| NOTE PAYABLE | NOTE
6 – NOTE PAYABLE Notes
Payable Notes
payable transactions include the following: Transactions
for the Year ended May 31, 2016 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 “January Note“). The proceeds
from the January 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. Effective March 31, 2017, the Company and holder
amended this promissory note further to extend the maturity date to June 15, 2017. Effective June 15, 2017 this promissory note
was further extended to December 31, 2017. In connection with this extension, the Company issued the noteholder warrants to purchase
100,000 shares of the Company’s stock, resulting in a charge to interest expense of $23,990. The warrants have an exercise
price of $1.00 and a three-year term. On
January 8, 2016, the Company entered into an Exchange Agreement with the noteholders of two 6% convertible notes in the aggregate
principle amount of $130,000 (collectively the “Convertible Notes”) that were in default. On January 15, 2016, the
Company applied the proceeds of the 2016 Notes together with the issuance of 50,000 shares of the Company’s common stock,
to the payment of the Convertible Notes. In exchange for the payment and the shares, the holders of the 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 holders further agreed that their extension of the maturity of the Convertible Notes had been effective from
October 31, 2015 until January 15, 2016. 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 and holder agreed to extend the maturity date of the Reissued Note
to March 31, 2017. Effective March 31, 2017, the Company and holder amended this promissory note further to extend the maturity
date to May 15, 2017. The Reissued Note was in default as of May 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. As of May 31, 2017 the balance of the convertible loan amounted
to $ 40,000. This note was paid in full through repayments made in June 2017 and August 2017. On
March 31, 2016 and May 6, 2016, the Company executed promissory notes for loans, each in the amount of $10,000 (collectively with
the January Note, the “2016 Notes”). 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 the Convertible Notes as discussed
above. 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. In January 2017, the Company executed an amendment to the promissory notes to extend
the maturity date to March 31, 2017. Effective March 31, 2017, the Company and holder amended this promissory note further to
extend the maturity date to May 15, 2017. Effective August 29, 2017, the Company and holder amended this promissory note further
to extend the maturity date to December 31, 2017. In connection with this extension, the Company issued the noteholder warrants
to purchase 50,000 shares of the Company’s stock, resulting in a charge to interest expense of $11,995. The warrants have
an exercise price of $1.00 and a three-year term. As of November 30, 2017, the balance of these loans amounted to $ 20,000. Transactions
for the 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 15, 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. Effective March 31, 2017, the Company and holder amended this promissory note to extend
the maturity date to May 15, 2017, and subsequently amended this promissory note to extend the maturity date to December 31, 2017.
In connection with this extension, the Company issued the noteholder warrants to purchase 100,000 shares of the Company’s
stock, resulting in a charge to interest expense of $23,990. The warrants have an exercise price of $1.00 and a three-year term.
Additionally, the interest rate was modified to 6% per annum, compounded quarterly. As of November 30, 2017 the balance of the
promissory loan amounted to $150,000. 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 $15,293 as of May 31, 2017. On January 27, 2017, the Company
and holder amended this promissory note to extend maturity date to March 31, 2017. On March 31, 2017, the Company and holder amended
this promissory note to extend the maturity date to April 21, 2017 and the conversion rate to $0.60. As a result, the Company
recorded a debt discount of $26,707 which was fully amortized upon settlement. This note was settled in full on April 27, 2017
for $35,000 and 30,000 shares of the Company’s common stock. On
January 27, 2017, the Company issued a convertible promissory note for an aggregate principal amount of $38,500 (which includes
an OID of $3,500) with a maturity date of March 31, 2017. The debenture is convertible only upon default after March 31, 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 $14,398 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 $17,898 as of May 31, 2017. On March 31, 2017, the Company and holder amended this promissory note
to extend the maturity date to April 21, 2017 and the conversion rate to $0.60. As a result, the Company recorded a debt discount
of $24,101 which was fully amortized upon settlement. This note was settled in full on April 27, 2017 for $35,000 and 20,000 shares
of the Company’s common stock. On
February 1, 2017, the Company issued a convertible promissory note for an aggregate principal amount of $125,000 (which includes
an OID of $12,000) with a maturity date of October 1, 2017. The debenture is convertible only upon default after October 1, 2017
at a conversion price of 60% of the of the lowest traded price occurring during the 20 consecutive trading days immediately preceding
the applicable conversion date. Accordingly, the Company recorded a debt discount of $121,886 related to the beneficial conversion
feature, and OID. The debt discount and OID is amortized on a straight-line basis over the term of the loan and amounted to $59,935
as of May 31, 2017. Net discount and net loan balance amounted to $61,950 and $63,050 respectively, as of May 31, 2017 and is
recorded in convertible debentures. On July 28, 2017, this note was settled in full with a payment of $174,914, which included
an early redemption fee of $49,914, which is included in interest expense for the six months ended November 30, 2017. 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% OID of $50,000) (the “Debentures“).
