Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Nov. 30, 2016 | Jan. 17, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | ARKADOS GROUP, INC. | |
Entity Central Index Key | 1,095,130 | |
Document Type | 10-Q | |
Trading Symbol | AKDS | |
Document Period End Date | Nov. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --05-31 | |
Entity a Well-known Seasoned Issuer | No | |
Entity a Voluntary Filer | No | |
Entity's Reporting Status Current | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 13,843,167 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,017 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Nov. 30, 2016 | May 31, 2016 |
Current Assets: | ||
Cash | $ 211,265 | $ 56,172 |
Accounts receivable | 21,621 | 192,100 |
Inventory | 81,036 | 120,410 |
Prepaid expenses and other current assets | 78,197 | 187,935 |
Total Current Assets | 392,119 | 556,617 |
Property and equipment, net | 7,115 | 7,642 |
Intangible assets, net | 10,000 | |
Security deposit | 20,384 | 20,384 |
Total Assets | 429,618 | 584,643 |
Current Liabilities: | ||
Accounts payable and accrued expenses | 1,060,327 | 1,022,382 |
Deferred revenue | 274,100 | 260,637 |
Accrued income tax | 63,082 | 63,082 |
Debt subject to equity being issued | 456,930 | 456,930 |
Convertible debentures, net of debt discount | 68,576 | 40,000 |
Notes payable | 445,832 | 295,832 |
Total Current Liabilities | 2,368,847 | 2,138,863 |
Long-term convertible debt, net of debt discount | 18,456 | |
Total Liabilities | 2,387,303 | 2,138,863 |
Commitments and contingencies | ||
Stockholders' Deficiency: | ||
Convertible preferred stock, $.0001 par value; 5,000,000 shares authorized, zero shares outstanding | ||
Common stock, $.0001 par value; 600,000,000 shares authorized; 13,843,167 and 13,373,167 shares issued and outstanding, respectively | 1,384 | 1,337 |
Additional paid-in capital | 42,037,995 | 41,645,382 |
Accumulated deficit | (43,997,064) | (43,200,939) |
Total Stockholders' Deficiency | (1,957,685) | (1,554,220) |
Total Liabilities and Stockholders' Deficiency | $ 429,618 | $ 584,643 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares | Nov. 30, 2016 | May 31, 2016 |
Statement of Financial Position [Abstract] | ||
Convertible preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Convertible preferred stock, authorized | 5,000,000 | 5,000,000 |
Convertible preferred stock, outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 600,000,000 | 600,000,000 |
Common stock, issued | 13,843,167 | 13,373,167 |
Common stock, outstanding | 13,843,167 | 13,373,167 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | Nov. 30, 2015 | |
Income Statement [Abstract] | ||||
Sales | $ 389,676 | $ 815,219 | $ 814,163 | $ 922,055 |
Cost of sales | 258,756 | 534,989 | 638,765 | 534,989 |
Gross Profit | 130,920 | 280,230 | 175,398 | 387,066 |
Operating Expenses: | ||||
Selling and general and administrative | 593,446 | 781,063 | 906,387 | 1,310,255 |
Research and development | 41,410 | 185,778 | 50,270 | 284,207 |
Total Operating Expenses | 634,856 | 966,841 | 956,657 | 1,594,462 |
Loss From Operations | (503,936) | (686,611) | (781,259) | (1,207,396) |
Other Income (Expenses): | ||||
Interest expense | (11,072) | (8,044) | (20,723) | (15,458) |
Gain on settlement of liability | 17,648 | 17,648 | ||
Foreign currency transaction loss | (569) | (1,131) | ||
Total Other Expense | (6,576) | (8,613) | (3,075) | (16,589) |
Loss Before Provision for Income Taxes | (497,360) | (695,224) | (784,334) | (1,223,985) |
Provision for income taxes | (11,791) | (11,791) | ||
Net Loss | $ (509,151) | $ (695,224) | $ (796,125) | $ (1,223,985) |
Loss per Common Share - Basic and Diluted (in dollars per share) | $ (0.04) | $ (0.06) | $ (0.06) | $ (0.10) |
Weighted Average Shares Outstanding - Basic and Diluted (in shares) | 13,728,834 | 12,081,500 | 13,549,046 | 11,942,374 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 6 Months Ended | |
Nov. 30, 2016 | Nov. 30, 2015 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (796,125) | $ (1,223,985) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Gain on settlement of liability | (17,648) | |
Stock based compensation | 293,122 | |
Issuance of warrants for services | 158,399 | |
Depreciation | 527 | 264 |
Amortization of debt discount | 7,692 | |
Issuance of common stock for services | 268,000 | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 170,479 | (1,498) |
Inventory | 39,374 | (137,431) |
Prepaid expenses and other current assets | 109,738 | (8,307) |
Security deposits | (18,510) | |
Accounts payable and accrued expenses | 55,592 | 305,126 |
Deferred revenue | 13,463 | (70,753) |
Net Cash Used In Operating Activities | (148,907) | (703,573) |
Cash Flows From Investing Activities: | ||
Purchases of property and equipment | (8,432) | |
Purchases of software | (10,000) | |
Net Cash Used In Investing Activities | (10,000) | (8,432) |
Cash Flows From Financing Activities: | ||
Proceeds from sales of common stock | 503,000 | |
Proceeds from short-term note | 150,000 | |
Proceeds from convertible debt issuance | 164,000 | |
Net Cash Provided By Financing Activities | 314,000 | 503,000 |
Net Increase (Decrease) In Cash | 155,093 | (209,005) |
Cash - Beginning of period | 56,172 | 234,994 |
Cash - End of period | 211,265 | 25,989 |
Non Cash Investing and Financing Activities | ||
Common stock issued for accrued stock based compensation | 250,833 | |
Stock options issued for accrued stock based compensation | 1,622,778 | |
Original issue discount in connection with convertible debt issued | 18,500 | |
Deferred finance costs in connection with convertible debt issued | 6,000 | |
Debt discount in connection with restricted shares issued with convertible debt | 50,130 | |
Beneficial conversion feature in connection with convertible debt issued | 74,530 | |
Cash paid for: | ||
Interest | ||
Income taxes |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | 6 Months Ended |
Nov. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
DESCRIPTION OF BUSINESS | 1. DESCRIPTION OF BUSINESS Arkados Group, Inc. (the “Parent”) conducts business activities principally through its two wholly-owned subsidiaries, Arkados, Inc. (“Arkados”) and Arkados Energy Solutions, LLC (“AES”) (collectively, the “Company”). The Company underwent a significant restructuring following December 23, 2010, during which substantially all of its assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”). Settlements reached in connection with the Asset Sale and the fulfillment of obligations in connection therewith, have been substantially completed. Following the Asset Sale, the Company shifted its focus towards the following businesses: Arkados - Software and hardware design and development of solutions that enable machine to machine communications for the Internet of Things (“IoT”). Arkados’ solutions are primarily focused on industrial and commercial applications such as building automation, energy management and predictive maintenance and are uniquely designed to drive a wide variety of full-featured, cutting edge solutions. AES - Energy conservation services for commercial and industrial facilities owners and managers. AES’ services include implementing energy conservation measures such as LED lighting retrofits, oil to natural gas boiler conversions, co-generation system installation and solar PV system installations. In addition, AES sells technology solutions designed by Arkados, Inc. and others that serve to improve the effectiveness of the measures and increases return on investment for the customer. Effective March 18, 2015, the Company implemented a reverse stock split of its outstanding common stock at a ratio of 1-for-30 shares. All share figures and results are reflected on a post-split basis. The accompanying condensed consolidated financial statements as of November 30, 2016 (unaudited) and May 31, 2016 and for the three and six months ended November 30, 2016 and 2015 (unaudited) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements and the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited financial statements and explanatory notes for the year ended May 31, 2016 as disclosed in our annual report on Form 10-K for that year. The results of the three and six months ended November 30, 2016 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending May 31, 2017. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Nov. 30, 2016 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Presentation - The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $44 million since inception, including a net loss of $796,125 for the six months ended November 30, 2016. Additionally, the Company still had both working capital and stockholders’ deficiencies at November 30, 2016 and May 31, 2016 and negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Company’s plan, through potential acquisitions and the continued promotion of its services to existing and potential customers, is to generate sufficient revenues to cover our anticipated expenses. The Company is currently exploring several options to meet its short-term cash requirements, including an equity raise or loan funding from third parties. Although no assurances can be given as to the Company’s ability to deliver on its revenue plans, or that unforeseen expenses may arise, the management of the Company believes that the revenue to be generated from operations together with potential bridge note funding, additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. b. Principles of Consolidation - The consolidated financial statements include the accounts of the Parent, and its wholly-owned subsidiaries, which include AES and Arkados. Intercompany accounts and transactions have been eliminated in consolidation. c. Revenue Recognition - Arkados The Company enters into arrangements with end users for items which may include software license fees, services, maintenance and royalties or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain. Revenues from software licensing are recognized in accordance with Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition.” Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. License revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met. Deferred revenue represents license revenues billed but not yet earned. Sales of products are recognized when the products are shipped and the customer takes risk of ownership and assumes the risk of loss. Royalty income is recognized as it is earned and recorded when reported by the customer. AES Sales of products are recognized when the products are shipped and the customer takes risk of ownership and assumes the risk of loss. Service revenue is recognized when the service is completed. Deferred revenue represents revenues billed but not yet earned. d. Cash and Cash Equivalents - The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at both November 30, 2016 and May 31, 2016. e. Accounts Receivable - Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. At November 30, 2016 and May 31, 2016, the Company determined that an allowance for doubtful accounts was not needed. f. Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, "Fair Value Measurements and Disclosures," fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The three levels of the fair value hierarchy defined by ASC 820 are as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. g. Earnings (Loss) Per Share (“EPS”) - Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes. The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares. Three and six months ended November 30, 2016 2015 Convertible notes 265,401 117,078 Stock options 5,112,500 3,012,500 Warrants 5,078,153 5,059,320 Potentially dilutive securities 10,456,054 8,188,898 h. Stock Based Compensation - In computing the impact, the fair value of each option and/or warrant is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk-free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. During the three and six months ended November 30, 2016, 400,000 shares of the Company’s common stock were issued for consulting services amounting to $268,000 in stock based compensation. There were no additional issuances of warrants or options during the three and six months ended November 30, 2016. Stock based compensation expense was $451,521 for the three months ended November 30, 2015 and $451,521 for the six months ended November 30, 2015. i. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. j. Inventory - Inventory, which consists of finished goods and work-in-process (“WIP”) of AES, is valued at the lower of cost on a first-in, first-out basis or market. Inventory consists of the following at November 30, 2016 and May 31, 2016. November 30, May 31, 2016 2016 (unaudited) Finished goods $ 60,012 $ 60,012 Work-in-process (unbilled labor and consulting) 21,024 60,398 $ 81,036 $ 120,410 k. Property and Equipment – Property and equipment is recorded at cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, related costs and related accumulated depreciation are removed from the accounts. l. Research and Development –All research and development costs are expensed as incurred. m. Foreign Currency Transactions – The Company accounts for foreign currency translation pursuant to ASC 830. The functional currency of the Company is the United States dollar. Under ASC 830, all assets and liabilities denominated in foreign currencies are translated into United States dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in foreign currencies are reflected in the statement of operations as gain (loss) on foreign currency transactions. n. Deferred Financing Costs-Costs incurred in connection with obtaining financing are deferred and amortized on a straight-line basis over the term of the related loan. o. Convertible Instruments- The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with accounting standards for “Accounting for Derivative Instruments and Hedging Activities.” Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.” The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability. p. Reclassifications - Certain reclassifications have been made to conform the prior period data to the current presentations. The Company has reclassified a $40,000 note payable to Convertible debt. This reclassification had no impact on reported results of operations. q. Recent Accounting Pronouncements - In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance. In April 2016, the FASB issued ASU 2016 – 10 “Revenue from Contract with Customers: identifying Performance Obligations and Licensing”. The amendments in this Update clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to reduce the degree of judgement necessary to comply with Topic 606. This guidance has no effective date as yet. The Company is currently evaluating the impact of adopting this guidance. In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. The Company is currently evaluating the impact of adopting this guidance. In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The Company is currently evaluating the impact of adopting this guidance. In January 2016, the FASB issued ASU 2016-01, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance. In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)”. The amendments in this ASU defer the effective date of ASU 2014-09 “Revenue From Contracts With Customers (Topic 606)”. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is still evaluating the impact of adopting this guidance. All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company. |
ASSET SALE AND DEBT SUBJECT TO
ASSET SALE AND DEBT SUBJECT TO EQUITY BEING ISSUED | 6 Months Ended |
Nov. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
ASSET SALE AND DEBT SUBJECT TO EQUITY BEING ISSUED | 3. ASSET SALE AND DEBT SUBJECT TO EQUITY BEING ISSUED In December 2010, the Company entered into an agreement to sell substantially all of the assets (the “Asset Sale”) to STMicroelectronics, Inc. (“ST US”), a subsidiary of STMicroelectronics N.V. (“ST”). The Asset Sale was predicated on the Company settling its secured debt and a significant part of its unsecured debt and closed in June, 2011. The Company is negotiating with its remaining unsecured debt holders to compromise, extend the due date or convert outstanding debt into equity. Debt holders who have agreed to settle through receipt of the Company’s equity are labeled as “Debt Subject to Equity Being Issued” on the balance sheet. Except as set forth above, there is no binding commitment on anyone’s part to complete the transactions. Debt Subject to Equity Being Issued As a direct result of the Sale of the License and IP Agreements to ST US and the mandate to obtain debt releases, the Company has been able to reach settlements with its secured creditors and employees, with cash payments to the secured creditors made as of the December 2010 and June 2011 closings. Nothing further is owed to the Company’s secured creditors. There remains, however, approximately $179,000 of payments due the former employees as of November 30, 2016 and May 31, 2016. As of November 30, 2016 and May 31, 2016, there remained $456,930 of debts that have been settled with debt holders who have agreed to accept equity for their remaining debt. |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 6 Months Ended |
