10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: August 31, 2012

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _________ TO _________

Commission file number: 0-27587

ARKADOS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	22-3586087
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
211 Warren Street, Suite 320, Newark, New Jersey	07103
(Address of principal executive offices)	Zip code
Issuer's telephone number: (862) 373-1988

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

The number of the registrant’s shares of common stock outstanding was 48,898,474 as of August 31, 2012.

ARKADOS GROUP, INC.

Quarterly Report on Form 10-Q

Quarter Ended August 31, 2012

(FY 2013)

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION	F-1
Item 1.  Financial Statements	F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3. Quantitative And Qualitative Disclosures About Market Risk.	5
Item 4. Controls and Procedures.	5
PART II - OTHER INFORMATION	5
Item 1. Legal Proceedings.	5
Item 1A.  Risk Factors	5
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.	5
Item 4.  Mine Safety Disclosures.	6
Item 5. Other Information.	6
Item 6. Exhibits.	6

i

INTRODUCTORY NOTES

This Report on Form 10-Q for Arkados Group, Inc. (“Arkados” or the “Company”) may contain forward-looking statements. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K for the years ended May 31, 2011 and May 31, 2012 (comprehensive) and other periodic reports filed with the SEC. Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that Arkados’ actual financial condition, operating results and business performance may differ materially from that projected or estimated in such forward-looking statements.

The Company filed a Form 8-K Report on December 29, 2010 reporting, among other things, the issuance of 10,250,000 shares of common stock to settle $401,000 of unsecured debt, the entry into a license agreement and asset purchase agreement (“APA”) and the settlement of approximately $12.4 million of secured debt (including interest and penalties) for a payment of approximately $5.5 million from the license fee received, the payment of a substantial portion of unpaid compensation due employees and the resignation and appointment a CEO and director. As reported, the Company agreed to sell assets used in the Company’s semiconductor business to STMicroelectronics (“ST”) for aggregate consideration of $11 million, of which $7 million was paid on the execution of the APA pursuant to the License and the balance is due at closing. At the same time, ST hired most of the Company’s employees, each of whom were engaged in the Company’s semiconductor business. Those not hired by ST were terminated. The Company will focus on development, manufacturing, and sales of consumer electronics and Smart Grid products based on power line communications.

The information contained in this report, except as specifically dated, is as of August 31, 2012, and does not give effect to the changes to the Company’s business or prospects which occurred or may occur as a result of the forgoing, as they are yet to be determined.

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARKADOS GROUP, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	August 31, 2012			May 31, 2012
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	611		$	4,913
Total current assets		611			4,913
Total assets	$	611		$	4,913
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses	$	2,238,642		$	2,181,697
Payroll taxes and related penalties and interest payable		936,906			936,906
Accrued income tax		100,000			100,000
Due to related party		130,000			130,000
Debt subject to equity being issued		5,259,926			5,259,926
Notes payable		678,956			688,768
Total current liabilities		9,344,430			9,297,297
Total liabilities		9,344,430			9,297,297
Stockholders' deficiency:
Convertible preferred stock - $.0001 par value; 5,000,000 shares authorized, zero shares outstanding		-			-
Common stock, $.0001 par value; 100,000,000 shares authorized and 48,898,474 issued and outstanding at August 31, 2012 and May 31, 2012		4,889			4,889
Additional paid-in capital		23,952,807			23,952,807
Accumulated Deficit during Development Stage		(33,301,515	)		(33,250,080	)
Total stockholders' deficiency		(9,343,819	)		(9,292,384	)
Total liabilities and stockholders' deficiency	$	611		$	4,913

ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-1

ARKADOS GROUP, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended August 31,						Cumulative during the Development Stage (March 24, 2004 through August 31,
	2011			2012			2012
Net sales	$	-		$	-		$	3,127,478
Cost of sales		-			-			2,145,042
Gross Profit		-			-			982,436
Operating expenses:
Selling, general and administrative		131,302			39,574			23,115,328
Research and development		-			-			11,321,906
Total operating expenses		131,302			39,574			34,437,234
Income (loss) from operations		(131,302	)		(39,574	)		(33,454,798	)
Other income (expenses):
Interest expense		(11,772	)		(13,886	)		(15,130,516	)
Settlement of debt		482,784			2,025			11,819,506
Sale of license and IP agreements		4,000,000			-			11,000,000
Net income (loss) before provision for income taxes		4,339,710			(51,435	)		(25,765,808	)
Provision for income taxes		-			-			(741,562	)
Net income (loss)	$	4,339,710		$	(51,435	)	$	(25,024,246	)
Income (loss) per common share - basic:	$	0.10		$	(0.00	)
Weighted average of common shares outstanding - basic		44,951,261			48,898,474
Income (loss) per common share - fully diluted	$	0.10		$	(0.00	)
Weighted average shares of common stock outstanding - ly fully diluted		44,951,261			48,898,474

ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-2

ARKADOS GROUP, INC. and Subsidiaries

Consolidated Statements of Stockholders’ Deficiency

(A Development Stage Enterprise)

Inception March 24, 2004 to May 31, 2004 through August 31, 2012

												Accumulated
												Deficit
										Additional		During						Total
	Preferred Stock				Common Stock					Paid in		Development			Treasury			Stockholders's
	Shares		Amount		Shares		Amount			Capital		Stage			Stock			Deficiency
Balance as of March 24, 2004 (Unaudited)
Post foreclosure sale		-	$	-		5,569	$	5,569		$	1,988,185	$	(8,277,267	)	$	-		$	(6,283,513	)
Effect of Reorganization and Merger–May 24, 2004		-		-		21,473,364		(3,422	)		4,105,180		-			(16,000	)		4,085,758
Sale of shares pursuant to PPM		-		-		841,666		84			950,116		-			-			950,200
Issuance of shares for settlement of debts		-		-		181,068		18			168,185		-			-			168,203
Amortization of stock compensation		-		-		-		-			359,537		-			-			359,537
Net loss (March 24, 2004 to May 31, 2004)		-		-		-		-			-		(693,833	)		-			(693,833	)
Balance as of May 31, 2004 (Unaudited)		-		-		22,501,667		2,250			7,571,202		(8,971,100	)		(16,000	)		(1,413,648	)
Shares issued for services		-		-		575,000		58			724,753		-			-			724,811
Debt converted to equity		-		-		125,000		13			75,483		-			-			75,496
Issuance of options for services		-		-		-		-			198,169		-			-			198,169
Valuation of equity rights and beneficial conversion
features of debt raise		-		-		-		-			234,353		-			-			234,353
Amortization of stock compensation		-		-		-		-			3,617,681		-			-			3,617,681
Net Loss		-		-		-		-			-		(7,001,365	)		-			(7,001,365	)
Balance as of May 31, 2005 (Unaudited)		-		-		23,201,667		2,321			12,421,641		(15,972,465	)		(16,000	)		(3,564,503	)
Shares issued for services		-		-		75,000		8			22,492		-			-			22,500
Debt converted to equity		-		-		609,786		61			405,683		-			-			405,744
Shares issued for debt accommodations and penalties		-		-		466,600		47			267,253		-			-			267,300
Options issued for services		-		-		-		-			69,170		-			-			69,170
Valuation of equity rights and beneficial conversion
features of debt raise		-		-		-		-			404,555		-			-			404,555
Amortization of stock compensation		-		-		-		-			497,347		-			-			497,347
Net Loss		-		-		-		-			-		(4,025,016	)		-			(4,025,016	)
Balance as of May 31, 2006 (Unaudited)		-	$	-		24,353,053		2,437		$	14,088,141	$	(19,997,481	)	$	(16,000	)		(5,922,903	)
Shares issued for services		-		-		475,000		47			341,953		-			-			342,000
Options issued for services		-		-		-		-			197,923		-			-			197,923
Valuation of equity rights		-		-		-		-			424,247		-			-			424,247
Amortization of stock compensation		-		-		-		-			418,997		-			-			418,997
Exercise of options		-		-		175,604		17			1,739		-			-			1,756
Issuance of common stock for Aster Acquisition		-		-		1,078,564		107			461,712		-			-			461,819
Net loss		-		-		-		-			-		(6,033,075	)		-			(6,033,075	)
Balance as of May 31, 2007 (Unaudited)		-		-		26,082,221		2,608			15,934,712		(26,030,556	)		(16,000	)		(10,109,236	)
Shares issued for services		-		-		196,667		20			63,480		-			-			63,500
Options issued for services		-		-		-		-			105,448		-			-			105,448
Valuation of equity rights		-		-		-		-			1,064,495		-			-			1,064,495
Amortization of stock compensation		-		-		-		-			697,687		-			-			697,687
Net Loss		-		-		-		-			-		(6,478,999	)		-			(6,478,999	)
Balance as of May 31, 2008 (Unaudited)		-		-		23,076,667	$	2,321		$	12,421,641	$	(8,971,101	)	$	(16,000	)	$	3,436,863

(continued on next page)

ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-3

ARKADOS GROUP, INC. and Subsidiaries

Consolidated Statements of Stockholders’ Deficiency

(A Development Stage Enterprise)

Inception March 24, 2004 to May 31, 2004 through August 31, 2012

												Accumulated
												Deficit
									Additional			During						Total
	Preferred Stock				Common Stock				Paid in			Development			Treasury			Stockholders's
	Shares		Amount		Shares		Amount		Capital			Stage			Stock			Deficiency
Balance as of May 31, 2008 (Unaudited)		-		-		26,278,888	$	2,628	$	17,865,822		$	(32,509,556	)	$	(16,000	)	$	(14,657,104	)
Shares issued for services		-		-		2,134,469		213		422,542			-			-			422,755
Private Placement		-		-		3,380,159		338		809,700			-			-			810,038
Conversion of Debt		-		-		944,881		95		409,018			-			-			409,113
Options issued for services		-		-		-		-		90,246			-			-			90,246
Valuation of equity rights		-		-		-		-		264,111			-			-			264,111
Amortization of stock compensation		-		-		-		-		1,776,683			-			-			1,776,683
Net Loss		-		-		-		-		-			(6,762,218	)		-			(6,762,218	)
Balance as of May 31, 2009 (Unaudited)		-		-		32,738,397	$	3,274	$	21,638,124		$	(39,271,774	)	$	(16,000	)	$	(17,646,375	)
Valuation of equity rights		-		-		-		-		54,000			-			-			54,000
Amortization of stock compensation		-		-		-		-		1,176,762			-			-			1,176,762
Exercise of options		-		-		2,187,864		219		21,660			-			-			21,879
Net Loss		-		-		-		-		-			(11,478,230	)		-			(11,478,230	)
Balance as of May 31, 2010 (Unaudited)		-		-		34,926,261	$	3,493	$	22,890,547		$	(50,750,004	)	$	(16,000	)	$	(27,871,964	)
Amortization of stock compensation		-		-		-		-		603,974			-			-			603,974
Conversion of Debt		-		-		10,025,000		1,002		399,998			-			-			401,000
Retire treasury stock						-		-		(16,000	)		-			16,000			-
Net Income		-		-		-		-		-			13,364,862			-			13,364,862
Balance as of May 31, 2011		-		-		44,951,261	$	4,495	$	23,878,519		$	(37,385,142	)	$	-		$	(13,502,128	)
Amortization of stock compensation		-		-		-		-		-			-			-			-
Conversion of Debt		-		-		3,947,213		394		51,188			-			-			51,582
Warrants issued to Trident		-		-		-		-		23,100			-			-			23,100
Net Income		-		-		-		-		-			4,135,062			-			4,135,062
Balance as of May 31, 2012		-		-		48,898,474	$	4,889	$	23,952,807		$	(33,250,080	)	$	-		$	(9,292,384	)
Amortization of stock compensation																			-
Conversion of Debt																			-
Warrants issued to Trident																			-
Net Income													(51,435	)					(51,435	)
Balance as of August 31, 2012 (Unaudited)		-		-		48,898,474	$	4,889	$	23,952,807		$	(33,301,515	)	$	-		$	(9,343,819	)

ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-4

ARKADOS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the three months ended August 31, 2011			For the three months ended August 31, 2012			Cumulative During the Development Stage (March 24, 2004 to August 31, 2012)
Cash flows from operating activities:
Net income (loss)	$	4,339,710		$	(51,435	)	$	(25,024,246	)
Adjustments to reconcile net income (loss) to net
Cash (used in) provided by operating activities:
Depreciation and amortization		-			-			1,621,849
Stock based compensation		-			-			11,706,492
Warrants and beneficial conversion rights with debt		-			-			650,816
Debt and interest penalty		-			-			4,683,122
Amortization of deferred expenses		-			-			130,625
Gain on settlement of debt		(482,784	)		(2,025	)		(11,819,506	)
Changes in operating assets and liabilities:
Inventory		-			-			630
Deferred expenses		-			-			674,246
Prepaid expenses		-			-			(47,213	)
Bank overdraft		6,912			-			-
Payroll taxes and related penalties and interest payable		-			-			(22,916	)
Accounts payable and accrued expenses		(439,464	)		59,159			11,858,147
Net cash (used in) provided by operating activities		3,424,374			5,698			(5,587,954	)
Cash flows from investing activities:
Purchase of fixed assets		-			-			(140,671	)
Sales of assets		-			-			124,066
Net cash used in investing activities		-			-			(16,605	)
Cash flows from financing activities:
Related party payables		100,000			-			1,716,726
Proceeds from debt		-			-			1,746,745
Contribution of capital		-			-			1,232,646
Exercise of stock options		-			-			23,635
Repayment of debt		(106,355	)		(10,000	)		(6,155,670	)
Private placement		-			-			810,038
Proceeds from convertible debt		-			-			1,066,500
Issuance of debentires		-			-			9,533,461
Repayment of related party payables		(3,420,168	)		-			(4,369,195	)
Net cash (used in) provided by financing activities		(3,426,523	)		(10,000	)		5,604,886
Net increase (decrease) in cash		(2,149	)		(4,302	)		326
Cash and cash equivalents beginning of period		2,586			4,913			285
Cash and cash equivalents at end of period	$	437		$	611		$	611
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-

ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

F-5

Arkados Group, Inc. & Subsidiaries (A Development Stage Enterprise)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED AUGUST 31, 2012 and 2011

( UNAUDITED )

1. DESCRIPTION OF BUSINESS

Arkados Group, Inc. (the “Company”) conducts business activities principally through Arkados, Inc., which is a wholly owned subsidiary. Pursuant to an “Agreement and Plan of Merger”, (“the Merger Agreement”) dated May 7, 2004 and consummated on May 24, 2004, merged a wholly owned subsidiary, CDK Merger Corp., with Miletos, Inc. (the “Merger”). CDK Merger Corp. was renamed “Arkados, Inc.” On August 30, 2006, the Company changed its name from CDKNET.COM, Inc. to Arkados Group, Inc. All references to CDKNET.COM, Inc. have been changed accordingly. Since Arkados Group, Inc. and subsidiaries prior to May 7, 2004 had no meaningful operations, this merger has been recorded as a reorganization of Arkados, Inc. via a reverse merger with Arkados Group, Inc.

Miletos, Inc. was a newly established entity, which acquired the assets and business of Enikia, LLC in a public foreclosure sale on March 23, 2004 in exchange for the forgiveness of $4,000,000 of secured debt and the assumption of certain outstanding liabilities. The assets and certain liabilities acquired at the foreclosure sale have been recorded at historical cost basis. The new entity, Miletos, Inc. was predominately owned by a controlled group, which was the same controlled group of Enikia, LLC and the same group became majority holders.

