What changed in this filing

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Item 1. Financial Statements

2024-10-22 compared with 2024-07-22 · 298 added, 283 removed, 376 unchanged (61% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Accounts receivables

Accounts receivable

Prepaid and other current assets

8 unchanged sentences

Customer advances

Notes payable current portion

Convertible notes payable – past due

Convertible note payable-related party current portion

Notes payable-related parties, current portion

Convertible notes payable-related party, current portion – $ 3,020 past due

Notes payable current portion

Notes payable-related parties, current portion – past due

Operating lease liability, current portion

3 unchanged sentences

Convertible note payable-related party, non-current portion

Notes payable-related parties, non-current portion

Operating lease liability

5 unchanged sentences

150,000,000 shares authorized;

and 104,591,648 issued and outstanding May 31, 2024, and February 29, 2024, respectively

111,544,011 and 104,591,648 issued and outstanding August 31, 2024, and February 29, 2024, respectively

Additional paid-in capital

6 unchanged sentences

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ending

Three-Months Ended

Six-Months Ended

(amounts in thousands, except share and per share data)

Cost of goods

Cost of goods sold

Gross profit (loss)

5 unchanged sentences

Other income (expense):

Interest expense, net (including $ 271 and $ 411 to related parties)

Interest expense, net (including $ 282 , $ 319 , $ 553 and $ 781 to related parties, respectively)

Loss on debt extinguishment – related party

Change in fair value derivative liability

Change in fair value of derivative warrant liability

Basic and diluted loss per share

3 unchanged sentences

CONDENSED STATEMENTS OF SHAREHOLDERS’

ended May 31, 2024 and 2023

(in thousands, except share data)

and Six Months Ended August 31, 2023

(amounts in thousands, except share data)

Shareholders’

2 unchanged sentences

Common shares issued for cash

Balance, May 31, 2023 (unaudited)

Balance, May 31, 2023

Common shares issued for cash

Balance, August 31, 2023 (unaudited)

$ ( 477,035 )

and Six Months Ended August 31, 2024

(amounts in thousands, except share data)

Shareholders’

Balance, February 29, 2024

2 unchanged sentences

Fair value of modified warrants - related party

Balance, May 31, 2024 (unaudited)

Balance, May 31, 2024

Common shares issued for cash

Fair value of stock options

Balance, August 31, 2024 (unaudited)

$ ( 500,638 )

2 unchanged sentences

CONDENSED STATEMENTS OF CASH FLOWS

Six Months Ended

(amounts in thousands)

1 unchanged sentence

Depreciation and amortization

Amortization of debt discount

Inventory write-down

1 unchanged sentence

Change in fair value of derivative liability

Fair value of stock options

Changes in operating assets and liabilities:

4 unchanged sentences

Accrued interest

Customer advances

Operating lease liability

5 unchanged sentences

Proceeds from issuance of common stock

Payment of notes payable

Principal payments of notes payable

Cash provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents-beginning of period

4 unchanged sentences

Notes payable issued for the purchase of property and equipment

Fair value of convertible note payable

Fair value of a convertible note payable

Extinguishment of note payable and accrued interest – related party

Conversion feature of convertible note payable – related party accounted as derivative liability

Reclassification of prepaid expense to property and equipment

Adjustment to interest expense to account for the effective interest rate of note payable

See accompanying notes to these unaudited financial

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED MAY 31, 2024 AND 2023

THREE AND SIX MONTHS ENDED AUGUST 31, 2024 AND

(Amounts in thousands, except share and per

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Basis of Presentation

The accompanying unaudited condensed financial statements as of and

for the three months ended on May 31, 2024 and prior 2023, have been prepared in conformity with accounting principles generally accepted

in the United States of America (“U.S.

GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission

(the “SEC”) regarding interim financial reporting.

Certain information and note disclosures normally included in the financial

statements prepared in accordance with U.S.

The accompanying unaudited condensed financial

statements as of and for the six months ended on August 31, 2024 and prior 2023, have been prepared in conformity with accounting principles

generally accepted in the United States of America (“U.S.