Nov. 30, 2016 | |
Payables and Accruals [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES As of November 30, 2016 and May 31, 2016, accounts payable and accrued expenses consist of the following amounts: November 30, May 31, 2016 2016 (Unaudited) Accounts payable $ 814,018 $ 782,654 Accrued interest payable 136,758 116,035 Accrued payroll 11,612 28,320 Accrued other 97,939 95,373 $ 1,060,327 $ 1,022,382 |
NOTES PAYABLE
NOTES PAYABLE | 6 Months Ended |
Nov. 30, 2016 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE | 5. NOTES PAYABLE, Notes Payable Notes payable transactions include the following: FY 2016 (Year Ended May 31, 2016) Transactions: In January 2016, the Company executed a promissory note for a loan in the principal amount of $60,000. The promissory note bears interest at 6% per year, compounded quarterly, and matures on January 15, 2017. The proceeds from this promissory note were used to partially repay two convertible notes as discussed below. In January 2017, the Company and holder amended this promissory note to extend the maturity date to March 31, 2017. On January 8, 2016, the Company entered into an Exchange Agreement with the noteholders of the certain 6% convertible notes (“Convertible Notes”) that were in default. On January 15, 2016, the Company applied the proceeds of the new promissory note together with the issuance of 50,000 shares of the Company’s common stock, to the payment of two outstanding Convertible Notes that were in default having the aggregate outstanding principal amount of $130,000. In exchange for the payment and the shares, the holders of the outstanding Convertible Notes surrendered their notes, and the Company issued a new 6% Convertible Note to them in the original principal amount of $40,000 (“Reissued Note”). The Reissued Note bears interest at the rate of 6% per year, compounded quarterly, and matured on December 31, 2016. In January 2017, the Company agreed to extend the maturity date of the Reissued Note to March 31, 2017. At any time during the term of the Reissued Note, the holders have the right to convert any unpaid portion of the Reissued Note and accrued interest into shares of common stock at an original conversion price of $1.20 per share. The Company has evaluated the conversion terms and determined that a beneficial conversion feature is not applicable for this exchange transaction. The holders further agreed that their extension of the maturity of the outstanding Convertible Notes had been effective from October 31, 2015 until January 15, 2016. On March 31, 2016 and May 6, 2016, the Company executed promissory notes for loans, each in the amount of $10,000. The promissory notes bear interest at 6% per year, compounded quarterly. Both notes matured on June 30, 2016. The proceeds from the promissory notes were used to partially repay two Convertible Notes as discussed above. In January 2017, the Company executed an amendment to the promissory notes to extend the maturity date to March 31, 2017. The holders further agreed that their extension of the maturity of the outstanding promissory notes had been effective from June 30, 2016 until January 15, 2017. FY 2017 (Year Ended May 31, 2017): In August 2016 the Company issued a promissory note in the amount of $150,000 with a maturity date in January 2017. The loan bears interest at 10% per annum compounded quarterly. In January 2017, the Company and holder amended this promissory note to extend the maturity date to March 31, 2017. On October 28, 2016 the Company issued a convertible promissory note for an aggregate principal amount of $38,500 (which includes an Original Issue Discount (“OID”) of $3,500) with a maturity date of January 30, 2017. The debenture is convertible only upon default after January 30, 2017 at a conversion price of 65% of the average of the three lowest traded prices occurring during the 25 consecutive trading days immediately preceding the applicable conversion date. As additional consideration, the Company issued 20,000 shares of common stock upon execution of this agreement. Accordingly the Company recorded debt discount of $11,793 related to the restricted shares issued, and an original issue discount of $3,500. The debt discount and OID is amortized on a straight line basis over the term of the loan and amounted to $5,369 as of November 30, 2016. Net discount and net loan balance amounted to $9,924 and $28,576 respectively, as of November 30, 2016 and is recorded in convertible debentures. Long term convertible debenture: On November 11, 2016 the Company entered into a Securities Purchase Agreement whereas, the buyer wishes to purchase from the Company securities consisting of the Company’s Convertible Debentures due three years from issuance for an aggregate principal amount of up to $500,000 (which includes an aggregate purchase price of $450,000 and 10% Original Issue Discount (“OID”) of $50,000). The Debentures are to be issued in three tranches. On November 11, 2016 the Company issued the first of three debentures amounting to$150,000 of principal, consisting of $135,000 in proceeds and $15,000 OID. The debenture is convertible at a conversion price of $0.65 up to 150 days after the issuance date and if no event of default. If an Event of Default has occurred, or 150 days after the Issuance Date, the conversion price is the lesser of (a) $0.65 or (b) Sixty Five percent (65%) of the lowest closing bid price of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the debentures. Accounting for derivatives will be evaluated after 150 days of issuance or upon default, if applicable where at that point the conversion price becomes variable. As additional consideration, the Company issued 50,000 shares of common stock upon execution of this agreement. In relation to this transaction the Company also incurred deferred financed costs totaling $6,000 for legal fees and commitment fees. Accordingly the Company recorded debt discount of $38,337 related to the restricted shares issued, a debt discount of $74,530 related to the beneficial conversion feature, an original issue discount of $15,000 and deferred finance cost of $6,000. As of November 30, 2016, total straight line amortization for these transactions amounted to $2,323 which resulted in a net discount of $131,544 and a net loan balance of $18,456 classified as long term debt. |
STOCKHOLDERS' DEFICIENCY
STOCKHOLDERS' DEFICIENCY | 6 Months Ended |
Nov. 30, 2016 | |
Equity [Abstract] | |
STOCKHOLDERS' DEFICIENCY | 6. STOCKHOLDERS’ DEFICIENCY FY 2016 (Year Ended May 31, 2016): a. On June 25, 2015, the Company issued 108,333 shares of common stock to its chairman/chief executive officer and 35,000 shares of common stock to an officer/former director for services rendered to the Company’s board of directors in fiscal 2015. The shares were valued at $1.75 per share. The value of the shares totaling $250,833 was charged as stock compensation in fiscal 2015. b. For the period June 1, 2015 through May 31, 2016, 838,334 shares of common stock have been subscribed for under the PPO and the Company received proceeds of $503,000. These shares were issued in July and August 2015. c. On January 8, 2016 the Company issued 50,000 shares as part of a debt conversion and refinance whereby $130,000 of note principle and accrued interest of $11,332 were extinguished and a new note of $100,000 was issued. d. On February 23, 2016, we entered into a consulting agreement with. LPF Communications under which LPF Communications is to provide certain investor relations services for a period of up to six months. We have agreed to pay for the services by issuing two tranches of 150,000 shares of our Common Stock each, with the second tranche becoming issuable only if we do not terminate the consulting agreement on or prior to June 8, 2016. Pursuant to the agreement, we issued the first tranche of 150,000 shares to the consultant on April 8, 2016. e. On April 22, 2016, the Company issued 675,000 shares of common stock to its key employees, including 500,000 shares to its chairman/chief executive officer, for services rendered to the Company in fiscal 2016. The shares were valued at $0.51 per share. The value of the shares totaling $344,250 was charged as stock compensation in fiscal 2016. f. On April 28, 2016, the Company entered into an asset purchase agreement pursuant to which the Company purchased intangible assets valued at $249,113 in exchange for 166,667 shares of the Company's common stock and a warrant to purchase 166,667 shares of the Company's common stock at $2.00 per share. As a result of management's evaluation, the intangible asset was deemed impaired and thus fully written off to selling, general and administrative expense of the income statement. FY 2017 (Year Ended May 31, 2017): a. On October 13, 2016, the Company issued 400,000 shares of its common stock for consulting services to two consulting firms. The shares were valued at $0.67 at the time resulting in $268,000 in stock based compensation. b. On October 28, 2016, the Company issued 20,000 shares of its common stock as part of a promissory note entered into with an investor (see Note 5). c. On November 11, 2016, the Company issued 50,000 shares of its common stock as part of a promissory note entered into with an investor (see Note 5). |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 6 Months Ended |
