Notes Payable-Related Parties

12 Months Ended

Feb. 28, 2023

Notes Payable-Related Parties [Abstract]

NOTES PAYABLE-RELATED PARTIES

NOTE 9 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

	February 28, 2023		February 28, 2022
(amounts in thousands)
Unsecured notes payable
(a) Notes payable-Koppel (prior to restructuring)	$	-	$	5,607
Accrued interest-Koppel (prior to restructuring)		-		6,534
Notes payable -Koppel (restructured)		10,915		-
Subtotal-Koppel		10,915		12,141
(b) Note payable- Gagerman		82		82
Accrued interest-Gagerman		82		73
Subtotal-Gagerman		164		155
(c) Note payable-Jiangsu Shengfeng-past due		700		700
Total	$	11,779	$	12,996
Non-current		7,065		-
Current	$	4,714	$	12,996

(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. 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 approximately $6,534. 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 approximately $12,141.

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, including $3,000 initially due in June 2022, and $1,000 to be paid annually for seven years after the initial $3,000 is paid. In June 2022, $150 of the new note was paid, and the balance of $2,850 has been extended to May 29, 2023 (see Note 17). As of February 28, 2023, in exchange for the extended payment date, the Company has paid $105 in extension fees in cash, and recorded an additional $230 in deferred forbearance fees all of which are included in interest expense. The deferred forbearance fees are due with the final payment under the settlement agreement. All amounts, including all accrued interest and accrued forbearance fees, are to be paid no later than eight years from the date of the initial payment.

Additionally, the settlement agreement 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 Black-Scholes modeling to compute the fair value of the warrants which is estimated to be approximately $1,051.

The settlement provides for certain increases in the amounts payable to Kopple and the right of such parties to enter judgement against the Company if the Company remains in uncured default in its payment obligations. Interest on the new note began accruing in January 2023 at 6% per annum, and as a result the Company recorded approximately $52 of interest in Fiscal 2023. Pursuant to the settlement agreement, the Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Koppel and restrictions on future financing and investing activities, as defined in the agreement, including the covenant to not create any indebtedness that is senior in right of payment to the Kopple debt. Management believes such covenants are normal for this type of transaction and that management believes meeting these covenants will not affect operations and the Company was in compliance with all covenants as of February 28, 2023.

The Company assessed the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply as the Company was experiencing financial difficulties and Kopple granted a concession. 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

Melvin Gagerman, the Company’s former CEO and CFO whose employment was permanently terminated in July 2019, claims that in April 2014 the Company issued an unsecured demand promissory note to him in the amount of $82 that bears interest at a rate of 10% per annum. Gagerman claims that this note has not been repaid to date and is now owed.

In June 2022, Gagerman brought suit against the Company for repayment of this alleged note. Despite the fact that, based on Gagerman’s allegations, the note was issued during a period when Gagerman was the Company’s CEO, CFO, Corporate Secretary and Chairman of the Company’s Board of Directors, Gagerman has stated that he does not possess a copy of the alleged promissory note. The Company disputes that any amount is presently owed to Gagerman. Additionally, the Company has filed a cross-complaint against Gagerman for, among things, conversion, violation of California Business & Professions Code §17200, and various breaches of fiduciary duty that the Company believes Gagerman committed against the Company.

Based on Gagerman’s claims, as of February 28, 2023 and February 28, 2022, the outstanding balance of the Gagerman notes payable and accrued interest would amount to approximately $164 and $155, respectively. As of February 28, 2022 and February 28, 2022, despite the fact that the Company disputes Gagerman’s claims, under the guidance of ASC 450 - Contingencies, the Company has recorded the claimed notes payable and accrued interest amounts of approximately $164 and $155, respectively, in the accompanying balance sheets.

(c) Jiangsu Shengfeng Note

On November 20, 2019, the Company reached an agreement with a former joint venture partner Jiangsu Shengfeng regarding the return of $700 that had been advanced to the Company in prior years. As a result, in November 2019, and the Company issued a non-interest-bearing promissory note for $700 to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. As of February 28, 2023 and 2022, the principal due was $700, respectively, and was past due.