GAAP”) and the applicable rules and regulations of the Securities

and Exchange Commission (the “SEC”) regarding interim financial reporting.

Certain information and note disclosures normally

included in the financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion

of management, the unaudited condensed financial statements reflect all adjustments of a normal recurring nature that are necessary for

a fair presentation of the results for the periods presented.

The Condensed Balance Sheet information as of February 29, 2024, was derived

from the Company’s audited Financial Statements as of February 29, 2024, included in the Company’s Annual Report on Form 10-K

filed with the SEC on June 4, 2024.

In the opinion of management, the unaudited condensed financial statements reflect all adjustments of a normal recurring nature that are

necessary for a fair presentation of the results for the periods presented.

The Condensed Balance Sheet information as of February 29,

2024, was derived from the Company’s audited Financial Statements as of February 29, 2024, included in the Company’s Annual

Report on Form 10-K filed with the SEC on June 4, 2024.

These financial statements should be read in conjunction with that report.

The results of operations

for the period ended May 31, 2024, may not necessarily be indicative of the results of the full fiscal year ending February 28, 2025.

results of operations for the period ended August 31, 2024, may not necessarily be indicative of the results of the full fiscal year ending

February 28, 2025.

The Company’s fiscal year ends on the last

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has experienced recurring operating losses and relies on debt and equity offerings to generate working capital.

During the three-month period ended May 31, 2024,

the Company recognized net loss of $ 15,258 from operations and used cash in operating activities of $ 784 .

As of May 31, 2024, the Company

also has a shareholder deficit of $ 35,627 and notes payable totaling $ 5,315 are also past due.

These factors raise substantial doubt about

the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued.

the Company’s independent registered public accounting firm, in its report on the Company’s February 29, 2024, financial statements,

raised substantial doubt about the Company’s ability to continue as a going concern.

The financial statements do not include any

adjustments that might be necessary if the Company is unable to continue as a going concern.

In the event the Company is unable to generate

During the six-month period ended August 31,

2024, the Company recognized a net loss from operations of $ 21,648 and used cash in operating activities of $ 1,619 .

As of August 31,

2024, the Company also has a shareholder deficit of $ 39,770 and notes payable totaling $ 5,315 are also past due.

These factors raise

substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial

statements are issued.

In addition, the Company’s independent registered public accounting firm, in its report on the

Company’s February 29, 2024, financial statements, raised substantial doubt about the Company’s ability to continue as a

going concern.

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue

as a going concern.

In the event if the Company is unable to generate

profits and is unable to obtain financing for its working capital requirements, it may have to curtail its business further or cease business

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During the next twelve months the Company intends

to continue to attempt to increase the Company’s operations and focus on development and sale of a family of axial flux motos for

industrial/commercial and EV applications.

to continue to attempt to increase the Company’s operations and focus on the development and sale of a family of axial flux motos

for industrial/commercial and EV applications.

In addition, we also focus on development and sale of our axial flux induction generators

for commercial and military applications as well as for wind turbines and other environmental related applications.

In addition, the

Company plans to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the extent appropriate,

utilize third party contractors to support the operation.

In addition, the Company

plans to source new suppliers for manufacturing operations, rebuild the engineering and sales teams, and to the extent appropriate, utilize

third party contractors to support the operation.

Higher inflation, the actions by the Federal Reserve

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The Company believes

these factors impacted the Company’s business in fiscal 2023 and fiscal 2024 and will continue to impact the

Company’s business in fiscal 2025.

The implications of higher government deficits and debt, tighter monetary

policy, and higher long-term interest rates may drive a higher cost of capital for the business and an increase in the Company’s

operating expenses.

The COVID-19 pandemic

has been declared to be officially over.

Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions

in which the Company operates.

The Company has not observed any impairments of its assets or a significant change in the fair value of

its assets due to the COVID-19 pandemic.

At this time, it is not possible for the Company to predict the duration or magnitude of the

adverse results stemming from the outbreak and its lingering effects on the Company’s business or results of operations, financial

condition, or liquidity.

these factors impacted the Company’s business in fiscal 2023 and fiscal 2024 and will continue to impact the Company’s business

in fiscal 2025.