The Debentures are to be issued in three tranches. On November 11, 2016, the Company issued the first of the 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, as such term is defined
in the Debentures, has occurred, or 150 days after the Issuance Date, as such term is defined in the Debentures, 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 180 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 OID of $15,000 and deferred finance cost of $6,000. As of May 31, 2017, total straight-line
amortization for these transactions amounted to $24,573 which resulted in a net discount of $109,294 and a net loan balance of
$40,706 classified as long-term convertible debt. On June 19, 2017, this note was settled in full with a payment of $195,000,
which included an early redemption fee of $45,000, which is included in interest expense for the six months ended November 30,
2017. On
March 1, 2017, the Company issued a 10% promissory note in the principal amount of $100,000 due March 31, 2017 to an accredited
investor, along with warrants to purchase 100,000 shares of the Company’s common stock with a three-year term and an exercise
price of $.60 per share. Accordingly, the Company recorded debt discount of $40,120 related to the warrants issued which was fully
amortized as of May 31, 2017. Effective March 31, 2017, the Company and the accredited investor entered into an amendment to 10%
promissory note, pursuant to which the parties agreed to extend the maturity date of the promissory note to May 15, 2017. Effective
August 29, 2017, the Company and holder amended this promissory note further to extend the maturity date to December 31, 2017.
In connection with this extension, the Company issued the noteholder warrants to purchase 25,000 shares of the Company’s
stock, resulting in a charge to interest expense of $5,998. The warrants have an exercise price of $1.00 and a three-year term.
The net loan balance of $100,000 is classified in short-term notes payable as of November 30, 2017. On
March 3, 2017, the Company issued a 10% convertible promissory note in the principal amount of $103,000 due November 3, 2017 to
an accredited investor (the “Convertible Promissory Note“), along with warrants to purchase 50,000 shares of the Company’s
common stock with a three-year term and an exercise price of $.60 per share. The Convertible Promissory Note may be converted
pursuant to the provisions of the Convertible Promissory Note upon a Prepayment Default or an Event of Default, as such terms
are defined in the Convertible Promissory Note, at a 40% discount to the lowest trading price during the previous (20) trading
days to the date of a Conversion Notice, as such term is defined in the Convertible Promissory Note. Accordingly, the Company
recorded debt discount of $89,337 related to the warrants and a $3,000 related to the deferred financing costs. As of May 31,
2017, total straight-line amortization for these transactions amounted to $33,543, resulting in a net discount of $58,794 and
a net loan balance of $44,206 classified as short-term convertible debentures, net of debt discount. On August 30, 2017, this
note was settled in full with a payment of $144,129, which included an early redemption fee of $41,129, which is included in interest
expense for the six months ended November 30, 2017. On
March 7, 2017, the Company issued a 10% promissory note in the principal amount of $100,000 due March 31, 2017 to an accredited
investor, along with warrants to purchase 100,000 shares of the Company’s common stock with a three-year term and an exercise
price of $.60 per share. Accordingly, the Company recorded debt discount of $40,120 related to the warrants issued which was fully
amortized as of May 31, 2017. On April 20, 2017, the Company and the accredited investor entered into an amendment to 10% promissory
note, pursuant to which the parties agreed to extend the maturity date of the promissory note to April 21, 2017. The note was
converted in full to 169,886 shares of common stock on May 31, 2017. This note was settled in full effective March 31 st AIP
Financing On
May 1, 2017, the Company completed a financing transaction with AIP Asset Management Inc. (the “Security Agent”),
AIP Global Macro Fund, LP (“AGMF”), AIP Global Macro Class (“AGMC”) and AIP Canadian Enhance Income Class
(“ACEIC” and together with AGMF and AGMC, collectively, “AIP”), pursuant to which we raised capital by
issuing 10% Secured Convertible Promissory Notes (the “10% Secured Convertible Notes”) in the aggregate principal
amount of $2,500,000 to AIP and AIP Private Capital Inc. (collectively, the “Holders”) in accordance with the terms
of the AIP Note Purchase Agreement dated May 1, 2017 (the “AIP Note Purchase Agreement”) with AIP (the “AIP
Financing”). In connection with the issuance of the 10% Secured Convertible Notes, the Company and its subsidiaries entered