The Company underwent a significant restructuring between December 23, 2010 and continuing beyond May 31, 2012 (the period ending for this report) during which substantially all of its assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”), as disclosed in the 8-K filed December 29, 2010 and further described (as to the closing) in the 8-K filed July 12, 2011. Following December 23, 2010, the Company had minimal operations but also attempted to develop a plan to pursue a different course of operations.

During the period covered by this report through December 23, 2010 (i.e. the date of the Asset Sale), the Company, a development stage enterprise, was a fabless semiconductor company providing integrated system-on-chip solutions that directly support networking, smart grid and multimedia applications. Most recently (i.e. following January, 2013), Arkados has shifted its focus towards development of a universal platform that provides software solutions for smart grid and smart home applications primarily in the areas of energy management, home health care, smart appliances and home security and entertainment.

The accompanying financials have been presented on a development stage basis using March 24, 2004 as the date of inception.

The accompanying condensed consolidated financial statements as of August 31, 2012 (unaudited) and May 31, 2012 and for the three month periods ended August 31, 2012 and 2011 (unaudited) have been prepared by Arkados Group, Inc. pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the audited financial statements and explanatory notes for the year ended May 31, 2012 as disclosed in our annual report on Form 10-K for that year . The results of the three months ended August 31, 2012 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending May 31, 2013.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.

Basis of Presentation - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $25 million since inception including a net loss of $51,435 for the three months ended August 31, 2012. Additionally, though the Company had a net working capital increases recently, the Company still had working capital and shareholders’ deficiencies at August 31, 2012 and May 31, 2012 and negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. 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.

b.

Principles of consolidation - The consolidated financial statements include the accounts of Arkados Group, Inc. (the “Parent”), and its wholly owned subsidiaries, which include: CDKnet, LLC, Creative Technology, LLC, CDK Financial Corp. Diversified Capital Holdings, LLC, Arkados, Inc. and Arkados Wireless Technologies, Inc.  Currently, Arkados, Inc., however, is the only active entity with operations. Intercompany accounts and transactions have been eliminated in consolidation.

F-6

c.	Cash and cash equivalents - The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents.
d.	Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. The Company cannot estimate the fair value of the remaining outstanding payroll tax penalties and interest recorded in connection with the 2004 merger and legacy payables. As defined in Accounting Standards Codification (“ASC”) Topic No. 820, 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. The three levels of the fair value hierarchy defined by ASC Topic No. 820 are as follows: 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.
e.	Income (Loss) Per Share - Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding. For the three months ended August 31, 2011 the diluted income per share is the same as the basic income per share since the exercise price of the 5,895,945 warrants exceeded the market on such day. The diluted loss per share for the three months ended August 31, 2012 is the same as the basic loss per share, as any potential dilutive securities would be anti-dilutive.
f.	Equity Based Compensation - In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. In accordance with the FASB Guidance for the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: The Company has recorded compensation expense for the three months ended August 31, 2012 and, 2011, in the amounts of $-0- and $-0-, respectively.

F-7

g.	Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
h.	Research and Development –All research and development costs are expensed as incurred.
i.	New Accounting Pronouncements – All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

3. SALE OF LICENSE AND IP AGREEMENTS

In December 2010, the Company entered into an agreement to sell substantially all of the assets used in the Company’s business of designing, developing and selling semiconductor products that incorporate powerline communications and networking services and offering services related thereto (the “Asset Sale”) to STMicroelectronics, Inc. (“ST US”), a subsidiary of STMicroelectronics N.V. (“ST”), pursuant to an Asset Purchase Agreement, by and among the Company, the Companies Arkados, Inc., and Arkados Wireless Technologies, Inc. subsidiaries (collectively, “Arkados”) and ST US, dated as of December 23, 2010 (the “Purchase Agreement”).  At the same time the Company granted a license (the “License”) to ST US to use the Company’s intellectual property assets included in the Asset Sale pending the closing of such sale. The License and Asset Sale was for an aggregate of $11 million. The License Agreement portion closed in December 2010 for $7 million and the Asset Sale closed in June 2011 for $4 million.  At the time the Asset Sale is completed, ST US has agreed to license back certain intellectual property to Arkados, Inc. on a non-exclusive basis to facilitate the continuation and expansion of the Company’s consumer electronics systems business, support the Company’s existing customers and, subject to the settlement of the Company’s outstanding debt and obtaining adequate financing (of which there is no assurance), permit us to continue the development and marketing of Smart Grid products based on powerline communication semiconductors.  The Company will also continue to provide consulting and development services to existing customers and users of powerline communication semiconductors.  ST US hired substantially all of the Company’s engineering and semiconductor employees (including Oleg Logvinov, the Company’s former CEO and director), who was engaged in and directed the semiconductor business.

Substantially all of the proceeds received pursuant to the License, after payment of expenses related to the transactions, have been used to settle approximately $20 million of the Company’s outstanding secured debt issued during the period from December 2004 to August 31, 2008 and in default and pay employees $1.4 million of $5.2 million due to them.  The remainder of the proceeds received by the Company has been used to pay other creditors and expenses incurred in connection with the Asset Sale to the extent funds were available to do so.

As a condition to entering into the Purchase Agreement and the License, ST US required that the Company have written settlement agreements and releases with all of our secured creditors as well as all of our employees.  Under the settlement agreements with creditors, the creditors agreed to settle the amounts owed  (approximately $30,000,000), for an aggregate amount of $10,862,241 in cash, notes payable of $818,768 and another $5,259,926 have yet to be settled with equity. Of the cash settlements, $7,000,000 was paid in December 2010 out of proceeds from the $7,000,000 license fee pursuant to the License (received December, 2010), and $3,862,241 was paid at the closing out of proceeds from the Asset Sale (received in June, 2011).  In exchange for the settlement amount, the secured creditors agreed to release their security interest in Arkados’ assets and secured creditors released Arkados from any and all additional claims, if any, that the secured creditors may have against Arkados.  The secured creditors also agreed that ST and its affiliates are third party beneficiaries to the settlement agreements. Under the settlement agreements with the Company’s employees, the employees agreed to accept an aggregate of $1,429,949 and an amount of the Company’s equity rights to be negotiated after the closing as payment for back wages and unreimbursed expenses.  The cash payment was paid to employees in December 2010 out of the license fee paid to the Company by ST US. Also, as a condition to entering into the Purchase Agreement and the License, the Company entered into standstill agreements with holders of approximately $2,100,000 of unsecured debt pursuant to which those unsecured creditors agreed, among other things, not to exercise remedies that they may have as creditors of Arkados, not to sell or transfer their debt, to release ST and its affiliates from any and all claims that they may have against ST, if any, and not to sue ST for any dealings that the creditors had with Arkados.

The Company is negotiating with its remaining outstanding unsecured debt holders to settle such debt for cash payments and in many cases for a yet to be determined amount of shares of the Company’s common stock and continues to negotiate with the holders of each class of debt to compromise, extend the due date or convert outstanding debt into equity and thereby facilitate raising additional investor capital for the portion of the Company’s business that may continue. Such amounts are labeled as “Debt Subject to Equity Being Issued” on the balance sheet. Except as set forth above, there is no binding commitment on anyone’s part to complete the transactions.

F-8

4. PAYROLL TAX LIABILITIES

Enikia was in arrears for several years in its payment of federal and state payroll taxes. Pursuant to the Merger Agreement, the Parent assumed up to $1.2 million of the delinquent payroll taxes due and outstanding with the remaining difference an assumed liability of the major shareholder of the Company. During the year ended May 31, 2006, the Company made payments to both Federal and State of NJ taxing authorities in the amount of $874,000. The payments represented payroll taxes withheld by Miletos from its employees but not remitted to the taxing authorities. During the year ended May 31, 2008, an additional $64,106 payment was made to the State of NJ for payment of payroll taxes. Currently, there is $936,906 still recorded on the Company’s books as reserved against amounts possibly due and outstanding to both the federal and state tax authorities for penalties and interest incurred by Enikia related to its payroll liabilities. The Company does not believe that it has a legal obligation to pay anything more to any taxing authority, but until such clearance is received from the appropriate agencies, the Company has elected to keep the liability on its books.

5. ACCRUED EXPENSES AND OTHER LIABILITIES

As of August 31, 2012 and May 31, 2012, accrued expenses and other liabilities consist of the following approximate amounts:

	August 31, 2012		May 31, 2012
Accounts payable	$	1,487,717	$	1,442,634
Accrued interest and penalties payable		134,272		122,410
Accrued income taxes		100,000		100,000
Accrued other		616,653		616,653
	$	2,338,642	$	2,281,697

6. NOTES PAYABLE, RELATED PARTY PAYABLES, DEBT SUBJECT TO EQUITY BEING ISSUED AND SETTLEMENT OF DEBT

As a result of the sale of the Company’s Asset Sale to STUS the notes payable and convertible debentures of $17,269,689 and the related accrued interest of $3,671,137 as of May 31, 2010, have been settled in part with the December 2010 closing in the amount of $5,570,059 and the balance in June 2011 closing with cash of $3,526,523, an undetermined amount of equity yet to be issued and $688,768 of remaining notes payable as of May 31, 2012. As of August 31, 2012 there was $678,956 of notes payable largely the result of another debt settlement during this quarter.

During the year May 31, 2012, the Company borrowed another $130,000 from a director. This debt has no repayment terms and is due on demand. During the three months ended August 31, 2012, no new borrowings were received.

Related Party Activities - As of August 31, 2012 and May 31, 2012, the Company has reported a related party payable in the amount of $130,000 and $130,000, respectively which represents funds that were advances to the Company by officers and directors of the Company.

Effective June 1, 2009, the Company adopted the provisions of EITF 07-05 “Determining Whether an Instrument (or Embedded Feature) is Indexed to a Company's Own Stock,” which was codified into ASC Topic 815 – Derivatives and Hedging. ASC 815 applies to any freestanding financial instruments or embedded features that have characteristics of a derivative and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. The Company has 11,735,004 of warrants with exercise reset provisions, with its debt issuances over the years, which are considered freestanding derivative instruments. ASC 815 requires these warrants to be recorded as liabilities as they are no longer afforded equity treatment assumptions: risk free rates from 1.32% to 1.39%, expected life terms ranging from 0.5 years to 2.0 years, an expected volatility range of 206% to 251% depending on the term of such equity contracts and a dividend rate of 0.0%. The fair value of the warrants issued and outstanding at May 31, 2010, attributed to this derivative liability has been determined to be immaterial due to the low stock price in comparison to the exercise price, hence there was no adjustment to make upon adoption of this accounting standard. During the year May 31, 2011, 6,499,057 of these warrants expired. The stock price remains low and the fair value of the derivative liability remains immaterial.

SETTLEMENT OF DEBT

As a direct result of the Sale of the License and IP Agreements to STUS and the mandate to obtain debt releases, the Company has been able to settle it debts with its creditors with each as of the December 2010 and June 2011 closings.

The continuing settlements with unsecured and related parties have resulted in gains being recorded in the amount of $482,784 in fiscal 2012. There remains $5,259,926 of debts to be settled via the issuance of equity at yet to be determined or negotiated terms. All such debt holders have agreed per their settlement to accept equity for their remaining debt. As of August 31, 2012 the balance remained the same at $5,259,926.

F-9

During the quarter ended August 31, 2012 the Company negotiated the settlement of additional debts resulting in $10,000 being paid for the settlement of $12,025 of recorded liabilities, resulting in a gain on the settlement of such debts being recorded in the amount of $2,025.

7. STOCKHOLDERS’ DEFICIENCY

2004 transactions-(Unaudited)

a. On May 7, 2004, CDKNET.com, Inc. and Miletos entered into an “Agreement and Plan of Merger” (“the Merger Agreement”). On May 24, 2004, the merger was consummated between a wholly owned subsidiary of CDKNET.com, Inc (CDK Merger Corp) and Miletos, Inc. The successor subsidiary was renamed Arkados, Inc. Because CDKNET.com, Inc and its subsidiaries had no meaningful operations prior to May 7, 2004 and equity ownership in CDKNET.com, Inc. in an amount greater than 50% was issued to the shareholders of Miletos, Inc., this transaction has been recorded as a reorganization of Arkados, Inc. via a reverse merger with CDKNET.com, Inc.

b. In May 2004, prior to the consummation of the aforementioned reverse merger, the Company; (a) issued 200,000 common shares for services rendered by several individuals valued at $1.50 a share and were expensed prior to the consummation of the aforementioned reverse merger, (b) converted $150,834 of indebtedness owed to a law firm affiliated with the former CEO for 150,000 shares of common stock, (c) converted $165,000 of convertible debentures and related accrued interest of $51,539 for 549,866 shares of common stock.

c. Pursuant to the Merger Agreement, as amended, the consideration for the merger consisted of 16,340,577 shares of the Company’s restricted common stock (250,000 of such common shares are contingent shares and will be returned for cancellation unless called upon as a result of a breach of warranty), 39,401 shares of common stock to the former employees of Enikia, 100,000 shares were issued to the major shareholder to assume the satisfaction of certain outstanding 401K liabilities due to the employees of the predecessor entity, 2,484,644 stock options exercisable at $.01 per share, 1,149,998 stock options exercisable at $1.20 per share. In addition $950,200 was raised through the sale of 791,833 shares of common stock of the Company, 41,667 shares of common stock were issued to satisfy $50,000 of indebtedness, and 49,833 shares of common stock for $59,800 of services rendered related to the equity raise. The $59,800 of services rendered was recorded as a cost of raising such equity.

d. The 883,334 shares issued, pursuant to the terms of the Purchase Agreement relating to the aforementioned equity raise, have certain registration rights. In addition, such shareholders are entitled to liquidated damages, if a registration statement, registering such shares, is not filed within 90 days of June 1, 2004 or if the registration statement is not declared effective until 120 days after June 1, 2004, or 180 days if such registration statement is subject to review by the Securities and Exchange Commission. Such liquidated damages are calculated monthly based on the delayed days of such registration not being effective. Such calculation is 2% per month of the purchase price paid by such shareholders for the 883,333 shares purchased limited to an aggregate of 18% of the aggregate purchase price paid for the 883,333 shares purchased. The Company accrued $190,800 in penalties for the failure to register such shares issued.

e. The major shareholder of the Company allocated 2,345,410 shares of his shares in the Company to satisfy assumed obligations of Enikia for services previously rendered to the predecessor entities. Pursuant to Topic 5T of the Staff Accounting Bulletins, such contribution of the common shares of the Company have been recorded as a contribution by the shareholder to the Company in satisfaction of such liabilities recorded of $1,288,185.

2005 transactions- (Unaudited)

f. During fiscal 2005, the Company issued 575,000 shares of common stock net of another 1,050,000, which was returned for non-performance. These shares were valued at the fair market value of such stock upon issuance at prices ranging from $.50 to $2.15 per share. The aggregate compensation expense recorded in this fiscal year for these shares issued was $724,811.

g. During fiscal 2005, the Company issued 610,000 options at an exercise price of $1.20 per share which was above fair market value to its employees and directors and 1,725,000 options to third parties for services rendered at exercise prices ranging from $.01 to $1.20 per share. No compensation has been recorded for the options issued to employees and directors. The options to third parties have been valued at $900,461, which $582,292 has yet to be expensed due to the term of such services being performed.

h. The Company recorded $234,353 of interest expense related to the valuation of the detachable warrants and the beneficial conversion feature of $750,000 in debt raised from March to May 2005. This debt matured on June 8, 2005, hence predominately all of such interest expense was recorded in fiscal 2005.

