Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
May 31, 2019 | Sep. 12, 2019 | Nov. 30, 2018 | |
Document And Entity Information | |||
Entity Registrant Name | IOTA COMMUNICATIONS, INC. | ||
Entity Central Index Key | 0001095130 | ||
Document Type | 10-K | ||
Document Period End Date | May 31, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --05-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Is Entity Emerging Growth Company? | false | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Small Business | false | ||
Entity Public Float | $ 39,540,138 | ||
Entity Common Stock, Shares Outstanding | 223,147,509 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 | ||
Entity Shell Company | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | May 31, 2019 | May 31, 2018 |
Current Assets: | ||
Cash | $ 788,502 | $ 1,492,784 |
Accounts receivable, net of allowances for doubtful accounts of $810,132 and $0, respectively | 507,345 | 83,500 |
Contract assets, net | 435,788 | 0 |
Other current assets | 746,197 | 722,633 |
Total current assets | 2,477,832 | 2,298,917 |
Property and equipment, net | 10,124,763 | 11,085,629 |
Intangible assets, net | 286,538 | 114,950 |
Other assets | 88,495 | 230,532 |
Total assets | 12,977,628 | 13,730,028 |
Current Liabilities: | ||
Accounts payable and accrued expenses | 18,563,550 | 7,945,564 |
Payroll liability | 1,276,333 | 661,695 |
Advance payments | 0 | 2,392,441 |
Service obligations | 331,280 | 331,280 |
Deferred revenue | 228,893 | 89,650 |
Contract liabilities | 188,738 | 0 |
Warranty reserve | 313,881 | 0 |
Convertible debentures, net of debt discount of $312,902 | 4,450,296 | 0 |
Notes payable - officers | 173,769 | 0 |
Notes payable | 479,102 | 0 |
Total current liabilities | 26,005,842 | 11,420,630 |
Deferred rent liability | 1,975,815 | 1,699,799 |
Revenue-based notes, net of debt discount of $914,408 and $1,126,838 | 76,489,220 | 59,688,285 |
Long-term notes payable - related party | 666,154 | 945,568 |
Long-term notes payable - officer | 827,348 | 827,349 |
Asset retirement obligations | 1,771,227 | 1,676,932 |
Total liabilities | 107,735,606 | 76,258,563 |
Commitments and contingencies | ||
Stockholders' Deficit: | ||
Convertible preferred stock, $.0001 par value; 5,000,000 shares authorized, no shares issued and outstanding, Series A; 5,000,000 shares authorized, no shares issued and outstanding | 0 | 0 |
Common stock, $.0001 par value; 600,000,000 shares authorized; 219,205,439 and 129,671,679 shares issued and outstanding, respectively | 21,921 | 12,967 |
Additional paid-in capital | 24,539,004 | 0 |
Accumulated deficit | (119,318,903) | (62,541,502) |
Total stockholders' deficit | (94,757,978) | (62,528,535) |
Total liabilities and stockholders' deficit | $ 12,977,628 | $ 13,730,028 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | May 31, 2019 | May 31, 2018 |
Statement of Financial Position [Abstract] | ||
Allowances for doubtful accounts | $ 810,132 | $ 0 |
Convertible debenture, debt discount | 312,902 | 0 |
Revenue-based notes, debt discount | $ 914,408 | $ 1,126,838 |
Convertible preferred stock, par value | $ 0.0001 | $ 0.0001 |
Convertible preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Convertible preferred stock, shares issued | 0 | 0 |
Convertible preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 600,000,000 | 600,000,000 |
Common stock, shares issued | 219,205,439 | 129,671,679 |
Common stock, shares outstanding | 219,205,439 | 129,671,679 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Income Statement [Abstract] | ||
Net sales | $ 2,305,144 | $ 290,491 |
Cost of sales | 2,497,218 | 104,924 |
Gross profit (loss) | (192,074) | 185,567 |
Operating expenses: | ||
Application server and software | 1,108,076 | 1,582,905 |
Tower and related expenses | 5,874,296 | 5,698,442 |
Research and development | 4,088,991 | 542,782 |
Selling, general and administrative | 16,730,695 | 7,544,362 |
Depreciation and amortization | 1,220,745 | 1,010,268 |
Stock based compensation | 18,058,910 | 0 |
Impairment of goodwill and intangible assets | 5,865,553 | 0 |
Loss on settlement of liability | 318,000 | 0 |
Total operating expenses | 53,265,266 | 16,378,759 |
Loss from operations | (53,457,340) | (16,193,192) |
Other income (expense): | ||
Interest income | 38,747 | 12,141 |
Interest expense | (3,200,278) | (305,095) |
Loss on extinguishment of debt | (131,408) | 0 |
Other income (expense) | (27,122) | 0 |
Total other income (expense) | (3,320,061) | (292,954) |
Loss before provision for income taxes | (56,777,401) | (16,486,146) |
Provision for income taxes | 0 | 0 |
Net loss | $ (56,777,401) | $ (16,486,146) |
Loss per common share - basic and diluted | $ (0.32) | $ (0.13) |
Weighted average shares outstanding - basic and diluted | 176,991,988 | 129,671,679 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($) | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total |
Beginning balance (in shares) at May. 31, 2017 | 0 | 129,671,679 | |||
Beginning balance at May. 31, 2017 | $ 0 | $ 12,967 | $ 0 | $ (49,238,527) | $ (49,225,560) |
Stock based compensation - stock options | 0 | ||||
Stock based compensation - common stock | 0 | ||||
Common stock issued for exercise of backstop warrants | 0 | ||||
Common stock issued for conversion of debt | 0 | ||||
Loss on settlement of debt | 0 | ||||
Smartcomm contribution | 3,183,171 | 3,183,171 | |||
Net loss | (16,486,146) | (16,486,146) | |||
Ending balance (in shares) at May. 31, 2018 | 0 | 129,671,679 | |||
Ending balance at May. 31, 2018 | $ 0 | $ 12,967 | 0 | (62,541,502) | (62,528,535) |
Stock based compensation - stock options | 608,346 | 608,346 | |||
Stock based compensation - common stock (in shares) | 1,500,000 | ||||
Stock based compensation - common stock | $ 150 | 614,850 | 615,000 | ||
Advance payments converted to members equity prior to merger (in shares) | 7,266,499 | ||||
Advance payments converted to members equity prior to merger | $ 727 | 2,391,714 | 2,392,441 | ||
Distribution to M2M's former parent company | (5,061,334) | (5,061,334) | |||
Recapitalization under reverse merger on September 1, 2018 (in shares) | 43,434,034 | ||||
Recapitalization under reverse merger on September 1, 2018 | $ 4,343 | 876,259 | 880,602 | ||
Warrants issued in connection with reverse merger | 3,992,000 | 3,992,000 | |||
Common stock issued for PPUs in connection with reverse merger (in shares) | 15,824,972 | ||||
Common stock issued for PPUs in connection with reverse merger | $ 1,583 | 5,965,417 | 5,967,000 | ||
Value of MHz-POPs licenses issued in connection with Tender Offer | 4,735,846 | 4,735,846 | |||
Warrants issued in connection with Backstop Agreement | 256,556 | 256,556 | |||
Warrants issued in connection with Tender Offer | 821,348 | 821,348 | |||
Warrants issued to investors | 980,314 | 980,314 | |||
Common stock issued in connection with Tender Offer (in shares) | 14,708,125 | ||||
Common stock issued in connection with Tender Offer | $ 1,471 | 4,598,494 | 4,599,965 | ||
Common stock issued for inducement (in shares) | 2,700,000 | ||||
Common stock issued for inducement | $ 270 | 1,346,930 | 1,347,200 | ||
Common stock issued for services (in shares) | 900,000 | ||||
Common stock issued for services | $ 90 | 363,910 | 364,000 | ||
Common stock issued for exercise of backstop warrants (in shares) | 1,300,000 | ||||
Common stock issued for exercise of backstop warrants | $ 130 | 584,863 | 584,993 | ||
Common stock issued for conversion of debt (in shares) | 730,000 | ||||
Common stock issued for conversion of debt | $ 73 | 439,927 | 440,000 | ||
Common stock issued for conversion of warrants (in shares) | 1,170,130 | ||||
Common stock issued for conversion of warrants | $ 117 | 5,584 | 5,701 | ||
Beneficial conversion feature on convertible debt and warrants | 699,980 | 699,980 | |||
Loss on settlement of debt | 318,000 | 318,000 | |||
Net loss | (56,777,401) | (56,777,401) | |||
Ending balance (in shares) at May. 31, 2019 | 0 | 219,205,439 | |||
Ending balance at May. 31, 2019 | $ 0 | $ 21,921 | $ 24,539,004 | $ (119,318,903) | $ (94,757,978) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Cash flows from operating activities: | ||
Net loss | $ (56,777,401) | $ (16,486,146) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Bad debt | 134,132 | 0 |
Stock based compensation - stock options | 608,346 | 0 |
Stock based compensation - common stock | 615,000 | 0 |
Loss on settlement of debt | 318,000 | 0 |
Loss on sale of property and equipment | 130,392 | 29,190 |
Warrants issued in connection with reverse merger | 3,992,000 | 0 |
Common stock issued for PPUs in connection with reverse merger | 5,967,000 | 0 |
Warrants and MHZ-POPs licenses issued with Tender Offer | 5,557,194 | 0 |
Warrants issued in connection to backstop agreements | 256,556 | 0 |
Warrants issued to investors | 980,314 | 0 |
Depreciation and amortization | 1,220,445 | 1,010,268 |
Amortization of debt discount and deferred finance costs | 1,136,037 | 122,932 |
Issuance of common stock for inducement | 1,347,200 | 0 |
Issuance of common stock for services | 364,000 | 0 |
Impairment of goodwill | 5,249,891 | 0 |
Impairment of intangible assets | 615,662 | 0 |
Accretion of asset retirement obligations | 53,306 | 51,764 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (373,812) | 0 |
Contract assets | 38,210 | 0 |
Other current assets | 331,392 | (454,265) |
Other assets | 0 | (171,460) |
Due from related party | 0 | (37,860) |
Accounts payable and accrued expenses | 6,654,493 | 1,477,149 |
Payroll liability | 614,638 | 404,211 |
Deferred revenue | 139,243 | (44,567) |
Deferred rent liability | 276,016 | 306,430 |
Contract liabilites | 129,353 | 0 |
Warranty reverse | 103,287 | 0 |
Accrued interest on revenue-based notes | 133,929 | 108,631 |
Net cash used in operating activities | (20,185,177) | (13,683,723) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (198,006) | (22,764) |
Proceeds from sale of assets | 0 | 7,350 |
Purchase of note receivable - Solbright | (5,038,712) | 0 |
Advances to Solbright | (827,700) | 0 |
Security deposit | 172,326 | 0 |
Cash acquired in merger | 72,059 | 0 |
Net cash used in investing activities | (5,820,033) | (15,414) |
Cash flows from financing activities: | ||
Proceeds from revenue-based notes | 16,485,629 | 15,402,139 |
(Increase) in financing costs (revenue-based notes) | 0 | (737,430) |
Proceeds from convertible notes payable | 4,722,491 | 0 |
Proceeds from notes payable, related party | 25,095 | 527,045 |
Proceeds from sales of common stock | 4,599,965 | 0 |
Proceeds from note payable - officer | 173,769 | 0 |
Payments to affiliate | 0 | (109,907) |
Payments on revenue-based notes | (11,186) | 0 |
Payments on convertible notes | (916,802) | 0 |
Payments on notes payable | (58,516) | 0 |
Payments on notes payable, related party | (304,510) | (77,016) |
Common stock issued in connection with Backstop Agreement | 584,993 | 0 |
Net cash provided by financing activities | 25,300,928 | 15,004,831 |
Net increase (decrease) in cash | (704,282) | 1,305,694 |
Cash - beginning of period | 1,492,784 | 187,090 |
Cash - end of period | 788,502 | 1,492,784 |
Supplemental cash flow information: | ||
Cash paid for: interest paid | 327,865 | 83,341 |
Cash paid for: income taxes paid | 0 | 0 |
Noncash investing and financing activities: | ||
Additions to asset retirement costs | 40,989 | 5,814 |
Property and equipment accrued and not yet paid with cash | 0 | 23,584 |
Non-cash distribution to M2M's former parent company | 5,061,334 | 0 |
Reduction to related party note payable for assumption of service obligations and conversion to member capital contribution | 0 | 3,514,452 |
Common stock issued in conversion of convertible debt | 440,000 | 0 |
Beneficial conversion feature in connection with convertible debt issued and Black-Scholes market value of warrants | 699,980 | 0 |
Additional liabilities related to asset retirement obligation | 40,989 | 5,814 |
Advance payments converted to equity | $ 2,392,441 | $ 0 |
ORGANIZATION AND BUSINESS OPERA
ORGANIZATION AND BUSINESS OPERATIONS | 12 Months Ended |
May 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND BUSINESS OPERATIONS | Corporate History Iota Communications, Inc., (f/k/a Solbright Group, Inc.)(the “Parent”), conducts business activities principally through its two wholly-owned subsidiaries, Iota Networks, LLC (f/k/a M2M Spectrum Networks, LLC (“M2M”)) (“Iota Networks”), an Arizona limited liability company, Iota Commercial Solutions, LLC (f/k/a SolBright Energy Solutions, LLC) (“ICS”), a Delaware limited liability company, and Iota Spectrum Holdings, LLC (the “GP”) (collectively, the “Company”). The Company was initially formed, under the name of Arkados Group, Inc., in the State of Delaware on May 7, 1998. On October 30, 2017, a Certificate of Amendment was filed with the State of Delaware to amend the name of the Company from Arkados Group, Inc. to Solbright Group, Inc. Prior to the amendment, Solbright Group, Inc. acquired substantially all of the assets and certain liabilities of Solbright Renewable Energy, LLC, a South Carolina limited liability company, on May 1, 2017. On July 30, 2018, Iota Communications. entered into an Agreement and Plan of Merger and Reorganization (“Merger Agreement”), subsequently amended on September 5, 2018, with a newly-formed , wholly-owned Arizona limited liability company subsidiary (“Merger Sub”), Iota Networks, and Spectrum Networks Group, LLC, an Arizona limited liability company and the majority member of M2M. Upon closing, Merger Sub merged into and with Iota Networks, with Iota Networks continuing as the surviving entity and the wholly-owned subsidiary of Solbright Group, Inc. (the “Merger”) (See Note 5). In connection with the Merger, on November 26, 2018, a Certificate of Amendment was filed with the State of Delaware to amend the name of the Company from “Solbright Group, Inc.” to “Iota Communications, Inc.” In addition, as of November 28, 2018, our trading symbol changed from “SBRT” to “IOTC”. Immediately following the Merger, the Company had 196,279,076 shares of Common Stock issued and outstanding. The pre-Merger stockholders of the Company retained an aggregate of 43,434,034 shares of Common Stock of the Company, representing approximately 22.1% ownership of the post-Merger Company. Therefore, upon consummation of the Merger, there was a change in control of the Company, with the former owners of Iota Networks effectively acquiring control of the Company. The Merger was treated as a recapitalization and reverse acquisition of the Company for financial accounting purposes. Iota Networks is considered the acquirer for accounting purposes, and the Company’s historical financial statements before the Merger have been replaced with the historical financial statements of Iota Networks before the Merger in future filings with the SEC. On April 17, 2019, Iota Spectrum Holdings, LLC, a wholly owned subsidiary of the Company, was formed in the State of Arizona. Business Overview The Company is a wireless network carrier and an energy-as-a-service (EaaS) company dedicated to IoT. The Company intends to expand the application of Software-as-a-Service model into the energy management sector. Empowered by advanced technologies such as wireless network and data analytics, the Company hopes to be able to integrate online devices and data with offline energy procurement services, and realize the commercial value of IoT. We hope to adopt the Energy-as-a-Service (“EaaS”) model into all of our IoT solutions and other energy conservation services. The Company combines long range wireless connectivity with software applications to provide commercial customers with turn-key services to optimize energy efficiency, sustainability and operations for their facilities. IoT is the extension of internet connectivity to physical devices and everyday objects. Embedded with electronics, internet connectivity, and other forms of hardware (such as sensors), these devices can communicate and interact with other devices over the internet and be remotely monitored and controlled. The Company’s value proposition is to provide turn-key services to its commercial customers, focusing on the development of IoT solutions around Smart Buildings, and its related services including energy management, asset tracking, and predicative maintenance. In order to be turn-key, our business strategy aims to develop solutions throughout all the stages within the IoT value chain in the focused Smart Buildings discipline. The Company operates its business across three segments: (1) Iota Networks, (2) Iota Commercial Solutions and (3) Iota Communications. Operating activities related to the parent company are classified under Iota Communications. Iota Networks The Company re-organized its operating segments in July 2018 in conjunction with the merger with M2M. The restructured business segment focuses on the first two stages of the IoT value chain, providing comprehensive solutions for connecting and collecting data for the customers in the Company’s focused discipline. Iota Commercial Solutions (ICS) With the technological backbone developed in the Iota Networks segment, the Iota Commercial Solutions business segment can then focus on the commercialization of such technologies with applications based on data analytics and operations optimization within the IoT value chain. Data collected from sensors and other advanced end point devices, transmitted via the Company’s proprietary network using the FCC-licensed spectrum and IotaLink, will be translated into actionable insights for its commercial customers in the focused IoT verticals of Smart Buildings. Iota Communications The parent company houses operating activities related to running the Company. The significant expenses classified under the parent company are executive and employee salaries, stock-based compensation, commissions, professional fees, rent and interest on convertible notes. |
GOING CONCERN AND LIQUIDITY
GOING CONCERN AND LIQUIDITY | 12 Months Ended |
May 31, 2019 | |
Going Concern And Liquidity | |
GOING CONCERN AND LIQUIDITY | The accompanying audited consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At May 31, 2019, the Company had a significant accumulated deficit of approximately $119.3 million and working capital deficit of approximately $23.5 million. For the fiscal year ended May 31, 2019, we had a loss from operations of approximately $53 million and negative cash flows from operations of approximately $20.2 million. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans for 2020, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company has previously funded, and plans to continue funding, these losses primarily through the sale of equity, combined with or without warrants, and convertible notes. The accompanying 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 its anticipated expenses. The Company is currently exploring several options to meet its short-term cash requirements, including issuances of equity securities or equity-linked securities from third parties. As of the date of this report the Company has raised approximately an additional $2.3 million in revenue-based notes subsequent to the year ended May 31, 2019. Although no assurances can be given as to the Company’s ability to deliver on its revenue plans or that unforeseen expenses may arise, management believes that the revenue to be generated from operations together with potential equity and debt financing or other potential financing will provide the necessary funding for the Company to continue as a going concern, management cannot guarantee any potential debt or equity financing will be available on favorable terms. As such, these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations completely. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