Nov. 30, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK-BASED COMPENSATION | 7. STOCK-BASED COMPENSATION The Company accounted for its stock based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, “Compensation – Stock Compensation”. A. Options The Company issued options to purchase an aggregate of 4,100,000 shares of the Company’s common stock in the year ended May 31, 2016, 2,100,000 of which were granted outside of the 2004 Stock Option and Restricted Stock Plan (the “2004 Plan”). There were no options granted during the three or six months ended November 30, 2016. Compensation based stock option activity for qualified and unqualified stock options are summarized as follows: Weighted Average Shares Exercise Price Outstanding at May 31, 2015 1,012,500 $ 1.20 Granted 4,100,000 0.94 Exercised - - Expired or cancelled - - Outstanding at May 31, 2016 5,112,500 $ 0.99 Granted - - Exercised - - Expired or cancelled - - Outstanding at November 30, 2016 5,112,500 $ 0.99 The compensation expense attributed to the issuance of the options will be recognized as they vested/earned. These stock options are exercisable for three to ten years from the grant date. The employee stock option plan stock options are exercisable for ten years from the grant date and vest over various terms from the grant date to three years. B. Warrants The issuance of warrants to purchase shares of the Company's common stock including those attributed to debt issuances are summarized as follows: Weighted Average Shares Exercise Price Outstanding at May 31, 2015 3,937,986 $ 1.45 Granted 1,288,001 1.78 Exercised - - Expired or cancelled - - Outstanding at May 31, 2016 5,225,987 $ 1.53 Granted - - Exercised - - Expired or cancelled (147,833) 3.43 Outstanding at November 30, 2016 5,078,153 $ 1.48 Issuances of warrants to purchase shares of the Company's common stock were as follows: FY 2016 (Year Ended May 31, 2016): a As discussed in Note 8, in addition to common stock, the Company also issued warrants to purchase 833,334 shares of the Company's common stock under the PPO. b In November 2015, a warrant to purchase 250,000 shares of the Company's common stock at $1.00 per share was issued to a vendor as a bonus payment for services rendered in connection with a software development agreement. The warrant issued was valued using the Black Scholes option pricing model under the following assumptions: stock price $ 1.00; strike price $ 1.00; expected volatility 87.54%; risk free interest rate 1.21%; dividend rate 0%; and expected term 3years. The value of the warrant totaling $139,928 was charged as research and development. c In November 2015, a warrant to purchase 33,000 shares of the Company's common stock at $1.00 per share was issued to a consultant for services rendered under a consulting contract. The warrant issued was valued using the Black Scholes option pricing model under the following assumptions: stock price $ 1.00; strike price $1.00; expected volatility 87.54%; risk free interest rate 1.21%; dividend rate 0%; and expected term 3years. The value of the warrant totaling $18,471 was charged as consulting. See Note 11. d On April 28, 2016, the Company entered into an asset purchase agreement pursuant to which the Company purchased intangible assets in exchange for 166,667 shares of the Company's common stock and a warrant to purchase 166,667 shares of the Company's common stock at $2.00 per share. The warrant issued was valued using the Black Scholes option pricing model under the following assumptions: stock price $ 0.75; strike price $2.00; expected volatility 293%; risk free interest rate .93%; dividend rate 0%; and expected term 3years. The value of the warrant totaling $124,000 was included in the cost of the intangible which was fully impaired as of May 31, 2016. FY 2017 (Year Ended May 31, 2017): There were no warrants granted during the three or six months ended November 30, 2016. The expense attributed to the issuances of the warrants was recognized as they vested/earned. These warrants are exercisable for three years from the grant date. |
LICENSE AGREEMENTS
LICENSE AGREEMENTS | 6 Months Ended |
Nov. 30, 2016 | |
License Agreements | |
LICENSE AGREEMENTS | 8. LICENSE AGREEMENTS Master Agreement License of (PEMS-SF) On July 10, 2014, the Company entered into a Master Agreement to license our Process and Event Management System (PEMS-SF) with Tatung Corporation (Tatung). The basic fee generation structure of the Agreement allows for (1) a one-time licensing fee for each PEMS-SF-enabled stations or subsystems installed, (2) separate fees of up to 10% of the software fees for software updates, maintenance and technical support, (3) on-going service fees based on units of products manufactured utilizing PEMS-SF; and (4) an annual service fee for cloud-based services and data storage. The Master Agreement has a year-to-year term but can be terminated by either party upon sixty (60) days advance written notice. Upon termination or expiration of this agreement, we are not required to provide any continuing or ongoing processing of data or other services that, pursuant to a sub-agreement, are discontinued upon termination, however, the customer shall retain any perpetual rights granted in a sub-agreement or schedule. The term of any sub-agreements is concomitant and co-terminus with the Master Agreement term. Revenue recognized under the Master Agreement amounted to $13,583 and $66,000 for the three months ended August 31, 2016 and 2015, respectively. Agreement License of Meter Collar and Bridge Programmable Logic In October 2014, the Company entered into a year-to-year term agreement with Tatung to license its meter collar and bridge programmable logic controllers. The license is paid on a per copy (ordered) fee, and is on a perpetual, worldwide, non-exclusive, transferable basis. Revenue recognized under the agreement amounted to $-0- and $42,500 for the three months ended August 31, 2016 and 2015, respectively. In March 2015, the Company entered into a one-year agreement, with automatic one year renewals until terminated by either party with sixty (60) days notice, with Tatung to provide services in the area of business development and as a representative to sell its products. Tatung will pay a monthly retainer fee for this service. Revenue recognized under this agreement was approximately $60,000 for the three months ended August 31, 2016. |
COMMITMENTS
COMMITMENTS | 6 Months Ended |
Nov. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS | 9. COMMITMENTS Leases Effective October 1, 2014 as amended on January 15, 2015, the Company entered a lease for its office space at a total monthly rental of $1,874. The lease expired on January 15, 2016. The Company renewed this lease until January 15, 2017 at a monthly rental of $2,034. In January 2017, the Company renewed this lease until January 15, 2018, with an option to renew for one additional year upon its expiration. Our AES subsidiary leases offices in Jericho, New York. The facility is approximately 1,850 square feet, occupied pursuant to a lease that commenced on August 1, 2015 and expires September 30, 2018. The average annual rent over the term of the lease is approximately $57,300. This amount does not include taxes for the premises. Rent expense for all locations including occupancy costs for the three months ended November 30, 2016 and 2015 was $20,929 and 21,445, respectively. Rent expense for all locations including occupancy costs for the six months ended November 30, 2016 and 2015 was $43,706 and 32,211, respectively. Consulting Agreements On September 15, 2016, the Company entered into two consulting agreements with two consultants, pursuant to which the Company agreed to issue 200,000 shares of common stock to each consultant in exchange for certain consulting services. |
