Notes Payable-Related Parties (Tables)

9 Months Ended

Nov. 30, 2023

Notes Payable-Related Parties [Abstract]

Schedule of Notes Payable-Related Parties

Notes payable-related parties consisted of the following:

(amounts in thousands)	November 30, 2023			February 28, 2023
Unsecured notes payable
(a) Notes payable-Kopple (as restructured)	$	10,938		$	10,915
(b) Note payable- Gagerman		82			82
(c) Note payable-Jiangsu Shengfeng – past due		700			700
Total	$	11,720		$	11,697
Non-current		(7,088	)		(7,065	)
Current	$	4,632		$	4,632

(a) Kopple Note

In fiscals 2013 through 2018, the Company issued notes payable to Robert Kopple and associated entities (collectively “Kopple”) in the aggregate principal amount 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. Between July 2017 and March 2022, the Company was engaged in litigation with Kopple relating to more than $13,000 of principal and accrued interest due under the notes, and the equivalent of the approximately 23 million warrants.

On March 14, 2022, the Company reached an agreement with Kopple and resolved 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. Additionally, the settlement agreement granted Koppel a five year, fully vested warrant exercisable into 3,331,664 shares of the Company’s common stock at a price of $0.85 per share with a fair value of $1,100.

The Company assessed the settlement with Kopple under ASC 470 and determined that the guidance under troubled debt restructuring should apply. 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 is 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.

In June 2022, the first installment of $3,000 became due, of which $150 was paid and $2,850 is still outstanding. Subsequently, the note was amended several times to extend the payment date of the remaining balance of $2,850 of the initial payment through January 2023, and the Company incurred extension and forbearance fees totaling $335.In January 2023, pursuant to the terms of the amended note payable, the Company started accruing interest on the outstanding note balance at a rate of 6% per annum, compounded annually. As of February 28, 2023, outstanding principal balance amounted to $10,915.

During the nine months ended November 30, 2023, the note was again amended multiple times to extend the payment term of the remaining balance of $2,850 of the initial payment and installment payment of $1,000, originally due in June 2023, through August 1, 2023. As a result of these amendments, the Company incurred additional extension and forbearance fees totaling $390 and adjustment to principal balance of $23.

As of November 30, 2023, the outstanding principal balance of amounted to $10,938. As of November 30, 2023 and the date of this report, the Company and Kopple are currently in negotiations for another extension of the deadline for payment of the $3,850, consisting of the $2,850 initial payment and the installment payment of $1,000. Currently, Kopple has agreed in principle that such further amendment will also indicate that the Company is not in default of the agreement as of November 30, 2023, and through the date that the financial statements are issued. Based upon the foregoing no adjustments have been made to reflect the Kopple debt in default.

The settlement agreement with Kopple provides for certain increases in the amounts payable to Kopple and the right of such parties to enter a judgement against the Company if the Company remains in unsecured default in its payment obligations. 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.

(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.

Although the Company disputes Gagerman’s claims, under the guidance of ASC 450 – Contingencies, the Company has recorded the claimed note payable $82 and corresponding accrued interest.

(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, 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 November 30, 2023 and February 28, 2023, the outstanding balance of this note payable amounted to $700.

The Company is currently in negotiations with the noteholder to settle or extinguish the note payable.