May 31, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation The accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity. Correction to Immaterial Misstatement to Prior Period Financial Statements During the second and third quarters of fiscal 2019, the Company identified incorrect period classification of revenues related to its subsidiary ICS. As a result, revenues were understated for the six months ended November 30, 2019 and overstated for the nine months ended February 28, 2019. Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), the Company determined that these errors were immaterial to the previously-issued financial statements. The Company analyzed and considered all relevant quantitative and qualitative factors and determined that the prior period financial statements should be corrected, even though such revision previously was and continues to be immaterial to the prior period financial statements. See Note 4 for further details regarding the prior period misstatements. Principles of Consolidation These consolidated financial statements include the accounts of the Company and wholly-owned subsidiaries Iota Networks and ICS. Intercompany accounts and transactions have been eliminated upon consolidation. Reclassifications The following reclassifications have been made to conform the prior period data to the current presentations: (i) for the fiscal year ended May 31, 2018, $83,500 was reclassified from Other Current Assets to Accounts Receivable, (ii) for the fiscal year ended May 31, 2018, $51,460 and $63,490 was reclassified from Property and Equipment and Due From Related Party, respectively, to Intangible Assets, (iii) for the fiscal year ended May 31, 2018, $104,924 was reclassified from Network Related Costs to Cost of Sales, and (iv) for the fiscal year ended May 31, 2018, $1,582,905, $5,698,442 and $542,782 was reclassified from Network Related Costs to Application Server and Software, Tower and Related Expenses and Research and Development, respectively. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities at the date of the consolidated financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected. Revenue The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which Iota Networks adopted beginning on June 1, 2016, as the Company did not have significant in process revenues prior to that time. The Company did not record a retrospective adjustment but opted for full retrospective method for all contracts. For purposes of this presentation, activities related to the Company’s wireless network carrier segment are classified under Iota Networks, activities related to the Company’s industrial automation and solar energy, LED lighting and heating plant implementation services are classified under ICS and activities related to the parent company are classified under Iota Communications. Iota Networks Revenue Streams The Company derives revenues from FCC license services provided to customers who have already obtained a frequency license from other service providers which are classified as Network Hosting Services. Additionally, owners of granted, but not yet operational, FCC licenses (termed “FCC Construction Permits” or “Permits”) can pay an upfront fee to the Company, for the Company to construct the facilities for the customers licenses and activate their licenses operationally, thus converting the customers’ ownership of the FCC Construction Permits into a fully-constructed license (“FCC License Authorization”). Once the construction certification is obtained from the FCC, the Company may enter into an agreement with the Licensee to lease the spectrum. Once perfected in this manner, the Company charges the customer recurring yearly license and equipment administration fee of 10% of the original payment amount. Taken together, these services constitute the Company’s Network Hosting Services. Owners of already perfected FCC licenses can pay an upfront fee and the Company charges annual renewal fee of 10% of the upfront application fee for maintaining the license and equipment and allowing the client access to their FCC license outside of the nationwide network. Performance Obligations The Company’s contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company has determined there are three performance obligations related to the Network Hosting Services agreements. The first performance obligation arises from the services related to obtaining FCC license perfection; the second is maintaining the license in compliance with regulatory affairs and the third the services related to acting as a future sales or lease agent for the customer. Given the nature of the service in the first performance obligation, the Company recognizes revenue from the upfront fees at the point in time that the license is perfected. The Company recognizes the annual fee revenue related to the second performance obligation ratably over the contract term as the services are transferred and performed. Amounts received prior to being earned are recognized as deferred revenue on the accompanying consolidated balance sheets. Pursuant to its Network Hosting Services agreements, the Company also derives revenues from annual renewal fees from its licensees for the purpose of covering costs associated with maintaining and operating the licenses. Annual renewal fee revenue is recognized ratably over the renewal period as the services are performed and additional revenue collected. The third performance obligation is for future possible services and would be recognized when and if the performance obligation is satisfied. ICS Sales of services are recognized when the performance obligations are fulfilled, and the customer takes risk of ownership and assumes the risk of loss. Service revenue is recognized when the service is completed under ASC Topic 606. Deferred revenue represents revenues billed but not yet earned and included in contract liabilities on the accompanying consolidated balance sheets. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s contracts have a single performance obligation which are not separately identifiable from other promises in the contracts and is, therefore, not distinct. Payment is generally due within 30 to 45 days of invoicing based on progress billings. There is no financing or variable component. The Company does not act as an agent in its contracts. Solar and LED Lighting Installation and Construction Contracts The Company recognizes solar panel and LED lighting system design, construction and installation contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. The Company has determined that individual contracts at a single location are generally accounted for as a single performance obligation and are not segmented between types of services provided on these contracts. The Company recognizes revenue using the cost to cost percentage of completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. The percentage-of-completion method (an input method) is the most accurate depiction of the Company’s performance because it directly measures the value of the services transferred to the customer, and the consideration that is required to be paid by the customer based on the contract. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Customer payments on solar and LED lighting system contracts are typically billed upon the successful completion of milestones written into the contract and are due within 30 to 45 days of billing, depending on the contract. Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts). Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The Company recorded a loss reserve on contract assets of $71,627 as of May 31, 2019. Variable Consideration The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the Company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied. The Company generally provides limited warranties for work performed under its solar and LED lighting system contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. The Company does not charge customers or sell warranties separately, as such warranties are not considered a separate performance obligation of the Company. The vast majority of warranties are guaranteed by subcontractors. As of May 31, 2019, the Company has recognized a warranty reserve of approximately $314,000. Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations as of May 31, 2019 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company had $3,112,044 in remaining unsatisfied performance obligations as of May 31, 2019. The Company expects to satisfy its remaining unsatisfied performance obligations as of May 31, 2019 over the following year. Although the remaining unsatisfied performance obligations reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. The remaining unsatisfied performance obligations is adjusted to reflect any known project cancellations, revisions to project scope and cost, and project deferrals, as appropriate. Application Sales The Company enters into arrangements with end users for items which may include software license fees, services, maintenance and royalties or various combinations thereof. Revenues from software licensing are recognized in accordance with ASC Topic 606 as adopted on June 1, 2016. The application sales segment had revenues of $66,650 and $0 for the years ended May 31, 2019 and 2018, respectively, from software licensing. Practical Expedients As part of ASC 606, the Company has adopted several practical expedients including that the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less. Disaggregated Revenues Revenue consists of the following by service offering for the fiscal year ended May 31, 2019: Energy Services(a) Network Hosting Services(b) Application Sales(a) Total $ 2,029,924 $ 208,570 $ 66,650 $ 2,305,144 Revenue consists of the following by service offering for the fiscal year ended May 31, 2018: Energy Services(a) Network Hosting Services(b) Application Sales(a) Total $ - $ 290,491 $ - $ 290,491 (a) Included in ICS segment (b) Included in Iota Networks segment Contract Modifications There were no contract modifications during the years ended May 31, 2019 and 2018. Contract modifications are not routine in the performance of the Company’s contracts in the Iota Networks Segment. Cash The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. There are no cash equivalents as of May 31, 2019 or 2018. Account Receivable Other Receivables are included in other current assets on the balance sheet include amounts due under the various programs including Network Hosting, Spectrum Partners and Reservation Programs services (See Note 12). The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. If collectability of an account becomes unlikely, an allowance is recorded for that doubtful account. As of and for the years ended May 31, 2019 and 2018, the Company has determined that an allowance of $810,132 and $0 for doubtful accounts was necessary, respectively. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the related assets, generally three to fifteen years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. All site and tower costs are capitalized as construction-in-progress ("CIP"), as incurred. As tower sites become operational and are considered to be placed in service as radios are installed, at which time the Company transfers site specific CIP to capitalized site and tower equipment costs and begins to depreciate those assets on a straight-line basis over 10 years. Network equipment costs for hardware are capitalized, as incurred, and depreciated on a straight-line basis over 5 years. Furniture, fixtures and equipment are capitalized at cost and depreciated on a straight-line basis over useful lives ranging from 5 to 7 years. Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations. Software Development Costs The Company is developing software for a multi-layered system of application platforms that will utilize the GPS capabilities of the spectrum network and other leased network availability, to provide solutions for customers. The Company follows the guidance of ASC 985-20, “Costs of software to be sold, leased, or marketed”, which calls for the expense of costs until technical feasibility is established. Any costs the Company had incurred during planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications are expensed as incurred. Once technical feasibility of the product has been established, the Company capitalizes the costs, until the product is available for general release to customers. The capitalized costs are amortized on a product-by-product basis over the estimated economic life of the product. At the period end, the Company compares the unamortized capitalized costs to the estimated net realizable value, and if the unamortized costs are greater than the expected future gross revenues, the excess is written down to the net realizable value. For the products which have been released to date, there have not been substantial revenues, and therefore the Company wrote down their unamortized costs in prior periods. As of May 31, 2019, there are no software or related products that have reached technical feasibility. For the years ending May 31, 2019 and 2018, software development costs have been approximately $1,108,000 and $1,583,000. Contract Assets The Company records capitalized jobs costs on the balance sheet and expenses the costs upon completion of related jobs based on when revenue is earned. As of May 31, 2019 and 2018, the Company had $435,788 and $0, respectively included on their balance sheets under Contract Assets. Impairment of Long-Lived Assets The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. For the years ended May, 2019 and 2018, Intangible Assets The Company records its intangible assets at cost in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. Definite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated. During the fiscal year ended May 31, 2019, the Company had impairment losses relating to its intangible assets acquired in the Merger (See Notes 5 and 8). Goodwill Goodwill represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach. The first step involves comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded (See Note 8 for impairment disclosure). 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.” ASC 815 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. Deferred Rent The Company recognizes escalating rent provisions on a straight-line basis over the lease term. For leases associated with its tower site locations, the Company assumes all lease extension options will be exercised resulting in lease terms of 5 - 30 years. For leases associated with office space, the Company assumes the initial lease term, generally 5 years. A deferred rent liability is recognized for the difference between actual scheduled lease payments and the rent expense determined on a straight-line basis. Asset Retirement Obligations The Company accounts for asset retirement obligations in accordance with authoritative guidance that requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. An asset retirement obligation is defined as a legal obligation associated with the retirement of tangible long-lived assets in which the timing and/or method of settlement may or may not be conditional on a future event that may or may not be within the control of the Company. When the liability is initially recorded, the Company capitalizes the estimated cost of retiring the asset as part of the carrying amount of the related long-lived asset. The Company estimates the fair value of its asset retirement obligations based on the discounting of expected cash flows using various estimates, assumptions and judgments regarding certain factors such as the existence of a legal obligation for an asset retirement obligation; estimated amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation rates. The asset retirement obligations of the Company are associated with leases for its tower site locations. For purposes of estimating its asset retirement obligations, the Company assumes all lease extension options will be exercised for the tower site locations, consequently resulting in measurement periods of 5 - 30 years. Depreciation associated with asset retirement costs is recognized over the full term of the respective leases, including extension options. Deferred License Service Costs The Company incurs costs related to providing license services to its Spectrum Partners. These costs are frequency coordination fees and FCC filing fees. Per the Company’s accounting policy, these costs are expensed as incurred. Advertising and Marketing Costs and Deferred Finance Charges The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $170,895 and $446,872 for the years ended May 31, 2019 and 2018, respectively, and are recorded in selling, general and administrative expenses on the statement of operations. Broker fees associated with the procurement of SP program are deferred and capitalized as deferred financing costs offset against the revenue-based loans. These financing costs are amortized over the initial five-year term of the Spectrum Partners program (“Spectrum Partners Program”). Amortization of previously deferred financing costs was $215,237 and $122,932 for the years ended May 31, 2019 and 2018, respectively, and are recorded in selling, general and administrative expenses on the statement of operations. Research & Development Costs In accordance with ASC 730-10-25, research and development costs shall be charged to expense when incurred. Total research & development costs were $4,088,991 and $542,782 for the years ended May 31, 2019 and 2018, respectively. Segment Policy The Company’s reportable segments, Iota Networks, ICS and Iota Communications, 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 Company evaluates performance based primarily on income (loss) from operations. Fair Value Measurements 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. 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. Fair Value of Financial Instruments The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses, payroll liabilities, and advances approximate their fair values based on the short-term maturity of these instruments. The carrying amount of notes and convertible promissory notes approximates the estimated fair value for these financial instruments as management believes that such notes constitute substantially all of the Company’s debt and interest payable on the notes approximates the Company’s incremental borrowing rate. Net Loss per Common Share Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share includes the effect of Common Stock equivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. 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 due to the Company’s net loss position even though the exercise price could be less than the average market price of the common shares: Year Ended May 31, 2019 2018 Convertible notes 6,578,997 - Stock options 6,812,500 6,520,834 Warrants 16,501,252 7,260,641 Total 29,892,749 13,781,475 Stock-Based Compensation The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations. For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term |
REVISION OF PRIOR QUARTER IMMAT
REVISION OF PRIOR QUARTER IMMATERIAL MISSTATEMENT | 12 Months Ended |
May 31, 2019 | |
Accounting Changes and Error Corrections [Abstract] | |
REVISION OF PRIOR QUARTER IMMATERIAL MISSTATEMENT | The Company previously reported at November 30, 2018 and February 28, 2019, revenue generated from the ICS segment of $613,299 and $2,437,252, respectively. The Company determined as of the date of this report that a portion of revenues for ICS for the six months ended November 30, 2018 and nine months ended February 28, 2019, were reported in the incorrect periods. As such, the Company determined that revenue for the six months ended November 20, 2018 and nine months ended February 28, 2019, should have been $885,665 and $1,554,141, respectively. The Company previously reported at November 30, 2018 and February 28, 2019, net contract assets of $228,222 and $1,248,232, respectively, and contract liabilities of $90,010 at February 28, 2019. The Company determined as of the date of this report that a portion of the net contract assets and liabilities at November 30, 2018 and February 28, 2019, were reported incorrectly as a result of the incorrect recording of the ICS revenues. As such, the Company determined that net contract assets at November 30, 2018 and February 28, 2019 should have been $320,843 and $284,493, respectively, and contract liabilities at February 28, 2019, should have been $131,706. The Company previously reported at November 30, 2018 and February 28, 2019, accounts payable and accrued expenses of $13,417,821 and $14,473,604, respectively, and selling, general and administrative expenses of $12,489,929 at February 28, 2019. The Company determined as of the date of this report that a portion of the accounts payable and accrued expenses and selling, general and administrative expenses at November 30, 2018 and February 28, 2019, were reported incorrectly as a result of the incorrect recording of ICS revenues. As such, the Company determined that accounts payable and accrued expenses at November 30, 2018 and February 28, 2019, should have been $13,449,542 and $14,397,934, respectively, and selling, general and administrative expense at February 28, 2019, should have been $12,364,255. The following table summarizes the effects of the revisions on the consolidated financial statements for the period reported: Consolidated Balance Sheet as of Previously Reported Adjustments As Restated November 30, 2018 Contract Assets, net $ 228,222 $ 92,621 $ 320,843 Accounts Payable and Accrued Expenses $ 13,417,821 $ 31,721 $ 13,449,542 Consolidated Statement of Operations as of Previously Reported Adjustments As Restated November 30, 2018 Net Sales $ 793,044 $ 92,621 $ 885,665 Cost of Sales $ 731,654 $ 31,721 $ 763,375 Basic and Diluted Net Loss Per Share $ (0.18 ) $ 0.00 $ (0.18 ) Consolidated Balance Sheet as of Previously Reported Adjustments As Restated February 28, 2019 Contract Assets, net $ 1,248,232 $ (963,739 ) $ 284,493 Contract Liabilities $ 90,010 $ 41,696 $ 131,706 Accounts Payable and Accrued Expenses $ 14,473,604 $ (75,670 ) $ 14,397,934 Consolidated Statement of Operations as of Previously Reported Adjustments As Restated February 28, 2019 Net Sales $ 2,685,252 $ (1,131,111 ) $ 1,554,141 Cost of Sales $ 1,759,788 $ (75,670 ) $ 1,684,118 Selling, General and Administrative Expense $ 12,489,929 $ (125,676 ) $ 12,364,253 Basic and Diluted Net Loss Per Share $ (0.25 ) $ 0.00 $ (0.25 ) |
ACQUISITIONS
ACQUISITIONS | 12 Months Ended |
May 31, 2019 | |
Business Combinations [Abstract] | |
