v2.4.1.9
CONVERTIBLE NOTES PAYABLE
6 Months Ended
Nov. 30, 2015
Convertible Notes Payable [Abstract]  
Convertible Notes Disclosure [Text Block]
NOTE 5 - CONVERTIBLE NOTES PAYABLE
 
Convertible notes payable – short-term consisted of the following:
 
 
 
November 30,
 
 
 
 
 
2015
 
May 31, 2015
 
 
 
(Unaudited)
 
 
 
Beginning balance – Principal
 
$
304,000
 
$
1,600,000
 
Proceeds – Convertible notes payable - June 23rd note
 
 
359,000
 
 
404,000
 
Convertible notes payable – July 8th note – current portion
 
 
236,798
 
 
-
 
Convertible notes payable – Lighthouse Note 1 – current portion
 
 
499,676
 
 
-
 
Convertible notes payable – Lighthouse Note 2 – current portion
 
 
312,298
 
 
-
 
Repayment of loans
 
 
(204,000)
 
 
(1,100,000)
 
Conversion of loans
 
 
-
 
 
(600,000)
 
Debt discount for restricted stock and beneficial conversion feature for convertible notes payable – net of accumulated amortization of $1,530,056 and $1,494,544, respectively
 
 
-
 
 
(101,932)
 
Net balance
 
$
1,507,772
 
$
202,068
 
 
Convertible notes payable – long-term consisted of the following:
 
 
 
November 30,
 
 
 
 
 
2015
 
May 31, 2015
 
 
 
(Unaudited)
 
 
 
Convertible notes payable – July 8th note:
 
 
 
 
 
 
 
Proceeds – Principal
 
$
3,920,000
 
$
-
 
Payments
 
 
-
 
 
-
 
Conversions
 
 
-
 
 
-
 
Debt discount for restricted stock and beneficial conversion feature for convertible notes payable – net of accumulated amortization of $765,196 and $0, respectively
 
 
(2,490,153)
 
 
-
 
 
 
 
1,429,847
 
 
-
 
Less current portion
 
 
(236,798)
 
 
-
 
 
 
 
1,193,049
 
 
-
 
 
 
 
 
 
 
 
 
Promissory note – Lighthouse Note 1:
 
 
 
 
 
 
 
Beginning balance – Principal
 
 
2,498,379
 
 
-
 
Payment
 
 
(124,919)
 
 
-
 
 
 
 
2,373,460
 
 
-
 
Less current portion
 
 
(499,676)
 
 
-
 
 
 
 
1,873,784
 
 
-
 
 
 
 
 
 
 
 
 
Promissory note – Lighthouse Note 2:
 
 
 
 
 
 
 
Beginning balance - Principal
 
 
624,595
 
 
-
 
Payment
 
 
(78,074)
 
 
-
 
 
 
 
546,521
 
 
-
 
Less current portion
 
 
(312,298)
 
 
-
 
 
 
 
234,223
 
 
-
 
Total Promissory notes – long-term, net balance
 
$
3,301,056
 
$
-
 
 
Convertible notes payable – short-term:
 
From April 21, 2014 through May 27, 2014, the Company raised $950,000 from two (2) accredited investors through the issuance of five (5) short-term, twelve percent (12%), convertible promissory notes.  The holders of these notes received an aggregate of 19,000 common stock shares.  These notes had varying maturity dates.
 
 
On July 14, 2014, the Company amended and restated one (1) of the five (5) aforementioned promissory notes in the amount of $250,000. The Company repaid $150,000 and the remaining balance of $100,000 was amended and restated with the same basic terms as the original promissory note other than it became due upon demand. This note holder receives 500 common stock shares monthly for every $100,000 loaned. The holders may convert, at their sole election, the principal amount and unpaid interest into common stock shares at $15.00 per share. This note was paid in full in April 2015.
 
 
On July 14, 2014, the Company amended and restated one (1) of the five (5) aforementioned promissory notes in the amount of $200,000. The balance of $200,000 was amended and restated with the same basic terms as the original promissory note other than it became due upon demand. The note holder receives 250 common stock shares monthly for every $100,000 loaned. The holders may convert, at their sole election, the principal amount and unpaid interest into common stock shares at $15.00 per share. This note was paid in full in April 2015.
 
 
On July 31, 2014, the Company amended and restated one (1) of the five (5) aforementioned promissory notes in the amount of $200,000. The balance of $200,000 was amended and restated with the same basic terms as the original promissory note other than it became due upon demand. The note holder receives 500 common stock shares monthly for every $100,000 loaned. The holders may convert, at their sole election, the principal amount and unpaid interest into common stock shares at $15.00 per share. This note was paid in full in April 2015.
 
 
On July 31, 2014, the Company amended and restated one (1) of the five (5) aforementioned promissory notes in the amount of $100,000. The balance of $100,000 was amended and restated with the same basic terms as the original promissory note other than it became due upon demand. The note holder receives 500 common stock shares monthly for every $100,000 loaned. The holders may convert, at their sole election, the principal amount and unpaid interest into common stock shares at $15.00 per share. This note was paid in full in April 2015.
 
 
On July 31, 2014, the Company amended and restated one (1) of the five (5) aforementioned promissory notes in the amount of $200,000. The balance of $200,000 was amended and restated with the same basic terms as the original promissory note other than it became due upon demand. The note holder receives 500 common stock shares monthly for every $100,000 loaned. The holders may convert, at their sole election, the principal amount and unpaid interest into common stock shares at $15.00 per share. This note was paid in full in April 2015.
 
From May 14, 2014 through May 19, 2014, the Company raised $600,000 from five (5) accredited investors through the issuance of five (5) short-term twelve percent (12%) convertible promissory notes. These notes were payable upon the earlier of the (i) completion of the Company’s Series A Bond offering, (ii) completion of the Company’s senior debt facility, or (iii) July 12, 2014.  These note holders received an aggregate of 12,000 common stock shares.  These holders were entitled to convert, at their sole election, the principal amount and any unpaid interest into common stock shares at $15.00 per share.  On July 14, 2014, all five (5) of these holders converted principal of $600,000 into 40,000 common stock shares and accrued interest of $11,868 into 792 common stock shares.
 
On May 27, 2014, the Company raised $50,000 from an accredited investor through the issuance of a short-term twelve percent (12%) convertible promissory note. This note was payable upon the earlier of the (i) completion of the Company’s Series A Bond offering, (ii) completion of the Company’s senior debt facility, or (iii) July 12, 2014. The note holder received 1,000 common stock shares.  The note holder was entitled to convert, at his sole election, the principal amount and any unpaid interest into common stock shares at $15.00 per share.  On July 25, 2014, the Company repaid this note, including all unpaid interest.
 
In connection with the above notes, and pursuant to a placement agent agreement dated January 23, 2014 between the Company and a placement agent, the Company paid the placement agent $5,000 and issued 100 common stock shares.
 
On June 22, 2014, the Company raised $100,000 from an accredited investor through the issuance of a short-term twelve percent (12%) convertible promissory note. This note was payable upon the earlier of the (i) completion of the Series A Bond Offering, (ii) completion of the Company’s senior debt facility, or (iii) eight (8) weeks from the original issuance date. The note holder received 2,000 common stock shares. The holder was entitled to convert, at his sole election, the principal amount and any unpaid interest due under the note into common stock shares at $15.00 per share. The Company recorded a debt discount of $28,876 and a beneficial conversion feature of $64,210 for the issuance of the 2,000 common stock shares. In August 2014, this note was repaid in full.
 
On December 10, 2014, the Company issued a twelve percent (12%) promissory note in the amount of $100,000. On or prior to the maturity date, April 15, 2015, the holder may elect to convert all or part of the principal and accrued interest into common stock shares at $10.00 per share. In addition, for every $1.00 of principal converted, the Company will issue a warrant to purchase one-half of a common stock share at $20.00 per common stock share exercisable for a term of three (3) years. As additional consideration, the Company agreed to issue 1,000 common stock shares upon execution of this agreement. Accordingly, the Company recorded a debt discount of $4,762 for the 1,000 common stock shares issued. The Company recorded amortization expense of $4,762 for the fiscal year ended May 31, 2015. On May 11, 2015, the Company agreed to extend the maturity date of the note, $100,000 in principal and $11,474 in accrued interest and agreed to extend the maturity to October 15, 2015 in exchange for 2,787 common stock shares, valued at $18,115. On November 10, 2015, the Company agreed to further amend and extend the maturity date of the note to April 15, 2016. The Company agreed to pay one-sixth (1/6th) of the principal amount on the 15th of every month, beginning on December 15, 2015, until paid in full. The Company also agreed to pay all unpaid and accrued interest through the date of the amended agreement and prepay interest through December 15, 2015. In addition, the holder of the amended note can, at any time, convert any unpaid principal and accrued interest at a conversion rate of $10.00 per share. In addition, for every $1.00 of principal converted, the Company will issue a warrant to purchase one-half of a common stock share at $20.00 per common stock share exercisable for a term of three (3) years. At November 30, 2015, the principal amount outstanding was $100,000. Net of the remaining debt discount of $0, the remaining loan balance was $100,000. During the six months ended November 30, 2015, the Company recorded $6,016 of interest expense and paid accrued interest totaling $11,671. The Company also prepaid $493 in interest through December 15, 2015 which has been recorded in prepaid expenses. Accrued interest at November 30, 2015 amounted to $0.
 
On February 5, 2015, the Company issued an eight percent (8%) promissory note in the amount of $204,000 due on November 5, 2015, with the conversion feature commencing 180 days after the loan issuance date. The loan is convertible at a 39% discount of the average share price on the lowest three (3) trading prices during the ten (10) days prior to conversion. In connection with this note, the Company recorded a $177,559 discount related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note was converted or repaid. The Company recorded amortization expense amounting to $35,512 and $75,630 for the six months ended November 30, 2015 and for the fiscal year ended May 31, 2015, respectively. On July 24, 2015, the Company paid the note holder $283,001 as full payment of the debt. The cash payment was applied against the principal balance of $204,000, accrued interest of $7,556 and a prepayment fee of $71,445. In accordance with ASC 470-50-40-2 “Debt Modifications and Extinguishments”, the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt shall be recognized in Income as gains and losses. In addition, the reporting entity should derecognize the beneficial conversion feature (“BCF”) by calculating the intrinsic value of the conversion option at the extinguishment date and allocate that amount to additional paid in capital to redeem the BCF. As a result of the early extinguishment, the Company reversed the remaining unamortized portion of the debt discount of $66,420 and recognized it as a loss. In addition the Company derecognized the BCF by calculating the intrinsic value of the conversion feature on the date of extinguishment amounting to $170,264 and allocated to additional paid in capital. The net effect amounted in a gain on early debt extinguishment amounting to $32,400. During the six months ended November 30, 2015, the Company recorded $2,414 of interest expense and paid in full all accrued interest related to this loan totaling $7,556.
 
On June 23, 2015, the Company issued a non-interest bearing $359,000 convertible promissory note (“June 23rd Note”). The financing has an OID of $54,000 (see note 3), a term of six (6) months and is convertible into common stock at a price of $11.50 per share. As part of the debt raise, other debt issuance costs amounted to $59,000, $5,000 of which related to legal fees and $54,000 related to the OID. This note was paid in full in December 2015 (see note 15).
  
Convertible notes payable – long-term:
 
Lighthouse Placement Services, LLC – related parties: On July 8, 2015, the Company purchased Lighthouse Placement Services, LLC. In connection with the acquisition, the Company issued an unsecured promissory note of $2,498,379 bearing interest at 6% over three (3) years (“Lighthouse Note 1”), and an unsecured promissory note of $624,595 bearing interest at 6% over two (2) years (“Lighthouse Note 2”). Pursuant to the acquisition of Lighthouse, the two sellers continue serving as President and Vice President of Lighthouse. The notes and any unpaid accrued interest are convertible at any time prior to maturity at a conversion price equal to the greater of (i) eighty percent (80%) of the VWAP price as of the date of notice given and (ii) the Company’s common stock price as of the date of notice given. During the six months ended November 30, 2015, the Company paid $202,993 in principal towards the Lighthouse notes. In addition, the Company incurred $72,669 in interest expense and made interest payments totaling $47,230. Accrued interest at November 30, 2015 totaled $25,440.
 
Lighthouse Note 1
 
 
 
 
 
 
 
 
 
 
 
Twelve months
 
 
 
Year ended
 
 
 
ended
 
 
 
May 31,
 
Amount
 
November 30,
 
Amount
 
2016
 
$
249,838
 
 
2016
 
$
499,676
 
2017
 
 
499,676
 
 
2017
 
 
499,676
 
2018
 
 
1,249,190
 
 
2018
 
 
1,374,108
 
Thereafter
 
 
374,756
 
 
Thereafter
 
 
-
 
Total
 
$
2,373,460
 
 
Total
 
$
2,373,460
 
 
Lighthouse Note 2
 
 
 
 
 
 
 
 
 
 
 
Twelve months
 
 
 
Year ended
 
 
 
ended
 
 
 
May 31,
 
Amount
 
November 30,
 
Amount
 
2016
 
$
156,149
 
 
2016
 
$
312,298
 
2017
 
 
312,298
 
 
2017
 
 
234,223
 
2018
 
 
78,074
 
 
2018
 
 
-
 
Total
 
$
546,521
 
 
Total
 
$
546,521
 
 
July 8th Note: On July 8, 2015, the Company issued an eight percent (8%) convertible debenture valued at $3.92 million with a maturity date of April 1, 2017 (“July 8th Note”). The financing has a 12% OID amounting to $420,000 (see Note 3), a term of twenty-one (21) months and is convertible into common stock at a price of $10.00 per share at the lender’s election. In connection with the financing, the Company issued 125,000 shares of common stock and 392,000 warrants exercisable for a term of five (5) years at an initial exercise price of $10.00 (subject to adjustment). As a result of the shares and warrants issued, the Company recorded a debt discount and beneficial conversion of $3,255,350. For the six months ended November 30, 2015, the Company recorded amortization expense totaling $765,196. Net of the remaining unamortized debt discount of $2,490,153, the remaining loan balance is $1,429,847. As part of the debt raise, other debt issuance costs amounted to $408,577, $128,577 of which related to legal and due diligence fees and $280,000 related to the OID. During the six months ended November 30, 2015, the Company incurred $125,440 in interest expense. Accrued interest at November 30, 2015 totaled $125,440.
 
 
 
 
 
Twelve months
 
 
 
Year ended
 
 
 
ended
 
 
 
May 31,
 
Amount
 
November 30,
 
Amount
 
2016
 
$
-
 
 
2016
 
$
980,000
 
2017
 
 
3,920,000
 
 
2017
 
 
2,940,000
 
Total
 
$
3,920,000
 
 
Total
 
$
3,920,000