F-10

i. In August 2004, a vendor converted $75,496 of payables for 125,000 shares of common stock.

2006 transactions – (Unaudited)

j.	During the year ended May 31, 2006, the Company issued 750,000 stock options with an exercise price of $.45 per share to management and its employees, which vest over four years. Another 125,000 fully vested stock options with an exercise price of $.45 were issued to consultants, an expense of $69,170 was recorded for these stock options.
k.	On March 20, 2006, the Company issued warrants to purchase up to 180,000 shares of our common stock for $0.85 per share to Emerging Capital Markets LLC as part compensation for investor relations consulting services for a three month period. The warrants vest in equal thirds on the first day of April, May and June 2006, provided there is no material breach of the related consulting agreement. Such investor relations consulting services agreement also provides for cash compensation in the amount of $20,000 per month for three months. This investor relations consulting agreement also provides for the requirement to obtain approval form this individual for any potential reverse stock splits greater than 1 for 5 and has the option to renew such agreement for another three months on the same terms.
l.	On February 1, 2006, as part of the sale of an additional $375,884 of the 6% Secured Debentures described above, the Company and the holders of all outstanding 6% Debentures agreed to modify the covenant to permit the Company to issue 609,786 shares of common stock and pay $405,744 in full satisfaction of such outstanding principal and interest concurrently with the additional investment and waived prior defaults.
m.	During the year May 31, 2006, the Company issued 75,000 shares for services valued at $22,500.
n.	There was $404,555 recorded during the year for the valuation of equity rights and beneficial conversion features attributed to debt issuances during the year.
o.	During the year May 31, 2006, the Company issued 466,600 shares of stock for debt penalties and extensions for consideration valued at $267,300.

2007 transactions – (Unaudited)

p.	In June 2006, the Company approved the issuance of 475,000 shares of Arkados stock, or $342,000, to Mr. Andreas Typaldos in recognition of his efforts to obtain financing for Arkados.
q.	During the first quarter of 2007, the Company issued to management and its employees: 1,785,000 stock options with exercise prices ranging from $.43 to $.85; all of which vest over four years.

r.	During the third quarter of 2007, the Company issued 100,000 shares with an exercise price of $.40 per share to the incoming CFO as a component of her employment contract. Another 240,000 stock options with an exercise price of $.50, vesting over 6 months, were issued to a consultant; an expense of $80,919 was recorded for these stock options.
s.	On March 3, 2007, Arkados Wireless Technologies, Inc., our wholly owned subsidiary, filed a merger certificate completing the acquisition of Aster Wireless, Inc., a previously unaffiliated Delaware corporation. The consideration for the Merger was 1,000,000 restricted shares of our common stock. In addition, the Company issued an aggregate of 259,000 seven-year options to four employees through the acquisition exercisable at $0.405 per share which vest over 4 years aggregate of 78,564 shares of restricted stock to such employees. We also issued 300,000 seven-year options to a consultant, which options vested on March 1, 2008 and are exercisable at $0.405 per share; an expense of $100,146 was recognized.
t.	During the fourth quarter of 2007, the Company issued 3,010,000 stock options with exercise prices ranging from $.33 to $.40 per share to management and its employees, which vest over four years. Another 50,000 fully vested stock options with an exercise price of $.50 were issued to a consultant; an expense of $16,858 was recorded for these stock options.

u.	The Company issued 175,604 shares of its common stock with gross proceeds of $1,756 from the exercise of options by employees.
v.	There was $424,247 recorded during the year for the valuation of equity rights and beneficial conversion features attributed to debt issuances during the year.
w.	For the year ended May 31, 2007, the Company incurred a non-cash charge of $418,997 for the amortization of stock options.

F-11

2008 transactions – (Unaudited )

x.

During the first quarter of 2008, the Company issued 30,000 shares to a vendor at a cost of $13,500 for the settlement of an outstanding balance. During the fourth quarter of 2008, the Company issued 166,667 shares to a consultant at a cost of $50,000.

y.

During the first quarter of 2008, the Company issued 190,000 options to three service providers; an expense in the amount of $50,274 was recognized for these options. During the fourth quarter, the Company extended the expiration period of 263,333 options for an employee whose contract was not renewed; an expense in the amount of $30,244 was recognized for this extension. In addition, in the same period, the Company issued 150,000 fully vested options with an exercise price of $.32 to a consultant; an expense in the amount of $24,930 was recognized for these options.

z.	During the third quarter of 2008, the Company issued 2,494,000 stock options with exercise prices of $.30 per share to management and its employees, which vest over four years.
aa.	During the fourth quarter of 2008, the Company extended the expiration for two years of 2,227,864 $.01 options due to expire on May 24, 2008 issued to employees at the time of the reorganization. The value determined by Black Scholes of $714,076 will be amortized over the next two years for this extension.
bb.	The Company issued 402,353 short-term and 402,353 long-term warrants to the purchasers of the 6% Secured Debentures. Based on the issuance date of the debentures, debt discounts were recorded in the third quarter of 2008 in the amount of $118,723.
cc.	The Company as part of a debt restructuring, agreed to amend the 10,065,210 warrants outstanding and issued with the then outstanding 6% Secured Debentures to be consistent with the 804,706 new warrants issued December 15, 2007 by extending the expiration date from an outside date of December 28, 2010 to December 28, 2012 and removing any restriction on exercising the warrants on a cashless basis or any provision which accelerates the expiration date if the shares issuable on exercise of the warrants are registered for resale under the Securities Act. The change in the terms of these warrants required a charge of $945,772 to be recorded.

dd. For the year ended May 31, 2008, the Company incurred a non-cash charge of $697,687 for the amortization of stock options.

2009 transactions – (Unaudited)

ee.	500,000 options were awarded to two service providers; an expense in the amount of $90,246 was recognized in the year ended May 31, 2009 for these options. These stock options and warrants are exercisable for three to ten years from the grant date.
ff.	2,134,469 shares of stock were granted to service providers and a former employee during the year ended May 31, 2009; $422,755 of consulting, compensation expense or reduction of accrued compensation.

gg. A refinancing and the closing on new monies received occurred in July 2008, whereby certain debts were extended in conjunction with conversion of some indebtedness in the amount of $409,113 for 944,881 shares of common stock, 2,332,131 warrants were issued to certain debt holders exercisable at $.25 per share expiring on December 1, 2008 were valued at $264,111 and expensed, accordingly, and $810,038 of monies received net of $35,000 in legal fees from May 2008 to July 2008 resulting in 3,380,159 shares of common stock being issued.

hh.

In February 2009 the Company’s Compensation Committee and Board of Director’s elected to cancel certain underwater options that had been granted to employees. A total of 8,438,184 options with exercise prices ranging from $0.25 to $1.20 were cancelled and new options totaling 75% of the total of the cancelled options (6,328,638 options) were issued to employees with an exercise price of $0.15 , the closing price on February 6, 2009, the date of grant. As a result of this measurement, no additional stock compensation expense was required to be recorded on the new options. The unamortized value of the cancelled options, $888,384, will be amortized over the two year vesting period of the newly issued options. As 50 % of the options were vested on the date of grant, a compensation expense was recorded in the amount of $444,192 on the grant date.

ii.

As a result of the past option awards and the awards made in fiscal 2009, the Company has recorded equity based amortization expense in the amount of $1,776,683.

F-12

2010 transactions – (Unaudited )

jj.	There was $54,000 recorded during the year for the valuation of equity rights and beneficial conversion features attributed to debt issuances during the year.
kk.	2,187,864 shares of stock were issued for the exercise of stock options resulting in $21,879 of gross proceeds to the Company.
ll.	As a result of the past option awards and the awards made in the prior years, the Company has recorded equity based amortization expense in the amount of $1,176,762.

2011 transactions

mm.	As a result of the past option awards and the awards made in the prior years, the Company has recorded equity based amortization expense in the amount of $603,974.
nn.	In December 2010, certain creditors converted $401,000 of their indebtedness for the issuance of 10,025,000 shares of common stock.

2012 transactions

oo.	Certain creditors received 660,000 warrants as a condition of their debt settlement with the Company. The warrants expire in May 2014 and have an exercise price of $.035 a share. There was a debt inducement settlement expense recorded for these warrants in the amount of $23,100.
pp.	In September 2011, certain creditors converted $51,582 of their indebtedness for the issuance of 3,947,213 shares of common stock, inclusive of past outstanding matters.

8. 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 (“ASC 718”).

A. Options

Compensation based stock option and warrant activity for warrants and qualified and unqualified stock options are summarized as follows:

	Shares			Weighted
				Average
				Exercise Price
Outstanding at May 31, 2006		6,886,652		$	0.64
Granted		5,824,000			0.49
Exercised		(175,604	)		0.01
Expired or cancelled		—			—
Outstanding at May 31, 2007		12,535,048			0.58
Granted		5,365,197			0.21
Exercised		—
Expired or cancelled		(2,927,864	)		0.22
Outstanding at May 31, 2008		14,972,381			0.51
Granted		14,427,600			0.15 - 0.25
Exercised		—
Expired or cancelled		(9,438,184	)		0.25 -1.20
Outstanding at May 31, 2009		19,961,797			0.27
Granted		—
Exercised		(2,228,364	)		0.01
Expired or cancelled		(583,197	)		0.25
Outstanding at May 31, 2010		17,150,236			0.30
Granted		—
Exercised		(2,227,864	)		0.01
Expired or cancelled		(13,372,372	)		0.30
Outstanding at May 31, 2011		1,550,000			0.65
Granted		—
Exercised		—
Expired or cancelled		(240,000	)		0.83
Outstanding at May 31, 2012		1,310,000			0.55
Granted		—
Exercised		—
Expired or cancelled		—
Outstanding at August 31, 2012		1,310,000		$	0.55

F-13

The following table summarizes information about options outstanding and exercisable at August 31, 2012 and May 31, 2012:

	Options Outstanding and exercisable
	Number Outstanding		Weighted- Average Remaining Life In Years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$0.26 - $1.00		1,310,000		1.8	$	0.55		1,310,000
		1,310,000			$	0.55		1,310,000

The compensation expense attributed to the issuance of the options and warrants will be recognized as they vest / earned. These stock options and warrants are exercisable for three to ten years from the grant date.

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.

B. Warrants

The issuance of warrants attributed to debt issuances are summarized as follows:

	Shares		Weighted
			Average
			Exercise Price
Outstanding at May 31, 2006		4,392,874	$	0.84
Granted		4,655,366		0.93
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2007		9,048,240		0.88
Granted		1,821,676		0.85
Exercised		0		—
Expired or cancelled		-825,000		0.67
Outstanding at May 31, 2008		10,044,916		0.84
Granted		4,022,225		0.25
Exercised		0		—
Expired or cancelled		-2,332,137		0.85
Outstanding at May 31, 2009		11,735,004		0.63
Granted		0		—
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2010		11,735,004		0.63
Granted		0		—
Exercised		0		—
Expired or cancelled		-6,499,057		0.70
Outstanding at May 31, 2011		5,235,945		0.50
Granted		660,000		0.035
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2012		5,895,945		0.50
Granted		0		—
Exercised		0		—
Expired or cancelled		0		—
Outstanding at August 31, 2012		5,895,945	$	0.50

F-14

The following table summarizes information about warrants outstanding and exercisable at August 31, 2012 and May 31, 2012:

	Outstanding and exercisable
	Number Outstanding		Weighted- average remaining life in years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$.01 to $.25		4,682,225		1.4	$	.21		4,682,225
$.26 - $.99		1,213,720		1.4	$	.85		1,213,720
		5,895,945						5,895,945

Interest expense attributed to the aforementioned warrants is being amortized over the ratable term of each respective debt arrangement.

9. COMMITMENTS AND CONTINGENCIES

The Company was utilizing premises on a month to month basis of one its shareholders during fiscal 2012 and year to date fiscal 2013.

10. SUBSEQUENT EVENTS

In November 2012, the Company received a loan in the form of a Convertible Note in the principal amount of $180,000. The note bears interest at 6% per year and matures on October 31, 2014. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.01 per share. The beneficial conversion feature has been fair valued at $180,000 and will be amortized over the life the debt instrument.

In December 2012, the Company received a loan in the form of a Convertible Note in the principal amount of $20,000. The note bears interest at 6% per year and matures on October 31, 2014. If not paid upon maturity, the interest rate will increase to 12% per year. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.01 per share. The beneficial conversion feature has been fair valued at $20,000 and will be amortized over the life the debt instrument.

On January 6, 2013, the Company and Andreas Typaldos, former officer and director, entered into a Separation and Release Agreement. Under the Separation Agreement all prior Typaldos Agreements will be terminated and certain debts and obligations to Typaldos will be released in exchange for (1) $15,920 and (2) 14,073,966 shares of common stock. In addition, $19,000 will be paid to Typaldos’ son for an existing loan with the Company. The Company has yet to issue such shares under this Separation Agreement.

On April 22, 2013, the Company executed two Convertible Notes for loans in principal amount of $40,000 each. Each note bears interest at 6% per year and matures on April 30, 2015. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.02 per share for both notes. The beneficial conversion feature has been fair valued at $40,000 each and will be amortized over the life the debt instrument.

F-15

On April 22, 2013, the Company executed a Convertible Note for a loan in the principal amount of $120,000. The note bears interest at 6% per year and matures on April 30, 2015. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.02 per share. The beneficial conversion feature has been fair valued at $120.000 and will be amortized over the life the debt instrument.

On May 2, 2013, the Company executed a Convertible Note for a loan in the principal amount of $200,000. The note bears interest at 6% per year and matures on April 30, 2015. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.02 per share. The beneficial conversion feature has been fair valued at $200,000 and will be amortized over the life the debt instrument.

F-16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto.

Following the December 23, 2010 Asset Sale, the Company continued to engage in the process of finalizing settlement and release agreements with its secured creditors, other noteholders, former employees and its other unsecured creditors.

During this period, the Company was focused on negotiating and finalizing the settlements and releases with its creditors and did not materially pursue plans to shift its primary business operation focus to product design. Arkados had no employees and did not produce any products or services during the period following December 23, 2010 through August 31, 2012, the end of the period described in this report.

We did not generate revenue from operations during quarter ending August 31, 2012, and we were completely dependent on outside sources of financing for our operations.

Corporate Background

We conduct our business activities principally through Arkados, Inc., which is a wholly owned subsidiary. In September 2006, we changed our corporate name from CDKnet.com, Inc., to its current form to align our corporate identity with the “Arkados” brand developed by our subsidiary.

We were an early adopter in the powerline communication space, and experienced in home automation. Our Arkados, Inc. subsidiary was a member of the HomePlug Powerline Alliance, an independent trade organization which has developed global specifications for high-speed powerline communications, the world's leading professional association for the advancement of technology.

The Company underwent a significant restructuring between December 23, 2010 and continuing beyond May 31, 2012 (the period ending for this report) during which substantially all of its assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”), as disclosed in the 8-K filed December 29, 2010 and further described (as to the closing) in the 8-K filed July 12, 2011. Following December 23, 2010, the Company had minimal operations but also attempted to develop a plan to pursue a different course of operations.