ACQUISITIONS | During the fiscal year ended May, 31, 2019, the Company entered into a Merger Agreement with Merger Sub, Iota Networks and Spectrum Networks Group, LLC. Effective September 1, 2018, Iota Communications consummated the Merger pursuant to its Merger Agreement with Merger Sub, Iota Networks, and Spectrum Networks Group, LLC. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Iota Networks. Iota Networks was the surviving corporation and, as a result of the Merger, became a wholly owned subsidiary of Iota Communications. On September 5, 2018, the parties to the Merger Agreement entered into an amendment to the Merger Agreement (the “Amendment”), pursuant to which the terms of the Merger Agreement were amended to reflect that: ● for all bookkeeping and accounting purposes, the closing of the Merger (the “Closing”) was to be deemed to have occurred at 12:01 am local time on the first calendar day of the month in which the Closing occurred; ● for the purposes of calculating the number of shares of Iota Communications’ Common Stock, $0.0001 par value per share, to be issued in exchange for common equity units of Iota Networks in connection with the Merger, the conversion ratio was to be 1.5096; and ● 43,434,034 shares of Iota Communications’ Common Stock were issued and outstanding as of the Closing. Except as specifically amended by the Amendment, all of the other terms of the Merger Agreement remained in full force and effect. Pursuant to the Merger Agreement, as amended, at the effective time of the Merger: ● Iota Networks outstanding 90,925,518 common equity units were exchanged for an aggregate of 129,671,679 shares of Iota Communications’ Common Stock; ● Iota Networks outstanding 14,559,737 profit participation units were exchanged for an aggregate of 15,824,972 shares of Iota Communications’ Common Stock; ● Warrants to purchase 1,372,252 common equity units of Iota Networks were exchanged for Warrants to purchase an aggregate of 18,281,494 shares of Iota Communications’ Common Stock; and ● A total of $2,392,441 of advance payments from an investor were converted into 7,266,499 common equity units prior to the Merger. Additionally, prior to the Merger, in July 2018, Iota Communications converted $5,038,712 of convertible debt and accrued interest of Iota Communications into 5,038,712 shares of Iota Communications’ Common Stock, which was distributed to the former parent of Iota Networks. As a result of the exchange of the profit participation units for the 15,824,972 shares of Iota Communications’ Common Stock, the Company recognized approximately $6.0 million of stock compensation expense in the fiscal year ended May 31, 2019. The Warrants are exercisable for a period of five years from the date the original warrants to purchase common equity units of Iota Networks were issued to the holders. The Warrants provide for the purchase of shares of Iota Communications’ Common Stock an exercise price of $0.3753 per share. The Warrants are exercisable for cash only. The number of shares of Common Stock to be deliverable upon exercise of the Warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events. As a result of these Warrants, Iota Communications recognized approximately $4.0 and $0 million of stock compensation expense in the fiscal year ended May 31, 2019 and 2018, respectively. Immediately following the Merger, Iota Communications had 196,279,076 shares of Common Stock issued and outstanding. The pre-Merger stockholders of Iota Communications retained an aggregate of 43,434,034 shares of Common Stock of Iota Communications, representing approximately 22.1% ownership of the post-Merger company. Therefore, upon consummation of the Merger, there was a change in control of Iota Communications, with the former owners of Iota Networks effectively acquiring control of Iota Communications. The Merger has been treated as a recapitalization and reverse acquisition for financial accounting purposes. Iota Networks is considered the acquirer for accounting purposes, and the registrant’s historical financial statements before the Merger has been replaced with the historical financial statements of Iota Networks before the Merger in the financial statements and filings with the SEC. The Company accounted for these transactions in accordance with the acquisition method of accounting for business combinations. Assets and liabilities of the acquired business were included in the consolidated balance sheet as of May 31, 2019, based on the respective estimated fair value on the date of acquisition as determined in a purchase price allocation using available information and making assumptions management believed are reasonable. The Company obtained a third-party valuation on the fair value of the assets acquired and liabilities assumed for use in the purchase price allocation, as well as the value the consideration exchanged in the Merger. It was determined that the market price of the Company’s Common Stock was not the most readily determinable measurement for calculating the fair value of the consideration, and instead the estimation of the consideration was based on an income approach to value the equity interest exchanged. The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the transaction date: Consideration paid $ 880,602 Tangible assets acquired: Cash 72,059 Accounts receivable, net 184,165 Contract assets 473,998 Other current assets & prepaid expenses 354,955 Fixed assets - net 20,291 Security deposit 30,289 Total tangible assets $ 1,135,757 Assumed liabilities: Accounts payable $ 2,983,537 Accrued expenses 673,736 Contract liabilities 59,385 Accrued income tax 63,082 Warranty reserve 210,594 Debt subject to equity being issued 179,180 Advances from related party 827,700 Convertible debentures, net of debt discount 850,000 Notes payable 535,832 Total assumed liabilities $ 6,383,046 Net tangible (liabilities) $ (5,247,289 ) Intangible assets acquired: (a.) IP/technology/patents $ 210,000 Customer base 17,000 Tradenames - trademarks 510,500 Non-compete agreements 140,500 Total intangible assets acquired 878,000 Net assets acquired (4,369,289 ) Goodwill (b.)(c.) $ 5,249,891 a. The primary items that generate goodwill include the value of the synergies between the acquired company and Iota Communications and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. b. c. Unaudited Pro Forma Financial Information Iota Communications The following unaudited pro forma information presents the consolidated results of operations of Iota Communications and Iota Networks’ as if the Merger consummated on September 1, 2018 had been consummated on June 1, 2017. Such unaudited pro forma information is based on historical unaudited financial information with respect to the 2018 Merger and does not include operational or other charges which might have been affected by the Company. The unaudited pro forma information for the fiscal year ended May 31, 2019 and 2018 presented below is for illustrative purposes only and is not necessarily indicative of the results which would have been achieved or results which may be achieved in the future: Year Ended May 31, Year Ended May 31, 2019 2018 Net revenue $ 3,150,626 $ 12,352,414 Net loss $ (61,833,977 ) $ (32,290,057 ) |
OTHER CURRENT ASSETS
OTHER CURRENT ASSETS | 12 Months Ended |
May 31, 2019 | |
Other Assets [Abstract] | |
OTHER CURRENT ASSETS | Other current assets consist of: May 31, 2019 May 31, 2018 Other receivables $ 110,451 $ 542,058 Prepaid legal fees and other prepaid expense 635,746 180,575 Total other current assets $ 746,197 $ 722,633 |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 12 Months Ended |
May 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | Property and equipment consists of the following: May 31, 2019 May 31, 2018 Site and tower equipment $ 6,678,148 $ 6,313,737 Network equipment 859,829 891,361 Asset retirement costs 1,530,163 1,487,947 Furniture, fixtures and equipment 208,903 278,825 Construction in progress 4,606,949 4,825,906 13,883,992 13,797,776 Less: accumulated depreciation (3,759,229 ) (2,712,147 ) Property and equipment, net $ 10,124,763 $ 11,085,629 Total depreciation expense for the years ended May 31, 2019 and 2018 was $1,129,695 and $1,010,268, respectively. |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL | 12 Months Ended |
May 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS AND GOODWILL | Iota Communications completed a Merger with Iota Networks (See Note 5), which gave rise to Goodwill of $5,249,891. At May 31, 2019, the Company performed an impairment analysis on Goodwill and due to the carrying value of the reporting unit being greater than the fair value of the reporting unit management has determined that Goodwill is impaired. As such, the Company recorded an impairment to Goodwill of $5,249,891 at May 31, 2019, which is included in the consolidated statements of operations as of May 31, 2019. The below table summarizes the changes in Goodwill as of May 31, 2019: Balance May 31, 2018 $ - Acquisition of Goodwill (See Note 4) 5,249,891 Impairment (5,249,891 ) Ending balance, May 31, 2019 $ - The below table summarizes the identifiable intangible assets as of May 31, 2019 and 2018: Useful life 2019 2018 IP/Technology(1) 5 years $ 210,000 $ - Customer base(1) 5 years 17,000 - Tradename/marks(1) 5 years 510,500 - Non-compete(1) 4 years 140,500 - FCC licenses(2) 114,950 114,950 992,950 114,950 Less accumulated amortization (90,750 ) (-) Less impairment charge (615,662 ) (-) Total $ 286,538 $ 114,950 (1) These intangible assets were related to the FMV of Solbright (ICS) at the date of the reverse merger. (2) The licenses are able to be and have been renewed every ten years. As such, the Company categorizes these intangible assets as indefinite lived intangible assets and have not recorded amortization costs for the years ended May 31, 2019 and 2018. The weighted average useful life remaining of identifiable intangible assets remaining is 4.12 years. Amortization of identifiable intangible assets for the years ended May 31, 2019 and 2018 was $90,750 and $0. At May 31, 2019, the Company performed an impairment analysis on our existing identifiable intangible assets as noted in the above table. Due to the carrying value of the of the associated asset group being less than the future recoverability of the intangible assets management has determined that the identifiable intangible assets acquired in the Merger are impaired. As such, we have recorded an impairment to intangible assets of $615,662 at May 31, 2019, which is included in the impairment charges on the consolidated statement of operations for the fiscal year ended May 31, 2019. The below table summarizes the identifiable intangible assets’ cost basis after impairment as of May 31, 2019: Useful life 2019 IP/Technology 5 years $ - Customer base 5 years - Tradename/marks 5 years 165,900 Non-compete 4 years 5,688 FCC licenses 114,950 Total $ 286,538 As of May 31, 2019, the estimated annual amortization expense for each of the next four fiscal years is approximately $67,000 per year through 2022 and approximately $17,000 in 2023. |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 12 Months Ended |
May 31, 2019 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expenses consist of the following amounts: May 31, 2019 May 31, 2018 Accounts payable $ 14,136,259 $ 1,742,670 Tower rent accrual 2,910,483 5,902,894 Accrued expenses 1,337,628 300,000 Debt subject to equity issuance 179,180 - $ 18,563,550 $ 7,945,564 |
ADVANCE PAYMENTS
ADVANCE PAYMENTS | 12 Months Ended |
May 31, 2019 | |
Advance Payments | |
ADVANCE PAYMENTS | As of May 31, 2018, the Company had received $2,392,441 of proceeds from a particular investor, as an advance against a future equity position in the Company. Prior to the Merger, the advance payments were converted to common equity, which were included in the share exchange upon the Merger. |
CONVERTIBLE DEBENTURES AND NOTE
CONVERTIBLE DEBENTURES AND NOTES PAYABLE | 12 Months Ended |
May 31, 2019 | |
Notes Payable [Abstract] | |
CONVERTIBLE DEBENTURES AND NOTES PAYABLE | As of May 31, 2019, convertible debentures, net of debt discount, consist of the following amounts: May 31, 2019 LIBOR + 10% Convertible note payable, due October 31, 2019 – AIP $ 2,283,198 LIBOR + 10% Convertible note payable, due December 7, 2019 – AIP 1,000,000 LIBOR + 10% Convertible note payable, due May 24, 2020– AIP 1,000,000 10% Convertible note payable, due June 19, 2020 150,000 8% Convertible note payable, due November 30, 2019 17,098 $ 4,450,296 The above convertible notes included gross debt discounts totaling $796,509 as of May 31, 2019. Total amortization expense related to these debt discounts was $226,558 and $0 for the years ended May 31, 2019 and 2018, respectively. The total unamortized debt discount for the fiscal year ended May 31, 2019, was $312,902. The below notes payable were all assumed as part of the Merger. As of May 31, 2019, notes payable consisted of the following amounts: May 31, 2019 Notes payable dated 2011, currently in default, at interest of 0% to 16% $ 84,290 Notes payable dated 2011, currently in default, at interest of 8% 74,812 Note payable, dated August 11, 2016, currently in default, with interest of 12% 150,000 Note payable, dated March 31, 2016, currently in default, with interest at 12% 10,000 Note payable, dated May 6, 2016, currently in default, with interest at 12% 10,000 Note payable, dated April 20, 2018, currently in default, with interest at 12% 50,000 Note payable, dated March 1, 2017, currently in default, with interest at 12% 100,000 $ 479,102 Total interest expense related to the above notes and convertible debentures was $44,480 for the fiscal year ended May 31, 2019. Assumed Convertible Debentures As part of the Merger (See Note 5) the following convertible debentures were assumed by the Company: On June 19, 2018, Iota Communications entered into a convertible note payable for $150,000 with interest at 10%, due June 19, 2019, convertible in 180 days at an exercise price equal to a 40% discount of lowest trading price of Iota Communications’ Common Stock over the 20 trading days prior to conversion. Interest expense on this note was $14,137 for the fiscal year ended May 31, 2019. On June 19, 2019, the Company entered into a second amendment with the noteholder extending the maturity date to June 19, 2020. On June 28, 2018, Iota Communications issued two 9% convertible notes totaling $700,000, which were due December 31, 2018, in exchange for two existing convertible debentures. The notes are convertible at $1.00 per share, or upon default at a 40% discount of the lowest trading price of Iota Communications Common Stock over the prior 30 trading days from the date of conversion. As noted previously, the acquired convertible debentures were recognized at fair value at the acquisition date which approximated the principal balance, and therefore any existing unamortized debt discount was not included in the recognition. The Company made payments totaling $700,000 during the fiscal year ended May 31, 2019. The total balance of the two convertible notes was $0 as of May 31, 2019. Total interest expense on these notes was $17,063 for the fiscal year ended May 31, 2019. Transactions Since Merger Securities Purchase Agreement September 30, 2018 As of September 20, 2018, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an “accredited investor” (the “Buyer”), pursuant to which, for a purchase price of $400,000, the Buyer purchased (a) a Convertible Promissory Note in the principal amount of $440,000 (the “Convertible Note”), (b) warrants (the “September Warrants”) to purchase 600,000 shares of the Company’s Common Stock, and (c) 100,000 restricted shares of the Company’s Common Stock (the “Shares”) (the “Purchase and Sale Transaction”). The Company used the net proceeds from the Purchase and Sale Transaction for working capital and general corporate purposes. The Convertible Note has a principal balance of $440,000 (taking into consideration a $40,000 original issue discount received by the Buyer), and a stated maturity date of March 31, 2019. Upon issuance of the Convertible Note, a one-time interest charge of 8% was applied to the principal amount of the Convertible Note, which is also payable on maturity. Upon the occurrence of an event of default, which is not cured within 7 business days, the principal balance of the Convertible Note shall immediately increase to 140% of the outstanding balance immediately prior to the occurrence of the event of default. In addition, upon the occurrence of an event of default, the entire unpaid principal balance of the Convertible Note, together with any accrued and unpaid interest thereon, will become due and payable, without presentment, demand, or protest of any kind. Amounts due under the Convertible Note may be converted into shares (“Conversion Shares”) of the Company’s Common Stock at any time, at the option of the holder, at a conversion price of $0.60 per share. The Company has agreed to at all times reserve and keep available out of its authorized Common Stock a number of shares equal to at least two times the full number of Conversion Shares. The Company may redeem the Convertible Note, upon 10 business days’ notice to the holder, by paying the holder: (i) if the redemption is within the first 90 days after the issuance of the Convertible Note, an amount equal to 100% of the outstanding balance of the Convertible Note, plus any accrued and unpaid interest, or (ii) if the redemption is on or after the 91st day after issuance of the Convertible Note, an amount equal to 120% of the outstanding balance of the Convertible Note, plus any accrued and unpaid interest. If, while the Convertible Note is outstanding, the Company, or any of its subsidiaries, issues any security with any term more favorable to the holder of such security, or with a term in favor of the holder of such security that was not similarly provided to the Buyer, then the Company will notify the holder of the Convertible Note of such additional or more favorable term and such term, at holder’s option, shall become a part of the Convertible Note. The Company has granted the holder piggyback registration rights with respect to the Conversion Shares. The September Warrants are exercisable for a period of three years from the date of issuance, at an exercise price of $0.60 per share. The September Warrants are exercisable for cash, or on a cashless basis. The number of shares of Common Stock to be deliverable upon exercise of the September Warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events. The issuance of the Convertible Note resulted in a discount from the beneficial conversion feature totaling $178,757 related to the conversion feature, a discount from the issuance of warrants of $176,000, and a discount from the issuance of restricted stock of 100,000 shares for $45,343. On May 31, 2019, the note was converted into 730,000 shares of the Company’s Common Stock. Total amortization of these discounts totaled $440,000 during the fiscal year ended May 31, 2019. Total interest expense on this note was approximately $23,109 for the fiscal year ended May 31, 2019. May 21, 2019 As of May 21, 2019, the Company entered into a Securities Purchase Agreement (the “May Purchase Agreement”) with an “accredited investor” (the “Buyer”), pursuant to which, for a purchase price of $300,000, the Buyer purchased (a) a Convertible Promissory Note in the principal amount of $330,000 (the “JSJ May Convertible Note”), (b) warrants (the “May Warrants”) to purchase 600,000 shares of the Company’s Common Stock, and (c) 100,000 restricted shares of the Company’s Common Stock (the “Shares”) (the “Purchase and Sale Transaction”). As of May 31, 2019, these shares have not been issued. The Company used the net proceeds from the Purchase and Sale Transaction for working capital and general corporate purposes. The JSJ May Convertible Note has a principal balance of $330,000 (taking into consideration a $30,000 original issue discount received by the Buyer), and a stated maturity date of November 30, 2019. Upon issuance of the JSJ May Convertible Note, a one-time interest charge of 8% was applied to the principal amount of the JSJ May Convertible Note, which is also payable on maturity. Upon the occurrence of an event of default, which is not cured within 7 business days, the principal balance of the JSJ May Convertible Note shall immediately increase to 140% of the outstanding balance immediately prior to the occurrence of the event of default. In addition, upon the occurrence of an event of default, the entire unpaid principal balance of the JSJ May Convertible Note, together with any accrued and unpaid interest thereon, will become due and payable, without presentment, demand, or protest of any kind. Amounts due under the JSJ May Convertible Note may be converted into shares (“Conversion Shares”) of the Company’s Common Stock at any time, at the option of the holder, at a conversion price of $0.35 per share. The Company has agreed to at all times reserve and keep available out of its authorized Common Stock a number of shares equal to at least two times the full number of Conversion Shares. The Company may redeem the JSJ May Convertible Note, upon 10 business days’ notice to the holder, by paying the holder: (i) if the redemption is within the first 90 days after the issuance of the JSJ May Convertible Note, an amount equal to 100% of the outstanding balance of the JSJ May Convertible Note, plus any accrued and unpaid interest, or (ii) if the redemption is on or after the 91st day after issuance of the JSJ May Convertible Note, an amount equal to 120% of the outstanding balance of the JSJ May Convertible Note, plus any accrued and unpaid interest. If, while the JSJ May Convertible Note is outstanding, the Company, or any of its subsidiaries, issues any security with any term more favorable to the holder of such security, or with a term in favor of the holder of such security that was not similarly provided to the Buyer, then the Company will notify the holder of the JSJ May Convertible Note of such additional or more favorable term and such term, at holder’s option, shall become a part of the JSJ May Convertible Note. The Company has granted the holder piggyback registration rights with respect to the Conversion Shares. The May Warrants are exercisable for a period of three years from the date of issuance, at an exercise price of $0.35 per share. The May Warrants are exercisable for cash, or on a cashless basis. The number of shares of Common Stock to be deliverable upon exercise of the September Warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events. The issuance of the JSJ May Convertible Note resulted in a discount from the beneficial conversion feature totaling $147,306 related to the conversion feature, a discount from the issuance of warrants of $121,531, and a discount from the issuance of restricted stock of 100,000 shares for $31,163. Total straight-line amortization of these discounts totaled $17,098 during the fiscal year ended May 31, 2019. Total interest expense on this note was approximately $796 for the fiscal year ended May 31, 2019. AIP Financing On October 31, 2018, the Company, entered into a Note Purchase Agreement (the “AIP Purchase Agreement”) with a group of noteholders (“Holders”), pursuant to which AIP will purchase, under certain circumstances, U.S. Libor + 10% Senior Secured Collateralized Convertible Promissory Notes of the Company (each, a “AIP Convertible Note” and, collectively, the “AIP Convertible Notes”) in the aggregate principal amount of up to $5,000,000, at a purchase price of 100% (par) per AIP Convertible Note (the “Note Purchase and Sale Transaction”). At the initial closing of the Note Purchase and Sale Transaction, which occurred on October 31, 2018 (the “Initial Closing”), the Company sold AIP an AIP Convertible Note in the principal amount of $2,500,000. The net proceeds from the Initial Closing, in the aggregate amount of $2,261,616 (after deducting fees and expenses related to the Initial Closing in the aggregate amount of $238,384 (including a closing fee and a facility fee paid to the Security Agent, and legal fees and expenses), will be used by the Company for working capital and general corporate purposes. The AIP Convertible Note issued in the Initial Closing has a principal balance of $2,500,000, and a stated maturity date on the one-year anniversary of the date of issuance. The principal on the AIP Convertible Note bears interest at a rate of U.S. Libor + 10% per annum, which is also payable on maturity. Upon the occurrence of an event of default, the interest rate will increase by an additional 10% per annum. Amounts due under the AIP Convertible Note may be converted into shares (“AIP Conversion Shares”) of the Company’s Common Stock, $0.0001 par value per share, at any time at the option of the Holder, at a conversion price of $1.50 per share (the “Conversion Price”). The AIP Convertible Note contains various financial, reporting, performance and negative covenants, whereas, failure in performance or observance of the various covenants will result in an event of default. Upon the occurrence of an event of default under the terms of the AIP Convertible Note, and the passage of five business days following AIP giving notice of such event of default to the Company, the entire unpaid principal balance of the AIP