The implications of higher government deficits and debt, tighter monetary policy, and higher long-term interest rates

may drive a higher cost of capital for the business and an increase in the Company’s operating expenses.

The COVID-19 pandemic has been declared to be

officially over.

Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions in which the Company

The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the

COVID-19 pandemic.

At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results stemming

from the outbreak and its lingering effects on the Company’s business or results of operations, financial condition, or liquidity.

Use of Estimates

The preparation of financial statements in

conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates include assumptions made for inventory valuation, impairment testing of long-lived assets, the valuation

allowance for deferred tax assets, assumptions used in valuing notes payable, derivative liabilities, assumptions used in valuing

share-based compensation, and accruals for potential liabilities.

The preparation of financial statements in conformity

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the

date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates

include assumptions made for inventory valuation, impairment testing of long-lived assets, the valuation allowance for deferred tax assets,

assumptions used in valuing notes payable, derivative liabilities, assumptions used in valuing share-based compensation, and accruals

for potential liabilities.

Amounts could materially change in the future.

Actual results

could differ from those estimates.

Actual results could differ from those estimates.

Vendor Concentration

As of May 31, 2024 , four vendors accounted for

39 %, 12 %, 11 % and 10 % of the Company’s accounts payable.

As of August 31, 2024, four vendors accounted

for 38 %, 12 %, 11 % and 10 % of accounts payable.

As of February 29, 2024, four vendors accounted

4 unchanged sentences

from Contracts with Customers.

Our primary source of revenue is the manufacture and

delivery of axial flux induction motors and generator sets used primarily in mobile power applications.

Our principal sales channel is

sales to domestic end users and distributors and agents internationally.

In accordance with ASC 606, the Company recognizes revenue, net

of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e.

point-in-time), which also corresponds

to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.

Share-Based Compensation

The Company periodically issues stock options and warrants, and shares

of common stock to employees and non-employees in non-capital raising transactions for services and for financing costs.

Our primary source of revenue is the manufacture

and delivery of axial flux induction motors and generator sets used primarily in mobile power applications.

Our principal sales channel

is sales to domestic end users and distributors and agents internationally.

In accordance with ASC 606, the Company recognizes revenue,

net of discounts, for our generator sets at the time of product delivery and acceptance by the customer (i.e.

point-in-time), which also

corresponds to the passage of legal title to the customer and the satisfaction of our performance obligation to the customer.

Share-Based Compensation

cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service

Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for such

The Company periodically issues stock options

and warrants, and shares of common stock to employees and non-employees in non-capital raising transactions for services and for financing

Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized

as expense over the requisite service period.

Recognition of compensation expense for non-employees is in the same period and manner as

if the Company had paid cash for such services.

Fair Value of Financial Instruments

14 unchanged sentences

to current market conditions.

The following table sets

forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of May 31, 2024 and February

The following table sets forth by level, within

the fair value hierarchy, the Company’s assets and liabilities at fair value as of August 31, 2024 and February 29, 2024:

August 31, 2024

(amounts in thousands)

2 unchanged sentences

Derivative liability

The Company estimated the fair value of the derivative liability using

the Binomial Model.

The Company estimated the fair value of the derivative

liability using the Binomial Model.

The following table provides a roll-forward of

the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended May 31, 2024,

the derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the period ended August 31,

2024, as follows:

(amounts in thousands, except share data)

1 unchanged sentence

February 29, 2024

Recognition of derivative liability for a convertible note payable

conversion option

Recognition of derivative liability for a convertible note payable conversion option

Change in fair value of derivative liability

Gain on extinguishment

August 31, 2024

Loss per share

9 unchanged sentences

debt, and the treasury stock method for options and warrants, which could occur if all potentially dilutive securities were exercised.

For the three months ended May 31, 2024, and 2023,

For the six months ended August 31, 2024, and

2023, the calculations of basic and diluted loss per share are the same because potentially dilutive securities would have had an anti-dilutive

9 unchanged sentences

(amounts in thousands)

Convertible notes payable – past due

(a) Convertible notes payable 1 – past due

(b) Convertible notes payable 2 – past due

Unamortized debt discount

In Fiscal 2013 and 2014,

the Company issued six convertible notes payable in the aggregate of $ 4,000 .

