Quarterly report pursuant to Section 13 or 15(d)

Note 12 - Fair Value of Financial Instruments

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Note 12 - Fair Value of Financial Instruments
 9 Months Ended
Feb. 28, 2017
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
Note 12 – Fair Value of Financial Instruments

In March 2016, the Company entered into convertible note agreements containing beneficial conversion features with Old Main.  One of the features is a ratchet reset provision which, in general, reduces the conversion price should the Company issue equity with an effective price per share that is lower than the stated conversion price in the note agreement (see note 11). The Company accounts for the fair value of the conversion feature in accordance with ASC 815- Accounting for Derivatives and Hedging and Emerging Issues Task Force (“EITF”) 07-05- Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). The Company carries the embedded derivative on its balance sheet at fair value and accounts for any unrealized change in fair value as a component of its results of operations.

The following summarizes the Company’s derivative financial liabilities that are recorded at fair value on a recurring basis at February 28, 2017 and May 31, 2016.

 
  
February 28, 2017
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
Liabilities
                        
Derivative liabilities
  
$
-
    
$
-
    
$
167,372
    
$
167,372
  

 
  
May 31, 2016
  
 
  
Level 1
    
Level 2
    
Level 3
    
Total
  
Liabilities
                        
Derivative liabilities
  
$
-
    
$
-
    
$
418,537
    
$
418,537
  

The estimated fair values of the Company’s derivative liabilities are as follows:

 
  
Derivative
  
 
  
Liability
  
Liabilities Measured at Fair Value
      
 
      
Balance as of May 31, 2016
  
$
418,537
  
 
        
Issuances
    
518,720
  
 
        
Conversions/Redemptions
    
(122,657
)
         
Extinguishment of debt – related party
    
(254,114
)
 
        
Revaluation gain
    
(393,114
)
 
        
Balance as of February 28, 2017
  
$
167,372
  

During the three months ended February 28, 2017, Old Main, holder of the 2016 Convertible Notes,  converted an aggregate of $100,000 of principal, in six transactions, into 828,173 shares of common stock.  As a result the Company charged $122,657 of derivative liability to additional paid-in capital (see Note 10).