CONCENTRATIONS OF CREDIT RISK
CONCENTRATIONS OF CREDIT RISK | 6 Months Ended |
Nov. 30, 2016 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATIONS OF CREDIT RISK | 10. CONCENTRATIONS OF CREDIT RISK Cash The Company maintains principally all cash balances in two financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. The exposure to the Company is solely dependent upon daily bank balances and the respective strength of the financial institutions. The Company has not incurred any losses on these accounts. Net Sales Two customers accounted for 86% and 62% of net sales for the three months ended November 30, 2016 and 2015, respectively, as set forth below: Three months ended November 30, 2016 2015 Customer 1 74 % 36 % Customer 2 12 % 26 % Two customers accounted for 83% and 54% of net sales for the six months ended November 30, 2016 and 2015 respectively, as set forth below: Six months ended November 30, 2016 2015 Customer 1 59 % 31 % Customer 2 24 % 23 % Accounts Receivable Two customers accounted for 100% of the accounts receivable as of November 30, 2016, as set forth below: November 30, 2016 May 31, 2016 (Unaudited) Customer 1 52 % 83 % Customer 2 48 % 11 % |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 6 Months Ended |
Nov. 30, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | 11. RELATED PARTY TRANSACTIONS There were no related party transactions during the period. |
BUSINESS SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION | 6 Months Ended |
Nov. 30, 2016 | |
Segment Reporting [Abstract] | |
BUSINESS SEGMENT INFORMATION | 12. BUSINESS SEGMENT INFORMATION As of November 30, 2016, the Company had two operating segments, Arkados and Arkados Energy Solutions (AES). The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker. The accounting policies of each of the segments are the same as those described in the Summary of Significant Accounting Policies. The Company evaluates performance based primarily on income (loss) from operations Information about segments is as follows: Arkados AES Consolidated Three months ended November 30, 2016 Revenues $ 12,064 $ 377,612 $ 389,676 Income (loss) from operations $ (511,010 ) $ 2 7,074 $ (503,936 ) Three months ended November 30, 2015 Revenues $ 175,457 $ 639,762 $ 815,219 Loss from operations $ (254,067 ) $ (432,544 ) $ (686,611 ) Six months ended November 30, 2016 Revenues $ 88,947 $ 725,216 $ 814,163 Loss from operations $ (615,458 ) $ (165,803 ) $ (781,261 ) Six months ended November 30, 2015 Revenues $ 282,293 $ 639,762 $ 922,055 Loss from operations $ (511,804 ) $ (695,592 ) $ (1,207,396 ) Total assets November 30, 2016 $ 174,997 $ 254,621 $ 429,618 May 31, 2016 $ 236,797 $ 347,846 $ 584,643 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Nov. 30, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | 13. SUBSEQUENT EVENTS On December 31, 2016, the Company entered into a settlement agreement with one of its vendors, pursuant to which the Company agreed to issue the vendor an aggregate of 33,596 shares of its common stock in exchange for the cancellation of its outstanding invoice of $20,158 for services rendered. On December 13, 2016 the Company entered into a one year consulting agreement for financial advice. As compensation for services the Company will issue 50,000 shares of restricted common stock upon execution of the agreement. On January 2017, the Company executed multiple amendments to extend the maturity date of certain promissory notes with an aggregate principal amount of $270,000, to March 31, 2017. The Company also entered into an agreement to extend its lease for its office space for an additional year. On January 19, 2017, the Company entered into a settlement agreement with one of its former service providers, pursuant to which the Company agreed to issue the service provider an aggregate of 175,000 shares of its common stock in exchange for the cancellation of its outstanding invoice of $94,617.00 for services rendered. |
SUMMARY OF SIGNIFICANT ACCOUN19
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Nov. 30, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | a. Basis of Presentation - The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $44 million since inception, including a net loss of $796,125 for the six months ended November 30, 2016. Additionally, the Company still had both working capital and stockholders’ deficiencies at November 30, 2016 and May 31, 2016 and negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Company’s plan, through potential acquisitions and the continued promotion of its services to existing and potential customers, is to generate sufficient revenues to cover our anticipated expenses. The Company is currently exploring several options to meet its short-term cash requirements, including an equity raise or loan funding from third parties. Although no assurances can be given as to the Company’s ability to deliver on its revenue plans, or that unforeseen expenses may arise, the management of the Company believes that the revenue to be generated from operations together with potential bridge note funding, additional issuances of equity or other potential financing will provide the necessary funding for the Company to continue as a going concern. |
Principles of Consolidation | b. Principles of Consolidation - The consolidated financial statements include the accounts of the Parent, and its wholly-owned subsidiaries, which include AES and Arkados. Intercompany accounts and transactions have been eliminated in consolidation. |
Revenue Recognition | c. Revenue Recognition - Arkados The Company enters into arrangements with end users for items which may include software license fees, services, maintenance and royalties or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain. Revenues from software licensing are recognized in accordance with Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition.” Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. License revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met. Deferred revenue represents license revenues billed but not yet earned. Sales of products are recognized when the products are shipped and the customer takes risk of ownership and assumes the risk of loss. Royalty income is recognized as it is earned and recorded when reported by the customer. AES Sales of products are recognized when the products are shipped and the customer takes risk of ownership and assumes the risk of loss. Service revenue is recognized when the service is completed. Deferred revenue represents revenues billed but not yet earned. |
Cash and Cash Equivalents | d. Cash and Cash Equivalents - The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at both November 30, 2016 and May 31, 2016. |
Accounts Receivable | e. Accounts Receivable - Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. At November 30, 2016 and May 31, 2016, the Company determined that an allowance for doubtful accounts was not needed. |
Fair Value of Financial Instruments | f. Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, "Fair Value Measurements and Disclosures," fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The three levels of the fair value hierarchy defined by ASC 820 are as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
Earnings (Loss) Per Share ("EPS") | g. Earnings (Loss) Per Share (“EPS”) - Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes. The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares. Three and six months ended November 30, 2016 2015 Convertible notes 265,401 117,078 Stock options 5,112,500 3,012,500 Warrants 5,078,153 5,059,320 Potentially dilutive securities 10,456,054 8,188,898 |