The notes are unsecured, bear interest at 5 % per annum and

are convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

The notes were originally due in 2014

to 2017 and were all amended in 2018 to change the maturity date to January 11, 2023.

As of May 31, 2024 and February 29, 2024, the outstanding

balance of the convertible notes payable amounted to $ 1,403 and are past due.

In Fiscal 2024 the Company

issued convertible notes payable to unrelated individuals and entities totaling $ 110 in exchange for cash.

The notes are unsecured, bear

interest at rate of 10 % per annum, and mature in March 2024.

The notes payable are convertible into shares of common stock at a conversion

price of $ 0.20 per share.

As of May 31, 2024 and February 29, 2024, the outstanding balance of the convertible notes payable amounted

to $ 110 and $ 106 , respectively, and are past due.

(a) In Fiscal 2013 and 2014, the Company issued six convertible

notes payable in the aggregate of $ 4,000 .

The notes are unsecured, bear interest at 5 % per annum and are convertible into shares of common

stock at a conversion price of $ 1.40 per share, as adjusted.

The notes were originally due in 2014 to 2017 and were all amended in 2018

to change the maturity date to January 11, 2023.

As of August 31, 2024 and February 29, 2024, the outstanding balance of the convertible

notes payable amounted to $ 1,403 and are past due.

(b) In Fiscal 2024 the Company issued convertible notes payable

to unrelated individuals and entities totaling $ 110 in exchange for cash.

The notes are unsecured, bear interest at rate of 10 % per annum,

and matured in March 2024.

The notes payable are convertible into shares of common stock at a conversion price of $ 0.20 per share.

of August 31, 2024 and February 29, 2024, the outstanding balance of the convertible notes payable amounted to $ 110 and $ 106 , respectively,

and are past due.

NOTE 3 – CONVERTIBLE NOTE PAYABLE-RELATED

3 unchanged sentences

(b) Convertible note payable 2 – past due

(a) On January 24, 2017, the Company

entered into a debt refinancing agreement with a former director and current shareholder of the Company.

As part of the agreement, the

Company issued a $ 3,000 convertible note.

The convertible note is unsecured, bears interest at 5 % per annum, and was due February 2,

The convertible note is convertible into shares of common stock at a conversion price of $ 1.40 per share, as adjusted.

of May 31, 2024 and February 29, 2024, outstanding balance of the convertible note amounted to $ 3,000 and is past due.

(b) On October 4, 2023, the Company issued a convertible note payable of

$ 20 in exchange for cash to a member of the Company’s Board of Directors.

The convertible note is unsecured, bears interest at rate

of 10 % per annum and matured in March 2024.

The convertible note payable is convertible to common stock at a conversion price of $ 0.20

As of May 31, 2024 and February 29, 2024, outstanding balance of the convertible note amounted to $ 3,000 and is past due.

January 24, 2017, the Company entered into a debt refinancing agreement with a former director and current shareholder of the Company.

As part of the agreement, the Company issued a $ 3,000 convertible note.

The convertible note is unsecured, bears interest at 5 % per annum,

and was due February 2, 2023.

The convertible note is convertible into shares of common stock at a conversion price of $ 1.40 per share,

As of August 31, 2024 and February 29, 2024, the outstanding balance of the convertible note amounted to $ 3,000 and

October 4, 2023, the Company issued a convertible note payable of $ 20 in exchange for cash to a member of the Company’s Board of

The convertible note is unsecured, bears interest at rate of 10 % per annum and matured in March 2024.

The convertible note

payable is convertible to common stock at a conversion price of $ 0.20 per share.

As of August 31, 2024 and February 29, 2024, the outstanding

balance of the convertible note amounted to $ 20 and is past due.

March 2022, the Company issued a note payable to Kopple (see Note 5).

On March 7, 2024, the Company amended the note payable to Kopple.