During the period covered by this report back to December 23, 2010 (i.e. the date of the Asset Sale), we were principally engaged in developing and marketing technology and solutions enabling broadband communication, multimedia, and networking over standard household electrical lines.

Most recently (i.e. following January, 2013), Arkados has shifted its focus towards development of a universal platform that provides software solutions for smart grid and smart home applications primarily in the areas of energy management, home health care, smart appliances and home security and entertainment.

Market Opportunities

We expect to develop our sales force to include a network of direct sales regions. As we develop our international relationships with Tatung and STMicroelectronics, we expect to establish international sales offices and develop relationships with organizations related to our business that will be located worldwide. We anticipate supplementing our direct sales force with sales representative organizations and distributors. The scope and development of our sales and marketing organization will depend, among other things, on the amount of capital available to us and when products are ready for testing.

Industry Background

While endeavoring to restructure the Company following the Asset Sale and settle obligations as a result of the Asset Sale, we retained the ability to pursue key elements of our software and platform solutions.

Electric meters with enhanced communication capabilities—an essential component of the smart grid—are becoming more prevalent. In 2011, more than 23% of all U.S. electrical customers had smart meters. These meters use two-way communication to connect utilities and their customers. They support demand response and distributed generation, can improve reliability, and also provide information that consumers can use to save money by managing their use of electricity.

2

According to research firm Zpryme, the smart grid core and enabled technology market will reach $220 billion in size by 2020. The explosive growth in this market is driven primarily by the first wave of smart grid implementation: advanced metering infrastructure (the “AMI”). Utilities throughout the world have aggressively implemented smart meters to residential and industrial customers mainly because it is the required first step to achieve a true smart grid and, secondarily, in response to significant government incentives to do so. AMI lays the foundation as a hub for networking and communication and it the gateway to the HAN. From the perspective of the end user (residential or industrial), in-home (or in-building) devices are not only capable to communicating with the other devices within the local network, but are also capable of communicating outward to the FAN and WAN and implementing demand response protocols.

Strategic Relationships

We continue to foster our relationships with STMicroelectronics and Tatung. Each of these relationships will allow Arkados to engage in our devised strategy of developing software and platform solutions for home automation services.

Research and Development

While we may engage in certain activities in pursuit of home automation services plans, no such activity exists through the end of the period covered by this report.

Patents, Licenses and Trademarks

The Company did not acquire any patents, licenses or trademarks during the period of this report. We continue to maintain our license with STMicroelectronics for patents relating to home automation services.

Competition

We face competition both from established players that are beginning to focus on powerline networking technology, as well as recent entrants in the field. Some of these competitors create solutions that are compliant with existing standards and specifications, while other competitors’ products are based on proprietary technologies. Key competitors include companies such as Tendril, Greenbox Technology and Echelon.

Results of Operations

We have not had significant revenue from operations since inception and, as a result of the sale of substantially all our assets that occurred during 2011, as of August 31, 2012, we are still a development stage company. Furthermore, we have financed operating losses since September 2004 with the proceeds primarily from related party lending from our major stockholders and affiliated lenders, as well as other stockholders and lenders.

If we are unable to raise funds to finance our working capital needs, we will not have the capital necessary for ongoing operations and for making our chip ready for mass production, we could lose professional staff necessary to develop our products and the value of our technology could be impaired. In addition, the lack of adequate funding could jeopardize our development and delivery schedule of our planned products. Such delays could in turn jeopardize relationships with our current customers, strategic partners and prospective suppliers.

For The Three Months Ended August 31, 2012

During the three month period ended August 31, 2012 and 2011, the Company recorded no revenue. Total operating expenses for the three month period ended August 31, 2012 were $39,574 compared to total operating expenses for the three month period ended August 31, 2011 of $131,302. In both periods, the most significant expenses were consulting expenses and professional fees.

Interest expense on our existing debt for the three month periods ended August 31, 2012 and 2011 was $13,887 and $11,772, respectively.

3

Liquidity and Capital Resources

Our principal source of operating capital has been provided in the form of equity investments and, the private placement of debt securities coupled with warrants and related party loans. We do not have any significant sources of revenue from our operations. No assurance can be given that we can engage in any public or private sales of our equity or debt securities to raise working capital. We have depended, in part, upon loans from our present stockholders or management and there can be no assurances that our present stockholders or management will make any additional loans to us.

Our present material commitments are the compensation of our employees, including our executive officers, and professional and administrative fees and expenses associated with the preparation of our filings with the Securities and Exchange Commission and other regulatory requirements.

As of August 31, 2012, we had cash of approximately $611 and negative working capital of ($9,343,819) compared to cash of $4,913 and negative working capital of ($9,292,384) at May 31, 2012.

Commitments

We do not have any commitments which are required to be disclosed in tabular form as of August 31, 2012.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. As of August 31, 2012, management believes the critical accounting policies applicable to the Company that are reflective of significant judgments and or uncertainties are limited to equity based transactions or convertible debt instruments.

Accounting for Stock Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model. ASC 718 is a complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. ASC 718 requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

Impact of Debt with Conversion Features

The Company at times enters into financing transactions whereby such debt instruments contain conversion features into common stock and or may contain detachable equity rights. These debt inducement features may be considered freestanding and or beneficial conversion features in our financial statements pursuant to the accounting guidance under ASC 470-20. These features would be fair valued and recorded as a discount to the debt instrument and amortized over the life of the instrument. Additional valuation features of warrants, conversion features in debt, and similar terms that include “full-ratchet” or reset provisions, which mean that the exercise or conversion price adjusts to pricing in subsequent sales or issuances, no longer meet the definition of indexed to a company's own stock and are not exempt from equity classification provided in ASC Topic 815-15. This means that instruments that were previously classified in equity are reclassified to liabilities and ongoing measurement under ASC Topic 815. The amount of quarterly non-cash gains or losses we will record in future periods will be based upon the fair market value of our common stock on the measurement date.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

4

Item 3. Quantitative And Qualitative Disclosures About Market Risk.

We did not have any market risk sensitive instruments outstanding during this period.

Item 4. Controls and Procedures.

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As a result of this evaluation, we concluded that our disclosure controls and procedures were not effective for the period ended August 31, 2012.

Due to its small size and limited financial resources, the Company has only one employee involved in accounting and financial reporting.  As a result, there is no segregation of duties within the accounting function, leaving all aspects of financial control and physical control of cash in the hands of the same employee.  In addition, our deficiencies include a lack of timely financial statement preparation and account reconciliations, as well as , and as a result of limited funding, the ability to retain personnel with sufficient technical expertise regarding accounting for certain equity-based transactions. The CEO is currently working to retain a full-time Chief Financial Officer and to put it in place compensating levels of controls to provide for greater segregation of duties.  

Other than those described above, there have been no significant changes in our internal control over financial reporting that occurred during the first fiscal quarter of 2013, ended August 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Changes In Internal Control Over Financial Reporting

None.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

There has been no material change in any of the matters set forth in Item 3. of our Form 10-K report for the fiscal year ended May 31, 2012 and no new litigation commenced since the filing of our Form 10-K that would be required to be disclosed in response to this Item.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended May 31, 2012 which could materially affect our business, financial condition or future results. There have been no other material changes during the quarter ended August 31, 2012 to the risk factors discussed in the periodic reports noted above that have not already been disclosed in the Company’s most recently filed 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

5

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

The Company did not receive any financing during this quarter.

Item 6. Exhibits.

(a) Exhibits.

31.1 Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).

31.2 Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).

32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

6

SIGNATURES

In accordance with the requirements of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: September 6, 2013	ARKADOS GROUP, INC.
	By:	/s/ Terrence DeFranco
		Terrence DeFranco
		President and Chief Executive Officer, Principal Accounting Officer

7

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Terrence DeFranco, certify that:

1.   I have reviewed this Form 10-Q of Arkados Group, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   As sole officer of the registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   As sole officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or person(s) performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting

Date  September 6, 2013	/s/ Terrence DeFranco
	Terrence DeFranco, CEO

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Terrence DeFranco, certify that:

1.   I have reviewed this Form 10-Q of Arkados Group, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   As sole officer of the registrant, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   As sole officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or person(s) performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting

Date  September 6, 2013	/s/ Terrence DeFranco
	Terrence DeFranco
	Principal Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Arkados Group, Inc. (the “Company”) for the quarterly period ended August 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terrence DeFranco, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/Terrence DeFranco

Terrence DeFranco

Chief Executive Officer

September 6, 2013

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Arkados Group, Inc.(the “Company”) for the quarterly period ended August 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terrence DeFranco, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/Terrence DeFranco

Terrence DeFranco

Principal Accounting Officer

September 6, 2013

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Aug. 31, 2012

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

a. Basis of Presentation - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $25 million since inception including a net loss of $51,435 for the three months ended August 31, 2012. Additionally, though the Company had a net working capital increases recently, the Company still had working capital and shareholders’ deficiencies at August 31, 2012 and May 31, 2012 and negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. 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.

Consolidation, Policy [Policy Text Block]

b. Principles of consolidation - The consolidated financial statements include the accounts of Arkados Group, Inc. (the “Parent”), and its wholly owned subsidiaries, which include: CDKnet, LLC, Creative Technology, LLC, CDK Financial Corp. Diversified Capital Holdings, LLC, Arkados, Inc. and Arkados Wireless Technologies, Inc.  Currently, Arkados, Inc., however, is the only active entity with operations. Intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents, Policy [Policy Text Block]

c. Cash and cash equivalents - The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments, Policy [Policy Text Block]

d. Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. The Company cannot estimate the fair value of the remaining outstanding payroll tax penalties and interest recorded in connection with the 2004 merger and legacy payables. As defined in Accounting Standards Codification (“ASC”) Topic No. 820, 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.   The three levels of the fair value hierarchy defined by ASC Topic No. 820 are as follows:   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.

Earnings Per Share, Policy [Policy Text Block]

e. Income (Loss) Per Share - Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding. For the three months ended August 31, 2011 the diluted income per share is the same as the basic income per share since the exercise price of the 5,895,945 warrants exceeded the market on such day. The diluted loss per share for the three months ended August 31, 2012 is the same as the basic loss per share, as any potential dilutive securities would be anti-dilutive.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

f. Equity Based Compensation - In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period.   In accordance with the FASB Guidance for the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:   The Company has recorded compensation expense for the three months ended August 31, 2012 and, 2011, in the amounts of $-0- and $-0-, respectively.

Use of Estimates, Policy [Policy Text Block]

g. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Research and Development Expense, Policy [Policy Text Block]

h.        Research and Development –All research and development costs are expensed as incurred.

New Accounting Pronouncements, Policy [Policy Text Block]

i. New Accounting Pronouncements – All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		101 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Net sales	$ 0	$ 0	$ 3,127,478
Cost of sales	0	0	2,145,042
Gross Profit	0	0	982,436
Operating expenses:
Selling, general and administrative	39,574	131,302	23,115,328
Research and development	0	0	11,321,906
Total operating expenses	39,574	131,302	34,437,234
Income (loss) from operations	(39,574)	(131,302)	(33,454,798)
Other income (expenses):
Interest expense	(13,886)	(11,772)	(15,130,516)
Settlement of debt	2,025	482,784	11,819,506
Sale of license and IP agreements	0	4,000,000	11,000,000
Net income (loss) before provision for income taxes	(51,435)	4,339,710	(25,765,808)
Provision for income taxes	0	0	(741,562)
Net income (loss)	$ (51,435)	$ 4,339,710	$ (25,024,246)
Income (loss) per common share - basic: (in dollars per share)	$ 0.00	$ 0.10
Weighted average of common shares outstanding - basic (in shares)	48,898,474	44,951,261
Income (loss) per common share - fully diluted (in dollars per share)	$ 0.00	$ 0.10
Weighted average shares of common stock outstanding - ly fully diluted (in shares)	48,898,474	44,951,261

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PAYROLL TAX LIABILITIES

3 Months Ended

Aug. 31, 2012

Payroll Tax Liabilities [Abstract]

Payroll Tax Liabilities [Text Block]

4. PAYROLL TAX LIABILITIES

Enikia was in arrears for several years in its payment of federal and state payroll taxes. Pursuant to the Merger Agreement, the Parent assumed up to $1.2 million of the delinquent payroll taxes due and outstanding with the remaining difference an assumed liability of the major shareholder of the Company. During the year ended May 31, 2006, the Company made payments to both Federal and State of NJ taxing authorities in the amount of $874,000. The payments represented payroll taxes withheld by Miletos from its employees but not remitted to the taxing authorities. During the year ended May 31, 2008, an additional $64,106 payment was made to the State of NJ for payment of payroll taxes. Currently, there is $936,906 still recorded on the Company’s books as reserved against amounts possibly due and outstanding to both the federal and state tax authorities for penalties and interest incurred by Enikia related to its payroll liabilities. The Company does not believe that it has a legal obligation to pay anything more to any taxing authority, but until such clearance is received from the appropriate agencies, the Company has elected to keep the liability on its books.