Stock Based Compensation | h. Stock Based Compensation - In computing the impact, the fair value of each option and/or warrant is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk-free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. During the three and six months ended November 30, 2016, 400,000 shares of the Company’s common stock were issued for consulting services amounting to $268,000 in stock based compensation. There were no additional issuances of warrants or options during the three and six months ended November 30, 2016. Stock based compensation expense was $451,521 for the three months ended November 30, 2015 and $451,521 for the six months ended November 30, 2015. |
Use of Estimates | i. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. |
Inventory | j. Inventory - Inventory, which consists of finished goods and work-in-process (“WIP”) of AES, is valued at the lower of cost on a first-in, first-out basis or market. Inventory consists of the following at November 30, 2016 and May 31, 2016. November 30, May 31, 2016 2016 (unaudited) Finished goods $ 60,012 $ 60,012 Work-in-process (unbilled labor and consulting) 21,024 60,398 $ 81,036 $ 120,410 |
Property and Equipment | k. Property and Equipment – Property and equipment is recorded at cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, related costs and related accumulated depreciation are removed from the accounts. |
Research and Development | l. Research and Development –All research and development costs are expensed as incurred. |
Foreign Currency Transactions | m. Foreign Currency Transactions – The Company accounts for foreign currency translation pursuant to ASC 830. The functional currency of the Company is the United States dollar. Under ASC 830, all assets and liabilities denominated in foreign currencies are translated into United States dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in foreign currencies are reflected in the statement of operations as gain (loss) on foreign currency transactions. |
Deferred Financing Costs | n. Deferred Financing Costs |
Convertible Instruments | o. Convertible Instruments- The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with accounting standards for “Accounting for Derivative Instruments and Hedging Activities.” Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.” The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability. |
Reclassifications | Reclassifications - Certain reclassifications have been made to conform the prior period data to the current presentations. The Company has reclassified a $40,000 note payable to Convertible debt. This reclassification had no impact on reported results of operations. |
Recent Accounting Pronouncements | p. Recent Accounting Pronouncements - In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance. In April 2016, the FASB issued ASU 2016 – 10 “Revenue from Contract with Customers: identifying Performance Obligations and Licensing”. The amendments in this Update clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to reduce the degree of judgement necessary to comply with Topic 606. This guidance has no effective date as yet. The Company is currently evaluating the impact of adopting this guidance. In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. The Company is currently evaluating the impact of adopting this guidance. In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This guidance will be effective for public entities for fiscal years beginning after December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue recognition standard are met. The Company is currently evaluating the impact of adopting this guidance. In January 2016, the FASB issued ASU 2016-01, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance. In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)”. The amendments in this ASU defer the effective date of ASU 2014-09 “Revenue From Contracts With Customers (Topic 606)”. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is still evaluating the impact of adopting this guidance. All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company. |
SUMMARY OF SIGNIFICANT ACCOUN20
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Nov. 30, 2016 | |
Accounting Policies [Abstract] | |
Schedule of antidilutive securities excluded from computation of earnings per share | The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares. Three and six months ended November 30, 2016 2015 Convertible notes 265,401 117,078 Stock options 5,112,500 3,012,500 Warrants 5,078,153 5,059,320 Potentially dilutive securities 10,456,054 8,188,898 |
Schedule of inventory | Inventory consists of the following at November 30, 2016 and May 31, 2016. November 30, May 31, 2016 2016 (unaudited) Finished goods $ 60,012 $ 60,012 Work-in-process (unbilled labor and consulting) 21,024 60,398 $ 81,036 $ 120,410 |
ACCOUNTS PAYABLE AND ACCRUED 21
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 6 Months Ended |
Nov. 30, 2016 | |
Payables and Accruals [Abstract] | |
Schedule of accounts payable and accrued expenses | As of November 30, 2016 and May 31, 2016, accounts payable and accrued expenses consist of the following amounts: November 30, May 31, 2016 2016 (Unaudited) Accounts payable $ 814,018 $ 782,654 Accrued interest payable 136,758 116,035 Accrued payroll 11,612 28,320 Accrued other 97,939 95,373 $ 1,060,327 $ 1,022,382 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 6 Months Ended |
Nov. 30, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of stock option activity for qualified and unqualified stock options | Compensation based stock option activity for qualified and unqualified stock options are summarized as follows: Weighted Average Shares Exercise Price Outstanding at May 31, 2015 1,012,500 $ 1.20 Granted 4,100,000 0.94 Exercised - - Expired or cancelled - - Outstanding at May 31, 2016 5,112,500 $ 0.99 Granted - - Exercised - - Expired or cancelled - - Outstanding at November 30, 2016 5,112,500 $ 0.99 |
Schedule of warrants | The issuance of warrants to purchase shares of the Company's common stock including those attributed to debt issuances are summarized as follows: Weighted Average Shares Exercise Price Outstanding at May 31, 2015 3,937,986 $ 1.45 Granted 1,288,001 1.78 Exercised - - Expired or cancelled - - Outstanding at May 31, 2016 5,225,987 $ 1.53 Granted - - Exercised - - Expired or cancelled ( 147,833) 3.43 Outstanding at November 30, 2016 5,078,153 $ 1.48 |
CONCENTRATIONS OF CREDIT RISK (
CONCENTRATIONS OF CREDIT RISK (Tables) | 6 Months Ended |
Nov. 30, 2016 | |
Risks and Uncertainties [Abstract] | |
Schedule of net sales | Two customers accounted for 86% and 62% of net sales for the three months ended November 30, 2016 and 2015, respectively, as set forth below: Three months ended November 30, 2016 2015 Customer 1 74 % 36 % Customer 2 12 % 26 % Two customers accounted for 83% and 54% of net sales for the six months ended November 30, 2016 and 2015 respectively, as set forth below: Six months ended November 30, 2016 2015 Customer 1 59 % 31 % Customer 2 24 % 23 % |
Schedule of accounts receivable | Two customers accounted for 100% of the accounts receivable as of November 30, 2016, as set forth below: November 30, 2016 May 31, 2016 (Unaudited) Customer 1 52 % 83 % Customer 2 48 % 11 % |
BUSINESS SEGMENT INFORMATION (T
BUSINESS SEGMENT INFORMATION (Tables) | 6 Months Ended |
Nov. 30, 2016 | |
Segment Reporting [Abstract] | |
Schedule of operating results for the business segment | Information about segments is as follows: Arkados AES Consolidated Three months ended November 30, 2016 Revenues $ 12,064 $ 377,612 $ 389,676 Income (loss) from operations $ (511,010 ) $ 27,074 $ (503,936 ) Three months ended November 30, 2015 Revenues $ 175,457 $ 639,762 $ 815,219 Loss from operations $ (254,067 ) $ (432,544 ) $ (686,611 ) Six months ended November 30, 2016 Revenues $ 88,947 $ 725,216 $ 814,163 Loss from operations $ (615,458 ) $ (165,803 ) $ (781,261 ) Six months ended November 30, 2015 Revenues $ 282,293 $ 639,762 $ 922,055 Loss from operations $ (511,804 ) $ (695,592 ) $ (1,207,396 ) Total assets November 30, 2016 $ 174,997 $ 254,621 $ 429,618 May 31, 2016 $ 236,797 $ 347,846 $ 584,643 |
DESCRIPTION OF BUSINESS (Detail
DESCRIPTION OF BUSINESS (Details Narrative) - Number | Mar. 18, 2015 | Nov. 30, 2016 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Number of subsidiaries | 2 | |
Description of reverse stock split | 1-for-30 |
SUMMARY OF SIGNIFICANT ACCOUN26
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | Nov. 30, 2015 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Potentially dilutive securities | 10,456,054 | 8,188,989 | 10,456,054 | 8,188,989 |