into a Security Agreement dated May 10, 2017 (the “Security Agreement”) with the Security Agent, pursuant to which
the Company granted the Security Agent a security interest in substantially all the Company’s assets the those of the Company’s
subsidiaries. In addition, pursuant to the AIP Note Purchase Agreement, the Company issued warrants (the “AIP Warrants”)
to the Holders to purchase 2,500,000 shares of the Company’s common stock, subject to adjustment for certain events, such
as stock splits and stock dividends, at an exercise price of $1.00 per share, and which have five-year terms. The
principal amount of the 10% Secured Convertible Notes exceeds the cash consideration paid by the Holders for such notes, with
such excess representing a 15% original issue discount. The 10% Secured Convertible Notes mature on May 1, 2018 unless earlier
converted pursuant to the terms of the AIP Note Purchase Agreement. The 10% Secured Convertible Notes bear interest at 10% per
annum, provided that during an Event of Default (as defined in the AIP Note Purchase Agreement) it shall bear interest at 20%
per annum, payable on a monthly basis. The 10% Secured Convertible Notes are secured with a first priority lien as set forth in
the Security Agreement. The outstanding principal and interest under the 10% Secured Convertible Notes is convertible at the option
of the Holder of each of the 10% Secured Convertible Notes into shares of the Company’s common stock at $0.80 per share,
or $0.60 if the Company has not raised $500,000 in the 90 days following the closing (which it has done), or, upon an uncured
Event of Default (as defined in the AIP Note Purchase Agreement), the lesser of the closing bid of the Company’s common
stock on the day notice of conversion is given or 75 percent of the price of Shares in any registered offering. In
connection with the AIP Financing, the Company and the Holders entered into a Registration Rights Agreement under which the Company
required, in no event later than 75 calendar days after the closing of the AIP Financing, to file a registration statement with
the SEC covering the resale of the shares of the Company’s common stock issuable on conversion of the 10% Secured Convertible
Notes and exercise of the AIP Warrants and to use reasonable best efforts to have the registration declared effective as soon
as practicable, but in no event later than 120 days after the closing of the AIP Financing. The Company will be subject to certain
monetary penalties, as set forth in the Registration Rights Agreement, if the registration statement is not filed, does not become
effective on a timely basis, or does not remain available for the resale (subject to certain allowable grace periods) of the Registrable
Securities, as such term is defined in the Registration Rights Agreement. On August 29, 2017, the Company entered into an Agreement
and Waiver (the “Waiver”) with AIP and issued an aggregate of 150,001 shares to AIP as a monetary penalty for not
filing a registration statement on Form S-1 by July 15, 2017 as set forth in the Registration Rights Agreement dated May 1, 2017
(see Note 6). Additionally, under the Waiver, the Company agreed to reduce the conversion price of the 2,500,000 warrants issued
to AIP in connection with the AIP Financing from $0.80 to $0.60 per share. This modification in connection with the amendment
of this beneficial conversion feature resulted in a charge to other expense of $594,583 for the six months ended November 30,
2017. In
relation to this transaction, the Company recorded debt discount of $1,250,000 related to the warrants issued, a debt discount
of $250,000 related to the beneficial conversion feature, an OID of $375,000 and deferred finance cost of $175,833. As of May
31, 2017, total straight-line amortization for these transactions amounted to $168,562 which resulted in a net discount of $1,882,274
and a net loan balance of $617,727. As of November 30, 2017, total straight-line amortization for these transactions amounted
to $1,028,227 for the six months then ended, which resulted in a net discount of $854,047 and a net loan balance of $1,645,954
classified as convertible debentures, net of debt discount. 9%
Convertible Notes On
April 21, 2017, the Company closed a private placement (the “2017 Convertible Notes Private Placement”) of $899,999
principal amount of its 9% Convertible Promissory Notes (the “9% Convertible Notes”) and common stock purchase warrants
(the “2017 Notes Offering Warrants”) issued to L2 Capital LLC (“L2”) and SBI Investments LLC 2014-1 (“SBI”
and together with L2, the “Note Investors”). The 9% Convertible Notes and the 2017 Notes Offering Warrants were issued
pursuant to Note Purchase Agreements (the “Note Purchase Agreements”), dated April 21, 2017, to each of the Note Investors,
in substantially the same form. The
9% Convertible Notes mature on October 21, 2017 unless earlier converted pursuant to the terms of the Note Purchase Agreements.