Convertible Note, together with any accrued and unpaid interest thereon, will become due and payable, without presentment, demand, or protest of any kind. The Security Agent may also exercise all other rights given to the Security Agent and Holder under the AIP Purchase Agreement. The Conversion Price and number of AIP Conversion Shares are subject to adjustment from time to time for subdivision or consolidation of shares, or upon the issuance by the Company of additional shares of Common Stock, or Common Stock equivalents, while the AIP Convertible Note is outstanding, or other standard dilutive events. As condition precedents to AIP purchasing the AIP Convertible Note: ● the Company granted to the Security Agent (on behalf of itself and the Holder) a first priority security interest in, and lien on, all now owned or hereafter acquired assets and property, real and personal, of the Company and its subsidiaries (collectively, the “Subsidiaries”), to secure all of the Company’s obligations under the AIP Purchase Agreement and the AIP Convertible Note, pursuant to the terms and conditions of a Security Agreement by and among the Company, the Subsidiaries, and the Security Agent; ● the Company, and each Subsidiary, delivered to the Security Agent (on behalf of itself and the Holder) a notarized affidavit of Confession of Judgment to further secure all of the Company’s obligations under the AIP Purchase Agreement and the AIP Convertible Note; ● each Subsidiary executed and delivered to the Security Agent (on behalf of itself and the Holder) a Guarantee, guaranteeing all of the Company’s obligations under the AIP Purchase Agreement and the AIP Convertible Note; ● the Company pledged to the Security Agent (on behalf of itself and AIP) all of the shares or membership interests (as applicable) of all of the subsidiaries of the Company; and ● certain principals of the Company executed and delivered to the Security Agent (on behalf of itself and the Holder) a lock-up agreement, which provided that each such shareholder will not sell or dispose of its equity securities in the Company at any time the AIP Convertible Note is outstanding and for 60 days thereafter without the consent of the Security Agent. In relation to this transaction, the Company recorded a debt discount related to the deferred finance costs totaling $288,384. Total straight-line amortization for this transaction amounted to $167,499 for the fiscal year ended May 31, 2019, and is included in interest expense. On December 7, 2018, the Company drew Convertible Note Tranche #2 (“Tranche #2”) totaling $1 million dollars, including $83,751 of deferred financing costs, receiving net proceeds of $916,249 against the October 31, 2018, Note Purchase Agreement with a group of noteholders (“AIP”), with a maturity date of December 7, 2019. The principal on Tranche #2 bears an interest rate of U.S. Libor + 10% per annum, which is also payable on maturity. Amounts due under Tranche #2 may be converted into shares of the Company’s Common Stock, $0.0001 par value per share, at any time at the option of the Holder, at a conversion price of $1.50 per share. Total straight-line amortization for this transaction amounted to $40,155 for the fiscal year ended May 31, 2019, and is included in interest expense. On May 24, 2019, the Company drew Convertible Note Tranche #3 (“Tranche #3”) totaling $1 million dollars, including $94,376 of deferred financing costs, receiving net proceeds of $905,627 against the October 31, 2018 Note Purchase Agreement with a group of noteholders (“AIP”), with a maturity date of May 24, 2020. The principal on Tranche #3 bears and interest rate of U.S. Libor + 10% per annum, which is also payable on maturity. Amounts due under Tranche #3 may be converted into shares of the Company’s stock, $0.0001 par value per share, at any time at the option of the Holder, at a conversion price of $1.50 per share. Total straight-line amortization for this transaction amounted to $1,805 for the fiscal year ended May 31, 2019, and is included in interest expense. During the fiscal year ended May 30, 2019, the Company entered into various waivers and amendments with AIP to satisfy certain covenant requirements. The following terms were changed as a result of the waiver and amendment agreements: ● Waiver is conditioned upon the following: a) One of the Company’s major vendors agrees in writing to extend the December 31, 2019, date on which the balloon payment to the earlier of (i) the date on which the Company raises $20 million of equity capital or (ii) written approval by AIP to payment of such balloon payment; and b) The conversion price of AIP Convertible Notes (Tranche #1, Tranche #2 and Tranche #3) are changed from $1.50 to $1.00. ● The company agrees to issue, and the Holders agree to purchase, additional notes in the aggregate principal amount of $1,000,000 as soon as practicable; ● AIP, on behalf of the Holders, hereby agrees that 4,000,000 shares held by AIP Global Macro Fund LP shall be restricted and nontransferable through September 30, 2019, unless the price of the shares close trading on any day at or below $0.45 per share, in which case such shares become freely tradeable. ● Company may issue, and the Holders may at their option purchase, additional notes in the aggregate principal amount of $500,000 on or after the date 60 days following the execution of the AIP Waiver, provided the Company has satisfied the following conditions: a) One of the Company’s major vendors has entered into a settlement agreement with the Company covering all claims the vendor has or may have against the Company; and b) The Company has raised, or has binding commitments from investors to invest at least $10 million in common or preferred equity. ● Company shall if requested by the Holders issue additional notes in the aggregate principal amount of $5,000,000 subject to the terms and conditions of the Note Purchase and Sale Transaction, provided the Company has satisfied the following: the Company has raised, or has binding commitments from investors to invest at least $10 million in common or preferred equity; and the Company has issued, and the Holders have purchased, the additional notes described, as follows: a) AIP, on behalf of the Holders agreed that 4,000,000 shares held by AIP Global Macro Fund LP be restricted and nontransferable through September 30, 2019, unless the closing price of the Company’s shares on Common Stock is at or below $0.45 per share, in which case such shares become freely tradeable; and b) The Company may issue, and the Holders may at their option purchase, additional notes in the aggregate principal amount of $500,000 on or after the date of 60 days following the execution of the waiver, provided the Company has satisfied the following conditions: (i) one of the Company’s major vendors has entered into a settlement agreement with the Company covering all claims the vendor has or may have against the Company; and (ii) the Company has raised or has binding commitments from investors to invest at least $10 million in the Company’s common or preferred stock. ● The Note Purchase and Sale Transaction is hereby amended in its entirety to read as follows with respect to a monthly pay down: “Beginning May 2019, the Company will pay down the outstanding principal amount in an amount equal to $50,000 at the beginning of each month.” ● The Holders hereby agree to extend the maturity date for Tranches #!, #2 and #3 of the Note Purchase and Sale Transaction by six months if (i) the Company’s shares become listed on Nasdaq before the existing maturity date or (ii) the weighted average price of the Company’s shares exceeds two times the conversion price for 20 consecutive trading days, each with a daily volume of 300,000 shares or more. For accounting purposes, the change in conversion price from $1.50 to $1.00 pursuant to the amendment to the Note Purchase and Sale Transaction was treated as an extinguishment of the AIP note Tranches #1, #2 and #3. The fair value of the conversion feature, resulting from the valuation of change in conversion price using the Black-Scholes model, resulted in an increase in fair value of the conversion feature that was greater than 10% of the carrying value of the debt instruments. In accordance with ASC 470-50, Debt – Modifications and Extinguishments As of May 31, 2019, the Company was compliant with all covenants associated with the Note Purchase and Sale Transaction. Total interest expense for all notes was $2,184,808 for the fiscal year ended May 31, 2019. |
REVENUE-BASED NOTES AND ACCRUED
REVENUE-BASED NOTES AND ACCRUED INTEREST | 12 Months Ended |
May 31, 2019 | |
Notes Payable [Abstract] | |
REVENUE-BASED NOTES AND ACCRUED INTEREST | Revenue based notes, debt securities and accrued interest consists of the following: May 31, 2019 May 31, 2018 Spectrum Partners program $ 68,253,496 $ 52,030,566 Reservations program 2,045,075 1,838,050 Accrued interest on reservations pool program 243,820 109,890 Solutions pool program 6,861,237 6,836,617 Total revenue-based notes 77,403,628 60,815,123 Debt discounts, unamortized (914,408 ) (1,126,838 ) Total revenue-based notes, net $ 76,489,220 $ 59,688,285 Spectrum Partners Program The Company’s Spectrum Partners Program include revenue-based notes and represents a noncurrent liability of the Company, which is a component provision of its spectrum lease agreements with its licensees. The Company determined that due to the provisions of ASC 470-10-25, the Company’s “significant continuing involvement in the generation of the cash flows due to the Spectrum Partners,” that the Company should record this as a debt obligation as opposed to deferred income. Maturities of these noncurrent debt obligations over the next five years are not readily determinable because of the uncertainty of the amount of future revenues subject to the ten percent revenue pool described below. The source of repayment is the respective licensees' allocable shares of a quarterly revenue pool established by the Company, payable one quarter in arrears. The loans are deemed fully repaid when all principal has been fully paid. The revenue pool consists of ten percent of the monthly recurring revenue generated from the operation of the Company's network during each fiscal quarter. Recurring network revenues are limited to revenues collected on a continuing basis for the providing of machine-to-machine communication services from the Company's network clients, and are net of all refunds of recurring revenue, including customer or reseller discounts, commissions, referral fees and/or revenue sharing arrangements. Specifically excluded revenues include: revenues from Network Hosting Services; revenues collected to construct licenses; brokerage fees and commissions; and any one-time nonrecurring revenue including set-up, installation, termination and nonrecurring services; return/restocking revenue; revenues from sales or analysis of network data; revenue from the sale or lease of devices; revenue from the sale of software licensing and revenue from consulting services. Allocation of revenue pool payments are to be applied in the following order of priority: 1. First, to any outstanding loan amount until fully paid; 2. Thereafter, to lease payments; 3. If, however, the agreement has been terminated or not renewed before a payment is due, then such payment shall be reduced to the amount necessary to pay the loan amount. There was no interest expense related to financing costs for this program for the years ended May 31, 2019 and 2018. Reservation Program Notes The Company’s reservation program, initially launched in April 2017, is intended to facilitate the (i) application for FCC spectrum licenses and (ii) the buildout of FCC granted licenses and (iii) the leasing of those spectrum licenses for clients previously under contract with Smartcomm, LLC, a related party (“Smartcomm”) (the “Reservation Program”). Pursuant to the terms of the Company’s Reservation Program, a Licensee agrees to loan funds to the Company for the purpose of constructing its spectrum licenses when granted by the FCC. The loan term is ten years with simple interest thereon at the rate of 7% per annum. Interest payments due to licensees, payable quarterly in arrears, are made from a separate reservation pool the funding of which is based on a percentage formula of monthly recurring revenue and MHz/Pops under reservation. If, or when, a license is granted and at such time that the Company certifies that license construction is complete, the outstanding loan amount is deemed to be paid in full. Thereafter, the licensee is transferred into the Spectrum Partners Program and future lease payments to the Licensees are made from the revenue pool related thereto and discussed above. If an FCC spectrum license is not granted within ten years of the effective date of the Reservation Program agreement effective date, then the outstanding loan amount and unpaid accrued interest becomes due and payable. The Company intends to convert all of the Reservation Program notes to the Spectrum Program Partners revenue notes prior to expiration of the notes. Total interest expense related to financing costs of this program was $133,929 and $109,975 for the years ended May 31, 2019 and 2018, respectively. Solutions Pool Program The Company’s Solutions Pool Program, initially launched in April 2017, is intended to increase investor returns for the spectrum partner returns on their investment and enable them to receive additional funds from the pool. Pursuant to the terms of the Solutions Pool Program, a Licensee agrees to invest additional funds to the Company for the purpose of obtaining a larger revenue percentage payment as consideration for the additional funds. Payments due to Solutions Pool Participants, payable quarterly in arrears, are made from the same Spectrum Partners lease pool payments on a percentage formula of the total investment in the solutions pool. Formation of Iota Spectrum Holdings, LLC and Iota Spectrum Partners, LP On April 17, 2019, Iota Communications, Inc. formed Iota Spectrum Holdings, LLC (the “GP”), to act as the general partner for Iota Spectrum Partners, LP (the “LP”), which was formed on April 24, 2019. The purpose of the LP is to own the spectrum licenses that Iota Networks, LLC leases to operate its nationwide, IoT communications network. Iota Networks will contribute the licenses it owns to the LP in exchange for General Partnership Units issued to the GP, then lease back those licenses pursuant to a master lease agreement covering all licenses owned by the LP. The limited partners receive LP units in exchange for the licenses they contribute to the LP, which they currently own and lease to Iota Networks. The LP may raise additional capital by selling LP units for cash, using the proceeds to obtain additional spectrum to be attributed to those additional LP units (1 MHz-Pop in spectrum per LP unit sold). Lease payments are made to the LP out of a revenue pool consisting of 10% of the monthly recurring connectivity revenues generated by connecting devices to the Iota Networks network. Revenue Pool payments go to the limited partners only, and those payments are calculated based on the MHz-Pops of the licenses they contributed to the LP. Payments are not paid to the LP for the licenses that were contributed by Iota Networks. Upon a sale or liquidation of the LP’s licenses or assets, all GP and LP units share equally in those proceeds on a per unit basis. When the limited partners contribute their licenses to the LP, they also transfer and extinguish their lease agreements with Iota Networks associated with those licenses. Transferring their spectrum licenses and contract rights to Iota Networks will eliminate them as liabilities from the balance sheet. Similar debt obligations from a Reservation Program can also be eliminated by trading those lease agreements, which have a loan component, to the LP in exchange for LP units. As of May 31, 2019, these licenses have yet to be transferred to the LP. Upon transfer, the Company will consolidate the LP as a variable interest entity creating a non-controlling interest in equity. As of the date of this report LP has sent 285 offers to Iota Networks’ Spectrum Partners (“Partners”) to exchange their FCC licenses and associated lease agreements for limited partnership units in LP. LP currently has 153 signed agreements covering 186,661,098 MHz-Pops in FCC licenses which, upon transfer, would represent a decrease in approximately $37.3 million in revenue-based notes for the Company. The outstanding 132 agreements represent 78,780,509 MHz-Pops and an approximate $14,500,000 in revenue-based notes. The transfer of the licenses is not finalized until the Company receives approval of the transfers from the FCC. The Company has not filed for transfer with the FCC as of the date of this report. LP has further plans to send another 180 offers to existing Partners which will satisfy the outstanding balance of the Company’s revenue-based note obligation. There was no interest expense related to financing costs for this program for the years ended May 31, 2019 and 2018. Total amortization expense related to deferred financing costs was $212,430 and $122,934 for the years ended May 31, 2019 and 2018. |
NOTES PAYABLE TO OFFICER
NOTES PAYABLE TO OFFICER | 12 Months Ended |
May 31, 2019 | |
Notes Payable [Abstract] | |
NOTES PAYABLE TO OFFICER | Short-Term Notes In April 2019, the Company issued two on demand promissory notes to two different officers, collectively totaling $110,726. The notes call for periodic graduated annual adjusted rates of interest beginning at 2.89%. In May 2019, the Company issued two on demand promissory notes to two different officers, collectively totaling $62,500. The notes call for periodic graduated annual adjusted rates of interest beginning at 2.74%. The outstanding principal balance of these loans is $173,226 as of May 31, 2019. Interest accrued on these loans is $543 for the fiscal year ended May 31, 2019. Long-Term Notes On February 6, 2017, the Company issued a new promissory note to an officer to replace three prior notes that were held by the officer, collectively totaling $950,000. Accrued interest of $60,714, under the prior notes, has been added to the principal under the new note. The note calls for periodic graduated annual adjusted rates of interest beginning at 2% and ending at 8%. Fifty-percent of the annual interest was required to be paid beginning on or before December 31, 2017 and each year thereafter with the remaining accrued balance added to principal. Interest is to compound annually. If not sooner paid, the note matures on December 31, 2023. The note provides for alternative payments in equity, where under the Company may pay all or part of the outstanding loan balance through the issuance of shares of stock at the fair market value of such units or shares at the time of issuance. The outstanding principal balance of this loan is $827,348 as of May 31, 2019 and 2018. Interest paid under this note was $28,243 and $21,943 for the years ended May 31, 2019 and 2018, respectively. |
ASSET RETIREMENT OBLIGATION
ASSET RETIREMENT OBLIGATION | 12 Months Ended |
May 31, 2019 | |
Asset Retirement Obligation Disclosure [Abstract] | |
ASSET RETIREMENT OBLIGATION | The following is a summary of the Company’s asset retirement obligations: May 31, 2019 May 31, 2018 Opening balance $ 1,676,932 $ 1,619,354 Liabilities incurred 40,989 5,814 Accretion expense 53,306 51,764 Ending balance $ 1,771,227 $ 1,676,932 Accretion expense related to the asset retirement obligations was $53,306 and $51,764 for the years ended May 31, 2019 and 2018, respectively. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
May 31, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | The Company has engaged in transactions with Smartcomm, LLC (“Smartcomm”), an entity owned by an officer and directors of the Company, Carole L. Downs and Barclay Knapp, and its related entities, including advances of funds and allocations of shared expenses (e.g. payroll and office rent). An officer of the Company is the majority member in Smartcomm. Smartcomm License Services, LLC (“Smartcomm Services”) is a single member limited liability company wholly-owned by Smartcomm. The Company's obligations to this Smartcomm-controlled entity is the result of cash advances received by the Company. Shared Staffing and Related Payroll Costs The Company has maintained an informal employee payroll expense sharing arrangement with Smartcomm. The Company recognizes a credit offset to employee payroll costs with a corresponding charge against its outstanding liability to Smartcomm pertaining to Smartcomm's allocated share of employee payroll costs. The employee payroll cost allocations under this arrangement are determined by management based on the estimated amounts of time employees were providing services to the two companies. For the years ended May 31, 2019 and 2018, the employee payroll cost allocation to Smartcomm by the Company was $98,819 and $94,449, respectively. Shared Office Space The Company shared office space with Smartcomm through the end of the third quarter 2019, in which the Company allocated a portion of the rent expense to Smartcomm. For the years ended May 31, 2019 and 2018, the Company expensed $252,403 and $218,457, respectively, in lease payments, net of $5,869 and $3,697, respectively, which was allocated to Smartcomm. Note Payable – Related Party As of September 1, 2016, the Company issued a promissory note to Smartcomm in satisfaction of its obligations associated with these cash advances and expense allocations. The original principal amount of the note was $3,971,824, which matures on December 31, 2023. The note calls for periodic graduated annual adjusted rates of interest beginning at 2% and ending at 8%. Fifty-percent of the annual interest is required to be paid beginning on or before December 31, 2017 and each year thereafter with the remaining accrued balance added to principal. Interest is to compound annually. If not sooner paid, the note matures on December 31, 2023. The note provides for alternative payments in equity, where under the Company may pay all or part of the outstanding loan balance through the issuance of shares of stock, at the fair market value of such units or shares at the time of issuance. For the fiscal year ended May 31, 2019, Smartcomm advanced an additional $25,095 and the Company made payments of $331,796, which includes interest payments of $27,143 during the period. As satisfaction for a portion of this note, in April 2018 Iota Networks assumed specific license application service obligations of Smartcomm. The assumed service obligations are included in “service obligation” on the accompanying balance sheets as of May 31, 2019 and 2018. The outstanding principal balance of this loan is $666,154 and $945,568, as of May 31, 2019 and 2018, respectively. Guaranteed Payments and Promissory Note The Company makes periodic disbursements of guaranteed payments to the two members of Spectrum Networks, Carole Downs and Barclay Knapp (the “Spectrum Officers” or each individually an “Spectrum Officer”). The Spectrum Officers have an understanding that they shall receive guaranteed payments as compensation. All such guaranteed payments made to the Spectrum Officers are expensed as incurred on the Company’s statement of operations. In the fourth quarter 2019 the Spectrum Officers were added to the Company’s payroll and, as such, are no longer receiving guaranteed payments. For the years ended May 31, 2019 and 2018, the Company made guaranteed payments to the Spectrum Officers of $500,000 ($250,000 per Spectrum Officer) and $595,000 ($297,500 per Spectrum Officer), respectively. The Company has an interest-bearing promissory note with a Spectrum officer, dated February 6, 2017 (“Note Payable with Officer”). At minimum, the note requires that one half of the current accrued interest be paid each year on or before year-end with the remainder of accrued interest adding to the principal of the note. Periodic payments of principal can be made without penalty. The note has a maturity date of December 31, 2023, at which time it is required to be paid in full. The Company makes periodic payments of principal and interest throughout the year. Any payments are applied first to accrued interest, and then to principal. (See Note 13 for additional disclosure about this note) Pursuant to the agreement between the Spectrum Officers, to the extent the one Spectrum Officer received additional guaranteed payments in excess of those received by the other Spectrum Officer as of the close of the fiscal year, such excess shall not be considered a guaranteed payment. Rather the excess shall be applied as payments against the Note Payable with Officer. The payments are first applied to accrued interest and then to principal on the promissory note. For the years ended May 31, 2019 and 2018, the Company made principal payments of this nature on the promissory note of $0 and $40,000, respectively. The balance of the Note Payable with Officer was $827,348 and $827,349 as of May 31, 2019 and 2018, respectively. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 12 Months Ended |