The amendment included, among other things (see Note 5) granting

Kopple a conversion right to be able to convert the note payable into equity of the Company at a conversion price of the lower of $ 1.00

per share or 50% of the 10 day volume weighted average price of the Company’s common stock.

As the amended Kopple note payable

is convertible into common stock, it is now reported as a convertible note payable The conversion right will be effective August 30,

The Company accounted for the amended terms of the note payable as a debt extinguishment and the existing note payable and accrued

interest totaling $ 12,164 was derecognized and the amended convertible note payable was recorded at its fair value of $ 9,261 (see Note

The convertible note payable is secured by tangible and intangible assets of the Company, bears interest at a rate of 10 % per annum

and matures in June 2029.

As of May 31, 2024, outstanding balance of the convertible note amounted to $ 9,261 .

The Company is also subject to certain affirmative and negative covenants such as periodic submission of financial statements to Kopple 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 the operations of the Company.

NOTE 4 – NOTES

The amendment included, among other things granting Kopple a conversion right to be able to convert the note payable into equity of the

Company at a conversion price of the lower of $ 1.00 per share or 50 % of the 10 day volume weighted average price of the Company’s

common stock.

As the amended Kopple note payable is convertible into common stock, it is now reported as a convertible note payable.

conversion right became effective on August 30, 2024.

The Company accounted for the amended terms of the note payable as a debt extinguishment

and the existing note payable and accrued interest totaling $ 12,164 was derecognized and the amended convertible note payable was recorded

at its fair value of $ 9,261 .

The convertible note payable is secured by tangible and intangible assets of the Company, bears interest

at a rate of 10 % per annum and matures in June 2029.

As of August 31, 2024, the outstanding balance of the convertible note amounted

The Company is also subject to certain

affirmative and negative covenants such as periodic submission of financial statements to Kopple 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 the operations of the Company.

NOTE 4 – NOTES PAYABLE

Notes payable consisted of the following:

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(e) Note payable-other

(a) Note payable-EID

(a) Note payable-EID loan

During Fiscal 2021, the Company received a $ 150

loan under the United States Small Business Administration (“SBA”) Economic Injury Disaster Loan (“EID Loan”)

The loan is due July 1, 2050 , interest accrues at 3.75 % per annum, and is secured by the

assets of the Company .

The loan is due July 1, 2050 , interest accrues at 3.75 % per annum and is secured by the assets of the Company.

(b) Notes payable-vehicle and equipment

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(d) Notes payable – machinery and other

During Fiscal 2025, the Company obtained a loan of

$ 274 from a financing institution to finance the purchase of a production machine by the Company.

The note payable is secured by the production

machine, bears a straight up fee of $ 74,285 to be paid over the course of the loan which will mature in April 2029.

In addition, the Company entered into a 60 month financing

lease for a forklift with a cost of $ 47 .

The lease has an interest rate of 8 %, include a bargain purchase option to acquire the forklift

at the end of the lease term for a payment of one dollar.

During Fiscal 2025, the Company obtained a loan

of $ 274 from a financing institution to finance the purchase of a production machine by the Company.

The note payable is secured by the

production machine, bears a straight up fee of $ 74,285 to be paid over the course of the loan which will mature in April 2029.

In addition, the Company entered into a 60-month

financing lease for a forklift with a cost of $ 47 .

The lease has an interest rate of 8 %, including a bargain purchase option to acquire

the forklift at the end of the lease term for a payment of one dollar.

The aggregate total of the note payable and financing

lease obligation as of May 31, 2024 amounted $ 232 .

lease obligation as of August 31, 2024, amounted to $ 293 .

(e) Note payable-other

As of May 31, 2024, and February 29, 2024, the

Company has one note payable due to an individual issued in September 2015 that is payable on demand with an interest rate of 10 % per

As of August 31, 2024, and February 29, 2024,

the Company has one note payable due to an individual issued in September 2015 that is payable on demand with an interest rate of 10 %

NOTE 5 – NOTES PAYABLE-RELATED PARTIES

Notes payable-related parties consisted of the following:

Notes payable-related parties consisted of the

(amounts in thousands)

(a) Note payable-Kopple

(b) Note payable- Gagerman

(a) Note payable-Kopple (see Note 3)

(b) Note payable- Gagerman – past due

(a) Note payable-Kopple

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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.