XML

ACCRUED EXPENSES AND OTHER LIABILITIES (Details) (USD $)	Aug. 31, 2012	May 31, 2012
Accounts payable	$ 1,487,717	$ 1,442,634
Accrued interest and penalties payable	134,272	122,410
Accrued income taxes	100,000	100,000
Accrued other	616,653	616,653
Accrued Liabilities	$ 2,338,642	$ 2,281,697

XML

ACCRUED EXPENSES AND OTHER LIABILITIES (Tables)

3 Months Ended

Aug. 31, 2012

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

As of August 31, 2012 and May 31, 2012, accrued expenses and other liabilities consist of the following approximate amounts:

	August 31, 2012		May 31, 2012
Accounts payable	$	1,487,717	$	1,442,634
Accrued interest and penalties payable		134,272		122,410
Accrued income taxes		100,000		100,000
Accrued other		616,653		616,653
	$	2,338,642	$	2,281,697

XML

STOCK-BASED COMPENSATION (Details) (USD $)	3 Months Ended	12 Months Ended
	Aug. 31, 2012	May 31, 2012	May 31, 2011	May 31, 2010	May 31, 2009	May 31, 2008	May 31, 2007
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance (in shares)	1,310,000	1,550,000	17,150,236	19,961,797	14,972,381	12,535,048	6,886,652
Granted (in shares)	0	0	0	0	14,427,600	5,365,197	5,824,000
Exercised (in shares)	0	0	(2,227,864)	(2,228,364)	0	0	(175,604)
Expired or cancelled (in shares)	0	(240,000)	(13,372,372)	(583,197)	(9,438,184)	(2,927,864)	0
Balance (in shares)	1,310,000	1,310,000	1,550,000	17,150,236	19,961,797	14,972,381	12,535,048
Balance (in dollar per share)	$ 0.55	$ 0.65	$ 0.30	$ 0.27	$ 0.51	$ 0.58	$ 0.64
Granted (in dollar per share)						$ 0.21	$ 0.49
Exercised (in dollar per share)			$ 0.01	$ 0.01			$ 0.01
Expired or cancelled (in dollar per share)		$ 0.83	$ 0.30	$ 0.25		$ 0.22	$ 0
Balance (in dollar per share)	$ 0.55	$ 0.55	$ 0.65	$ 0.30	$ 0.27	$ 0.51	$ 0.58
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in dollar per share)					$ 0.25
Expired or cancelled (in dollar per share)					$ 1.20
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in dollar per share)					$ 0.15
Expired or cancelled (in dollar per share)					$ 0.25
Range One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance (in shares)	1,310,000
Balance (in dollar per share)	$ 0.55

XML

STOCKHOLDERS' DEFICIENCY (Details Textual) (USD $)	3 Months Ended							12 Months Ended									101 Months Ended	12 Months Ended							12 Months Ended							2 Months Ended	12 Months Ended	2 Months Ended	12 Months Ended		3 Months Ended			12 Months Ended	3 Months Ended				12 Months Ended					2 Months Ended	12 Months Ended								2 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended												3 Months Ended		12 Months Ended	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2008	Feb. 29, 2008	Aug. 31, 2007	May 31, 2007	Feb. 28, 2007	May 31, 2012	May 31, 2011	May 31, 2010	May 31, 2009	May 31, 2008	May 31, 2007	May 31, 2006	May 31, 2005	May 31, 2004	Aug. 31, 2012	May 31, 2009 Employee Stock Option [Member]	May 31, 2008 Employee Stock Option [Member]	May 31, 2007 Employee Stock Option [Member]	May 31, 2009 Underwater Options [Member]	May 31, 2006 Secured Debentures [Member]	May 31, 2008 Secured Debentures [Member]	Feb. 29, 2008 Secured Debentures [Member]	May 31, 2009 Maximum [Member]	May 31, 2005 Maximum [Member]	May 31, 2009 Maximum [Member] Underwater Options [Member]	May 31, 2009 Minimum [Member]	May 31, 2005 Minimum [Member]	May 31, 2009 Minimum [Member] Underwater Options [Member]	May 31, 2004 Purchase Agreement [Member]	May 31, 2004 Merger Agreement Amended [Member]	May 31, 2004 Merger Agreement Amended [Member]	May 31, 2004 Reverse Merger [Member]	May 31, 2004 Majority Shareholder [Member] Enikia, LLC [Member]	May 31, 2005 Employee And Director [Member]	Feb. 29, 2008 Management And Employees [Member]	May 31, 2007 Management And Employees [Member]	Aug. 31, 2006 Management And Employees [Member]	May 31, 2006 Management And Employees [Member]	May 31, 2007 Management And Employees [Member] Maximum [Member]	Aug. 31, 2006 Management And Employees [Member] Maximum [Member]	May 31, 2007 Management And Employees [Member] Minimum [Member]	Aug. 31, 2006 Management And Employees [Member] Minimum [Member]	May 31, 2006 Emerging Capital Markets LLC [Member]	May 31, 2007 Four Employees [Member]	May 31, 2004 Restricted Stock [Member] Merger Agreement Amended [Member]	May 31, 2004 Employee Stock Option 1 [Member] Merger Agreement Amended [Member]	May 31, 2004 Employee Stock Option 2 [Member] Merger Agreement Amended [Member]	May 31, 2004 Common Stock [Member]	May 31, 2012 Common Stock [Member]	May 31, 2011 Common Stock [Member]	May 31, 2010 Common Stock [Member]	May 31, 2009 Common Stock [Member]	May 31, 2008 Common Stock [Member]	May 31, 2007 Common Stock [Member]	May 31, 2006 Common Stock [Member]	May 31, 2005 Common Stock [Member]	May 31, 2004 Common Stock [Member] Merger Agreement Amended [Member]	May 31, 2004 Common Stock [Member] Merger Agreement Amended [Member]	Aug. 31, 2012 Warrant [Member]	May 31, 2012 Warrant [Member]	May 31, 2011 Warrant [Member]	May 31, 2010 Warrant [Member]	May 31, 2009 Warrant [Member]	May 31, 2008 Warrant [Member]	May 31, 2007 Warrant [Member]	May 31, 2005 Warrant [Member]	May 31, 2004 Chief Executive Officer [Member] Reverse Merger [Member]	May 31, 2004 Chief Executive Officer [Member] Accrued Interest [Member] Reverse Merger [Member]	May 31, 2004 Chief Executive Officer [Member] Convertible Debenture [Member] Reverse Merger [Member]	May 31, 2004 Chief Executive Officer [Member] Common Stock [Member] Reverse Merger [Member]	May 31, 2004 Chief Executive Officer [Member] Common Stock [Member] Convertible Debt [Member] Reverse Merger [Member]	Feb. 28, 2007 Chief Financial Officer [Member]	May 31, 2008 Consultant [Member]	May 31, 2007 Consultant [Member]	Aug. 31, 2007 Vendor [Member]	May 31, 2004 Miletos Inc [Member]
Class of Warrant or Right [Line Items]
Equity Method Investment, Ownership Percentage																																																																														50.00%
Stock Issued During Period, Value, Issued for Services											$ 422,755	$ 63,500	$ 342,000	$ 22,500	$ 724,811																			$ 200,000	$ 1,288,185																			$ 213	$ 20	$ 47	$ 8	$ 58																	$ 50,000		$ 13,500
Share Price																										$ 2.15			$ 0.50					$ 1.50
Debt Conversion, Original Debt, Amount															75,496																		50,000																																				150,834	51,539	165,000
Debt Conversion, Converted Instrument, Shares Issued																																																									609,786	125,000	41,667													150,000	549,866
Business Combination Contingent Consideration Shares Issuable																																															250,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	1,310,000																1,310,000																															2,484,644	1,149,998
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price																																																$ 0.01	$ 1.20
Proceeds from Issuance of Common Stock	0	0															1,232,646																950,200
Sale of Stock, Number of Shares Issued in Transaction																																																												791,833
Stock Issued During Period, Shares, Issued for Services																																49,833			2,345,410																			2,134,469	196,667	475,000	75,000	575,000																	166,667		30,000
Noncash Merger Related Costs																																	59,800
Stock Issued During Period, Shares, New Issues															575,000																883,334
Liquidated Damage Monthly Calculation Percentage																															2.00%
Stock Purchased During Period																															883,333
Liquidated Damage Calculation Percentage																18.00%
Accrued Liquidated Damage Amount																190,800
Share-based Compensation, Total	0	0				16,858			603,974	1,176,762			100,146	69,170	724,811		11,706,492																												20,000
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period																																				610,000	2,494,000	3,010,000	1,785,000	750,000																																		100,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price												$ 0.21	$ 0.49								$ 0.15				$ 0.25			$ 0.15								$ 1.20	$ 0.3			$ 0.45	$ 0.40	$ 0.85	$ 0.33	$ 0.43																														$ 0.40
Stock Options Issued To Third Party, Number Of Options															1,725,000
Stock Options Issued To Third Party, Exercise Price Of Options																										$ 1.20			$ 0.01
Stock Options Issued To Third Party, Value Of Options															900,461
Stock Options Issued To Service Providers, Value Of Expense Not Yet Recognized															582,292
Debt Instrument, Increase, Accrued Interest																																																																				234,353
Debt Instrument, Convertible, Beneficial Conversion Feature										54,000	264,111		424,247	404,555																																																						750,000
Debt Instrument, Maturity Date																																																																				Jun. 08, 2005
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period																																					4 years	4 years	4 years	4 years
Fully Vested Options Issued To Consultants, Number Of Options			150,000			50,000
Stock To Be Issued Upon Conversion of Warrants																																													180,000
Exercise Price of Warrant											$ 0.25																																		$ 0.85																	$ 0.035
Warrants Expiration Date											Dec. 01, 2008
ShareBasedCompensationArrangementByShareBasedPaymentAwardVestingTerm																																													thirds on the first day of April, May and June 2006
Debt Instrument, Interest Rate, Stated Percentage																						6.00%	6.00%	6.00%
Debt Instrument, Periodic Payment																						405,744
Stock Issued During Period Value Issued For Debt Accommodation And Penalties														267,300																																											47
Stock Issued During Period Shares Issued For Debt Accommodation And Penalties																																																									466,600
Stock Options Issued To Consultants, Number Of Options							240,000
Stock Options Issued To Consultants, Exercise Price Of Options							$ 0.50
Stock Options Issued To Consultants, Vesting Period				6 years
Stock Options Issued To Consultants, Value Of Expense Recognized							80,919
Business Acquisition Consideration Stock Option Issued																																														259,000																														300,000
Business Acquisition Consideration Stock Option Expiration Period																																														7 years																														7 years
Business Acquisition Consideration Stock Option Weighted Average Exercise Price																																														$ 0.405																														$ 0.405
Business Acquisition Consideration Stock Option Vesting Period																																														4 years
Business Acquisition Consideration Stock Option Expected To Be Vest																																														78,564
Fully Vested Options Issued To Consultants, Exercise Price Of Options			$ 0.32			$ 0.50								$ 0.45
Stock Issued During Period, Value, Stock Options Exercised										21,879			1,756																																								219			17
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period																																																					2,187,864			175,604
Amortization, Total																		1,776,683	697,687	418,997
Stock Options Issued To Service Providers, Number Of Options					190,000						500,000
Stock Options Issued To Service Providers, Value Of Expense Recognized					50,274						90,246
Options Issued To Employees, Expenses Recognized Upon Extension Of Expiration Period			30,244
Fully Vested Options Issued To Consultants, Value Of Expense Recognized			24,930
Stock Options Issued To Employees, Number Of Options Expiration Period Extended			2,227,864		263,333
Stock Options Issued To Employees, Expiration Period Extended Term			2 years
Stock Options Issued To Employees, Exercise Price Of Options Expiration Period Extended			$ 0.01
Options Issued To Employees, Value Of Options Expiration Period Extended			714,076
Short Term Warrants Issued To Purchasers Of Secured Debentures				402,353
Long Term Warrants Issued To Purchasers Of Secured Debentures				402,353
Amortization of Financing Costs and Discounts, Total				118,723
Class of Warrant or Right, Outstanding			10,065,210									10,065,210
Warrants Issued											2,332,131	804,706
Debt Restructuring Amendments, Change In Terms Of Warrants, Charge To Be Recorded												945,772
Stock Options Issued To Service Providers, Exercisable Weighted Average Contractual Term, Minimum											3 years
Stock Options Issued To Service Providers, Exercisable Weighted Average Contractual Term, Maximum											10 years
Proceeds from Issuance of Private Placement	0	0									810,038						810,038
Legal Fees											35,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period																					8,438,184
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price																											$ 1.20			$ 0.25
Percentage Of New Options Issued																					75.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0							0	0	0	14,427,600	5,365,197	5,824,000								6,328,638
Unamortized Value Of Cancelled Options																					888,384
Percentage Of New Options Vested																					50.00%
Share Based Compensation, Options Vested, Compensation Expense Recognized On Grant Date																					444,192
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted																																																													0	660,000	0	0	4,022,225	1,821,676	4,655,366
Warrants And Debt Instrument Beneficial Conversion Feature	0	0						23,100									650,816
Fully Vested Options Issued To Consultants, Number Of Option														125,000
Debt Conversion, Converted Instrument, Amount														405,744	75,496							375,884																																			61	13
Stock Issued During Period, Value, Conversion of Convertible Securities	$ 0							$ 51,582	$ 401,000		$ 409,113																																								$ 394	$ 1,002		$ 95
Stock Issued During Period Shares Issued In Private Placement Memorandum																																																		841,666				3,380,159
Stock Issued During Period, Shares, Conversion of Convertible Securities																																																			3,947,213	10,025,000		944,881
Unamortized Value Of Cancelled Options Period																					2 years
Common Stock Returned During Period For Non Performance															1,050,000

XML

STOCK-BASED COMPENSATION (Details Textual) (Employee Stock Option [Member])	3 Months Ended
	Aug. 31, 2012
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years

XML

NOTES PAYABLE, RELATED PARTY PAYABLES, DEBT SUBJECT TO EQUITY BEING ISSUED AND SETTLEMENT OF DEBT (Details Textual) (USD $)	3 Months Ended		12 Months Ended		101 Months Ended		3 Months Ended	12 Months Ended							3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012	May 31, 2011	Aug. 31, 2012	May 31, 2010	Aug. 31, 2012 Warrant [Member]	May 31, 2012 Warrant [Member]	May 31, 2011 Warrant [Member]	May 31, 2010 Warrant [Member]	May 31, 2009 Warrant [Member]	May 31, 2008 Warrant [Member]	May 31, 2007 Warrant [Member]	May 31, 2006 Warrant [Member]	Aug. 31, 2012 Warrant [Member] Maximum [Member]	Aug. 31, 2012 Warrant [Member] Minimum [Member]
Notes Payable And Convertible Debentures						$ 17,269,689
Interest Payable						3,671,137
Repayments of Notes Payable			3,526,523	5,570,059
Notes Payable, Current, Total	678,956		688,768		678,956
Proceeds from Related Party Debt	0	100,000	130,000		1,716,726
Due to Related Parties, Current	130,000		130,000		130,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number (in shares)	5,895,945				5,895,945		5,895,945	5,895,945	5,235,945	11,735,004	11,735,004	10,044,916	9,048,240	4,392,874
Fair Value Assumptions, Risk Free Interest Rate															1.39%	1.32%
Fair Value Assumptions, Expected Term															2 years	6 months
Fair Value Assumptions, Expected Volatility Rate															251.00%	206.00%
Fair Value Assumptions, Expected Dividend Rate							0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Forfeitures and Expirations, Total							0	0	6,499,057	0	2,332,137	825,000	0
Gains (Losses) on Extinguishment of Debt, Total	2,025	482,784	482,784		11,819,506
Convertible Debt, Current	5,259,926		5,259,926		5,259,926
Repayments of Debt	10,000	106,355			6,155,670
Debt, Current, Total	$ 12,025				$ 12,025

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended		101 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Cash flows from operating activities:
Net income (loss)	$ (51,435)	$ 4,339,710	$ (25,024,246)
Adjustments to reconcile net income (loss) to net Cash (used in) provided by operating activities:
Depreciation and amortization	0	0	1,621,849
Stock based compensation	0	0	11,706,492
Warrants and beneficial conversion rights with debt	0	0	650,816
Debt and interest penalty	0	0	4,683,122
Amortization of deferred expenses	0	0	130,625
Gain on settlement of debt	(2,025)	(482,784)	(11,819,506)
Changes in operating assets and liabilities:
Inventory	0	0	630
Deferred expenses	0	0	674,246
Prepaid expenses	0	0	(47,213)
Bank overdraft	0	6,912	0
Payroll taxes and related penalties and interest payable	0	0	(22,916)
Accounts payable and accrued expenses	59,159	(439,464)	11,858,147
Net cash (used in) provided by operating activities	5,698	3,424,374	(5,587,954)
Cash flows from investing activities:
Purchase of fixed assets	0	0	(140,671)
Sales of assets	0	0	124,066
Net cash used in investing activities	0	0	(16,605)
Cash flows from financing activities:
Related party payables	0	100,000	1,716,726
Proceeds from debt	0	0	1,746,745
Contribution of capital	0	0	1,232,646
Exercise of stock options	0	0	23,635
Repayment of debt	(10,000)	(106,355)	(6,155,670)
Private placement	0	0	810,038
Proceeds from convertible debt	0	0	1,066,500
Issuance of debentires	0	0	9,533,461
Repayment of related party payables	0	(3,420,168)	(4,369,195)
Net cash (used in) provided by financing activities	(10,000)	(3,426,523)	5,604,886
Net increase (decrease) in cash	(4,302)	(2,149)	326
Cash and cash equivalents beginning of period	4,913	2,586	285
Cash and cash equivalents at end of period	611	437	611
Supplemental disclosure of cash flow information:
Interest paid	0	0
Income taxes paid	$ 0	$ 0

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Aug. 31, 2012

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.