May 31, 2019 | |
Stockholders' Deficit: | |
STOCKHOLDERS' EQUITY | Convertible Preferred Stock On April 28, 2017, the Company’s Board of Directors adopted resolutions authorizing an amendment (the “Amendment”) to the Company’s amended certificate of incorporation to authorize the Board of Directors, without further vote or action by the stockholders, to create out of the unissued shares of the Company’s preferred stock, par value $0.0001 per share (“Preferred Stock”), series of Preferred Stock and, with respect to each such series, to fix the number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as the Board of Directors shall determine, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights (the “Board Authorization”). The certificate of incorporation authorizes the issuance of 5,000,000 shares of Preferred Stock, none of which are issued or outstanding as of May 31, 2019 or 2018. Upon effectiveness of the Amendment, the Board of Directors has authority to issue shares of Preferred Stock from time to time on terms it may determine, to divide shares of preferred stock into one or more series and to fix the designations, preferences, privileges, and restrictions of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, and the number of shares constituting any series or the designation of any series to the fullest extent permitted by the General Corporation Law of Delaware. The issuance of Preferred Stock could have the effect of decreasing the trading price of the Common Stock, restricting dividends on the capital stock, diluting the voting power of the Common Stock, impairing the liquidation rights of the capital stock, or delaying or preventing a change in control of the Company. On May 1, 2017, the Company’s Board of Directors approved the designation of 5,000,000 shares of Preferred Stock as Series A preferred stock (“Series A Preferred Stock”). No shares of Series A Preferred Stock were outstanding as of May 31, 2019 and 2018. Dividends Cash dividends accrue on each share of Series A Preferred Stock, at the rate of 4% per annum of the stated value and are payable quarterly in arrears in cash on the first day of March, June, September and December each year, commencing June 1, 2017. Dividends accrue whether or not they are declared and whether or not the Company has funds legally available to make the cash payment. As of May 31, 2019, the Company had no undeclared dividends in arrears. Equity Transactions During the Period The following issuances of common stock affected the Company’s Stockholders’ Deficit: On October 3, 2018, the Company issued 129,300 shares of Common Stock with a fair value of $0.89 per share to a noteholder in exchange for a waiver of default related to a note payable. On October 9, 2018, the Company issued 100,000 shares of Common Stock with a fair value of $0.91 per share to a note holder in connection with a convertible note payable. On October 16, 2018, the Company issued 70,700 shares of Common Stock to a noteholder in exchange for an amendment to a note dated June 29, 2018 allowing for an extension of repayment terms. On November 29, 2018, the Company issued 250,000 shares of Common Stock with a fair value of $0.33 per share to a consultant for services. On January 2, 2019, the Company issued 400,000 shares of Common Stock with a fair value of $0.40 per share to a noteholder in exchange for an amendment to the note dated June 29, 2018, allowing for an extension of repayment terms. On January 30, 2019, the Company issued 14,708,125 shares of restricted Common Stock at $0.38 per share to certain warrant holders who were issued warrants between March 2018 and July 2018 in connection with the Tender Offer filed by the Company December 11, 2018. In connection with the Tender Offer the Company issued an additional an additional 2,451,356 warrants with an exercise price of $0.3753 per share as an inducement to the warrant holders to convert their outstanding warrants into common shares of the Company. The associated stock-based compensation expense for the bonus warrants was $821,348. Investors also received credits for 14,351,047 MHz-Pops to be used to acquire new spectrum licenses. The associated cost of these licenses was $4,735,846 and is recorded as part of stock-based comp expense on the statement of operations. On February 19, 2019, the Company issued 1,000,000 shares of restricted common shares with a fair value of $0.46 per share as a result of the Company being in default of covenants to the note dated October 31, 2018. On March 29, 2019, the Company issued 1,500,000 shares of Common Stock with a fair value of $0.47 per share to an employee in lieu of cash for compensation. On March 29, 2019, the Company issued 400,000 shares of Common Stock with a fair value of $0.47 per share to a consultant for services. On April 15, 2019, the Company issued 312,047 shares of Common Stock with a fair value of $0.42 per share to an investor as a result of the exercise of associated warrants. On April 16, 2019, the Company issued 1,000,000 shares of Common Stock with a fair value of $0.45 per share to a noteholder in exchange for an amendment to a note allowing for an extension of repayment terms. On April 16, 2019, the Company issued 258,083 shares of Common Stock with a fair value of $0.45 per share to an investor as a result of the exercise of associated warrants. On April 18, 2109, the Company issued a total of 1,050,000 shares of Common Stock with a fair value of $0.42 per share to investors as a result of the exercise of backstop warrants. On April 29, 2019, the Company issued 250,000 shares of Common Stock with a fair value of $0.38 per share to an investor as a result of the exercise of backstop warrants. On May 7, 2019, the Company issued 250,000 shares of Common Stock with a fair value of $0.45 per share to a consultant for services. On May 31, 2019, the Company issued 730,000 shares of Common Stock with a fair value of $0.57 per share as a result of the conversion of September 18, 2018, convertible note of $440,000. On May 31, 2019, the Company issued 600,000 shares of Common Stock with a fair value of $0.57 per share to an investor as a result of the exercise of convertible debt associated warrants. See Notes 17 and 18 for disclosure of additional equity related transactions. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 12 Months Ended |
May 31, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
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.” 2017 Equity Incentive Plan The Board of Directors approved the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) on April 27, 2017 and the stockholders of the Company holding a majority in interest of the outstanding voting capital stock of the Company approved and adopted the 2017 Plan on April 28, 2017. The maximum number of shares of the Company’s Common Stock that may be issued under the Company’s 2017 Plan, is 10,000,000 shares. Options The Company granted 4,000,000 options during the fiscal year ended May 31, 2019. There were no options issued or vested during the fiscal year ended May 31, 2018. The weighted average grant date fair value of options granted and vested during the fiscal year ended May 31, 2019 was $3,244,509 and $608,345, respectively. The weighted average non-vested grant date fair value of non-vested options was $2,636,164 at May 31, 2019. Compensation based stock option activity for qualified and unqualified stock options are summarized as follows: Weighted Average Shares Exercise Price Outstanding at June 1, 2018 6,520,834 $ 1.12 Granted 4,000,000 0.99 Exercised - - Expired or cancelled (3,708,334 ) 1.16 Outstanding at May 31, 2019 6,812,500 $ 1.02 The following table summarizes information about options to purchase shares of the Company’s Common Stock outstanding and exercisable at May 31, 2019: Weighted- Weighted- Average Average Range of Outstanding Remaining Life Exercise Number exercise prices Options In Years Price Exercisable $ 0.60 1,000,000 6.90 $ 0.60 1,000,000 0.99 4,000,000 9.27 0.99 750,000 1.20 1,562,500 5.58 1.20 1,562,500 2.00 250,000 6.90 2.00 250,000 6,812,500 7.99 $ 1.06 3,562,500 The compensation expense attributed to the issuance of the options is recognized as they are vested. 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. The aggregate intrinsic value totaled $0 and was based on the Company’s closing stock price of $0.57 as of May 31, 2019, which would have been received by the option holders had all option holders exercised their options as of that date. On September 5, 2018, the Company granted 4,000,000 options to the President of the Company in connection with his employment agreement dated September 5, 2018, with an exercise prices of $0.99 per share. The employment agreement calls for vesting of 250,000 shares per quarter. The options issued were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.99; strike price - $0.99; expected volatility – 103.06%; risk-free interest rate - 2.9%; dividend rate - 0%; and expected term – 6.25 years. Total compensation expense related to the options was $608,346 and $0 for the years ended May 31, 2019 and 2018, respectively. As of May 31, 2019, there was future compensation cost of $2,636,163 related to non-vested stock options with a recognition period from 2019 through 2027. 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, 2018 7,260,641 $ 1.15 Granted 26,106,867 0.38 Exercised (15,278,255 ) 0.36 Expired or cancelled (1,588,001 ) 1.41 Outstanding at May 31, 2019 16,501,252 $ 0.635 The following table summarizes information about warrants outstanding and exercisable at May 31, 2019: Outstanding and exercisable Weighted- Weighted- Range of Average Average Exercise Number Remaining Life Exercise Number Prices Outstanding in Years Price Exercisable $ 0.01 640,388 4.83 $ 0.01 640,388 0.35 600,000 2.98 0.35 600,000 0.38 6,024,725 4.82 0.38 6,024,725 0.40 78,500 4.92 0.40 78,500 0.54 1,985,000 4.57 0.54 1,985,000 0.60 1,808,928 3.69 0.60 1,808,928 1.00 2,494,888 0.95 1.00 2,494,888 1.20 2,868,823 0.24 1.20 2,868,823 16,501,252 3.09 $ 0.635 16,501,252 The expense attributed to the issuances of the warrants was recognized as they vested/earned. These warrants are exercisable for three to five years from the grant date. All are currently exercisable. Issuances of warrants to purchase shares of the Company's Common Stock were as follows: On June 28, 2018, the Company issued an aggregate of 900,000 warrants with a five-year term and an exercise price of $0.60 per share in connection with Exchange Agreements with two noteholders (See Note 11). In August 2018, a warrant holder executed a cashless exercise of 300,000 warrants for 192,453 shares of the Company’s Common Stock. On September 20, 2018, the Company entered into a Securities Purchase Agreement with an accredited investor to which, for a purchase price of $400,000, the Buyer purchased (a) a Convertible Promissory Note in the principal amount of $440,000 and warrants to purchase 600,000 shares of the Company’s Common Stock. The warrants are exercisable for a period of three years at an exercise price of $0.60 per share. In connection with the Merger (See Note 4), 18,281,494 Warrants were issued. The Warrants are exercisable for a period of five years from the date the original warrants to purchase common equity units of Iota Networks were issued to the holders. The warrants provide for the purchase of shares of the Iota Communications’ Common Stock an exercise price of $0.3753 per share. The Warrants are exercisable for cash only. The number of shares of Common Stock to be deliverable upon exercise of the Warrants is subject to adjustment for subdivision or consolidation of shares and other standard dilutive events. As a result of these Warrants, the Company recognized approximately $4.0 million of stock compensation expense for the fiscal year ended May 31, 2019. In December 2018, the Company issued a Tender Offer Statement (“Tender Offer”) to the holders of the 18,281,494 warrants issued in connection with the Merger (See Note 4). As part of the Tender Offer the Company issued an additional 2,451,356 warrants with an exercise price of $0.3753 per share as an inducement to the warrant holders to convert their outstanding warrants into common shares of the Company. The associated stock-based compensation expense for the bonus warrants was $6,703,000. As a result of the inducement, warrant holders converted their warrants into 14,708,125 shares of the Company’s Common Stock. Investors also received credits for 14,351,047 MHz-Pops to be used to acquire new spectrum licenses. During the fiscal year ended May 31, 2019, the Company issued a total of 610,000 warrants with an exercise price of $0.54 per share. These warrants were issued to investors who had provided financing to the Company in post-merger transactions. As a result of these warrants, the Company recognized $213,281 of stock compensation expense for the fiscal year ended May 31, 2019. On January 2, 2019, the Company issued a total of 1,375,000 warrants with an exercise price of $0.54 per share. The warrants were issued to backstop members who committed to purchase securities if the Company did not meet certain equity raise levels required by the Merger (See Note 4). As a result of these warrants, the Company recognized $256,556 of stock compensation expense for the fiscal year ended May 31, 2019. On March 28, 2019, the Company issued a total of 1,210,518 warrants with an exercise price of $0.01 per share. The warrants were issued to certain individual for services rendered to the Company. As a result of these warrants, the Company recognized $518,704 of stock compensation expense for the fiscal year ended May 31, 2019. On May 21, 2019, the Company issued a total of 600,000 warrants with an exercise price of $0.35 per share. The warrants were issued to an investor who provided financing to the Company. As a result of these warrants, the Company recognized $226,191 of stock compensation expense for the fiscal year ended May 31, 2019. During the fiscal year ended May 31, 2019, the Company issued a total of 78,500 warrants with an exercise price of $0.40 per share. The warrants were issued to several investors who provided financing to the Company. As a result of these warrants, the Company recognized $22,139 of stock compensation expense for the fiscal year ended May 31, 2019. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
May 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Compensatory Arrangements of Certain Officers Employment Agreement with Barclay Knapp Simultaneously with the consummation of the Merger, the Company entered into a two-year Employment Agreement with Barclay Knapp (the “Knapp Employment Agreement”), pursuant to which he will serve as the Company’s Chief Executive Officer. The term will automatically renew for periods of one year unless either party gives written notice to the other party that the agreement shall not be further extended at least 90 days prior to the end of the term, as it may have been extended. Pursuant to the Knapp Employment Agreement, Mr. Knapp will earn an initial base annual salary of $450,000, which may be increased in accordance with the Company’s normal compensation and performance review policies for senior executives generally. He is entitled to receive semi-annual bonuses in a yearly aggregate amount of up to 100% of his base annual salary, at the Board’s discretion, based on the attainment of certain individual and corporate performance goals and targets and the business condition of the Company. Mr. Knapp is also entitled to receive stock options, under the Company’s 2017 Equity Incentive Plan, to purchase a number of shares of the Company’s Common Stock yet to be determined by the Board, with an exercise price equal to the fair market value of the Company’s Common Stock on the grant date. The stock options will vest in a series of 16 successive equal quarterly installments, provided that Mr. Knapp is employed by the Company on each such vesting date. Mr. Knapp will also be eligible to participate in any long-term equity incentive programs established by the Company for its senior level executives generally, and benefits under any benefit plan or arrangement that may be in effect from time to time and made available to similarly situated executives of the Company. On May 20, 2019, the Knapp Employment Agreement was amended, in connection with Mr. Knapp’s resignation as Chief Executive Officer, to reflect the title change from Chairman and Chief Executive Officer to Executive Chairman. Employment Agreement with Terrence DeFranco Simultaneously with the consummation of the Merger, the Company entered into a two-year Employment Agreement (the “DeFranco Employment Agreement”) with Terrence DeFranco, pursuant to which he will serve as the Company’s President and Chief Financial Officer. The term will automatically renew for periods of one year unless either party gives written notice to the other party that the agreement shall not be further extended at least 90 days prior to the end of the term, as it may have been extended. Pursuant to the DeFranco Employment Agreement, Mr. DeFranco will earn an initial base annual salary of $375,000, which may be increased in accordance with the Company’s normal compensation and performance review policies for senior executives generally. He is entitled to receive semi-annual bonuses in a yearly aggregate amount of up to 100% of his base annual salary, at the discretion of the Board, based on the attainment of certain individual and corporate performance goals and targets and the business condition of the Company. Mr. DeFranco will also receive stock options, under the Company’s 2017 Plan, to purchase 4,000,000 shares of the Company’s Common Stock, with an exercise price equal to the fair market value of the Company’s Common Stock on the grant date. The stock options will vest in a series of 16 successive equal quarterly installments, provided that Mr. DeFranco is employed by the Company on each such vesting date. Mr. DeFranco will also be eligible to participate in any long-term equity incentive programs established by the Company for its senior level executives generally, and benefits under any benefit plan or arrangement that may be in effect from time to time and made available to similarly situated executives of the Company. On May 20, 2019, the DeFranco Employment Agreement was amended, in connection with Mr. DeFranco’s resignation as Chief Financial Officer and appointment to Chief Executive Officer, to reflect the title change. Leases The Company leases tower space in various geographic locations across the United States, upon and through which its spectrum network is being developed. Generally, these leases are for an initial five-year term with annual lease rate escalations of about 3%. With limited exception, the leases provide anywhere from one to as many as five, 5-year options to extend. Most of these leases require the Company to restore the towers to their original pre-lease condition, which creates the asset retirement obligations previously discussed in Note 14. The Company leases office space in Phoenix, Arizona. The lease expired on February 28, 2019. In August 2018, the Company entered into a new office lease in Phoenix, Arizona, with a commencement date to begin when work on the space is substantially complete, which occurred around January 1, 2019. The lease is for a 65-month term, with a renewal option of five years. The base rent ranges from approximately $18,000 to $20,000 over the 65 months. The lease included five months of free rent and $38,845 in a tenant improvement allowance, which will be recognized as deferred rent. Also, see Note 14 - Related Party Transactions; Shared Office Space. Actual rent expense for the Phoenix office, paid under both leases was $252,403 and $218,457 for the years ending May 31, 2019 and 2018, respectively. The Company leases office space in New Hope, Pennsylvania. The lease expired on December 31, 2018, and was extended to March 31, 2019, and then will be on a month to month basis. Rent expense under this