Beginning in 2017,

Kopple brought suit against the Company for repayment of the notes.

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 to be paid in installment, of

which, $ 3,000 was due in June 2022, and the remaining $ 7,000 to be annually for seven years at $ 1,000 per year.

Additionally,

the settlement agreement granted Kopple warrants exercisable into 3,331,664 shares of the Company’s common stock at a

price of $ 0.85 per share.

The Company used the Black-Scholes option pricing model to compute the fair value of the warrants of $ 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 also began accruing in January 2023 at 6 % per annum.

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.

Beginning in 2017, Kopple

brought suit against the Company for repayment of the notes.

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 to be paid in installments, of which, $ 3,000 was due

in June 2022, and the remaining $ 7,000 to be paid over seven years at $ 1,000 per year.

Additionally, the settlement agreement

granted Kopple warrants exercisable into 3,331,664 shares of the Company’s common stock at a price of $ 0.85 per share.

In June 2022, the first installment of $ 3,000 became

14 unchanged sentences

until the Company makes a principal payment of $ 2 million by December 2024;

(iv) effective August 30, 2024, the Company will grant

Kopple the right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower

of one dollar per share or 50 % of the 10 day volume weighted average price per share of the Company’s common

(iv) effective August 30, 2024, the Company granted Kopple

the right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower of

one dollar per share or 50 % of the 10 day volume weighted average price per share of the Company’s common stock;

(v) will require the Company to pay 20 % of all collected revenues within 10 days of the end of each fiscal quarter;

require the Company to pay Kopple 20 % of any amount raised in new capital in the form of equity, debt or convertible debt above $ 3.5 million;

(vi) will require

the Company to pay Kopple 20 % of any amount raised in new capital in the form of equity, debt or convertible debt above $ 3.5 million;

(vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $ 0.85 per share to $ 0.50 per share;

(vii) extends the warrant expiration date from March 8, 2029, to March 31, 2031.

(vii) extends the warrant expiration date of the warrants granted to Kopple in March 2022 from March 8, 2029, to March 31, 2031.

The Company accounted for the amended terms of

the note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by 10% compared

to the present value of the remaining cash flows under the original existing debt terms.

Furthermore, the amendment granted a conversion

option to the note holder and is deemed substantially different from the existing note.

The Company recorded a loss on debt extinguishment

of $ 19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible note payable of

$ 9,261 , combined with the fair value of the conversion option of $ 22,194 (see Note 8), and the change in the fair value of the amended

warrants of $ 33 , and (ii) the net carrying amount of the existing note payable of $ 12,164 .

As a result, the net carrying amount of the

existing note payable of $ 12,164 was derecognized and amended note payable was recorded at its fair value of $ 9,261 .

As the Kopple

new note payable is now convertible to common stock, for financial reporting purposes, the new note payable of $ 9,261 is now

reported as a convertible note payable (see Note 3).

the note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by more

than 10% compared to the present value of the remaining cash flows under the original existing debt terms.

Furthermore, the amendment

granted a conversion option to the note holder and is deemed substantially different from the existing note.

The Company recorded a loss

on debt extinguishment of $ 19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible

note payable of $ 9,261 , combined with the fair value of the conversion option of $ 22,194 (see Note 8), and the change in the fair value

of the amended warrants of $ 33 , and (ii) the net carrying amount of the existing note payable of $ 12,164 .

As a result, the net carrying amount of the existing

note payable of $ 12,164 was derecognized and amended note payable was recorded at its fair value of $ 9,261 .

As the Kopple new note payable

is now convertible to common stock, for financial reporting purposes, the new note payable of $ 9,261 is reported as a convertible note

payable (see Note 3).

(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.

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.

On November 20, 2019, the Company owned 49 % of

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in 2020 as a result of COVID-19 and never resumed or restarted operations.

In fiscal 2024 the joint venture was dissolved and liquidated.

As of May 31, 2024, and 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.