Basis of Presentation - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $25 million since inception including a net loss of $51,435 for the three months ended August 31, 2012. Additionally, though the Company had a net working capital increases recently, the Company still had working capital and shareholders’ deficiencies at August 31, 2012 and May 31, 2012 and negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. 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.

b.

Principles of consolidation - The consolidated financial statements include the accounts of Arkados Group, Inc. (the “Parent”), and its wholly owned subsidiaries, which include: CDKnet, LLC, Creative Technology, LLC, CDK Financial Corp. Diversified Capital Holdings, LLC, Arkados, Inc. and Arkados Wireless Technologies, Inc.  Currently, Arkados, Inc., however, is the only active entity with operations. Intercompany accounts and transactions have been eliminated in consolidation.

c.	Cash and cash equivalents - The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents.
d.	Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. The Company cannot estimate the fair value of the remaining outstanding payroll tax penalties and interest recorded in connection with the 2004 merger and legacy payables. As defined in Accounting Standards Codification (“ASC”) Topic No. 820, 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. The three levels of the fair value hierarchy defined by ASC Topic No. 820 are as follows: 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.
e.	Income (Loss) Per Share - Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding. For the three months ended August 31, 2011 the diluted income per share is the same as the basic income per share since the exercise price of the 5,895,945 warrants exceeded the market on such day. The diluted loss per share for the three months ended August 31, 2012 is the same as the basic loss per share, as any potential dilutive securities would be anti-dilutive.
f.	Equity Based Compensation - In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. In accordance with the FASB Guidance for the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: The Company has recorded compensation expense for the three months ended August 31, 2012 and, 2011, in the amounts of $-0- and $-0-, respectively.

g.	Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
h.	Research and Development –All research and development costs are expensed as incurred.
i.	New Accounting Pronouncements – All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

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ACCRUED EXPENSES AND OTHER LIABILITIES

3 Months Ended

Aug. 31, 2012

Payables and Accruals [Abstract]

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

5. ACCRUED EXPENSES AND OTHER LIABILITIES

As of August 31, 2012 and May 31, 2012, accrued expenses and other liabilities consist of the following approximate amounts:

	August 31, 2012		May 31, 2012
Accounts payable	$	1,487,717	$	1,442,634
Accrued interest and penalties payable		134,272		122,410
Accrued income taxes		100,000		100,000
Accrued other		616,653		616,653
	$	2,338,642	$	2,281,697

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SALE OF LICENSE AND IP AGREEMENTS

3 Months Ended

Aug. 31, 2012

Sale Of License And Intellectual Property Agreements [Abstract]

Sale Of License And Intellectual Property Agreements [Text Block]

3. SALE OF LICENSE AND IP AGREEMENTS

In December 2010, the Company entered into an agreement to sell substantially all of the assets used in the Company’s business of designing, developing and selling semiconductor products that incorporate powerline communications and networking services and offering services related thereto (the “Asset Sale”) to STMicroelectronics, Inc. (“ST US”), a subsidiary of STMicroelectronics N.V. (“ST”), pursuant to an Asset Purchase Agreement, by and among the Company, the Companies Arkados, Inc., and Arkados Wireless Technologies, Inc. subsidiaries (collectively, “Arkados”) and ST US, dated as of December 23, 2010 (the “Purchase Agreement”).  At the same time the Company granted a license (the “License”) to ST US to use the Company’s intellectual property assets included in the Asset Sale pending the closing of such sale. The License and Asset Sale was for an aggregate of $11 million. The License Agreement portion closed in December 2010 for $7 million and the Asset Sale closed in June 2011 for $4 million.  At the time the Asset Sale is completed, ST US has agreed to license back certain intellectual property to Arkados, Inc. on a non-exclusive basis to facilitate the continuation and expansion of the Company’s consumer electronics systems business, support the Company’s existing customers and, subject to the settlement of the Company’s outstanding debt and obtaining adequate financing (of which there is no assurance), permit us to continue the development and marketing of Smart Grid products based on powerline communication semiconductors.  The Company will also continue to provide consulting and development services to existing customers and users of powerline communication semiconductors.  ST US hired substantially all of the Company’s engineering and semiconductor employees (including Oleg Logvinov, the Company’s former CEO and director), who was engaged in and directed the semiconductor business.

Substantially all of the proceeds received pursuant to the License, after payment of expenses related to the transactions, have been used to settle approximately $20 million of the Company’s outstanding secured debt issued during the period from December 2004 to August 31, 2008 and in default and pay employees $1.4 million of $5.2 million due to them.  The remainder of the proceeds received by the Company has been used to pay other creditors and expenses incurred in connection with the Asset Sale to the extent funds were available to do so.

As a condition to entering into the Purchase Agreement and the License, ST US required that the Company have written settlement agreements and releases with all of our creditors as well as all of our employees.  Under the settlement agreements with creditors, the creditors agreed to settle the amounts owed  (approximately $30,000,000), for an aggregate amount of $10,862,241 in cash, notes payable of $818,768 and another $5,259,926 have yet to be settled with equity, of which $7,000,000 was paid in December 2010 out of proceeds from the $7,000,000 license fee under the License, and $3,862,241 was paid at the closing out of proceeds from the Asset Sale.  In exchange for the settlement amount, the secured creditors agreed to release their security interest in Arkados’ assets and most secured creditors released Arkados from any and all additional claims, if any, that the secured creditors may have against Arkados.  The secured creditors also agreed that ST and its affiliates are third party beneficiaries to the settlement agreements. Under the settlement agreements with the Company’s employees, the employees agreed to accept an aggregate of $1,429,949 and an amount of the Company’s equity rights to be negotiated after the closing as payment for back wages and unreimbursed expenses.  The cash payment was paid to employees in December 2010 out of the license fee paid to the Company by ST US. Also, as a condition to entering into the Purchase Agreement and the License, the Company entered into standstill agreements with holders of approximately $2,100,000 of unsecured debt pursuant to which those unsecured creditors agreed, among other things, not to exercise remedies that they may have as creditors of Arkados, not to sell or transfer their debt, to release ST and its affiliates from any and all claims that they may have against ST, if any, and not to sue ST for any dealings that the creditors had with Arkados.

The Company is negotiating with its outstanding unsecured debt holders to settle such debt of for cash payments and in many cases for a yet to be determined amount of shares of the Company’s common stock and continues to negotiate with the holders of each class of debt to compromise, extend the due date or convert outstanding debt into equity and thereby facilitate raising additional investor capital for the portion of the Company’s business that may continue. Such amounts are labeled as “Debt Subject to Equity Being Issued” on the balance sheet. Except as set forth above, there is no binding commitment on anyone’s part to complete the transactions.

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STOCK-BASED COMPENSATION (Details1) (USD $)	3 Months Ended
	Aug. 31, 2012	May 31, 2012	May 31, 2011	May 31, 2010	May 31, 2009	May 31, 2008	May 31, 2007	May 31, 2006
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit	$ 0.26
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit	$ 1.00
NumberOutstanding	1,310,000	1,310,000	1,550,000	17,150,236	19,961,797	14,972,381	12,535,048	6,886,652
Weighted- Average Exercise Price (in dollar per share)	$ 0.55	$ 0.55	$ 0.65	$ 0.30	$ 0.27	$ 0.51	$ 0.58	$ 0.64
Number Exercisable	1,310,000
Range One [Member]
NumberOutstanding	1,310,000
Weighted-Average Remaining Life In Years	1 year 9 months 18 days
Weighted- Average Exercise Price (in dollar per share)	$ 0.55
Number Exercisable	1,310,000

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SUBSEQUENT EVENTS(Details Textual) (Subsequent Event [Member], USD $)		1 Months Ended						1 Months Ended
	Jan. 06, 2013	May 31, 2013 Convertible Notes Payable [Member]	Apr. 30, 2013 Convertible Notes Payable [Member]	Dec. 31, 2012 Convertible Notes Payable [Member]	Nov. 30, 2012 Convertible Notes Payable [Member]	May 02, 2013 Convertible Notes Payable [Member]	Apr. 22, 2013 Convertible Notes Payable [Member]	Apr. 30, 2013 Two Convertible Notes Payable [Member]	Apr. 22, 2013 Two Convertible Notes Payable [Member]
Subsequent Event [Line Items]
Debt Instrument, Face Amount				$ 20,000	$ 180,000	$ 200,000	$ 120,000		$ 40,000
Debt Instrument, Interest Rate, Stated Percentage				6.00%	6.00%	6.00%	6.00%		6.00%
Debt Instrument, Maturity Date		Apr. 30, 2015	Apr. 30, 2015	Oct. 31, 2014	Oct. 31, 2014			Apr. 30, 2015
Debt Instrument, Convertible, Conversion Price				$ 0.01	$ 0.01	$ 0.02	$ 0.02		$ 0.02
Debt Instrument, Interest Rate, Increase (Decrease)				12.00%
Separation and Release Agreement Settlement Amount To Be Paid	15,920
Separation and Release Agreement Settlement Shares To Be Issued	14,073,966
Separation and Release Agreement Debt Obligation To Be Repaid	19,000
Fair Value Of Beneficial Conversion Feature		$ 200,000	$ 120,000	$ 20,000	$ 180,000			$ 40,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Aug. 31, 2012	May 31, 2012
Convertible preferred stock, par or stated value per share (in dollars per share)	$ 0.0001	$ 0.0001
Convertible preferred stock, shares authorized	5,000,000	5,000,000
Convertible preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	48,898,474	48,898,474
Common stock, shares outstanding	48,898,474	48,898,474

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STOCK-BASED COMPENSATION

3 Months Ended

Aug. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

8. 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 (“ASC 718”).

A. Options

Compensation based stock option and warrant activity for warrants and qualified and unqualified stock options are summarized as follows:

			Weighted
			Average
	Shares		Exercise Price
Outstanding at May 31, 2006		6,886,652	$	0.64
Granted		5,824,000		0.49
Exercised		(175,604)		0.01
Expired or cancelled		—		—
Outstanding at May 31, 2007		12,535,048		0.58
Granted		5,365,197		0.21
Exercised		—
Expired or cancelled		(2,927,864)		0.22
Outstanding at May 31, 2008		14,972,381		0.51
Granted		14,427,600		0.15 - 0.25
Exercised		—
Expired or cancelled		(9,438,184)		0.25 -1.20
Outstanding at May 31, 2009		19,961,797		0.27
Granted		—
Exercised		(2,228,364)		0.01
Expired or cancelled		(583,197)		0.25
Outstanding at May 31, 2010		17,150,236		0.30
Granted		—
Exercised		(2,227,864)		0.01
Expired or cancelled		(13,372,372)		0.30
Outstanding at May 31, 2011		1,550,000		0.65
Granted		—
Exercised		—
Expired or cancelled		(240,000)		0.83
Outstanding at May 31, 2012		1,310,000		0.55
Granted		—
Exercised		—
Expired or cancelled		—
Outstanding at August 31, 2012		1,310,000	$	0.55

The following table summarizes information about options outstanding and exercisable at August 31, 2012 and May 31, 2012:

	Options Outstanding and exercisable
	Number Outstanding		Weighted- Average Remaining Life In Years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$0.26 - $1.00		1,310,000		1.8	$	0.55		1,310,000
		1,310,000			$	0.55		1,310,000

The compensation expense attributed to the issuance of the options and warrants will be recognized as they vest / earned. These stock options and warrants are exercisable for three to ten years from the grant date.

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.

B. Warrants

The issuance of warrants attributed to debt issuances are summarized as follows:

			Weighted
			Average
	Shares		Exercise Price
Outstanding at May 31, 2006		4,392,874	$	0.84
Granted		4,655,366		0.93
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2007		9,048,240		0.88
Granted		1,821,676		0.85
Exercised		0		—
Expired or cancelled		-825,000		0.67
Outstanding at May 31, 2008		10,044,916		0.84
Granted		4,022,225		0.25
Exercised		0		—
Expired or cancelled		-2,332,137		0.85
Outstanding at May 31, 2009		11,735,004		0.63
Granted		0		—
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2010		11,735,004		0.63
Granted		0		—
Exercised		0		—
Expired or cancelled		-6,499,057		0.70
Outstanding at May 31, 2011		5,235,945		0.50
Granted		660,000		0.035
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2012		5,895,945		0.50
Granted		0		—
Exercised		0		—
Expired or cancelled		0		—
Outstanding at August 31, 2012		5,895,945	$	0.50

The following table summarizes information about warrants outstanding and exercisable at August 31, 2012 and May 31, 2012:

	Outstanding and exercisable
	Number Outstanding		Weighted- average remaining life in years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$.01 to $.25		4,682,225		1.4	$	.21		4,682,225
$.26 - $.99		1,213,720		1.4	$	.85		1,213,720
		5,895,945						5,895,945

