Restatement of Previously Issued Unaudited Condensed Financial Statements for the Six Months Ended August 31, 2021

6 Months Ended

Aug. 31, 2022

Condensed Financial Information Disclosure [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED AUGUST 31, 2021

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

The unaudited condensed financial statements for the six months ended August 31, 2021 and certain balances as of February 28, 2021 have been restated. During the fourth quarter of fiscal 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 August 31, 2021 and the net decreases in fair value of $56,640 and $127,420 were recorded as reductions to the liability. The associated other income of $56,640 for the three-month period ended August 31, 2021 was recorded to the statement of operations as a gain for the decrease in the fair value of the derivative warrant liability. The associated aggregate other income of $184,060 for the six-month period ended August 31, 2021 was recorded to the statement of operations and consisted of a gain for the decrease in fair value of $139,440 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 $67,592  and $84,526 of share-based compensation expense to the statement of operations for the three-month and the six-month periods ended August 31, 2021, respectively, as well as recording the associated increases to Additional paid-in capital in their respective periods.

(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 and six-month periods ended August 31, 2021, payroll compensation expense of $92,624 and $185,250, respectively, 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 six-months ended August 31, 2021, the Company presented interest accrued of $6,596 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 $6,596 recorded in Fiscal 2021 and the first six months of Fiscal 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 August 31, 2021
	As Previously Reported			Adjustments			Reclassifications			As Restated			Notes
Accrued expenses (including accrued interest)	$	1,564,301		$	(185,250	)	$	6,596		$	1,385,647			[D]	[1]
Note payable		247,830			-			(6,596	)		241,234				[1]
Derivative warrant liability		-			1,182,314			-			1,182,314			[A]
Common stock		7,733			-			(2	)		7,731
Additional paid-in capital		447,905,801			(136,004	)		2			448,112,961			[B]
					258,636			-						[C]
					84,526									[C]
Accumulated deficit	$	(468,006,856	)	$	(1,182,314	)	$	-		$	(469,211,078	)		[A]
					136,004			-						[B]
					(258,636	)		-						[C]
					(84,526	)		-						[C]
					185,250			-						[D]

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

	For the three months ended August 31, 2021
	As Previously Reported			Adjustments			Reclassifications		As Restated			Notes
Selling, general and administrative expense	$	495,165		$	67,592		$	-	$	470,133			[C]
					(92,624	)		-					[D]
Gain on extinguishment of derivative warrant liability		-			-			-		-			[A]
Change in fair value of derivative warrant liability		-			56,640			-		56,640			[A]
Net loss	$	(1,014,527	)	$	81,672		$	-	$	(932,855	)
Net loss per share, basic and diluted	$	(0.01	)						$	(0.01	)

	For the six months ended August 31, 2021
	As Previously Reported			Adjustments			Reclassifications		As Restated			Notes
Selling, general and administrative expense	$	1,307,846		$	84,526		$	-	$	1,207,122			[C]
					(185,250	)		-					[D]
Gain on extinguishment of derivative warrant liability		-			44,620			-		44,620			[A]
Change in fair value of derivative warrant liability		-			139,440			-		139,440			[A]
Net loss	$	(2,123,356	)	$	284,784		$	-	$	(1,838,572	)
Net loss per share, basic and diluted	$	(0.03	)						$	(0.03	)

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		$	7,111		$	446,126,638	$	(465,883,499	)	$	(19,749,750	)
Prior period revisions		-			(2	)		122,634		(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, August 31, 2021, as previously reported		77,330,871		$	7,733		$	447,905,801	$	(468,006,855	)	$	(20,093,322	)
Prior period revisions		-			(2	)		122,634		(1,489,007	)		(1,366,375	)
Share-based compensation addition		-			-			84,526		-			84,526
Net loss reduction		-			-			-		284,784			284,784
Corrections of errors		(4,433	)		-			-		-			-
Balance, August 31, 2021, as restated		77,326,438		$	7,731		$	448,112,961	$	(469,211,078	)	$	(21,090,386	)

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

	For the six months ended August 31, 2021
	As Previously Reported			Adjustments			Reclassifications			As Restated			Notes
Cash flows from operating activities:
Net loss	$	(2,123,356	)	$	284,784		$	-		$	(1,838,572	)		[A] [C] [D]
Gain on extinguishment of derivative warrant liability		-			(44,620	)		-			(44,620	)		[A]
Change in fair value of derivative warrant liability		-			(139,440	)		-			(139,440	)		[A]
Share-based compensation expense		241,910			84,526			-			326,436			[C]
Changes in working capital assets and liabilities:
Operating lease right-to-use asset		-			-			81,529			81,529
Accounts payable and accrued expenses		207,991			(185,250	)		2,928			25,669			[D]	[1]
Accrued interest on notes payable		539,080			-			(2,928	)		536,152				[1]
Operating lease liability		37,547			-			(81,529	)		(43,982	)