Note 9 - Notes Payable |
6 Months Ended |
|---|---|
Nov. 30, 2015 | |
| Debt Disclosure [Abstract] | |
| Debt Disclosure [Text Block] |
Note 9 – Notes Payable
Convertible Note Payable
On April 29, 2015, the Company issued a convertible note to an unaffiliated individual in the amount of $200,000 (the “Convertible Note”). Interest accrues on the Convertible Note at a rate of 15% per annum. On the first anniversary of the Convertible Note, the Company shall pay all then accrued interest. Thereafter, the Company shall make eight (8) equal payments of principal together with accrued interest, quarterly in arrears, commencing on July 1, 2016 and continuing on the same day of each October, January, April and July thereafter until paid in full. All outstanding principal and any accumulated unpaid interest thereon shall be due and payable on the third anniversary of note.
At the election of the holder of the Convertible Note, at any time prior to payment or prepayment of the Convertible Note in full, all principal and accrued interest under the Convertible Note may be converted in whole, but not in part, into the Company’s securities. For each dollar converted, the holder of the Convertible Note shall receive two shares of common stock and a three-year warrant to purchase 1.33 shares (post Reverse Split) of common stock at $0.75 per share (post Reverse Split).
During the six months ended November 30, 2015 and 2014, the Company accrued interest in the amount of $15,041 and $0, respectively, on this note. As of November 30, 2015 and May 31, 2015 the outstanding principal balance on the Convertible Note was $200,000 and the Company had accrued interest in the amount of $17,671 and $2,630, respectively, on this note.
The Company calculated the fair value of the beneficial conversion features embedded in the Convertible Note via the intrinsic value method. The Company also calculates the fair value of the detachable warrants offered with the Convertible Note via the Black-Scholes valuation method. The value of the conversion feature and the detachable warrants are considered discounts to the Convertible Note, to the extent the aggregate value of the warrants and conversion features do not exceed the face value thereof. These discounts were amortized to interest expense over the term of the Convertible Note.
The Company recorded a discount to the Convertible Note in the amount of $200,000 during the year ended May 31, 2015. The discount was comprised of $100,000 related to the beneficial conversion feature embedded in the Convertible Note and $100,000 for the detachable warrants. During the six months ended November 30, 2015 the Company amortized $33,333 of this discount to interest expense. As of November 30, 2015 and May 31, 2015, the Company had unamortized discounts on the Convertible Note in the amount of $161,111 and $194,444, respectively.
Koretsky and Binder Notes
During the year ended May 31, 2015, the Company borrowed $600,000 from Frank Koretsky, a director of the Company, to fund operations. During the six months ended November 30, 2015, the Company borrowed an additional $295,000 from Mr. Koretsky to fund operations. As evidenced by a promissory note dated January 12, 2016 in favor of Mr. Koretsky, these loans are unsecured and bear interest at the rate of 6% per annum. No payments are required until January 1, 2017, at which time all accrued interest becomes due and payable. Principal and additional accrued interest will be paid in eight equal quarterly installments beginning on April 1, 2017. At Mr. Koretsky’s election, at any time prior to payment or prepayment of the loans in full, all principal and accrued interest under the loans may be converted, in whole or in part, into the Company’s securities. Upon such an election, Mr. Koretsky will receive one “Unit” for each $0.75 converted, with each Unit consisting of one (1) share of common stock and a five-year warrant to purchase (1) share of common stock at a price of $1.00 per share. As of November 30, 2015 and May 31, 2015, the outstanding principal balance was $895,000 and $600,000 and the Company had accrued interest in the amount of $24,681 and $3,337.
During the six months ended November 30, 2015, the Company borrowed $50,000 from Jeffrey Binder, a director and officer of the Company, to fund operations. As evidenced by a promissory note dated January 12, 2016 in favor of Mr. Binder, this loan is unsecured and bears interest at the rate of 6% per annum. No payments are required until January 1, 2017, at which time all accrued interest becomes due and payable. Principal and additional accrued interest will be paid in eight equal quarterly installments beginning on April 1, 2017. At Mr. Binder’s election, at any time prior to payment or prepayment of the loans in full, all principal and accrued interest under the loans may be converted, in whole or in part, into the Company’s securities. Upon such an election, Mr. Binder will receive one “Unit” for each $0.75 converted, with each Unit consisting of one (1) share of common stock and a five-year warrant to purchase (1) share of common stock at a price of $1.00 per share. As of November 30, 2015 and May 31, 2015, the outstanding principal balance was $50,000 and $0 and the Company had accrued interest in the amount of $608 and $0.
|