Interest expense attributed to the aforementioned warrants is being amortized over the ratable term of each respective debt arrangement.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (USD $)	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit during Development Stage [Member]	Treasury Stock [Member]
Balance at Mar. 23, 2004
Balance (in shares) at Mar. 23, 2004
Post foreclosure sale	(6,283,513)	0	5,569	1,988,185	(8,277,267)	0
Post foreclosure sale (in shares)		0	5,569
Effect of Reorganization and Merger	4,085,758	0	(3,422)	4,105,180	0	(16,000)
Effect of Reorganization and Merger (in shares)		0	21,473,364
Private Placement	950,200	0	84	950,116	0	0
Private Placement (in shares)		0	841,666
Issuance of shares for settlement of debts	168,203	0	18	168,185	0	0
Issuance of shares for settlement of debts (in shares)		0	181,068
Amortization of stock compensation	359,537	0	0	359,537	0	0
Net income (loss)	(693,833)	0	0	0	(693,833)	0
Balance at May. 31, 2004	(1,413,648)	0	2,250	7,571,202	(8,971,100)	(16,000)
Balance (in shares) at May. 31, 2004		0	22,501,667
Shares issued for services	724,811	0	58	724,753	0	0
Shares issued for services (in shares)		0	575,000
Debt converted to equity	75,496	0	13	75,483	0	0
Debt converted to equity (in shares)		0	125,000
Options issued for services	198,169	0	0	198,169	0	0
Valuation of equity rights	234,353	0	0	234,353	0	0
Amortization of stock compensation	3,617,681	0	0	3,617,681	0	0
Net income (loss)	(7,001,365)	0	0	0	(7,001,365)	0
Balance at May. 31, 2005	(3,564,503)	0	2,321	12,421,641	(15,972,465)	(16,000)
Balance (in shares) at May. 31, 2005		0	23,201,667
Shares issued for services	22,500	0	8	22,492	0	0
Shares issued for services (in shares)		0	75,000
Debt converted to equity	405,744	0	61	405,683	0	0
Debt converted to equity (in shares)		0	609,786
Shares issued for debt accommodations and penalties	267,300	0	47	267,253	0	0
Shares issued for debt accommodations and penalties (in shares)			466,600
Options issued for services	69,170	0	0	69,170	0	0
Valuation of equity rights	404,555	0	0	404,555	0	0
Amortization of stock compensation	497,347	0	0	497,347	0	0
Net income (loss)	(4,025,016)	0	0	0	(4,025,016)	0
Balance at May. 31, 2006	(5,922,903)	0	2,437	14,088,141	(19,997,481)	(16,000)
Balance (in shares) at May. 31, 2006		0	24,353,053
Shares issued for services	342,000	0	47	341,953	0	0
Shares issued for services (in shares)		0	475,000
Options issued for services	197,923	0	0	197,923	0	0
Valuation of equity rights	424,247	0	0	424,247	0	0
Amortization of stock compensation	418,997	0	0	418,997	0	0
Exercise of options	1,756	0	17	1,739	0	0
Exercise of options (in shares)		0	175,604
Issuance of common stock for Aster Acquisition	461,819	0	107	461,712	0	0
Issuance of common stock for Aster Acquisition (in shares)		0	1,078,564
Net income (loss)	(6,033,075)	0	0	0	(6,033,075)	0
Balance at May. 31, 2007	(10,109,236)	0	2,608	15,934,712	(26,030,556)	(16,000)
Balance (in shares) at May. 31, 2007		0	26,082,221
Shares issued for services	63,500	0	20	63,480	0	0
Shares issued for services (in shares)		0	196,667
Options issued for services	105,448	0	0	105,448	0	0
Valuation of equity rights	1,064,495	0	0	1,064,495	0	0
Amortization of stock compensation	697,687	0	0	697,687	0	0
Net income (loss)	(6,478,999)	0	0	0	(6,478,999)	0
Balance at May. 31, 2008	(14,657,104)	0	2,628	17,865,822	(32,509,556)	(16,000)
Balance (in shares) at May. 31, 2008		0	26,278,888
Private Placement	810,038	0	338	809,700	0	0
Private Placement (in shares)		0	3,380,159
Shares issued for services	422,755	0	213	422,542	0	0
Shares issued for services (in shares)		0	2,134,469
Conversion of Debt	409,113	0	95	409,018	0	0
Conversion of Debt (in shares)		0	944,881
Options issued for services	90,246	0	0	90,246	0	0
Valuation of equity rights	264,111	0	0	264,111	0	0
Amortization of stock compensation	1,776,683	0	0	1,776,683	0	0
Net income (loss)	(6,762,218)	0	0	0	(6,762,218)	0
Balance at May. 31, 2009	(17,646,375)	0	3,274	21,638,124	(39,271,774)	(16,000)
Balance (in shares) at May. 31, 2009		0	32,738,397
Valuation of equity rights	54,000	0	0	54,000	0	0
Amortization of stock compensation	1,176,762	0	0	1,176,762	0	0
Exercise of options	21,879	0	219	21,660	0	0
Exercise of options (in shares)		0	2,187,864
Net income (loss)	(11,478,230)	0	0	0	(11,478,230)	0
Balance at May. 31, 2010	(27,871,964)	0	3,493	22,890,547	(50,750,004)	(16,000)
Balance (in shares) at May. 31, 2010		0	34,926,261
Conversion of Debt	401,000	0	1,002	399,998	0	0
Conversion of Debt (in shares)		0	10,025,000
Amortization of stock compensation	603,974	0	0	603,974	0	0
Retire treasury stock	0		0	(16,000)	0	16,000
Net income (loss)	13,364,862	0	0	0	13,364,862	0
Balance at May. 31, 2011	(13,502,128)	0	4,495	23,878,519	(37,385,142)	0
Balance (in shares) at May. 31, 2011		0	44,951,261
Conversion of Debt	51,582	0	394	51,188	0	0
Conversion of Debt (in shares)		0	3,947,213
Amortization of stock compensation	0	0	0	0	0	0
Warrants issued to Trident	23,100	0	0	23,100	0	0
Net income (loss)	4,135,062	0	0	0	4,135,062	0
Balance at May. 31, 2012	(9,292,384)	0	4,889	23,952,807	(33,250,080)	0
Balance (in shares) at May. 31, 2012		0	48,898,474
Conversion of Debt	0
Amortization of stock compensation	0
Warrants issued to Trident	0
Net income (loss)	(51,435)				(51,435)
Balance at Aug. 31, 2012	$ (9,343,819)	$ 0	$ 4,889	$ 23,952,807	$ (33,301,515)	$ 0
Balance (in shares) at Aug. 31, 2012		0	48,898,474

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Aug. 31, 2012	May 31, 2012
ASSETS
Cash and cash equivalents	$ 611	$ 4,913
Total current assets	611	4,913
Total assets	611	4,913
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable and accrued expenses	2,238,642	2,181,697
Payroll taxes and related penalties and interest payable	936,906	936,906
Accrued income tax	100,000	100,000
Due to related party	130,000	130,000
Debt subject to equity being issued	5,259,926	5,259,926
Notes payable	678,956	688,768
Total current liabilities	9,344,430	9,297,297
Total liabilities	9,344,430	9,297,297
Stockholders' deficiency:
Convertible preferred stock - $.0001 par value; 5,000,000 shares authorized, zero shares outstanding	0	0
Common stock, $.0001 par value; 100,000,000 shares authorized and 48,898,474 issued and outstanding at August 31, 2012 and May 31, 2012	4,889	4,889
Additional paid-in capital	23,952,807	23,952,807
Accumulated Deficit during Development Stage	(33,301,515)	(33,250,080)
Total stockholders' deficiency	(9,343,819)	(9,292,384)
Total liabilities and stockholders' deficiency	$ 611	$ 4,913

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STOCK-BASED COMPENSATION (Details 2) (USD $)	3 Months Ended	12 Months Ended
	Aug. 31, 2012	May 31, 2012	May 31, 2011	May 31, 2010	May 31, 2009	May 31, 2008	May 31, 2007
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance (in shares)	5,895,945
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance (in shares)	5,895,945	5,235,945	11,735,004	11,735,004	10,044,916	9,048,240	4,392,874
Balance (in dollars per share)	$ 0.50	$ 0.50	$ 0.63	$ 0.63	$ 0.84	$ 0.88	$ 0.84
Granted (in shares)	0	660,000	0	0	4,022,225	1,821,676	4,655,366
Granted (in dollars per share)	$ 0	$ 0.035	$ 0	$ 0	$ 0.25	$ 0.85	$ 0.93
Exercised (in shares)	0	0	0	0	0	0	0
Exercised (in dollars per share)	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0
Expired or cancelled (in shares)	0	0	(6,499,057)	0	(2,332,137)	(825,000)	0
Expired or cancelled (in dollars per share)	$ 0	$ 0	$ 0.70	$ 0	$ 0.85	$ 0.67	$ 0
Balance (in shares)	5,895,945	5,895,945	5,235,945	11,735,004	11,735,004	10,044,916	9,048,240
Balance (in dollars per share)	$ 0.50	$ 0.50	$ 0.50	$ 0.63	$ 0.63	$ 0.84	$ 0.88

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PAYROLL TAX LIABILITIES (Details Textual) (USD $)	12 Months Ended
	May 31, 2008	May 31, 2006	Aug. 31, 2012
Delinquent Payroll Taxes Outstanding, Maximum		$ 1,200,000
Effective Income Tax Rate Reconciliation at Federal Statutory Income Tax Rate	64,106	874,000
Income Tax Examination, Penalties and Interest Accrued			$ 936,906

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STOCKHOLDERS' DEFICIENCY

3 Months Ended

Aug. 31, 2012

Equity [Abstract]

Stockholders Equity Note Disclosure [Text Block]

7. STOCKHOLDERS’ DEFICIENCY

2004 transactions-(Unaudited)

a. On May 7, 2004, CDKNET.com, Inc. and Miletos entered into an “Agreement and Plan of Merger” (“the Merger Agreement”). On May 24, 2004, the merger was consummated between a wholly owned subsidiary of CDKNET.com, Inc (CDK Merger Corp) and Miletos, Inc. The successor subsidiary was renamed Arkados, Inc. Because CDKNET.com, Inc and its subsidiaries had no meaningful operations prior to May 7, 2004 and equity ownership in CDKNET.com, Inc. in an amount greater than 50% was issued to the shareholders of Miletos, Inc., this transaction has been recorded as a reorganization of Arkados, Inc. via a reverse merger with CDKNET.com, Inc.

b. In May 2004, prior to the consummation of the aforementioned reverse merger, the Company; (a) issued 200,000 common shares for services rendered by several individuals valued at $1.50 a share and were expensed prior to the consummation of the aforementioned reverse merger, (b) converted $150,834 of indebtedness owed to a law firm affiliated with the former CEO for 150,000 shares of common stock, (c) converted $165,000 of convertible debentures and related accrued interest of $51,539 for 549,866 shares of common stock.

c. Pursuant to the Merger Agreement, as amended, the consideration for the merger consisted of 16,340,577 shares of the Company’s restricted common stock (250,000 of such common shares are contingent shares and will be returned for cancellation unless called upon as a result of a breach of warranty), 39,401 shares of common stock to the former employees of Enikia, 100,000 shares were issued to the major shareholder to assume the satisfaction of certain outstanding 401K liabilities due to the employees of the predecessor entity, 2,484,644 stock options exercisable at $.01 per share, 1,149,998 stock options exercisable at $1.20 per share. In addition $950,200 was raised through the sale of 791,833 shares of common stock of the Company, 41,667 shares of common stock were issued to satisfy $50,000 of indebtedness, and 49,833 shares of common stock for $59,800 of services rendered related to the equity raise. The $59,800 of services rendered was recorded as a cost of raising such equity.

d. The 883,334 shares issued, pursuant to the terms of the Purchase Agreement relating to the aforementioned equity raise, have certain registration rights. In addition, such shareholders are entitled to liquidated damages, if a registration statement, registering such shares, is not filed within 90 days of June 1, 2004 or if the registration statement is not declared effective until 120 days after June 1, 2004, or 180 days if such registration statement is subject to review by the Securities and Exchange Commission. Such liquidated damages are calculated monthly based on the delayed days of such registration not being effective. Such calculation is 2% per month of the purchase price paid by such shareholders for the 883,333 shares purchased limited to an aggregate of 18% of the aggregate purchase price paid for the 883,333 shares purchased. The Company accrued $190,800 in penalties for the failure to register such shares issued.

e. The major shareholder of the Company allocated 2,345,410 shares of his shares in the Company to satisfy assumed obligations of Enikia for services previously rendered to the predecessor entities. Pursuant to Topic 5T of the Staff Accounting Bulletins, such contribution of the common shares of the Company have been recorded as a contribution by the shareholder to the Company in satisfaction of such liabilities recorded of $1,288,185.

2005 transactions- (Unaudited)

f. During fiscal 2005, the Company issued 575,000 shares of common stock net of another 1,050,000, which was returned for non-performance. These shares were valued at the fair market value of such stock upon issuance at prices ranging from $.50 to $2.15 per share. The aggregate compensation expense recorded in this fiscal year for these shares issued was $724,811.

g. During fiscal 2005, the Company issued 610,000 options at an exercise price of $1.20 per share which was above fair market value to its employees and directors and 1,725,000 options to third parties for services rendered at exercise prices ranging from $.01 to $1.20 per share. No compensation has been recorded for the options issued to employees and directors. The options to third parties have been valued at $900,461, which $582,292 has yet to be expensed due to the term of such services being performed.

h. The Company recorded $234,353 of interest expense related to the valuation of the detachable warrants and the beneficial conversion feature of $750,000 in debt raised from March to May 2005. This debt matured on June 8, 2005, hence predominately all of such interest expense was recorded in fiscal 2005.

i. In August 2004, a vendor converted $75,496 of payables for 125,000 shares of common stock.

2006 transactions – (Unaudited)

j.	During the year ended May 31, 2006, the Company issued 750,000 stock options with an exercise price of $.45 per share to management and its employees, which vest over four years. Another 125,000 fully vested stock options with an exercise price of $.45 were issued to consultants, an expense of $69,170 was recorded for these stock options.
k.	On March 20, 2006, the Company issued warrants to purchase up to 180,000 shares of our common stock for $0.85 per share to Emerging Capital Markets LLC as part compensation for investor relations consulting services for a three month period. The warrants vest in equal thirds on the first day of April, May and June 2006, provided there is no material breach of the related consulting agreement. Such investor relations consulting services agreement also provides for cash compensation in the amount of $20,000 per month for three months. This investor relations consulting agreement also provides for the requirement to obtain approval form this individual for any potential reverse stock splits greater than 1 for 5 and has the option to renew such agreement for another three months on the same terms.
l.	On February 1, 2006, as part of the sale of an additional $375,884 of the 6% Secured Debentures described above, the Company and the holders of all outstanding 6% Debentures agreed to modify the covenant to permit the Company to issue 609,786 shares of common stock and pay $405,744 in full satisfaction of such outstanding principal and interest concurrently with the additional investment and waived prior defaults.
m.	During the year May 31, 2006, the Company issued 75,000 shares for services valued at $22,500.
n.	There was $404,555 recorded during the year for the valuation of equity rights and beneficial conversion features attributed to debt issuances during the year.
o.	During the year May 31, 2006, the Company issued 466,600 shares of stock for debt penalties and extensions for consideration valued at $267,300.

2007 transactions – (Unaudited)

p.	In June 2006, the Company approved the issuance of 475,000 shares of Arkados stock, or $342,000, to Mr. Andreas Typaldos in recognition of his efforts to obtain financing for Arkados.
q.	During the first quarter of 2007, the Company issued to management and its employees: 1,785,000 stock options with exercise prices ranging from $.43 to $.85; all of which vest over four years.

r.	During the third quarter of 2007, the Company issued 100,000 shares with an exercise price of $.40 per share to the incoming CFO as a component of her employment contract. Another 240,000 stock options with an exercise price of $.50, vesting over 6 months, were issued to a consultant; an expense of $80,919 was recorded for these stock options.
s.	On March 3, 2007, Arkados Wireless Technologies, Inc., our wholly owned subsidiary, filed a merger certificate completing the acquisition of Aster Wireless, Inc., a previously unaffiliated Delaware corporation. The consideration for the Merger was 1,000,000 restricted shares of our common stock. In addition, the Company issued an aggregate of 259,000 seven-year options to four employees through the acquisition exercisable at $0.405 per share which vest over 4 years aggregate of 78,564 shares of restricted stock to such employees. We also issued 300,000 seven-year options to a consultant, which options vested on March 1, 2008 and are exercisable at $0.405 per share; an expense of $100,146 was recognized.
t.	During the fourth quarter of 2007, the Company issued 3,010,000 stock options with exercise prices ranging from $.33 to $.40 per share to management and its employees, which vest over four years. Another 50,000 fully vested stock options with an exercise price of $.50 were issued to a consultant; an expense of $16,858 was recorded for these stock options.

u.	The Company issued 175,604 shares of its common stock with gross proceeds of $1,756 from the exercise of options by employees.
v.	There was $424,247 recorded during the year for the valuation of equity rights and beneficial conversion features attributed to debt issuances during the year.
w.	For the year ended May 31, 2007, the Company incurred a non-cash charge of $418,997 for the amortization of stock options.

2008 transactions – (Unaudited )

x.