Convertible Notes [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Potentially dilutive securities | 265,401 | 117,078 | 265,401 | 117,078 |
Stock Option [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Potentially dilutive securities | 5,112,500 | 3,012,500 | 5,112,500 | 3,012,500 |
Warrant [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Potentially dilutive securities | 5,078,153 | 5,059,320 | 5,078,153 | 5,059,320 |
SUMMARY OF SIGNIFICANT ACCOUN27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | Nov. 30, 2016 | May 31, 2016 |
Accounting Policies [Abstract] | ||
Finished goods | $ 60,012 | $ 60,012 |
Work-in-process (unbilled labor and consulting) | 21,024 | 60,398 |
Inventory, net | $ 81,036 | $ 120,410 |
SUMMARY OF SIGNIFICANT ACCOUN28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 152 Months Ended | ||
Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | |
Accounting Policies [Abstract] | |||||
Net loss | $ (509,151) | $ (695,224) | $ (796,125) | $ (1,223,985) | $ (44,000,000) |
Stock based compensation expense | $ 451,521 | $ 451,521 | |||
Number of common stock issued | 400,000 | 400,000 | |||
Issuance of common stock for services | $ 268,000 | $ 268,000 | |||
Reclassified as note payable to convertible debt | $ 40,000 |
ASSET SALE AND DEBT SUBJECT T29
ASSET SALE AND DEBT SUBJECT TO EQUITY BEING ISSUED (Details Narrative) - USD ($) | Nov. 30, 2016 | May 31, 2016 |
Debt outstanding | $ 456,930 | $ 456,930 |
STMicroelectronics, Inc [Member] | ||
Due to related party | $ 179,000 | $ 179,000 |
ACCOUNTS PAYABLE AND ACCRUED 30
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Nov. 30, 2016 | May 31, 2016 |
Payables and Accruals [Abstract] | ||
Accounts payable | $ 814,018 | $ 782,654 |
Accrued interest payable | 136,758 | 116,035 |
Accrued payroll | 11,612 | 28,320 |
Accrued other | 97,939 | 95,373 |
Accounts payable and accrued expenses | $ 1,060,327 | $ 1,022,382 |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) | Nov. 11, 2016USD ($)$ / sharesshares | Oct. 28, 2016USD ($)shares | Jan. 15, 2016USD ($)Number$ / shares | Jan. 31, 2017 | Aug. 31, 2016USD ($) | Jan. 31, 2016USD ($) | Nov. 30, 2016USD ($) | Nov. 30, 2015USD ($) | May 31, 2016USD ($) | May 06, 2016USD ($) | Mar. 31, 2016USD ($) | Jan. 08, 2016USD ($) |
Principal amount | $ 130,000 | |||||||||||
Convertible debentures, net of debt discount | $ 68,576 | $ 40,000 | ||||||||||
Deferred finance costs | 6,000 | |||||||||||
Debt beneficial conversion feature | 74,530 | |||||||||||
Long-term convertible debt, net of debt discount | 18,456 | |||||||||||
6% Promissory Note [Member] | ||||||||||||
Principal amount | $ 60,000 | |||||||||||
Maturity date | Jan. 15, 2017 | |||||||||||
6% Promissory Note [Member] | Subsequent Event [Member] | ||||||||||||
Maturity date | Mar. 31, 2017 | |||||||||||
6% Two Convertible Note [Member] | ||||||||||||
Principal amount | $ 130,000 | |||||||||||
Number of shares issued for conversion | Number | 50,000 | |||||||||||
6% Two Convertible Note [Member] | Subsequent Event [Member] | ||||||||||||
Maturity date | Mar. 31, 2017 | |||||||||||
6% Convertible Note Due 2016-12-31 [Member] | ||||||||||||
Principal amount | $ 40,000 | |||||||||||
Conversion price (in dollars per share) | $ / shares | $ 1.20 | |||||||||||
Promissory Note Due 2017-01-30 [Member] | Investor [Member] | ||||||||||||
Principal amount | $ 38,500 | |||||||||||
Number of share issued during the period | shares | 20,000 | |||||||||||
Debt discount | $ 3,500 | 9,924 | ||||||||||
Terms of conversion feature | A conversion price of 65% of the average of the three lowest traded prices occurring during the 25 consecutive trading days immediately preceding the applicable conversion date. | |||||||||||
Amortization of debt discount | 5,369 | |||||||||||
Convertible debentures, net of debt discount | 28,576 | |||||||||||
Promissory Note Due 2017-01-30 [Member] | Investor [Member] | Restricted Stock [Member] | ||||||||||||
Debt discount | $ 11,793 | |||||||||||
Total Convertible Debentures [Member] | Investor [Member] | Securities Purchase Agreement [Member] | ||||||||||||
Principal amount | $ 450,000 | |||||||||||
Debt discount | 50,000 | |||||||||||
Debt instrument, gross carrying amount | $ 500,000 | |||||||||||
Debt instrument term | 3 years | |||||||||||
First Tranche Convertible Debentures [Member] | Investor [Member] | Securities Purchase Agreement [Member] | ||||||||||||
Principal amount | $ 150,000 | |||||||||||
Conversion price (in dollars per share) | $ / shares | $ 0.65 | |||||||||||
Number of share issued during the period | shares | 50,000 | |||||||||||
Debt discount | $ 15,000 | 131,544 | ||||||||||
Terms of conversion feature | The debenture is convertible at a conversion price of $0.65 up to 150 days after the issuance date and if no event of default. | |||||||||||
Amortization of debt discount | 2,323 | |||||||||||
Proceeds from issuance of debt | $ 135,000 | |||||||||||
Description of event of default | If an Event of Default has occurred, or 150 days after the Issuance Date, the conversion price is the lesser of (a) $0.65 or (b) Sixty Five percent (65%) of the lowest closing bid price of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the debentures. | |||||||||||
Deferred finance costs | $ 6,000 | |||||||||||
Debt beneficial conversion feature | 74,530 | |||||||||||
Long-term convertible debt, net of debt discount | $ 18,456 | |||||||||||
First Tranche Convertible Debentures [Member] | Investor [Member] | Restricted Stock [Member] | Securities Purchase Agreement [Member] | ||||||||||||
Debt discount | $ 38,337 | |||||||||||
12% Promissory Note [Member] | ||||||||||||
Principal amount | $ 10,000 | $ 10,000 | ||||||||||
12% Promissory Note [Member] | Subsequent Event [Member] | ||||||||||||
Maturity date | Mar. 31, 2017 | |||||||||||
10% Promissory Note [Member] | ||||||||||||
Principal amount | $ 150,000 | |||||||||||
Maturity date | Jan. 31, 2017 | |||||||||||
10% Promissory Note [Member] | Subsequent Event [Member] | ||||||||||||
Maturity date | Mar. 31, 2017 |
STOCKHOLDERS' DEFICIENCY (Detai
STOCKHOLDERS' DEFICIENCY (Details Narrative) - USD ($) | Nov. 11, 2016 | Oct. 28, 2016 | Oct. 13, 2016 | Apr. 28, 2016 | Apr. 22, 2016 | Apr. 08, 2016 | Feb. 23, 2016 | Jan. 08, 2016 | Jun. 25, 2015 | Nov. 30, 2016 | Nov. 30, 2016 | May 31, 2016 |
Principal amount | $ 130,000 | |||||||||||
Number of shares issued for services | 400,000 | 400,000 | ||||||||||
Shares issued, price per share | $ 0.51 | $ 1.75 | ||||||||||
Value of shares issued for stock compensation | $ 344,250 | $ 250,833 | ||||||||||
Number of shares issued for debt conversion | 50,000 | |||||||||||
Accrued interest | $ 11,332 | |||||||||||
Issuance of common stock for services | $ 268,000 | $ 268,000 | ||||||||||
Warrant [Member] | ||||||||||||
Number of gross warrant granted | 1,288,001 | |||||||||||
Asset Purchase Agreement [Member] | ||||||||||||
Warrants to purchase common stock | 166,667 | |||||||||||
Value of shares issued in connection with intangible assets | $ 249,113 | |||||||||||
Asset Purchase Agreement [Member] | Warrant [Member] | ||||||||||||
Warrant exercise price (in dollars per shares) | $ 2 | |||||||||||
Warrants to purchase common stock | 166,667 | |||||||||||
Number of gross warrant granted | 166,667 | |||||||||||
First Tranche [Member] | ||||||||||||
Number of shares issued for services | 150,000 | |||||||||||
Two Tranche [Member] | ||||||||||||
Number of shares issued for services | 150,000 | |||||||||||
New Note [Member] | ||||||||||||
Principal amount | $ 100,000 | |||||||||||
Private Placement Offering ("PPO") [Member] | ||||||||||||
Number of share issued during the period (in shares) | 838,334 | |||||||||||
Proceeds from issuance of private placement | $ 503,000 | |||||||||||
Private Placement Offering ("PPO") [Member] | Warrant [Member] | ||||||||||||
Number of gross warrant granted | 833,334 | |||||||||||
Mr. Mark Gelnaw [Member] | ||||||||||||
Number of share issued during the period (in shares) | 35,000 | |||||||||||
Mr. Terrence DeFranco [Member] | ||||||||||||
Number of share issued during the period (in shares) | 500,000 | 108,333 | ||||||||||
Key Employees [Member] | ||||||||||||
Number of share issued during the period (in shares) | 675,000 | |||||||||||
Two Consultants [Member] | ||||||||||||
Number of shares issued for services | 400,000 | |||||||||||
Shares issued, price per share | $ 0.67 | |||||||||||
Issuance of common stock for services | $ 268,000 | |||||||||||