In early fiscal 2024 the joint venture was dissolved and liquidated.

As of August 31, 2024, and December 31, 2023, the outstanding balance of this note payable amounted to $ 700 .

NOTE 6 – ACCRUED INTEREST

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NOTE 7 – LEASES

Our administrative and production operations including

warehousing, are housed in an approximately 18,000 square foot facility in Lake Forest, California.

The Lake Forest lease is for 66-months

effective February 2021 through August 31, 2026.

The initial monthly base rental rate was approximately $ 22 per month and escalates 3 %

each year to approximately $ 26 per month in 2026.

The lease liability was determined by discounting the future lease payments under the

lease terms using a 10 % per annum discount rate to arrive at the current lease liability.

Operating lease right-of-use

(“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the

Company’s obligation to make lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements

is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease

The operating lease ROU asset includes any lease payments made and excludes lease incentives.

Our administrative and production operations,

including warehousing, are housed in an approximately 18,000 square foot facility in Lake Forest, California.

The Lake Forest lease is

for 66-months effective February 2021 through August 31, 2026.

The initial monthly base rental rate was approximately $ 22 per month and

escalates 3 % each year to approximately $ 26 per month in 2026.

The lease liability was determined by discounting the future lease payments

under the lease terms using a 10 % per annum discount rate to arrive at the current lease liability.

Operating lease right-of-use (“ROU”)

assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make

lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements is not readily determinable and the Company

utilizes its incremental borrowing rate in determining the present value of lease payments.

The operating lease ROU asset includes any

lease payments made and excludes lease incentives.

The components of lease expense and supplemental

cash flow information related to leases for the period are as follows:

(amounts in thousands) May 31,

(amounts in thousands) August 31,

2024 August 31,

Operating lease cost (included in general and administration in the Company’s statement of operations) $ 187 $ 139

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In March 2024, pursuant to the amendment of the

Kopple note payable (see Note 5), the Company granted Kopple the right to convert the amended note payable into equity of the Company

Kopple note payable (see Notes 3 and 5), the Company granted Kopple the right to convert the amended note payable into equity of the Company

at a conversion price equal to the lower of one-dollar per share or 50 % of the 10 day volume-weighted average price per share of the Company’s

6 unchanged sentences

estimated the fair value of the conversion option derivative liability using a Black-Scholes option pricing model and recorded the fair

value of the derivative liability of $ 22,194 at March 7, 2024, the date of issuance, and $ 17,171 at May 31, 2024.

value of the derivative liability of $ 22,194 at March 7, 2024, the date of issuance, and $ 20,799 at August 31, 2024.

The following tables summarize the derivative

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NOTE 9 – SHAREHOLDERS’ DEFICIT

During the three-months ended May 31, 2024, the Company issued 4,455,600

shares of common stock for approximately $ 1,117 in cash.

As part of the offering, the Company also granted certain investors warrants

to purchase 3,000,000 shares of common stock.

The warrants are fully vested, exercisable at $ 1.00 per share and will expire in 3 years.

During the three-months ended May 31, 2023, the

During the six-months ended August 31, 2024, the

Company issued 6,952,363 shares of common stock for approximately $ 1,764 in cash.

As part of the offering, the Company also granted certain

investors warrants to purchase 3,000,000 shares of common stock.

The warrants are fully vested, exercisable at $ 1.00 per share, and will

expire in 3 years.

During the six-months ended August 31, 2023, the

Company issued 4,877,271 shares of common stock for approximately $ 1,610 in cash.

Stock Options

A summary of the Company’s stock option activity for the three-months

ended May 31, 2024, is as follows:

A summary of the Company’s stock option activity for the six-months

ended August 31, 2024, is as follows:

(amounts in thousands, except share and per share data)

Outstanding, February 29, 2024

Outstanding, May 31, 2024

As of May 31, 2024, the intrinsic value as these

stock options amounted to $ 382 .

The exercise prices and information related to options under the 2011 Plan outstanding on May 31, 2024

Outstanding, August 31, 2024

The Company granted no stock options under its

stock option 2011 Plan for the six-month period ended August 31, 2023.