lease was $230,333 and $219,793 for the years ending May 31, 2019 and 2018, respectively. In May 2016, ICS entered into a new facilities lease with a third-party for an office space in South Carolina with a lease term of 64 months for its corporate office. The first two months were abated and then the monthly base rent is $5,176 per month for 10 months. The base rent has gradual increases until $6,000 per month in months 61-64. Monthly rent payment also includes common area maintenance charges, taxes, parking and other charges. The Company also paid a security deposit of $7,166 which is recorded as a prepaid expense on the accompanying consolidated balance sheets. In October 2018, the Company terminated the lease and received the full discount. Rent expense under this lease including occupancy costs for the years ended May 31, 2019 was $5,776. In October 2018, ICS entered into a new sublease agreement with a third-party for an office space in South Carolina with a sublease term of one year. Rent for the office space was $1,600 a month for 250 square feet of office space. In May 2019, the Company downsized the office space to 160 square feet which resulted in a decreased rent of $1,200 a month. The Company also paid a security deposit of $1,600. Rent expense under this sublease for the fiscal year ended May 31, 2019 was $12,400. In December 2018, the Company entered into a new facilities lease with a third-party for an office space in Florida with a term of one year. Rent for the office space is $958 per month. Rent expense under this lease for the fiscal year ended May 31, 2019, was $5,910. The future minimum rental payments for these lease obligations over the next five years and thereafter are as follows: For the Year Ended May 31, Tower Sites Office space Total 2020 $ 4,264,905 $ 289,965 $ 4,554,870 2021 4,379,461 297,843 4,677,304 2022 4,512,264 233,070 4,745,334 2023 4,556,724 238,897 4,795,621 2024 1,703,693 244,724 1,948,417 Thereafter 10,522,250 - 10,522,250 $ 29,939,297 $ 1,304,499 $ 31,243,796 The deferred rent liability associated with these leases is $1,975,815 and $1,699,799 as of May 31, 2019 and 2018, respectively The Company periodically enters into residential apartment leases for terms of 12-months or less. These units serve as temporary lodging for the benefit of the Company and its employees traveling between Company offices in Phoenix and New Hope. There are no future minimum rental payments required under these leases beyond 12-months. Rent expensed under these short-term residential leases was $10,160 and $19,414 for the years ended May 31, 2019 and 2018, respectively. Legal Claims Except as described below, there are no material pending legal proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company. David Alcorn Professional Corporation, et al. v. M2M Spectrum Networks, LLC, et al. On September 7, 2018, David Alcorn Professional Corporation and its principal, David Alcorn (“Alcorn”) filed a complaint in Superior Court of Arizona, Maricopa County, CV2018-011966, against the Company for fraudulent transfer and successor liability as to Iota Networks, based on claims that the company is really just a continuation of Smartcomm, LLC’s business and that money was improperly transferred from Smartcomm, LLC to the Company to avoid Smartcomm, LLC’s, a related party, creditors. The Company believes the true nature of this dispute is between Alcorn and Smartcomm, LLC. Alcorn is owed approximately $900,000 by Smartcomm, LLC, for which the parties have been negotiating settlement options, although no final definitive settlement terms have been agreed upon between Alcorn and Smartcomm, LLC as of the date of this filing. The Company has tried to facilitate settlement between those parties by offering to prepay a note payable owed to Smartcomm, LLC, allowing the proceeds to be used by Smartcomm, LLC to pay Smartcomm, LLC’s judgment creditors. On March 25, 2019, Smartcomm, LLC filed for Chapter 7 bankruptcy and the claims against the Company now reside with the Chapter 7 trustee. The Company believes it is more likely than not that the Chapter 7 trustee will not relinquish these claims to Alcorn and the case will be dismissed. The Company has appropriately accrued for all potential liabilities at May 31, 2019. Vertical Ventures II, LLC et al. v. Smartcomm, LLC et al. On July 21, 2015, Vertical Ventures II, LLC, along with Carla Marshall, its principal, and her investors (“Vertical”) filed a complaint in Superior Court of Arizona, Maricopa County, CV2015-009078, against Smartcomm, LLC, a related party, including Iota Networks. The complaint alleges breach of contract on the part of Smartcomm, LLC and Iota Networks, among other allegations, related to FCC licenses and construction permits. Vertical seeks unspecified damages, believed to be approximately $107,000 against Iota Networks and $1.4 million against Smartcomm. Management believes the allegations are without merit and baseless, as Smartcomm, LLC delivered the licenses and Iota Networks has performed all of its obligations. Management intends to defend the counts via summary judgment. To date, Smartcomm, LLC has been paying the cost to defend against this complaint. Smartcomm, LLC and Iota Networks are seeking indemnity from certain of the plaintiffs for all legal expenses and intend to do the same as to the other plaintiffs for issues relating to the first public notice licenses because they each signed indemnity agreements. On March 25, 2019, Smartcomm, LLC filed for Chapter 7 bankruptcy. As a result of the bankruptcy, the case has been temporarily delayed and is expected to resume at a date to be determined at a hearing to be held on November 25, 2019. The Company has appropriately accrued for all potential liabilities at May 31, 2019. Ladenburg Thalman & Co. Inc. v. Iota Communications, Inc. On April 17, 2019, Ladenburg Thalman & Co. Inc. (“Ladenberg”) filed a complaint in The Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida, Case No. 2019-011385-CA-01, against the Company claiming fees that are owed under an investment banking agreement with M2M Spectrum Networks, LLC. Ladenburg seeks $758,891 based upon a transaction fee of $737,500, out-of-pocket expenses of $1,391 and four monthly retainers of $5,000 each totaling $20,000. Ladenburg claims an amendment to the contract with M2M Spectrum Networks, LLC was a valid and binding amendment. The Company believes the claim has no merit and that the amendment is void as it is without authority as to the Company, that it violates FINRA rules regarding charging excessive fees and will either be dismissed or Ladenberg will need to substitute the proper party, Iota Networks, LLC. Iota Network’s motion to dismiss was denied on July 25, 2019, so an answer was filed on August 23, 2019. The case is now in the discovery phase. The Company has appropriately accrued for all potential liabilities at May 31, 2019. Other Proceedings The Company is currently the defendant in various smaller claims cases totaling damages of approximately $370,000. The Company has responded to these lawsuits and is prepared to vigorously contest these matters. As such, the Company has appropriately accrued for all potential liabilities as of May 31, 2019. |
CONCENTRATION OF CREDIT RISK
CONCENTRATION OF CREDIT RISK | 12 Months Ended |
May 31, 2019 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATION OF CREDIT RISK | Cash Deposits Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. As of May 31, 2019 and 2018, the Company had approximately $583,500 and $1,081,000, respectively, in excess of the FDIC insured limit. Revenues Four customers accounted for 88% of revenue for the fiscal year ended May 31, 2019, as set forth below: Customer A 36 % Customer B 21 % Customer C 17 % Customer D 14 % There were no concentrations of revenue for the fiscal year ended May 31, 2018. Accounts Receivable Two customers accounted for 73% of the accounts receivable as of May 31, 2019, as set forth below: Customer A 37 % Customer B 36 % There were no concentration of accounts receivable as of the fiscal year ended May 31, 2018. |
BUSINESS SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION | 12 Months Ended |
May 31, 2019 | |
Segment Reporting [Abstract] | |
BUSINESS SEGMENT INFORMATION | As of May 31, 2019, the Company had three operating segments, Iota Communications, ICS and Iota Networks. 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 in Note 3. The Company evaluates performance based primarily on income (loss) from operations. ICS’s net sales for the fiscal year ended May 31, 2019 were solely derived from revenues from solar energy projects within North America. Operating results for the business segments of the Company were as follows: Iota Communications ICS Iota Networks Total Year Ended May 31, 2019 Net sales $ - $ 2,096,574 $ 208,570 $ 2,305,144 Gain (Loss) from operations $ (27,938,093 ) $ (2,674,591 ) $ (22,844,656 ) $ (53,457,340 ) Year Ended May 31, 2018 Net sales $ - $ - $ 290,491 $ 290,491 Loss from operations $ - $ - $ (16,193,192 ) $ (16,193,192 ) Total Assets May 31, 2019 $ 845,063 $ 1,471,678 $ 10,660,887 $ 12,977,628 May 31, 2018 $ - $ - $ 13,730,028 $ 13,730,028 |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
May 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | We have identified our federal and New York, South Carolina and Georgia state tax returns as “major” tax jurisdictions. The periods our income tax returns are subject to examination for these jurisdictions are 2014 through 2019. We believe our income tax filing positions and deductions will be sustained on audit, and we do not anticipate any adjustments that would result in a material change to our financial position. Therefore, no liabilities for uncertain tax positions have been recorded. At May 31, 2019, we had available net operating loss carry-forwards for federal income tax reporting purposes of approximately $50,000,000 which are available to offset future taxable income. As a result of the Tax Cuts Job Act 2017 (the Act), certain of these carry-forwards do not expire. We have not performed a formal analysis, but we believe our ability to use such net operating losses and tax credit carry-forwards is subject to annual limitations due to change of control provisions under Sections 382 and 383 of the Internal Revenue Code, which significantly impacts our ability to realize these deferred tax assets. Our net deferred tax assets, liabilities and valuation allowance as of May 31, 2019 and 2018 are summarized as follows: Year Ended May 31, 2019 2018 Deferred tax assets: Net operating loss carryforwards $ 14,114,400 $ 7,586,000 Changes in prior year estimates - (40,000 ) Total deferred tax assets 14,114,400 7,546,000 Valuation allowance (14,114,400 ) (7,546,000 ) Net deferred tax assets $ - $ - We record a valuation allowance in the full amount of our net deferred tax assets since realization of such tax benefits has been determined by our management to be less likely than not. The valuation allowance increased $6,568,400 during the fiscal year ended May 31, 2019. The valuation allowance decreased $328,000 during the fiscal year ended May 31, 2018. A reconciliation of the statutory federal income tax benefit to actual tax benefit for the years ended May 31, 2019 and 2018 is as follows: 2019 2018 Federal statutory blended income tax rates (21 )% (28 )% State statutory income tax rate, net of federal benefit (7 ) (7 ) Change in effective federal tax rate - 20 Permanent differences 16 3 Incentive stock options 1 2 Non-deductible amortization of debt discount 2 7 Change in valuation allowance 12 (2 ) Other (3) 6 Effective tax rate - % - % As of the date of this filing, the Company has not filed its 2019 federal and state corporate income tax returns. The Company expects to file these documents as soon as practicable. The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21% and will require the Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. The Company adopted the new rate as it relates to the calculations of deferred tax amounts as of May 31, 2018. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
May 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | On June 19, 2019, the Company entered into a second amendment (the “Second Amendment”) to the June 19, 2018, convertible promissory note between the Company and JSJ Investments, Inc. The Second Amendment effectively extends the maturity date to June 19, 2020. As inducement for the Second Amendment the Company paid JSJ Investments, Inc. $67,397. During June 2019, the Company issued 1,433,334 shares of Common Stock to consultants for services. During June 2019, the Company issued 2,100,000 shares of Common Stock to investors, of which, (i) 2,000,000 shares of Common Stock were issued as inducement pursuant to the waiver agreement entered into between the Company and AIP (See Note 11) and (ii) 100,000 shares of Common Stock were issued as an inducement pursuant to the JSJ May Convertible Note (See Note 11). During June 2019, the Company issued 408,736 shares of Common Stock as a result of the exercise of warrants. On August 25, 2019, the Company drew Convertible Note Tranche #4 (“Tranche #4) totaling $500,000 dollars in net proceeds against the October 31, 2018 Note Purchase Agreement with a group of noteholders (“AIP”), with a maturity date of August 25, 2020. The principal on Tranche #4 bears an interest rate of U.S. Libor + 10% per annum, which is also payable on maturity. Amounts due under Tranche #4 may be converted into shares of the Company’s stock, $0.0001 par value per share, at any time at the option of the Holder, at a conversion price of $1.00 per share. Subsequently to May 31, 2019 through the date of this filing, the Company raised approximately $2.3 million in revenue-based notes. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
May 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity. |
Correction to Immaterial Misstatement to Prior Period Financial Statements | During the second and third quarters of fiscal 2019, the Company identified incorrect period classification of revenues related to its subsidiary ICS. As a result, revenues were understated for the six months ended November 30, 2019 and overstated for the nine months ended February 28, 2019. Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), the Company determined that these errors were immaterial to the previously-issued financial statements. The Company analyzed and considered all relevant quantitative and qualitative factors and determined that the prior period financial statements should be corrected, even though such revision previously was and continues to be immaterial to the prior period financial statements. See Note 4 for further details regarding the prior period misstatements. |
Principles of Consolidation | These consolidated financial statements include the accounts of the Company and wholly-owned subsidiaries Iota Networks and ICS. Intercompany accounts and transactions have been eliminated upon consolidation. |
Reclassifications | The following reclassifications have been made to conform the prior period data to the current presentations: (i) for the fiscal year ended May 31, 2018, $83,500 was reclassified from Other Current Assets to Accounts Receivable, (ii) for the fiscal year ended May 31, 2018, $51,460 and $63,490 was reclassified from Property and Equipment and Due From Related Party, respectively, to Intangible Assets, (iii) for the fiscal year ended May 31, 2018, $104,924 was reclassified from Network Related Costs to Cost of Sales, and (iv) for the fiscal year ended May 31, 2018, $1,582,905, $5,698,442 and $542,782 was reclassified from Network Related Costs to Application Server and Software, Tower and Related Expenses and Research and Development, respectively. |
Use of Estimates | The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities at the date of the consolidated financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected. |
Revenue | The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which Iota Networks adopted beginning on June 1, 2016, as the Company did not have significant in process revenues prior to that time. The Company did not record a retrospective adjustment but opted for full retrospective method for all contracts. For purposes of this presentation, activities related to the Company’s wireless network carrier segment are classified under Iota Networks, activities related to the Company’s industrial automation and solar energy, LED lighting and heating plant implementation services are classified under ICS and activities related to the parent company are classified under Iota Communications. Iota Networks Revenue Streams The Company derives revenues from FCC license services provided to customers who have already obtained a frequency license from other service providers which are classified as Network Hosting Services. Additionally, owners of granted, but not yet operational, FCC licenses (termed “FCC Construction Permits” or “Permits”) can pay an upfront fee to the Company, for the Company to construct the facilities for the customers licenses and activate their licenses operationally, thus converting the customers’ ownership of the FCC Construction Permits into a fully-constructed license (“FCC License Authorization”). Once the construction certification is obtained from the FCC, the Company may enter into an agreement with the Licensee to lease the spectrum. Once perfected in this manner, the Company charges the customer recurring yearly license and equipment administration fee of 10% of the original payment amount. Taken together, these services constitute the Company’s Network Hosting Services. Owners of already perfected FCC licenses can pay an upfront fee and the Company charges annual renewal fee of 10% of the upfront application fee for maintaining the license and equipment and allowing the client access to their FCC license outside of the nationwide network. Performance Obligations The Company’s contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company has determined there are three performance obligations related to the Network Hosting Services agreements. The first performance obligation arises from the services related to obtaining FCC license perfection; the second is maintaining the license in compliance with regulatory affairs and the third the services related to acting as a future sales or lease agent for the customer. Given the nature of the service in the first performance obligation, the Company recognizes revenue from the upfront fees at the point in time that the license is perfected. The Company recognizes the annual fee revenue related to the second performance obligation ratably over the contract term as the services are transferred and performed. Amounts received prior to being earned are recognized as deferred revenue on the accompanying consolidated balance sheets. Pursuant to its Network Hosting Services agreements, the Company also derives revenues from annual renewal fees from its licensees for the purpose of covering costs associated with maintaining and operating the licenses. Annual renewal fee revenue is recognized ratably over the renewal period as the services are performed and additional revenue collected. The third performance obligation is for future possible services and would be recognized when and if the performance obligation is satisfied. ICS Sales of services are recognized when the performance obligations are fulfilled, and the customer takes risk of ownership and assumes the risk of loss. Service revenue is recognized when the service is completed under ASC Topic 606. Deferred revenue represents revenues billed but not yet earned and included in contract liabilities on the accompanying consolidated balance sheets. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s contracts have a single performance obligation which are not separately identifiable from other promises in the contracts and is, therefore, not distinct. Payment is generally due within 30 to 45 days of invoicing based on progress billings. There is no financing or variable component. The Company does not act as an agent in its contracts. Solar and LED Lighting Installation and Construction Contracts The Company recognizes solar panel and LED lighting system design, construction and installation contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. The Company has determined that individual contracts at a single location are generally accounted for as a single performance obligation and are not segmented between types of services provided on these contracts. The Company recognizes revenue using the cost to cost percentage of completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. The percentage-of-completion method (an input method) is the most accurate depiction of the Company’s performance because it directly measures the value of the services transferred to the customer, and the consideration that is required to be paid by the customer based on the contract. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Customer payments on solar and LED lighting system contracts are typically billed upon the successful completion of milestones written into the contract and are due within 30 to 45 days of billing, depending on the contract. Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts). Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The Company recorded a loss reserve on contract assets of $71,627 as of May 31, 2019. Variable Consideration The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the Company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied. The Company generally provides limited warranties for work performed under its solar and LED lighting system contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. The Company does not charge customers or sell warranties separately, as such warranties are not considered a separate performance obligation of the Company. The vast majority of warranties are guaranteed by subcontractors. As of May 31, 2019, the Company has recognized a warranty reserve of approximately $314,000. Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations as of May 31, 2019 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company had $3,112,044 in remaining unsatisfied performance obligations as of May 31, 2019. The Company expects to satisfy its remaining unsatisfied performance obligations as of May 31, 2019 over the following year. Although the remaining unsatisfied performance obligations reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. The remaining unsatisfied performance obligations is adjusted to reflect any known project cancellations, revisions to project scope and cost, and project deferrals, as appropriate. Application Sales The Company enters into arrangements with end users for items which may include software license fees, services, maintenance and royalties or various combinations thereof. Revenues from software licensing are recognized in accordance with ASC Topic 606 as adopted on June 1, 2016. The application sales segment had revenues of $66,650 and $0 for the years ended May 31, 2019 and 2018, respectively, from software licensing. Practical Expedients As part of ASC 606, the Company has adopted several practical expedients including that the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less. Disaggregated Revenues Revenue consists of the following by service offering for the fiscal year ended May 31, 2019: Energy Services(a) Network Hosting Services(b) Application Sales(a) Total $ 2,029,924 $ 208,570 $ 66,650 $ 2,305,144 Revenue consists of the following by service offering for the fiscal year ended May 31, 2018: Energy Services(a) Network Hosting Services(b) Application Sales(a) Total $ - $ 290,491 $ - $ 290,491 (a) Included in ICS segment (b) Included in Iota Networks segment Contract Modifications There were no contract modifications during the years ended May 31, 2019 and 2018. Contract modifications are not routine in the performance of the Company’s contracts in the Iota Networks Segment. |
Cash | The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. There are no cash equivalents as of May 31, 2019 or 2018. |
Account Receivable | Other Receivables are included in other current assets on the balance sheet include amounts due under the various programs including Network Hosting, Spectrum Partners and Reservation Programs services (See Note 12). The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. If collectability of an account becomes unlikely, an allowance is recorded for that doubtful account. As of and for the years ended May 31, 2019 and 2018, the Company has determined that an allowance of $810,132 and $0 for doubtful accounts was necessary, respectively. |
Property and Equipment | Property and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the related assets, generally three to fifteen years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. All site and tower costs are capitalized as construction-in-progress ("CIP"), as incurred. As tower sites become operational and are considered to be placed in service as radios are installed, at which time the Company transfers site specific CIP to capitalized site and tower equipment costs and begins to depreciate those assets on a straight-line basis over 10 years. Network equipment costs for hardware are capitalized, as incurred, and depreciated on a straight-line basis over 5 years. Furniture, fixtures and equipment are capitalized at cost and depreciated on a straight-line basis over useful lives ranging from 5 to 7 years. Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations. |
Software Development Costs | The Company is developing software for a multi-layered system of application platforms that will utilize the GPS capabilities of the spectrum network and other leased network availability, to provide solutions for customers. The Company follows the guidance of ASC 985-20, “Costs of software to be sold, leased, or marketed”, which calls for the expense of costs until technical feasibility is established. Any costs the Company had incurred during planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications are expensed as incurred. Once technical feasibility of the product has been established, the Company capitalizes the costs, until the product is available for general release to customers. The capitalized costs are amortized on a product-by-product basis over the estimated economic life of the product. At the period end, the Company compares the unamortized capitalized costs to the estimated net realizable value, and if the unamortized costs are greater than the expected future gross revenues, the excess is written down to the net realizable value. For the products which have been released to date, there have not been substantial revenues, and therefore the Company wrote down their unamortized costs in prior periods. As of May 31, 2019, there are no software or related products that have reached technical feasibility. For the years ending May 31, 2019 and 2018, software development costs have been approximately $1,108,000 and $1,583,000. |
Contract Assets | The Company records capitalized jobs costs on the balance sheet and expenses the costs upon completion of related jobs based on when revenue is earned. As of May 31, 2019 and 2018, the Company had $435,788 and $0, respectively included on their balance sheets under Contract Assets. |
Impairment of Long-Lived Assets | The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. For the years ended May, 2019 and 2018, |
Intangible Assets | The Company records its intangible assets at cost in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. Definite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated. During the fiscal year ended May 31, 2019, the Company had impairment losses relating to its intangible assets acquired in the Merger (See Notes 5 and 8). |
Goodwill | Goodwill represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach. The first step involves comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded (See Note 8 for impairment disclosure). |
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.” ASC 815 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. |
Deferred Rent | The Company recognizes escalating rent provisions on a straight-line basis over the lease term. For leases associated with its tower site locations, the Company assumes all lease extension options will be exercised resulting in lease terms of 5 - 30 years. For leases associated with office space, the Company assumes the initial lease term, generally 5 years. A deferred rent liability is recognized for the difference between actual scheduled lease payments and the rent expense determined on a straight-line basis. |
Asset Retirement Obligations | The Company accounts for asset retirement obligations in accordance with authoritative guidance that requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. An asset retirement obligation is defined as a legal obligation associated with the retirement of tangible long-lived assets in which the timing and/or method of settlement may or may not be conditional on a future event that may or may not be within the control of the Company. When the liability is initially recorded, the Company capitalizes the estimated cost of retiring the asset as part of the carrying amount of the related long-lived asset. The Company estimates the fair value of its asset retirement obligations based on the discounting of expected cash flows using various estimates, assumptions and judgments regarding certain factors such as the existence of a legal obligation for an asset retirement obligation; estimated amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation rates. The asset retirement obligations of the Company are associated with leases for its tower site locations. For purposes of estimating its asset retirement obligations, the Company assumes all lease extension options will be exercised for the tower site locations, consequently resulting in measurement periods of 5 - 30 years. Depreciation associated with asset retirement costs is recognized over the full term of the respective leases, including extension options. |
Deferred License Service Costs | The Company incurs costs related to providing license services to its Spectrum Partners. These costs are frequency coordination fees and FCC filing fees. Per the Company’s accounting policy, these costs are expensed as incurred. |
Advertising and Marketing Costs and Deferred Finance Charges | The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $170,895 and $446,872 for the years ended May 31, 2019 and 2018, respectively, and are recorded in selling, general and administrative expenses on the statement of operations. Broker fees associated with the procurement of SP program are deferred and capitalized as deferred financing costs offset against the revenue-based loans. These financing costs are amortized over the initial five-year term of the Spectrum Partners program (“Spectrum Partners Program”). Amortization of previously deferred financing costs was $215,237 and $122,932 for the years ended May 31, 2019 and 2018, respectively, and are recorded in selling, general and administrative expenses on the statement of operations. |
Research & Development Costs | In accordance with ASC 730-10-25, research and development costs shall be charged to expense when incurred. Total research & development costs were $4,088,991 and $542,782 for the years ended May 31, 2019 and 2018, respectively. |
Segment Policy | The Company’s reportable segments, Iota Networks, ICS and Iota Communications, 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 Company evaluates performance based primarily on income (loss) from operations. |
Fair Value Measurements | 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. 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. |
Fair Value of Financial Instruments | The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses, payroll liabilities, and advances approximate their fair values based on the short-term maturity of these instruments. The carrying amount of notes and convertible promissory notes approximates the estimated fair value for these financial instruments as management believes that such notes constitute substantially all of the Company’s debt and interest payable on the notes approximates the Company’s incremental borrowing rate. |
Net Loss per Common Share | Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share includes the effect of Common Stock equivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. 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 due to the Company’s net loss position even though the exercise price could be less than the average market price of the common shares: Year Ended May 31, 2019 2018 Convertible notes 6,578,997 - Stock options 6,812,500 6,520,834 Warrants 16,501,252 7,260,641 Total 29,892,749 13,781,475 |
Stock-Based Compensation | The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations. For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised. Pursuant to ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above. |
Income Taxes | Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax assets will not be realized. For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations. |
Recent Accounting Pronouncements | On May 10, 2017, the FASB issued ASU 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The adoption of ASU 2017-09 did not have any impact on the Company's consolidated financial statements and related disclosures. In January 2017, FASB issued 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 adopted this ASU on June 1, 2018. The adoption of ASU 2017-01 did not have any impact on the Company's consolidated financial statements and related disclosures. 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 adoption of ASU 2016-15 did not have any impact on the Company's consolidated financial statements and related disclosures. On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance. All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
May 31, 2019 | |
Accounting Policies [Abstract] | |
Disaggregated revenues | Revenue consists of the following by service offering for the fiscal year ended May 31, 2019: Energy Services(a) Network Hosting Services(b) Application Sales(a) Total $ 2,029,924 $ 208,570 $ 66,650 $ 2,305,144 Revenue consists of the following by service offering for the fiscal year ended May 31, 2018: Energy Services(a) Network Hosting Services(b) Application Sales(a) Total $ - $ 290,491 $ - $ 290,491 (a) Included in ICS segment (b) Included in Iota Networks segment |
Securities excluded from the diluted per share calculation | Year Ended May 31, 2019 2018 Convertible notes 6,578,997 - Stock options 6,812,500 6,520,834 Warrants 16,501,252 7,260,641 Total 29,892,749 13,781,475 |
REVISION OF PRIOR QUARTER IMM_2
REVISION OF PRIOR QUARTER IMMATERIAL MISSTATEMENT (Tables) | 12 Months Ended |
May 31, 2019 | |
Accounting Changes and Error Corrections [Abstract] | |
Effects of the revisions on the financial statements | Consolidated Balance Sheet as of Previously Reported Adjustments As Restated November 30, 2018 Contract Assets, net $ 228,222 $ 92,621 $ 320,843 Accounts Payable and Accrued Expenses $ 13,417,821 $ 31,721 $ 13,449,542 Consolidated Statement of Operations as of Previously Reported Adjustments As Restated November 30, 2018 Net Sales $ 793,044 $ 92,621 $ 885,665 Cost of Sales $ 731,654 $ 31,721 $ 763,375 Basic and Diluted Net Loss Per Share $ (0.18 ) $ 0.00 $ (0.18 ) Consolidated Balance Sheet as of Previously Reported Adjustments As Restated February 28, 2019 Contract Assets, net $ 1,248,232 $ (963,739 ) $ 284,493 Contract Liabilities $ 90,010 $ 41,696 $ 131,706 Accounts Payable and Accrued Expenses $ 14,473,604 $ (75,670 ) $ 14,397,934 Consolidated Statement of Operations as of Previously Reported Adjustments As Restated February 28, 2019 Net Sales $ 2,685,252 $ (1,131,111 ) $ 1,554,141 Cost of Sales $ 1,759,788 $ (75,670 ) $ 1,684,118 Selling, General and Administrative Expense $ 12,489,929 $ (125,676 ) $ 12,364,253 Basic and Diluted Net Loss Per Share $ (0.25 ) $ 0.00 $ (0.25 ) |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 12 Months Ended |
May 31, 2019 | |
Business Combinations [Abstract] | |
Purchase price allocation, assets acquired and assumed liabilities | Consideration paid $ 880,602 Tangible assets acquired: Cash 72,059 Accounts receivable, net 184,165 Contract assets 473,998 Other current assets & prepaid expenses 354,955 Fixed assets - net 20,291 Security deposit 30,289 Total tangible assets $ 1,135,757 Assumed liabilities: Accounts payable $ 2,983,537 Accrued expenses 673,736 Contract liabilities 59,385 Accrued income tax 63,082 Warranty reserve 210,594 Debt subject to equity being issued 179,180 Advances from related party 827,700 Convertible debentures, net of debt discount 850,000 Notes payable 535,832 Total assumed liabilities $ 6,383,046 Net tangible (liabilities) $ (5,247,289 ) Intangible assets acquired: (a.) IP/technology/patents $ 210,000 Customer base 17,000 Tradenames - trademarks 510,500 Non-compete agreements 140,500 Total intangible assets acquired 878,000 Net assets acquired (4,369,289 ) Goodwill (b.)(c.) $ 5,249,891 |
Proforma financial information | Year Ended May 31, Year Ended May 31, 2019 2018 Net revenue $ 3,150,626 $ 12,352,414 Net loss $ (61,833,977 ) $ (32,290,057 ) |
OTHER CURRENT ASSETS (Tables)
OTHER CURRENT ASSETS (Tables) | 12 Months Ended |
May 31, 2019 | |
Other Assets [Abstract] | |
Other current assets | May 31, 2019 May 31, 2018 Other receivables $ 110,451 $ 542,058 Prepaid legal fees and other prepaid expense 635,746 180,575 Total other current assets $ 746,197 $ 722,633 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
May 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | May 31, 2019 May 31, 2018 Site and tower equipment $ 6,678,148 $ 6,313,737 Network equipment 859,829 891,361 Asset retirement costs 1,530,163 1,487,947 Furniture, fixtures and equipment 208,903 278,825 Construction in progress 4,606,949 4,825,906 13,883,992 13,797,776 Less: accumulated depreciation (3,759,229 ) (2,712,147 ) Property and equipment, net $ 10,124,763 $ 11,085,629 |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL (Tables) | 12 Months Ended |
May 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill | Balance May 31, 2018 $ - Acquisition of Goodwill (See Note 4) 5,249,891 Impairment (5,249,891 ) Ending balance, May 31, 2019 $ - |
Intangible assets | Useful life 2019 2018 IP/Technology(1) 5 years $ 210,000 $ - Customer base(1) 5 years 17,000 - Tradename/marks(1) 5 years 510,500 - Non-compete(1) 4 years 140,500 - FCC licenses(2) 114,950 114,950 992,950 114,950 Less accumulated amortization (90,750 ) (-) Less impairment charge (615,662 ) (-) Total $ 286,538 $ 114,950 (1) These intangible assets were related to the FMV of Solbright (ICS) at the date of the reverse merger. (2) The licenses are able to be and have been renewed every ten years. As such, the Company categorizes these intangible assets as indefinite lived intangible assets and have not recorded amortization costs for the years ended May 31, 2019 and 2018. |
Intangible assets after impairment | Useful life 2019 IP/Technology 5 years $ - Customer base 5 years - Tradename/marks 5 years 165,900 Non-compete 4 years 5,688 FCC licenses 114,950 Total $ 286,538 |
ACCOUNTS PAYABLE AND ACCRUED _2
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 12 Months Ended |
May 31, 2019 | |
Accounts Payable and Accrued Liabilities [Abstract] | |
Accounts payable and accrued expenses | May 31, 2019 May 31, 2018 Accounts payable $ 14,136,259 $ 1,742,670 Tower rent accrual 2,910,483 5,902,894 Accrued expenses 1,337,628 300,000 Debt subject to equity issuance 179,180 - $ 18,563,550 $ 7,945,564 |
CONVERTIBLE DEBENTURES AND NO_2
CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Tables) | 12 Months Ended |
May 31, 2019 | |
Notes Payable [Abstract] | |
Convertible debentures | May 31, 2019 LIBOR + 10% Convertible note payable, due October 31, 2019 – AIP $ 2,283,198 LIBOR + 10% Convertible note payable, due December 7, 2019 – AIP 1,000,000 LIBOR + 10% Convertible note payable, due May 24, 2020– AIP 1,000,000 10% Convertible note payable, due June 19, 2020 150,000 8% Convertible note payable, due November 30, 2019 17,098 $ 4,450,296 |
Notes payable assumed as part of the Merger | May 31, 2019 Notes payable dated 2011, currently in default, at interest of 0% to 16% $ 84,290 Notes payable dated 2011, currently in default, at interest of 8% 74,812 Note payable, dated August 11, 2016, currently in default, with interest of 12% 150,000 Note payable, dated March 31, 2016, currently in default, with interest at 12% 10,000 Note payable, dated May 6, 2016, currently in default, with interest at 12% 10,000 Note payable, dated April 20, 2018, currently in default, with interest at 12% 50,000 Note payable, dated March 1, 2017, currently in default, with interest at 12% 100,000 $ 479,102 |
REVENUE-BASED NOTES AND ACCRU_2
REVENUE-BASED NOTES AND ACCRUED INTEREST (Tables) | 12 Months Ended |
May 31, 2019 | |
Notes Payable [Abstract] | |
Revenue based notes, debt securities and accrued interest | May 31, 2019 May 31, 2018 Spectrum Partners program $ 68,253,496 $ 52,030,566 Reservations program 2,045,075 1,838,050 Accrued interest on reservations pool program 243,820 109,890 Solutions pool program 6,861,237 6,836,617 Total revenue-based notes 77,403,628 60,815,123 Debt discounts, unamortized (914,408 ) (1,126,838 ) Total revenue-based notes, net $ 76,489,220 $ 59,688,285 |
ASSET RETIREMENT OBLIGATION (Ta
ASSET RETIREMENT OBLIGATION (Tables) | 12 Months Ended |
May 31, 2019 | |
Asset Retirement Obligation Disclosure [Abstract] | |
Asset retirement obligations | May 31, 2019 May 31, 2018 Opening balance $ 1,676,932 $ 1,619,354 Liabilities incurred 40,989 5,814 Accretion expense 53,306 51,764 Ending balance $ 1,771,227 $ 1,676,932 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 12 Months Ended |
May 31, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Stock option activity | Weighted Average Shares Exercise Price Outstanding at June 1, 2018 6,520,834 $ 1.12 Granted 4,000,000 0.99 Exercised - - Expired or cancelled (3,708,334 ) 1.16 Outstanding at May 31, 2019 6,812,500 $ 1.02 |
Stock options outstanding | Weighted- Weighted- Average Average Range of Outstanding Remaining Life Exercise Number exercise prices Options In Years Price Exercisable $ 0.60 1,000,000 6.90 $ 0.60 1,000,000 0.99 4,000,000 9.27 0.99 750,000 1.20 1,562,500 5.58 1.20 1,562,500 2.00 250,000 6.90 2.00 250,000 6,812,500 7.99 $ 1.06 3,562,500 |
Warrant activity | Weighted Average Shares Exercise Price Outstanding at May 31, 2018 7,260,641 $ 1.15 Granted 26,106,867 0.38 Exercised (15,278,255 ) 0.36 Expired or cancelled (1,588,001 ) 1.41 Outstanding at May 31, 2019 16,501,252 $ 0.635 |
Warrants outstanding | Outstanding and exercisable Weighted- Weighted- Range of Average Average Exercise Number Remaining Life Exercise Number Prices Outstanding in Years Price Exercisable $ 0.01 640,388 4.83 $ 0.01 640,388 0.35 600,000 2.98 0.35 600,000 0.38 6,024,725 4.82 0.38 6,024,725 0.40 78,500 4.92 0.40 78,500 0.54 1,985,000 4.57 0.54 1,985,000 0.60 1,808,928 3.69 0.60 1,808,928 1.00 2,494,888 0.95 1.00 2,494,888 1.20 2,868,823 0.24 1.20 2,868,823 16,501,252 3.09 $ 0.635 16,501,252 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
May 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Future minimum rental payments | For the Year Ended May 31, Tower Sites Office space Total 2020 $ 4,264,905 $ 289,965 $ 4,554,870 2021 4,379,461 297,843 4,677,304 2022 4,512,264 233,070 4,745,334 2023 4,556,724 238,897 4,795,621 2024 1,703,693 244,724 1,948,417 Thereafter 10,522,250 - 10,522,250 $ 29,939,297 $ 1,304,499 $ 31,243,796 |
CONCENTRATION OF CREDIT RISK (T
CONCENTRATION OF CREDIT RISK (Tables) | 12 Months Ended |
May 31, 2019 | |
Risks and Uncertainties [Abstract] | |
Concentrations | Revenues Four customers accounted for 88% of revenue for the fiscal year ended May 31, 2019, as set forth below: Customer A 36 % Customer B 21 % Customer C 17 % Customer D 14 % There were no concentrations of revenue for the fiscal year ended May 31, 2018. Accounts Receivable Two customers accounted for 73% of the accounts receivable as of May 31, 2019, as set forth below: Customer A 37 % Customer B 36 % There were no concentration of accounts receivable as of the fiscal year ended May 31, 2018. |
BUSINESS SEGMENT INFORMATION (T
BUSINESS SEGMENT INFORMATION (Tables) | 12 Months Ended |
May 31, 2019 | |
Segment Reporting [Abstract] | |
Business segments | Iota Communications ICS Iota Networks Total Year Ended May 31, 2019 Net sales $ - $ 2,096,574 $ 208,570 $ 2,305,144 Gain (Loss) from operations $ (27,938,093 ) $ (2,674,591 ) $ (22,844,656 ) $ (53,457,340 ) Year Ended May 31, 2018 Net sales $ - $ - $ 290,491 $ 290,491 Loss from operations $ - $ - $ (16,193,192 ) $ (16,193,192 ) Total Assets May 31, 2019 $ 845,063 $ 1,471,678 $ 10,660,887 $ 12,977,628 May 31, 2018 $ - $ - $ 13,730,028 $ 13,730,028 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
