gain for the decrease in fair value of $82,800 and a gain on expiring warrants of $44,620.

(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. The resulting net impact of these prior period adjustments for the Fiscal 2022 beginning balance is a decrease to Additional paid-in capital of $136,004 and a corresponding $136,004 decrease in Accumulated deficit.

(C) 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 share-based compensation expense to the statement of operations. The resulting net impact of these prior period adjustments for the Fiscal 2022 beginning balance is an increase to Additional paid-in capital of $258,636 and a corresponding $258,636 increase in Accumulated deficit. Additionally, in order to correct the timing of the expense recognition as it continued into Fiscal 2022, the Company recorded an additional $16,933 of share-based compensation expense to the statement of operations for the three-month period ended May 31, 2022.

(D) In Fiscal 2022, the Company recognized that certain stock options granted during Fiscal 2021 were being recorded as payroll compensation expense in Fiscal 2022. Restatement item (C) noted above properly recognizes the amount and timing of the share-based compensation expense, which results in the need to reverse the payroll compensation recorded in Fiscal 2022. For the three-month period ended May 31, 2021, payroll compensation expense of $92,625 was reversed out of the statement of operations, and the associated liability in Accrued expenses was reduced by the same amount.

Reclassifications

(1) In Fiscal 2021 and the three months ended May 31, 2021 (“Fiscal Q1 2022”), the Company presented interest accrued of $5,125 on its Economic Injury Disaster Loan as additional note payable principle.  In the accompanying condensed financial statements, the Company has reclassified the cumulative accrued interest of $5,125 recorded in fiscal 2021 fiscal Q1 2022 from notes payable to accrued interest.

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

	As of May 31, 2021
	As Previously Reported			Adjustments			Reclassifications			As Restated			Notes
Accrued expenses (including accrued interest)	$	1,529,273		$	(92,625	)	$	5,125		$	1,441,772			[D][1]
Note payable		246,360			-			(5,125	)		241,235			[1]
Derivative warrant liability		-			1,238,955			-			1,238,955			[A]
Common stock		7,297			-			(2	)		7,295
Additional paid-in capital		446,555,737			(136,004	)		2			446,695,305			[B]
					258,636			-						[C]
					16,934									[C]
Accumulated deficit	$	(466,992,328	)	$	(1,238,955	)	$	-		$	(468,278,223	)		[A]
					136,004			-						[B]
					(258,636	)		-						[C]
					(16,934	)		-						[C]
					92,626			-						[D]

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

	As of May 31, 2021
	As Previously Reported			Adjustments			Reclassifications		As Restated			Notes
Selling, general and administrative expense	$	812,681		$	16,934		$	-	$	736,989			[C]
					(92,626	)		-					[D]
Gain on extinguishment of derivative warrant liability		-			44,620			-		44,620			[A]
Change in fair value of derivative warrant liability		-			82,800			-		82,800			[A]
Net loss	$	(1,108,829	)	$	203,112		$	-	$	(905,717	)
Net loss per share, basic and diluted	$	(0.02	)						$	(0.01	)

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 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	)
Balance, May 31, 2021, as previously reported		72,972,775		$	7,297		$	446,555,737	$	(466,992,328	)	$	(20,429,294	)
Prior period revisions		-			(2	)		122,634		(1,489,007	)		(1,366,375	)
Share-based compensation addition		-			-			16,934		-			16,934
Net loss reduction		-			-			-		203,112			203,112
Corrections of errors		(4,433	)		-			-		-			-
Balance, May 31, 2021, as restated		71,103,009		$	7,295		$	446,695,305	$	(468,278,223	)	$	(21,575,623	)

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

	As of May 31, 2021
	As Previously Reported			Adjustments			Reclassifications			As Restated			Notes
Cash flows from operating activities:
Net loss	$	(1,108,829	)	$	203,112		$	-		$	(905,717	)		[A] [C] [D]
Gain on extinguishment of derivative warrant liability		-			(44,620	)		-			(44,620	)		[A]
Change in fair value of derivative warrant liability		-			(82,800	)		-			(82,800	)		[A]
Share-based compensation expense		146,284			16,934			-			163,218			[C]
Changes in working capital assets and liabilities:
Operating lease right-to-use asset		-			-			40,383			40,383
Accounts payable and accrued expenses		199,562			(92,626	)		1,457			108,392				[1]
Accrued interest on notes payable		270,274			-			(1,457	)		268,817				[1]
Operating lease liability		47,532			-			(40,383	)		7,149