The 9% Convertible Notes bear interest at 9% per annum. The outstanding principal and interest under the 9% Convertible Notes,
solely upon an Event of Default (as defined in the 9% Convertible Notes) that is not cured within five business days, are convertible
at the option of each of the Note Investors into shares of the Company’s common stock at an exercise price equal to 60%
of the lowest traded price of the common stock on the OTC Pink Marketplace during the 30 trading days prior to the conversion
date (the “Market Price”). As
a part of the 2017 Convertible Notes Private Placement, the Company issued 2017 Notes Offering Warrants to the Note Investors
providing them with the right to purchase, in the aggregate, up to 1,279,998 shares of the Company’s common stock at an
initial exercise price equal to the lesser of (i) $0.60 and (ii) 75% of the offering price of the Company’s common stock
in the Company’s next publicly registered offering, subject to adjustment for certain events such as stock splits and stock
dividends. Subject to certain limitations, the 2017 Notes Offering Warrants are exercisable on any date after the date of issuance
for a term of five years. As of the date of this filing, these warrants have been exercised. On May 16, 2017, L2 exercised their
831,168 warrants in a cashless exercise for 447,552 shares of the Company’s common stock at $0.60 per share. In
relation to this transaction, the Company recorded debt discount of $560,343 related to the warrants issued, a debt discount of
$339,656 related to the beneficial conversion feature, an OID of $107,999 and deferred finance cost of $12,000. As of May 31,
2017, total straight-line amortization for these transactions amounted to $226,666 which resulted in a net discount of $793,332
and a net loan balance of $106,667. On October 24, 2017, SBI converted $15,000 of their note into 60,606 shares of the Company’s
common stock at a price of $0.2475 per share. As of November 30, 2017, total straight-line amortization for these transactions
amounted to $793,331 for the six months then ended, which resulted in a net discount of $0 and a net loan balance of $884,999
classified as convertible debentures, net of debt discount. SolBright
Notes As
part of the consideration for the purchase of the SolBright Assets, the Company delivered to SolBright a Senior Secured Promissory
Note in the principal amount of $2,000,000 and a Convertible Promissory Note (the “Preferred Stock Note”) in the principal
amount of $6,000,000 and are classified as long-term convertible notes payable and long-term convertible debt as of May 31, 2017
(See Note 3). The Preferred Stock Note was converted in full for 4,000,000 shares of Series A Preferred stock effective September
28, 2017. Transactions
for the Six Months Ended November 30, 2017 On
July 28, 2017, the Company issued two convertible notes payable totaling $70,000, due January 28, 2018, with an annual interest
rate of 9%, convertible on or after an event of default at a conversion price equal to 60% of the lowest trading price during
the 30 trading days prior to conversion. In connection with the convertible notes payable, the Company issued a total of 233,332
warrants to purchase the Company’s common stock with an exercise price of $0.60 per share and have a five-year term. The
notes include a total OID of $17,000 and $3,000 of deferred financing costs and were classified as convertible debentures, net
of debt discount. The proceeds from these two notes totaled $50,000. As a result, the Company recognized a total debt discount
of $66,136, which was fully amortized on October 10, 2017 when these notes were repaid in full. |