During the six months ended August 31, 2024, the

Company’s Board of Directors approved options exercisable into 4,000,000 shares to be issued pursuant to the Company’s 2011

3,000,000 options were issued to Board members and 1,000,000 options were issued to an employee, with immediate vesting.

The stock options are exercisable at a price of

$ 0.50 per share and expire in ten years .

The total fair value of these options at grant date was approximately $ 1,601 , which was determined

using a Black-Scholes option pricing model with the following average assumption:

stock price of $ 0.42 share, expected term of five years ,

volatility of 182 %, dividend rate of 0 %, and weighted average risk-free interest rate of 4.52 %.

The expected term represents the weighted-average

period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical

participant exercise behavior;

the expected volatility is based upon historical volatility of the Company’s common stock;

dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future;

and the risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of measurement corresponding with the

expected term of the share option award.

As of August 31, 2024, the intrinsic value as

these stock options amounted to $ 158 .

The exercise prices and information related to options under the 2011 Plan outstanding on August

31, 2024 is as follows:

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Outstanding Stock Options

Exercisable Weighted Average

Contractual Life Weighted Average

Exercise Price of

Options Outstanding Weighted Average

Exercise Price of

Options Exercisable

Exercisable Weighted

Life Weighted

Exercise Price

Outstanding Weighted

Exercise Price

50 8,250,000 8,250,000 5.31 $ 0.43 $ 0.43

The Company granted no stock options under its

stock option 2011 Plan for the three-month period ended May 31, 2023, and the three-month period ended February 29, 2024.

A summary of the Company’s warrant activity

for the three-months ended May 31, 2024, is as follows:

for the six-months ended August 31, 2024, is as follows:

Average Exercise

Outstanding, February 29, 2024

Outstanding, May 31, 2024

As noted above, during the three-months ended

May 31, 2024, the Company issued warrants to purchase 3,000,000 shares of common stock.

The warrants are fully vested, exercisable at

$ 1.00 per share and will expire in 3 years.

There was no intrinsic value as of May 31, 2024,

Outstanding, August 31, 2024

There was no intrinsic value as of August 31,

2024, as the exercise prices of these warrants were greater than the market price of the Company’s stock.

The exercise prices and information

related to the warrants as of May 24, 2024, is as follows:

The exercise prices and

information related to the warrants as of August 24, 2024, is as follows:

Exercise Price Stock Warrants

Outstanding Stock Warrants

Exercisable Weighted Average

Contractual Life Weighted Average

Exercise Price of

Warrants Outstanding Weighted Average

Exercise Price of

Exercisable Weighted

Life Weighted

Exercise Price

Outstanding Weighted

Exercise Price

Warrants Exercisable

$ 0.50 to $ 1.40 3,521,664 3,564,764 1.47 $ 0.83 0.83

$ 0.50 3,511,664 3,511,664 6.37 $ 0.50 0.50

$ 1.00 3,000,000 3,000,000 2.68 $ 1.00 $ 1.00

NOTE 10 – RELATED PARTY TRANSACTIONS

As of May 31, 2024, and February 29, 2024, BetterSea

LLC was an 8.4 % and 8.8 %, respectively, shareholder of the Company.

For the three months ending on May 31, 2024 and 2023, the Company

incurred consulting fees to BetterSea of $ 40 and $ 36 , respectively.

As of May 31, 2024, and February 29, 2024, a total of approximately

As of August 31, 2024, and February 29, 2024,

BetterSea LLC was an 8.4 % and 8.8 %, respectively, shareholder of the Company.

For the six months ending on August 31, 2024 and 2023, the

Company incurred consulting fees to BetterSea of $ 82 and $ 80 , respectively.

As of August 31, 2024, and February 29, 2024, a total of approximately

$ 213 and $ 213 respectively, was due to BetterSea and included accounts payable and accrued expenses.

46 unchanged sentences

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to May 31, 2024, the Company issued 2,480,000 shares of

common stock for cash $ 235 .

Subsequent to August 31, 2024, the Company issued

2,876,070 shares of common stock for cash $ 719 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements