v2.4.1.9
STOCKHOLDERS' EQUITY
6 Months Ended
Nov. 30, 2015
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
NOTE 11 – STOCKHOLDERS’ EQUITY
 
On May 7, 2013, the Company increased the number of common stock shares from 75,000,000 to 200,000,000 and authorized the creation of 20,000,000 shares of Blank Check Preferred Stock, par value $0.00001 per share with such designations, rights and preferences as may be determined from time to time by the board of directors.
 
On May 29, 2015, the Company filed a Certificate of Designations, Preferences and Rights of Series A Preferred Stock with the Nevada Secretary of State, whereby the Company designated 1,663,008 shares of Preferred Stock as Series A Preferred Stock, par value $0.00001 per share. The Series A Preferred Stock has a stated value of $10.00 per share and pays a twelve percent (12%) dividend.
 
On September 17, 2015, the Company effected a one-for-ten reverse stock split. Following the reverse split, the Company’s issued and outstanding shares of Common Stock decreased from 45,732,674 to 4,573,360. All share and per share information has been retroactively adjusted to reflect this reverse stock split.
 
As of November 30, 2015 and May 31, 2015, the Company has issued and outstanding 4,899,291 and 4,368,905 common stock shares, respectively.
 
  The issuance of 1,073,851 common stock shares during the year ended May 31, 2015 is summarized below:
 
 
 
Number of
 
 
 
Fair Value at
 
 
 
Common Stock
 
Fair Value at
 
Issuance
 
 
 
Shares
 
Issuance
 
(per share)
 
Shares issued to consultants
 
 
23,250
 
$
215,000
 
$
6.20-19.20
 
Shares issued for conversion of convertible notes payable
 
 
40,000
 
 
600,000
 
 
15.00
 
Shares issued in connection with accrued interest on convertible notes
 
 
791
 
 
11,868
 
 
15.00
 
Shares issued in connection with convertible notes
 
 
8,450
 
 
123,345
 
 
6.90
 
Shares issued in connection with amendment of  convertible notes
 
 
2,604
 
 
16,923
 
 
6.50
 
Shares issued in connection with Series A convertible bonds
 
 
10,600
 
 
174,142
 
 
6.10
 
Shares issued in connection with amendment of Series A convertible bonds
 
 
9,290
 
 
93,781
 
 
6.50-13.90
 
Shares issued in connection with Series B convertible bonds
 
 
9,815
 
 
123,505
 
 
12.60
 
Shares issued to board and committees members
 
 
30,250
 
 
283,530
 
 
3.00-19.50
 
Shares issued as interest on debt
 
 
43,375
 
 
309,240
 
 
2.80-18.50
 
Shares issued to private placement agent
 
 
1,651
 
 
27,832
 
 
8.50-19.50
 
Shares issued in connection with conversion of accounts payable
 
 
23,662
 
 
215,674
 
 
8.40-17.30
 
Shares issued in connection with conversion of Initio promissory notes
 
 
305,603
 
 
2,290,210
 
 
6.50-7.501
 
Shares issued in connection with conversion of accrued interest and interest expense associated with Initio promissory notes
 
 
30,236
 
 
226,189
 
 
6.50-7.501
 
Shares issued for conversion of Series A bonds
 
 
370,969
 
 
3,709,655
 
 
10.00
 
Shares issued for conversion of Earn-out liability
 
 
113,405
 
 
340,215
 
 
3.00
 
Shares issued in connection with settlement agreement
 
 
27,500
 
 
255,750
 
 
9.30
 
Shares issued as a bonus
 
 
22,400
 
 
188,160
 
 
8.40
 
 
The issuance of 522,386 common stock shares during the six months ended November 30, 2015 is summarized below:
 
 
 
Number of
 
 
 
Fair Value at
 
 
 
Common Stock
 
Fair Value at
 
Issuance
 
 
 
Shares
 
Issuance
 
(per share)
 
Shares issued to consultants
 
 
42,746
 
$
242,830
 
$
4.30 - 8.20
 
Shares issued for conversion of convertible notes payable
 
 
125,000
 
 
507,146
 
 
4.10
 
Shares issued to board and committees members
 
 
98,500
 
 
502,687
 
 
4.399 – 8.00
 
Shares issued to employees
 
 
138,300
 
 
687,928
 
 
4.30 - 8.00
 
Shares issued pursuant to acquisition of subsidiaries
 
 
102,460
 
 
700,168
 
 
4.70 - 8.20
 
Shares issued in connection with extension of Series A convertible bonds
 
 
4,375
 
 
23,975
 
 
5.48
 
Shares issued in connection with extension of Series B convertible bonds
 
 
1,375
 
 
6,875
 
 
4.999 – 5.00
 
Shares issued to private placement agent
 
 
9,630
 
 
48,149
 
 
4.9999 – 5.00
 
  
Convertible Preferred Shares
 
On May 29, 2015, the Company designated 1,663,008 shares of Preferred Stock as Series A Preferred Stock, par value $0.00001 per share. The Series A Preferred Stock has a stated value of $1.00 per share along with a twelve percent (12%) annual dividend payable monthly. Shares of the Series A Preferred Stock are convertible into shares of Common Stock at the holder’s election at any time prior to December 31, 2018 (“the Redemption Date”), at a conversion rate of thirteen hundredths (0.13) shares of Common Stock for every one share of Series A Preferred Stock that the Holder elects to convert. Except as otherwise required by law, the Series A Preferred Stock shall have no voting rights.
 
In the event of a liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Company legally available for distribution, prior to and in preference to distributions to the holders of the Company’s common stock, par value $0.00001 per share or classes and series of securities of the Company which by their terms do not rank senior to the Series A Preferred Stock, and either in preference to or pari passu with the holders of any other series of Preferred Stock that may be issued in the future that is expressly made senior or pari passu, as the case may be, an amount equal to the Stated Value of the Series A Preferred Stock less any dividends previously paid out on the Series A Preferred Stock.
 
The holders will be entitled to receive cash dividends at the rate of twelve percent (12%) of the Stated Value per annum, payable monthly in cash, prior to and in preference to any declaration or payment of any dividend on the Common Stock. So long as any shares of Series A Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any dividend on any shares of Common Stock, unless at the time of such dividend the Company shall have paid all accrued and unpaid dividends on the outstanding shares of Series A Preferred Stock.
 
The Certificate of Designation filed on May 29, 2015, designating the Series A Preferred Stock, was filed in connection with the Company’s issuance of an aggregate of 1,663,008 shares of Series A Preferred Stock to Brendan Flood and Matthew Briand for the conversion of the Gross Profit Appreciation Bonus associated with their employment agreements. The Certificate of Designation was approved and related issuances were ratified by the Company’s board of directors and compensation committee on May 29, 2015.
 
Commencing on December 31, 2018 (“Redemption Date”), the Company shall redeem all of the shares of Series A Preferred Stock of each Holder, for cash or for shares of Common Stock in the Company’s sole discretion. If the Redemption Purchase Price is paid in shares of Common Stock, the holders shall initially receive thirteen hundredths (0.13) shares of Common Stock for each $1.00 of the Redemption Purchase Price. If the Redemption Purchase Price is paid in cash, the redemption price paid to each Holder shall be equal to the Stated Value for each share of Series A Preferred Stock, multiplied by the number of shares of Series A Preferred Stock held by such Holder, less the aggregate amount of dividends paid to such Holder through the Redemption Date.
 
As of November 30, 2015, the Company has issued and outstanding 1,663,008 Preferred Stock shares and accrued dividends totaling $149,670.
  
Warrants
 
The following table summarizes the changes in warrants outstanding and related prices for the common stock shares issued to shareholders at November 30, 2015:
 
 
 
 
 
Warrants Outstanding
 
 
 
 
 
Warrants Exercisable
 
 
 
 
 
Weighted Average
 
Weighted
 
 
 
Weighted
 
Exercise
 
Number
 
Remaining Contractual
 
Average
 
Number
 
Average
 
Price
 
Outstanding
 
Life (years)
 
Exercise price
 
Exercisable
 
Exercise Price
 
$10.00 - $20.00
 
 
1,637,903
 
 
3.34
 
$
15.80
 
 
1,637,903
 
$
15.80
 
 
Transactions involving the Company’s warrant issuance are summarized as follows:
 
 
 
 
 
Weighted
 
 
 
Number of
 
Average
 
 
 
Shares
 
Price Per Share
 
Outstanding at May 31, 2014
 
 
676,077
 
$
19.70
 
Issued
 
 
569,826
 
 
15.00
 
Exercised
 
 
-
 
 
-
 
Expired
 
 
-
 
 
-
 
Outstanding at May 31, 2015
 
 
1,245,903
 
$
17.60
 
Issued
 
 
392,000
 
 
10.00
 
Exercised
 
 
-
 
 
-
 
Expired
 
 
-
 
 
-
 
Outstanding at November 30, 2015
 
 
1,637,903
 
$
15.80
 
 
Stock Options
 
2014 Equity Plan - On April 30, 2014, the board of directors adopted the 2014 Equity Plan (“Plan”). Under the Plan, the Company may grant options to employees, directors, senior management of the Company and, under certain circumstances, consultants. The purpose of the 2014 Equity Plan is to retain the services of the group of persons eligible to receive option awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its affiliates. Through May 31, 2014, a maximum of 150,000 common stock shares had been reserved for issuance under this plan. In July 2014, the Company increased the number of options to be issued to 250,000. The Plan expires on April 30, 2024. The board of directors will administer the plan unless and until the board of directors delegates administration to a committee, consisting of two (2) or more outside directors, as defined in the Treasury Regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. On April 30, 2014, the board of directors delegated the authority to administer the Plan to the combination of the Company’s Executive Chairman and President. They have the power to determine which persons who are eligible under the Plan will be granted option awards, when and how each option award will be granted, and the provisions and terms of each option award. With the resignation of the Company’s President, this delegated authority to the Executive Chairman and President has reverted back to the Company’s Compensation Committee.
 
On December 8, 2014, the Company modified the exercise price on its unvested 138,000 options from an exercise price of $20.00 per share to $10.00 per share. The Company will amortize the modification expense of $104,759 over the remaining vesting term of the stock options.
 
During the six months ended November 30, 2015 and 2014, the Company recorded share-based payment expense of $177,657 and $112,531, respectively, in connection with all options outstanding. The amortization of share-based payment was recorded in Salaries and Wages expense.
  
Through November 30, 2015, the Company had granted 242,500 options to purchase common stock with an exercise price of $20.00 per share and 107,000 options to purchase common stock with an exercise price of $10.00 per share. On December 31, 2014, the Company modified the exercise price on its unvested 138,000 options from an exercise price of $20.00 per share to $10.00 per share. There are 75,000 options with an exercisable term of five (5) years and all others have an exercisable term of ten (10) years. The vested options were 173,000.
 
The fair value of Stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:
   
Exercise price:
 
$
10.00 - $20.00
 
Market price at date of grant:
 
$
3.00 - $19.90
 
Volatility:
 
 
50.57% - 162.519
%
Expected dividend rate:
 
 
0
 
Expected terms (years):
 
 
5 - 10
 
Risk-free interest rate:
 
 
1.45% - 2.77
%
 
A summary of the activity during the six months ended November 30, 2015 of the Company’s 2014 Equity Plan is presented below:
 
 
 
Options
 
Weighted
Average
Exercise Price
 
Aggregate
Intrinsic
Value
 
Outstanding at May 31, 2014
 
 
190,000
 
$
20.00
 
$
-
 
Granted
 
 
147,000
 
 
17.20
 
 
-
 
Exercised
 
 
-
 
 
-
 
 
-
 
Expired or cancelled
 
 
-
 
 
-
 
 
-
 
Decrease in weighted average exercise price due to modification (1)
 
 
-
 
$
(4.10)
 
 
-
 
Outstanding at May 31, 2015
 
 
337,000
 
$
13.10
 
$
-
 
Granted
 
 
12,500
 
 
10.00
 
 
-
 
Exercised
 
 
-
 
 
 
 
 
-
 
Expired or cancelled
 
 
-
 
 
 
 
 
-
 
Outstanding at November 30, 2015
 
 
349,500
 
$
13.00
 
$
-
 
 
 
(1)
On December 8, 2014, the Company modified the exercise price on its unvested 138,000 options from an exercise price of $20.00 per share to $10.00 per share.
 
The total compensation cost related to options not yet amortized is $908,270 at November 30, 2015. The Company will recognize this charge over the next forty-three (43) months.