May 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Deferred tax assets | Year Ended May 31, 2019 2018 Deferred tax assets: Net operating loss carryforwards $ 14,114,400 $ 7,586,000 Changes in prior year estimates - (40,000 ) Total deferred tax assets 14,114,400 7,546,000 Valuation allowance (14,114,400 ) (7,546,000 ) Net deferred tax assets $ - $ - |
Income tax rate reconciliation | 2019 2018 Federal statutory blended income tax rates (21 )% (28 )% State statutory income tax rate, net of federal benefit (7 ) (7 ) Change in effective federal tax rate - 20 Permanent differences 16 3 Incentive stock options 1 2 Non-deductible amortization of debt discount 2 7 Change in valuation allowance 12 (2 ) Other (3 ) 6 Effective tax rate - % - % |
GOING CONCERN AND LIQUIDITY (De
GOING CONCERN AND LIQUIDITY (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Going Concern And Liquidity | ||
Accumulated deficit | $ (119,318,903) | $ (62,541,502) |
Working capital deficit | (23,500,000) | |
Loss from operations | (53,457,340) | (16,193,192) |
Cash flows from operations | $ (20,185,177) | $ (13,683,723) |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 6 Months Ended | 9 Months Ended | 12 Months Ended | |
Nov. 30, 2018 | Feb. 28, 2019 | May 31, 2019 | May 31, 2018 | |
Revenue | $ 885,665 | $ 1,579,613 | $ 2,305,144 | $ 290,491 |
Energy Services | ||||
Revenue | 2,029,924 | 0 | ||
Network Hosting Services | ||||
Revenue | 208,570 | 290,491 | ||
Application Sales | ||||
Revenue | $ 66,650 | $ 0 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - shares | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Securities excluded from the diluted per share calculation | 29,892,749 | 13,781,475 |
Convertible Notes | ||
Securities excluded from the diluted per share calculation | 6,578,997 | 0 |
Stock Options | ||
Securities excluded from the diluted per share calculation | 6,812,500 | 6,520,834 |
Warrants | ||
Securities excluded from the diluted per share calculation | 16,501,252 | 7,260,641 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 6 Months Ended | 9 Months Ended | 12 Months Ended | |
Nov. 30, 2018 | Feb. 28, 2019 | May 31, 2019 | May 31, 2018 | |
Warranty reserve | $ 314,000 | |||
Unsatisfied performance obligations | 3,112,044 | |||
Revenue | $ 885,665 | $ 1,579,613 | 2,305,144 | $ 290,491 |
Allowance for doubtful accounts | 810,132 | 0 | ||
Software development costs | 1,108,076 | 1,582,905 | ||
Contract assets | $ 320,843 | $ 284,493 | 435,788 | 0 |
Impairment of long-lived assets | 615,661 | 0 | ||
Advertising and marketing expenses | 170,895 | 446,872 | ||
Amortization of deferred financing costs | 215,237 | 122,932 | ||
Research & development costs | $ 4,088,991 | 542,782 | ||
Site and Tower Equipment | ||||
Property and equipment useful life | 10 years | |||
Network Equipment | ||||
Property and equipment useful life | 5 years | |||
Furniture, Fixtures and Equipment | Minimum | ||||
Property and equipment useful life | 5 years | |||
Furniture, Fixtures and Equipment | Maximum | ||||
Property and equipment useful life | 7 years | |||
Application Sales | ||||
Revenue | $ 66,650 | $ 0 |
REVISION OF PRIOR QUARTER IMM_3
REVISION OF PRIOR QUARTER IMMATERIAL MISSTATEMENT (Details) - USD ($) | 6 Months Ended | 9 Months Ended | 12 Months Ended | |
Nov. 30, 2018 | Feb. 28, 2019 | May 31, 2019 | May 31, 2018 | |
Contract assets, net | $ 320,843 | $ 284,493 | $ 435,788 | $ 0 |
Contract liabilities | 131,706 | 188,738 | 0 | |
Accounts payable and accrued expenses | 13,449,542 | 14,397,934 | ||
Net sales | 885,665 | 1,579,613 | 2,305,144 | 290,491 |
Cost of sales | $ 763,375 | 1,684,118 | 2,497,218 | 104,924 |
Selling, general and administrative expense | $ 12,364,253 | $ 16,730,695 | $ 7,544,362 | |
Basic and diluted net loss per share | $ (.18) | $ (.25) | $ (0.32) | $ (0.13) |
Previously Reported | ||||
Contract assets, net | $ 228,222 | $ 1,248,232 | ||
Contract liabilities | 90,010 | |||
Accounts payable and accrued expenses | 13,417,821 | 14,473,604 | ||
Net sales | 793,044 | 2,685,252 | ||
Cost of sales | $ 731,654 | 1,759,788 | ||
Selling, general and administrative expense | $ 12,489,929 | |||
Basic and diluted net loss per share | $ (.18) | $ (.25) | ||
Adjustments | ||||
Contract assets, net | $ 92,621 | $ (963,739) | ||
Contract liabilities | 41,696 | |||
Accounts payable and accrued expenses | 31,721 | (75,670) | ||
Net sales | 92,621 | (1,105,639) | ||
Cost of sales | $ 31,721 | (75,670) | ||
Selling, general and administrative expense | $ (125,676) | |||
Basic and diluted net loss per share | $ .00 | $ .00 |
ACQUISITIONS (Details)
ACQUISITIONS (Details) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Intangible assets acquired: | ||
Goodwill | $ 0 | $ 0 |
Iota Networks, LLC | ||
Consideration paid | 880,602 | |
Tangible assets acquired: | ||
Cash | 72,059 | |
Accounts receivable, net | 184,165 | |
Contract assets | 473,998 | |
Other current assets & prepaid expenses | 354,955 | |
Fixed assets - net | 20,291 | |
Security deposit | 30,289 | |
Total tangible assets | 1,135,757 | |
Assumed liabilities: | ||
Accounts payable | 2,983,537 | |
Accrued expenses | 673,736 | |
Contract liabilities | 59,385 | |
Accrued income tax | 63,082 | |
Warranty reserve | 210,594 | |
Debt subject to equity being issued | 179,180 | |
Advances from related party | 827,700 | |
Convertible debentures, net of debt discount | 850,000 | |
Notes payable | 535,832 | |
Total assumed liabilities | 6,383,046 | |
Net tangible (liabilities) | (5,247,289) | |
Intangible assets acquired: | ||
Intangible assets | 878,000 | |
Net assets acquired | (4,369,289) | |
Goodwill | 5,249,891 | |
Iota Networks, LLC | IP/Technology/Patents | ||
Intangible assets acquired: | ||
Intangible assets | 210,000 | |
Iota Networks, LLC | Customer Base | ||
Intangible assets acquired: | ||
Intangible assets | 17,000 | |
Iota Networks, LLC | Tradenames - Trademarks | ||
Intangible assets acquired: | ||
Intangible assets | 510,500 | |
Iota Networks, LLC | Non-compete Agreements | ||
Intangible assets acquired: | ||
Intangible assets | $ 140,500 |
ACQUISITIONS (Details 1)
ACQUISITIONS (Details 1) - Iota Networks, LLC - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Net revenue | $ 3,150,626 | $ 12,352,414 |
Net loss | $ (61,833,977) | $ (32,290,057) |
OTHER CURRENT ASSETS (Details)
OTHER CURRENT ASSETS (Details) - USD ($) | May 31, 2019 | May 31, 2018 |
Other Assets [Abstract] | ||
Other receivables | $ 110,451 | $ 542,058 |
Prepaid legal fees and other prepaid expense | 635,746 | 180,575 |
Total other current assets | $ 746,197 | $ 722,633 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) | May 31, 2019 | May 31, 2018 |
Property and equipment, gross | $ 13,883,992 | $ 13,797,776 |
Less: accumulated depreciation | (3,759,229) | (2,712,147) |
Property and equipment, net | 10,124,763 | 11,085,629 |
Site and Tower Equipment | ||
Property and equipment, gross | 6,678,148 | 6,313,737 |
Network Equipment | ||
Property and equipment, gross | 859,829 | 891,361 |
Asset Retirement Costs | ||
Property and equipment, gross | 1,530,163 | 1,487,947 |
Furniture, Fixtures and Equipment | ||
Property and equipment, gross | 208,903 | 278,825 |
Construction in Progress | ||
Property and equipment, gross | $ 4,606,949 | $ 4,825,906 |
PROPERTY AND EQUIPMENT (Detai_2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 1,129,695 | $ 1,010,268 |
INTANGIBLE ASSETS AND GOODWIL_2
INTANGIBLE ASSETS AND GOODWILL (Details) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Goodwill, beginning | $ 0 | |
Acquisition of goodwill | 5,249,891 | |
Impairment | (5,249,891) | $ 0 |
Goodwill, ending | $ 0 | $ 0 |
INTANGIBLE ASSETS AND GOODWIL_3
INTANGIBLE ASSETS AND GOODWILL (Details 1) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Intangible assets, gross | $ 992,950 | $ 114,950 |
Less: accumulated amortization | (90,750) | 0 |
Less: impairment charge | (615,662) | 0 |
Intangible assets, net | $ 286,538 | 114,950 |
Useful life | 4 years 1 month 13 days | |
IP/Technology | ||
Intangible assets, gross | $ 210,000 | 0 |
Intangible assets, net | $ 0 | |
Useful life | 5 years | |
Customer Base | ||
Intangible assets, gross | $ 17,000 | 0 |
Intangible assets, net | $ 0 | |
Useful life | 5 years | |
Tradenames - Trademarks | ||
Intangible assets, gross | $ 510,500 | 0 |
Intangible assets, net | $ 165,900 | |
Useful life | 5 years | |
Non-compete Agreements | ||
Intangible assets, gross | $ 140,500 | 0 |
Intangible assets, net | $ 5,688 | |
Useful life | 4 years | |
FCC Licenses | ||
Intangible assets, gross | $ 114,950 | $ 114,950 |
Intangible assets, net | $ 114,950 |
INTANGIBLE ASSETS AND GOODWIL_4
INTANGIBLE ASSETS AND GOODWILL (Details 2) - USD ($) | May 31, 2019 | May 31, 2018 |
Intangible assets, net | $ 286,538 | $ 114,950 |
IP/Technology | ||
Intangible assets, net | 0 | |
Customer Base | ||
Intangible assets, net | 0 | |
Tradenames - Trademarks | ||
Intangible assets, net | 165,900 | |
Non-compete Agreements | ||
Intangible assets, net | 5,688 | |
FCC Licenses | ||
Intangible assets, net | $ 114,950 |
INTANGIBLE ASSETS AND GOODWIL_5
INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Acquisition of goodwill | $ 5,249,891 | |
Weighted average useful life of identifiable intangible assets | 4 years 1 month 13 days | |
Amortization of identifiable intangible assets | $ 90,750 | $ 0 |
Impairment of intangible assets | (615,662) | $ 0 |
Amortization of identifiable intangible assets in 2019 | 67,000 | |
Amortization of identifiable intangible assets in 2020 | 67,000 | |
Amortization of identifiable intangible assets in 2021 | 67,000 | |
Amortization of identifiable intangible assets in 2022 | 67,000 | |
Amortization of identifiable intangible assets in 2023 | $ 17,000 |
ACCOUNTS PAYABLE AND ACCRUED _3
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | May 31, 2019 | May 31, 2018 |
Accounts Payable and Accrued Liabilities [Abstract] | ||
Accounts payable | $ 14,136,259 | $ 1,742,670 |
Tower rent accrual | 2,910,483 | 5,902,894 |
Accrued expenses | 1,337,628 | 300,000 |
Debt subject to equity issuance | 179,180 | 0 |
Accounts payable and accrued expenses | $ 18,563,550 | $ 7,945,564 |
ADVANCE PAYMENTS (Details Narra
ADVANCE PAYMENTS (Details Narrative) - USD ($) | May 31, 2019 | May 31, 2018 |
Advance Payments | ||
Advance payments | $ 0 | $ 2,392,441 |
CONVERTIBLE DEBENTURES AND NO_3
CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Details) - USD ($) | May 31, 2019 | May 31, 2018 |
Convertible debentures, net of debt discount | $ 4,450,296 | $ 0 |
Convertible Notes Payable 1 | ||
Convertible debentures, net of debt discount | 2,283,198 | |
Convertible Notes Payable 2 | ||
Convertible debentures, net of debt discount | 1,000,000 | |
Convertible Notes Payable 3 | ||
Convertible debentures, net of debt discount | 1,000,000 | |
Convertible Notes Payable 4 | ||
Convertible debentures, net of debt discount | 150,000 | |
Convertible Notes Payable 5 | ||
Convertible debentures, net of debt discount | $ 17,098 |
CONVERTIBLE DEBENTURES AND NO_4
CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Details 1) - USD ($) | May 31, 2019 | May 31, 2018 |
Notes payable | $ 479,102 | $ 0 |
Notes Payable 1 | ||
Notes payable | 84,290 | |
Notes Payable 2 | ||
Notes payable | 74,812 | |
Notes Payable 3 | ||
Notes payable | 150,000 | |
Notes Payable 4 | ||
Notes payable | 10,000 | |
Notes Payable 5 | ||
Notes payable | 10,000 | |
Notes Payable 6 | ||
Notes payable | 50,000 | |
Notes Payable 7 | ||
Notes payable | $ 100,000 |
CONVERTIBLE DEBENTURES AND NO_5
CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Notes Payable [Abstract] | ||
Amortization of debt discount | $ 226,558 | $ 0 |
Convertible debenture, debt discount | 312,902 | $ 0 |
Interest expense | $ 44,480 |
REVENUE-BASED NOTES AND ACCRU_3
REVENUE-BASED NOTES AND ACCRUED INTEREST (Details) - USD ($) | May 31, 2019 | May 31, 2018 |
Revenue-based notes, gross | $ 77,403,628 | $ 60,815,123 |
Debt discounts, unamortized | (914,408) | (1,126,838) |
Revenue-based notes, net | 76,489,220 | 59,688,285 |
Revenue-based Notes 1 | ||
Revenue-based notes, gross | 68,253,496 | 52,030,566 |
Revenue-based Notes 2 | ||
Revenue-based notes, gross | 2,045,075 | 1,838,050 |
Revenue-based Notes 3 | ||
Revenue-based notes, gross | 243,820 | 109,890 |
Revenue-based Notes 4 | ||
Revenue-based notes, gross | $ 6,861,237 | $ 6,836,617 |
REVENUE-BASED NOTES AND ACCRU_4
REVENUE-BASED NOTES AND ACCRUED INTEREST (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Notes Payable [Abstract] | ||
Amortization expense related to deferred financing costs | $ 212,430 | $ 122,934 |
NOTES PAYABLE TO OFFICER (Detai
NOTES PAYABLE TO OFFICER (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Notes Payable [Abstract] | ||
Notes payable - officers, current | $ 173,769 | $ 0 |
Notes payable - officers, noncurrent | 827,348 | 827,349 |
Interest paid | $ 28,243 | $ 21,943 |
ASSET RETIREMENT OBLIGATION (De
ASSET RETIREMENT OBLIGATION (Details) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Asset Retirement Obligation Disclosure [Abstract] | ||
Asset retirement obligation, beginning | $ 1,676,932 | $ 1,619,354 |
Liabilities incurred | 40,989 | 5,814 |
Accretion expense | 53,306 | 51,764 |
Asset retirement obligation, ending | $ 1,771,227 | $ 1,676,932 |
ASSET RETIREMENT OBLIGATION (_2
ASSET RETIREMENT OBLIGATION (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Asset Retirement Obligation Disclosure [Abstract] | ||
Accretion expense | $ 53,306 | $ 51,764 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) | 12 Months Ended |
May 31, 2019$ / sharesshares | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of options outstanding, beginning | shares | 6,520,834 |
Number of options granted | shares | 4,000,000 |
Number of options exercised | shares | 0 |
Number of options expired/cancelled | shares | (3,708,334) |
Number of options outstanding, ending | shares | 6,812,500 |
Weighted average exercise price outstanding, beginning | $ / shares | $ 1.12 |
Weighted average exercise price granted | $ / shares | .99 |
Weighted average exercise price exercised | $ / shares | .00 |
Weighted average exercise price expired/cancelled | $ / shares | 1.16 |
Weighted average exercise price outstanding, ending | $ / shares | $ 1.02 |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details 1) - $ / shares | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Range of exercise prices | $ 1.02 | $ 1.12 |
Number of options outstanding | 6,812,500 | 6,520,834 |
Weighted average remaining contractual life | 7 years 11 months 26 days | |
Weighted average exercise price | $ 1.06 | |
Number of options exercisable | 3,562,500 | |
Stock Option 1 | ||
Range of exercise prices | $ .60 | |
Number of options outstanding | 1,000,000 | |
Weighted average remaining contractual life | 6 years 10 months 24 days | |
Weighted average exercise price | $ .60 | |
Number of options exercisable | 1,000,000 | |
Stock Option 2 | ||
Range of exercise prices | $ .99 | |
Number of options outstanding | 4,000,000 | |
Weighted average remaining contractual life | 9 years 3 months 7 days | |
Weighted average exercise price | $ .99 | |
Number of options exercisable | 750,000 | |
Stock Option 3 | ||
Range of exercise prices | $ 1.20 | |
Number of options outstanding | 1,562,500 | |
Weighted average remaining contractual life | 5 years 6 months 29 days | |
Weighted average exercise price | $ 1.20 | |
Number of options exercisable | 1,562,500 | |
Stock Option 4 | ||
Range of exercise prices | $ 2 | |
Number of options outstanding | 250,000 | |
Weighted average remaining contractual life | 6 years 10 months 24 days | |
Weighted average exercise price | $ 2 | |
Number of options exercisable | 250,000 |
STOCK-BASED COMPENSATION (Det_3
STOCK-BASED COMPENSATION (Details 2) | 12 Months Ended |
May 31, 2019$ / sharesshares | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Number of warrants outstanding, beginning | shares | 7,260,641 |
Number of warrants granted | shares | 26,106,867 |
Number of warrants exercised | shares | (15,278,255) |
Number of warrants expired/cancelled | shares | (1,588,001) |
Number of warrants outstanding, ending | shares | 16,501,252 |
Weighted average exercise price outstanding, beginning | $ / shares | $ 1.15 |
Weighted average exercise price granted | $ / shares | .38 |
Weighted average exercise price exercised | $ / shares | .36 |
Weighted average exercise price expired/cancelled | $ / shares | 1.41 |
Weighted average exercise price outstanding, ending | $ / shares | $ .635 |
STOCK-BASED COMPENSATION (Det_4
STOCK-BASED COMPENSATION (Details 3) - $ / shares | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Range of exercise prices | $ .635 | $ 1.15 |
Number of warrants outstanding | 16,501,252 | 7,260,641 |
Weighted average remaining contractual life | 3 years 1 month 2 days | |
Weighted average exercise price | $ 0.635 | |
Number of warrants exercisable | 16,501,252 | |
Warrant 1 | ||
Range of exercise prices | $ 0.01 | |
Number of warrants outstanding | 640,388 | |
Weighted average remaining contractual life | 4 years 9 months 29 days | |
Weighted average exercise price | $ 0.01 | |
Number of warrants exercisable | 640,388 | |
Warrant 2 | ||
Range of exercise prices | $ 0.35 | |
Number of warrants outstanding | 600,000 | |
Weighted average remaining contractual life | 2 years 11 months 23 days | |
Weighted average exercise price | $ 0.35 | |
Number of warrants exercisable | 600,000 | |
Warrant 3 | ||
Range of exercise prices | $ 0.38 | |
Number of warrants outstanding | 6,024,725 | |
Weighted average remaining contractual life | 4 years 9 months 25 days | |
Weighted average exercise price | $ 0.38 | |
Number of warrants exercisable | 6,024,725 | |
Warrant 4 | ||
Range of exercise prices | $ .40 | |
Number of warrants outstanding | 78,500 | |
Weighted average remaining contractual life | 4 years 11 months 1 day | |
Weighted average exercise price | $ 0.40 | |
Number of warrants exercisable | 78,500 | |
Warrant 5 | ||
Range of exercise prices | $ 0.54 | |
Number of warrants outstanding | 1,985,000 | |
Weighted average remaining contractual life | 4 years 6 months 25 days | |
Weighted average exercise price | $ 0.54 | |
Number of warrants exercisable | 1,985,000 | |
Warrant 6 | ||
Range of exercise prices | $ .60 | |
Number of warrants outstanding | 1,808,928 | |
Weighted average remaining contractual life | 3 years 8 months 8 days | |
Weighted average exercise price | $ 0.60 | |
Number of warrants exercisable | 1,808,928 | |
Warrant 7 | ||
Range of exercise prices | $ 1 | |
Number of warrants outstanding | 2,494,888 | |
Weighted average remaining contractual life | 11 months 12 days | |
Weighted average exercise price | $ 1 | |
Number of warrants exercisable | 2,494,888 | |
Warrant 8 | ||
Range of exercise prices | $ 1.20 | |
Number of warrants outstanding | 2,868,823 | |
Weighted average remaining contractual life | 2 months 26 days | |
Weighted average exercise price | $ 1.20 | |
Number of warrants exercisable | 2,868,823 |
STOCK-BASED COMPENSATION (Det_5
STOCK-BASED COMPENSATION (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | ||
Number of options granted | 4,000,000 | |
Weighted average grant date fair value of options granted | $ 3,244,509 | |
Weighted average grant date fair value of options vested | 608,345 | |
Weighted average non-vested grant date fair value | $ 2,636,164 | |
Aggregate intrinsic value | $ 0 | |
Closing stock price | $ .57 | |
Stock based compensation - stock options | $ 608,346 | $ 0 |
Future compensation cost | $ 2,636,163 |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details) | May 31, 2019USD ($) |
2020 | $ 4,554,870 |
2021 | 4,677,304 |
2022 | 4,745,334 |
2023 | 4,795,621 |
2024 | 1,948,417 |
Thereafter | 10,522,250 |
Total | 31,243,796 |
Tower Sites | |
2020 | 4,264,905 |
2021 | 4,379,461 |
2022 | 4,512,264 |
2023 | 4,556,724 |
2024 | 1,703,693 |
Thereafter | 10,522,250 |
Total | 29,939,297 |
Office Space | |
2020 | 289,965 |
2021 | 297,843 |
2022 | 233,070 |
2023 | 238,897 |
2024 | 244,724 |
Thereafter | 0 |
Total | $ 1,304,499 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | May 31, 2019 | May 31, 2018 |
Commitments and Contingencies Disclosure [Abstract] | ||
Deferred rent liability | $ 1,975,815 | $ 1,699,799 |
CONCENTRATION OF CREDIT RISK (D
CONCENTRATION OF CREDIT RISK (Details) | 12 Months Ended |
May 31, 2019 | |
Revenues | Customer A | |
Concentration risk | 36.00% |
Revenues | Customer B | |
Concentration risk | 21.00% |
Revenues | Customer C | |
Concentration risk | 17.00% |
Revenues | Customer D | |
Concentration risk | 14.00% |
Accounts Receivable | Customer A | |
Concentration risk | 37.00% |
Accounts Receivable | Customer B | |
Concentration risk | 36.00% |
CONCENTRATION OF CREDIT RISK _2
CONCENTRATION OF CREDIT RISK (Details Narrative) - USD ($) | May 31, 2019 | May 31, 2018 |
Risks and Uncertainties [Abstract] | ||
Cash excess of the federal insurance limit | $ 583,500 | $ 1,081,000 |
BUSINESS SEGMENT INFORMATION (D
BUSINESS SEGMENT INFORMATION (Details) - USD ($) | 6 Months Ended | 9 Months Ended | 12 Months Ended | |
Nov. 30, 2018 | Feb. 28, 2019 | May 31, 2019 | May 31, 2018 | |
Net sales | $ 885,665 | $ 1,579,613 | $ 2,305,144 | $ 290,491 |
Gain (loss) from operations | (53,457,340) | (16,193,192) | ||
Assets | 12,977,628 | 13,730,028 | ||
Iota Communications | ||||
Net sales | 0 | 0 | ||
Gain (loss) from operations | (27,938,093) | 0 | ||
Assets | 845,063 | 0 | ||
ICS | ||||
Net sales | 2,096,574 | 0 | ||
Gain (loss) from operations | (2,674,591) | 0 | ||
Assets | 1,471,678 | 0 | ||
Iota Networks | ||||
Net sales | 208,570 | 290,491 | ||
Gain (loss) from operations | (22,844,656) | (16,193,192) | ||
Assets | $ 10,660,887 | $ 13,730,028 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | May 31, 2019 | May 31, 2018 |
Income Tax Disclosure [Abstract] | ||
Net operating loss carry forward | $ 6,558,900 | $ 7,586,000 |
Changes in prior year estimates | 0 | (40,000) |
Total deferred tax assets | 6,558,900 | 7,546,000 |
Valuation allowance | (6,558,900) | (7,546,000) |
Net deferred tax asset | $ 0 | $ 0 |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Federal statutory blended income tax rates | (21.00%) | (28.00%) |
State statutory income tax rate, net of federal benefit | (7.00%) | (7.00%) |
Change in effective federal tax rate | 0.00% | 20.00% |
Permanent differences | 16.00% | 3.00% |
Incentive stock options | 1.00% | 2.00% |
Non-deductible amortization of debt discount | 2.00% | 7.00% |
Change in valuation allowance | 12.00% | (2.00%) |
Other | (3.00%) | 6.00% |
Effective tax rate | 0.00% | 0.00% |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Net operating loss carry-forwards | $ 50,000,000 | |
Net operating loss carry-forwards expiration | May 31, 2039 | |
Increase (decrease) in valuation allowance | $ 15,273,500 | $ (328,000) |