Investor [Member] | Promissory Note Due 2017-01-30 [Member] | ||||||||||||
Principal amount | $ 38,500 | |||||||||||
Number of share issued during the period (in shares) | 20,000 | |||||||||||
Investor [Member] | First Tranche Convertible Debentures [Member] | Securities Purchase Agreement [Member] | ||||||||||||
Principal amount | $ 150,000 | |||||||||||
Number of share issued during the period (in shares) | 50,000 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - Employee Stock Option [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Nov. 30, 2016 | May 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
Outstanding at beginning | 5,112,500 | 1,012,500 |
Granted | 4,100,000 | |
Exercised | ||
Expired or cancelled | ||
Outstanding at ending | 5,112,500 | 5,112,500 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | ||
Outstanding at beginning | $ 0.99 | $ 1.20 |
Granted | 0.94 | |
Exercised | ||
Expired or cancelled | ||
Outstanding at ending | $ 0.99 | $ 0.99 |
STOCK-BASED COMPENSATION (Det34
STOCK-BASED COMPENSATION (Details 1) - Warrant [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Nov. 30, 2016 | May 31, 2016 | |
Class of Warrant or Right, Number of Warrants [Roll Forward] | ||
Outstanding, beginning | 5,225,987 | 3,937,986 |
Granted | 1,288,001 | |
Exercised | ||
Expired or cancelled | (147,833) | |
Outstanding, ending | 5,078,153 | 5,225,987 |
Class of Warrant or Right, Weighted Average Exercise Price of Warrants or Rights [Roll Forward] | ||
Outstanding, beginning | $ 1.53 | $ 1.45 |
Granted | 1.78 | |
Exercised | ||
Expired or cancelled | 3.43 | |
Outstanding, ending | $ 1.48 | $ 1.53 |
STOCK-BASED COMPENSATION (Det35
STOCK-BASED COMPENSATION (Detail Narrative) - USD ($) | Apr. 28, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | May 31, 2016 | May 31, 2015 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | |||
Asset Purchase Agreement [Member] | |||||
Warrants to purchase common stock | 166,667 | ||||
Warrant [Member] | |||||
Number of gross warrant granted | 1,288,001 | ||||
Warrant outstanding | 5,078,153 | 5,225,987 | 3,937,986 | ||
Warrant [Member] | Consulting Contract [Member] | |||||
Stock price (in dollars per share) | $ 1 | ||||
Strike price (in dollars per share) | $ 1 | ||||
Expected volatility (as a percent) | 87.54% | ||||
Risk-free interest rate | 1.21% | ||||
Dividend rate | 0.00% | ||||
Expected term | 3 years | ||||
Number of gross warrant granted | 33,000 | ||||
Method used | Black-Scholes option pricing model | ||||
Common stock, par value (in dollars per share) | $ 1 | ||||
Warrant outstanding | 18,471 | ||||
Warrant [Member] | Software Development Agreement [Member] | |||||
Stock price (in dollars per share) | $ 1 | ||||
Strike price (in dollars per share) | $ 1 | ||||
Expected volatility (as a percent) | 87.54% | ||||
Risk-free interest rate | 1.21% | ||||
Dividend rate | 0.00% | ||||
Expected term | 3 years | ||||
Number of gross warrant granted | 250,000 | ||||
Method used | Black-Scholes option pricing model | ||||
Common stock, par value (in dollars per share) | $ 1 | ||||
Warrant outstanding | 139,928 | ||||
Warrant [Member] | Asset Purchase Agreement [Member] | |||||
Stock price (in dollars per share) | $ 0.75 | ||||
Strike price (in dollars per share) | $ 2 | ||||
Expected volatility (as a percent) | 293.00% | ||||
Risk-free interest rate | 0.93% | ||||
Dividend rate | 0.00% | ||||
Expected term | 3 years | ||||
Number of gross warrant granted | 166,667 | ||||
Method used | Black-Scholes option pricing model | ||||
Common stock, par value (in dollars per share) | $ 2 | ||||
Warrants to purchase common stock | 166,667 | ||||
Impairment of intangible assets | $ 124,000 | ||||
Warrant [Member] | Private Placement Offering ("PPO") [Member] | |||||
Number of gross warrant granted | 833,334 | ||||
Employee Stock Option [Member] | |||||
Number of gross option granted | 4,100,000 | ||||
Employee Stock Option [Member] | Outside 2004 Option and Restricted Stock Plan [Member] | |||||
Number of gross option granted | 2,100,000 | ||||
Employee Stock Option [Member] | Minimum [Member] | |||||
Award vesting period | 3 years | ||||
Employee Stock Option [Member] | Maximum [Member] | |||||
Award vesting period | 10 years |
LICENSE AGREEMENTS (Details Nar
LICENSE AGREEMENTS (Details Narrative) - Tatung Corporation ("Tatung") [Member] - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | Nov. 30, 2015 | |
Master Agreement License Of Process And Event Management System [Member] | ||||
License and services revenue | $ 8,764 | $ 52,000 | $ 14,793 | $ 118,000 |
Percentage of fees for software services | 10.00% | |||
Agreement License Of Meter Collar And Bridge Programmable Logic Controllers [Member] | ||||
License and services revenue | 0 | $ 65,000 | $ 0 | $ 107,000 |
Agreement To Provide Service In Area Of Business Development [Member] | ||||
License and services revenue | $ 0 | $ 60,000 |
COMMITMENTS (Details Narrative)
COMMITMENTS (Details Narrative) | Oct. 13, 2016shares | Sep. 15, 2016shares | Nov. 30, 2016USD ($)ft²shares | Nov. 30, 2015USD ($) | Jan. 15, 2015USD ($) | Nov. 30, 2016USD ($)ft²shares | Nov. 30, 2015USD ($) |
Monthly rental income, nonoperating | $ | $ 1,874 | $ 2,034 | |||||
Lease term | 2 years | ||||||
Rent expenses | $ | $ 20,929 | $ 21,445 | $ 43,706 | $ 32,211 | |||
Number of shares issued upon services | shares | 400,000 | 400,000 | |||||
Two Consultants [Member] | |||||||
Number of shares issued upon services | shares | 400,000 | ||||||
Two Consulting Agreement [Member] | Two Consultants [Member] | |||||||
Number of shares issued upon services | shares | 200,000 | ||||||
AES [Member] | |||||||
Monthly rental income, nonoperating | $ | $ 57,300 | ||||||
Area occupied pursuant to a lease | ft² | 1,850 | 1,850 |
CONCENTRATIONS OF CREDIT RISK38
CONCENTRATIONS OF CREDIT RISK (Details ) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | Nov. 30, 2015 | May 31, 2016 | |
Net Sales [Member] | |||||
Concentration risk, percentage | 86.00% | 62.00% | 83.00% | 54.00% | |
Net Sales [Member] | Customer 1 [Member] | |||||
Concentration risk, percentage | 74.00% | 36.00% | 59.00% | 31.00% | |
Net Sales [Member] | Customer 2 [Member] | |||||
Concentration risk, percentage | 12.00% | 26.00% | 24.00% | 23.00% | |
Accounts Receivable [Member] | |||||
Concentration risk, percentage | 100.00% | ||||
Accounts Receivable [Member] | Customer 1 [Member] | |||||
Concentration risk, percentage | 52.00% | 83.00% | |||
Accounts Receivable [Member] | Customer 2 [Member] | |||||
Concentration risk, percentage | 48.00% | 11.00% |
BUSINESS SEGMENT INFORMATION (D
BUSINESS SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Nov. 30, 2016 | Nov. 30, 2015 | Nov. 30, 2016 | Nov. 30, 2015 | May 31, 2016 | |
Revenues | $ 389,676 | $ 815,219 | $ 814,163 | $ 922,055 | |
Income (loss) from operations | (503,936) | (686,611) | (781,259) | (1,207,396) | |
Total assets | 429,618 | 429,618 | $ 584,643 | ||
Arkados [Member] | |||||
Revenues | 12,064 | 175,457 | 88,947 | 282,293 | |
Income (loss) from operations | (511,010) | (254,067) | (615,458) | (511,804) | |
Total assets | 174,997 | 174,997 | 236,797 | ||
AES [Member] | |||||
Revenues | 377,612 | 639,762 | 725,216 | 639,762 | |
Income (loss) from operations | 27,074 | $ (432,544) | (165,803) | $ (695,592) | |
Total assets | $ 254,621 | $ 254,621 | $ 347,846 |
BUSINESS SEGMENT INFORMATION 40
BUSINESS SEGMENT INFORMATION (Details Narrative) | 6 Months Ended |
Nov. 30, 2016Number | |
Segment Reporting [Abstract] | |
Number of operating segments | 2 |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) - USD ($) | Jan. 19, 2017 | Dec. 31, 2016 | Dec. 13, 2016 | Jan. 31, 2017 | Nov. 30, 2016 | Nov. 30, 2016 | Jan. 08, 2016 |
Principal amount | $ 130,000 | ||||||
Number of shares issued for services | 400,000 | 400,000 | |||||
Subsequent Event [Member] | Settlement Agreement [Member] | Restricted Stock [Member] | |||||||
Number of shares issued for services | 50,000 | ||||||
Subsequent Event [Member] | Settlement Agreement [Member] | Former Service Providers [Member] | |||||||
Number of shares issued for services | 175,000 | ||||||
Cancellation of outstanding invoice | $ 94,617 | ||||||
Subsequent Event [Member] | Settlement Agreement [Member] | Vendors [Member] | |||||||
Number of shares issued for services | 33,596 | ||||||
Cancellation of outstanding invoice | $ 20,158 | ||||||
Subsequent Event [Member] | New Promissory Note [Member] | |||||||
Principal amount | $ 270,000 | ||||||
Maturity date | Mar. 31, 2017 |