During the first quarter of 2008, the Company issued 30,000 shares to a vendor at a cost of $13,500 for the settlement of an outstanding balance. During the fourth quarter of 2008, the Company issued 166,667 shares to a consultant at a cost of $50,000.

y.

During the first quarter of 2008, the Company issued 190,000 options to three service providers; an expense in the amount of $50,274 was recognized for these options. During the fourth quarter, the Company extended the expiration period of 263,333 options for an employee whose contract was not renewed; an expense in the amount of $30,244 was recognized for this extension. In addition, in the same period, the Company issued 150,000 fully vested options with an exercise price of $.32 to a consultant; an expense in the amount of $24,930 was recognized for these options.

z.	During the third quarter of 2008, the Company issued 2,494,000 stock options with exercise prices of $.30 per share to management and its employees, which vest over four years.
aa.	During the fourth quarter of 2008, the Company extended the expiration for two years of 2,227,864 $.01 options due to expire on May 24, 2008 issued to employees at the time of the reorganization. The value determined by Black Scholes of $714,076 will be amortized over the next two years for this extension.
bb.	The Company issued 402,353 short-term and 402,353 long-term warrants to the purchasers of the 6% Secured Debentures. Based on the issuance date of the debentures, debt discounts were recorded in the third quarter of 2008 in the amount of $118,723.
cc.	The Company as part of a debt restructuring, agreed to amend the 10,065,210 warrants outstanding and issued with the then outstanding 6% Secured Debentures to be consistent with the 804,706 new warrants issued December 15, 2007 by extending the expiration date from an outside date of December 28, 2010 to December 28, 2012 and removing any restriction on exercising the warrants on a cashless basis or any provision which accelerates the expiration date if the shares issuable on exercise of the warrants are registered for resale under the Securities Act. The change in the terms of these warrants required a charge of $945,772 to be recorded.

dd. For the year ended May 31, 2008, the Company incurred a non-cash charge of $697,687 for the amortization of stock options.

2009 transactions – (Unaudited)

ee.	500,000 options were awarded to two service providers; an expense in the amount of $90,246 was recognized in the year ended May 31, 2009 for these options. These stock options and warrants are exercisable for three to ten years from the grant date.
ff.	2,134,469 shares of stock were granted to service providers and a former employee during the year ended May 31, 2009; $422,755 of consulting, compensation expense or reduction of accrued compensation.

gg. A refinancing and the closing on new monies received occurred in July 2008, whereby certain debts were extended in conjunction with conversion of some indebtedness in the amount of $409,113 for 944,881 shares of common stock, 2,332,131 warrants were issued to certain debt holders exercisable at $.25 per share expiring on December 1, 2008 were valued at $264,111 and expensed, accordingly, and $810,038 of monies received net of $35,000 in legal fees from May 2008 to July 2008 resulting in 3,380,159 shares of common stock being issued.

hh.

In February 2009 the Company’s Compensation Committee and Board of Director’s elected to cancel certain underwater options that had been granted to employees. A total of 8,438,184 options with exercise prices ranging from $0.25 to $1.20 were cancelled and new options totaling 75% of the total of the cancelled options (6,328,638 options) were issued to employees with an exercise price of $0.15 , the closing price on February 6, 2009, the date of grant. As a result of this measurement, no additional stock compensation expense was required to be recorded on the new options. The unamortized value of the cancelled options, $888,384, will be amortized over the two year vesting period of the newly issued options. As 50 % of the options were vested on the date of grant, a compensation expense was recorded in the amount of $444,192 on the grant date.

ii.

As a result of the past option awards and the awards made in fiscal 2009, the Company has recorded equity based amortization expense in the amount of $1,776,683.

2010 transactions – (Unaudited )

jj.	There was $54,000 recorded during the year for the valuation of equity rights and beneficial conversion features attributed to debt issuances during the year.
kk.	2,187,864 shares of stock were issued for the exercise of stock options resulting in $21,879 of gross proceeds to the Company.
ll.	As a result of the past option awards and the awards made in the prior years, the Company has recorded equity based amortization expense in the amount of $1,176,762.

2011 transactions

mm.	As a result of the past option awards and the awards made in the prior years, the Company has recorded equity based amortization expense in the amount of $603,974.
nn.	In December 2010, certain creditors converted $401,000 of their indebtedness for the issuance of 10,025,000 shares of common stock.

2012 transactions

oo.	Certain creditors received 660,000 warrants as a condition of their debt settlement with the Company. The warrants expire in May 2014 and have an exercise price of $.035 a share. There was a debt inducement settlement expense recorded for these warrants in the amount of $23,100.
pp.	In September 2011, certain creditors converted $51,582 of their indebtedness for the issuance of 3,947,213 shares of common stock, inclusive of past outstanding matters.

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STOCK-BASED COMPENSATION (Details 3) (USD $)											3 Months Ended
	Aug. 31, 2012	Aug. 31, 2012 Warrant [Member]	May 31, 2012 Warrant [Member]	Aug. 31, 2011 Warrant [Member]	May 31, 2011 Warrant [Member]	May 31, 2010 Warrant [Member]	May 31, 2009 Warrant [Member]	May 31, 2008 Warrant [Member]	May 31, 2007 Warrant [Member]	May 31, 2006 Warrant [Member]	Aug. 31, 2012 Warrant [Member] Range One [Member]	Aug. 31, 2012 Warrant [Member] Range Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Beginning Balance	5,895,945	5,895,945	5,895,945		5,235,945	11,735,004	11,735,004	10,044,916	9,048,240	4,392,874	4,682,225	1,213,720
Share-based Compensation Arrangement by Share-based Payment Award, Non Option Equity Instruments, Outstanding, Weighted Average Exercise Price, Beginning Balance											$ 0.21	$ 0.85
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms											1 year 4 months 24 days	1 year 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Exercisable, Number	5,895,945			5,895,945							4,682,225	1,213,720
Share-based Compensation, Shares Authorized under Non Option Equity Instruments,, Exercise Price Range, Lower Range Limit											$ 0.01	$ 0.26
Share-based Compensation, Shares Authorized under Non Option Equity Instruments, Exercise Price Range, Upper Range Limit											$ 0.25	$ 0.99

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SUBSEQUENT EVENTS

3 Months Ended

Aug. 31, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

10. SUBSEQUENT EVENTS

In November 2012, the Company received a loan in the form of a Convertible Note in the principal amount of $180,000. The note bears interest at 6% per year and matures on October 31, 2014. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.01 per share. The beneficial conversion feature has been fair valued at $180,000 and will be amortized over the life the debt instrument.

In December 2012, the Company received a loan in the form of a Convertible Note in the principal amount of $20,000. The note bears interest at 6% per year and matures on October 31, 2014. If not paid upon maturity, the interest rate will increase to 12% per year. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.01 per share. The beneficial conversion feature has been fair valued at $20,000 and will be amortized over the life the debt instrument.

On January 6, 2013, the Company and Andreas Typaldos, former officer and director, entered into a Separation and Release Agreement. Under the Separation Agreement all prior Typaldos Agreements will be terminated and certain debts and obligations to Typaldos will be released in exchange for (1) $15,920 and (2) 14,073,966 shares of common stock. In addition, $19,000 will be paid to Typaldos’ son for an existing loan with the Company. The Company has yet to issue such shares under this Separation Agreement.

On April 22, 2013, the Company executed two Convertible Notes for loans in principal amount of $40,000 each. Each note bears interest at 6% per year and matures on April 30, 2015. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.02 per share for both notes. The beneficial conversion feature has been fair valued at $40,000 each and will be amortized over the life the debt instrument.

On April 22, 2013, the Company executed a Convertible Note for a loan in the principal amount of $120,000. The note bears interest at 6% per year and matures on April 30, 2015. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.02 per share. The beneficial conversion feature has been fair valued at $120,000 and will be amortized over the life the debt instrument.

On May 2, 2013, the Company executed a Convertible Note for a loan in the principal amount of $200,000. The note bears interest at 6% per year and matures on April 30, 2015. At any time during the length of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $.02 per share. The beneficial conversion feature has been fair valued at $200,000 and will be amortized over the life the debt instrument.

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NOTES PAYABLE, RELATED PARTY PAYABLES, DEBT SUBJECT TO EQUITY BEING ISSUED AND SETTLEMENT OF DEBT

3 Months Ended

Aug. 31, 2012

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

6. NOTES PAYABLE, RELATED PARTY PAYABLES, DEBT SUBJECT TO EQUITY BEING ISSUED AND SETTLEMENT OF DEBT

As a result of the sale of the Company’s Asset Sale to STUS the notes payable and convertible debentures of $17,269,689 and the related accrued interest of $3,671,137 as of May 31, 2010, have been settled in part with the December 2010 closing in the amount of $5,570,059 and the balance in June 2011 closing with cash of $3,526,523, an undetermined amount of equity yet to be issued and $688,768 of remaining notes payable as of May 31, 2012. As of August 31, 2012 there was $678,956 of notes payable largely the result of another debt settlement during this quarter.

During the year May 31, 2012, the Company borrowed another $130,000 from a director. This debt has no repayment terms and is due on demand. During the three months ended August 31, 2012, no new borrowings were received.

Related Party Activities - As of August 31, 2012 and May 31, 2012, the Company has reported a related party payable in the amount of $130,000 and $130,000, respectively which represents funds that were advances to the Company by officers and directors of the Company.

Effective June 1, 2009, the Company adopted the provisions of EITF 07-05 “Determining Whether an Instrument (or Embedded Feature) is Indexed to a Company's Own Stock,” which was codified into ASC Topic 815 – Derivatives and Hedging. ASC 815 applies to any freestanding financial instruments or embedded features that have characteristics of a derivative and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. The Company has 11,735,004 of warrants with exercise reset provisions, with its debt issuances over the years, which are considered freestanding derivative instruments. ASC 815 requires these warrants to be recorded as liabilities as they are no longer afforded equity treatment assumptions: risk free rates from 1.32% to 1.39%, expected life terms ranging from 0.5 years to 2.0 years, an expected volatility range of 206% to 251% depending on the term of such equity contracts and a dividend rate of 0.0%. The fair value of the warrants issued and outstanding at May 31, 2010, attributed to this derivative liability has been determined to be immaterial due to the low stock price in comparison to the exercise price, hence there was no adjustment to make upon adoption of this accounting standard. During the year May 31, 2011, 6,499,057 of these warrants expired. The stock price remains low and the fair value of the derivative liability remains immaterial.

SETTLEMENT OF DEBT

As a direct result of the Sale of the License and IP Agreements to STUS and the mandate to obtain debt releases, the Company has been able to settle it debts with its creditors with each as of the December 2010 and June 2011 closings.

The continuing settlements with secured, unsecured and related parties have resulted in gains being recorded in the amount of $482,784 in fiscal 2012. There remains $5,259,926 of debts to be settled via the issuance of equity at yet to be determined or negotiated terms. All such debt holders have agreed per their settlement to accept equity for their remaining debt. As of August 31, 2012 the balance remained the same at $5,259,926.

During the quarter ended August 31, 2012 the Company negotiated the settlement of additional debts resulting in $10,000 being paid for the settlement of $12,025 of recorded liabilities, resulting in a gain on the settlement of such debts being recorded in the amount of $2,025.

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DESCRIPTION OF BUSINESS

3 Months Ended

Aug. 31, 2012

Accounting Policies [Abstract]

Business Description and Basis of Presentation [Text Block]

1. DESCRIPTION OF BUSINESS

Arkados Group, Inc. (the “Company”) conducts business activities principally through Arkados, Inc., which is a wholly owned subsidiary. Pursuant to an “Agreement and Plan of Merger”, (“the Merger Agreement”) dated May 7, 2004 and consummated on May 24, 2004, merged a wholly owned subsidiary, CDK Merger Corp., with Miletos, Inc. (the “Merger”). CDK Merger Corp. was renamed “Arkados, Inc.” On August 30, 2006, the Company changed its name from CDKNET.COM, Inc. to Arkados Group, Inc. All references to CDKNET.COM, Inc. have been changed accordingly. Since Arkados Group, Inc. and subsidiaries prior to May 7, 2004 had no meaningful operations, this merger has been recorded as a reorganization of Arkados, Inc. via a reverse merger with Arkados Group, Inc.

Miletos, Inc. was a newly established entity, which acquired the assets and business of Enikia, LLC in a public foreclosure sale on March 23, 2004 in exchange for the forgiveness of $4,000,000 of secured debt and the assumption of certain outstanding liabilities. The assets and certain liabilities acquired at the foreclosure sale have been recorded at historical cost basis. The new entity, Miletos, Inc. was predominately owned by a controlled group, which was the same controlled group of Enikia, LLC and the same group became majority holders.

The Company underwent a significant restructuring between December 23, 2010 and continuing beyond May 31, 2012 (the period ending for this report) during which substantially all of its assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”), as disclosed in the 8-K filed December 29, 2010 and further described (as to the closing) in the 8-K filed July 12, 2011. Following December 23, 2010, the Company had minimal operations but also attempted to develop a plan to pursue a different course of operations.

During the period covered by this report through December 23, 2010 (i.e. the date of the Asset Sale), the Company, a development stage enterprise, was a fabless semiconductor company providing integrated system-on-chip solutions that directly support networking, smart grid and multimedia applications. Most recently (i.e. following January, 2013), Arkados has shifted its focus towards development of a universal platform that provides software solutions for smart grid and smart home applications primarily in the areas of energy management, home health care, smart appliances and home security and entertainment.

The accompanying financials have been presented on a development stage basis using March 24, 2004 as the date of inception.

The accompanying condensed consolidated financial statements as of August 31, 2012 (unaudited) and May 31, 2012 and for the three month periods ended August 31, 2012 and 2011 (unaudited) have been prepared by Arkados Group, Inc. pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the audited financial statements and explanatory notes for the year ended May 31, 2012 as disclosed in our annual report on Form 10-K for that year . The results of the three months ended August 31, 2012 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending May 31, 2013.

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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Aug. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Compensation based stock option and warrant activity for warrants and qualified and unqualified stock options are summarized as follows:

			Weighted
			Average
	Shares		Exercise Price
Outstanding at May 31, 2006		6,886,652	$	0.64
Granted		5,824,000		0.49
Exercised		(175,604)		0.01
Expired or cancelled		—		—
Outstanding at May 31, 2007		12,535,048		0.58
Granted		5,365,197		0.21
Exercised		—
Expired or cancelled		(2,927,864)		0.22
Outstanding at May 31, 2008		14,972,381		0.51
Granted		14,427,600		0.15 - 0.25
Exercised		—
Expired or cancelled		(9,438,184)		0.25 -1.20
Outstanding at May 31, 2009		19,961,797		0.27
Granted		—
Exercised		(2,228,364)		0.01
Expired or cancelled		(583,197)		0.25
Outstanding at May 31, 2010		17,150,236		0.30
Granted		—
Exercised		(2,227,864)		0.01
Expired or cancelled		(13,372,372)		0.30
Outstanding at May 31, 2011		1,550,000		0.65
Granted		—
Exercised		—
Expired or cancelled		(240,000)		0.83
Outstanding at May 31, 2012		1,310,000		0.55
Granted		—
Exercised		—
Expired or cancelled		—
Outstanding at August 31, 2012		1,310,000	$	0.55

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

The following table summarizes information about options outstanding and exercisable at August 31, 2012 and May 31, 2012:

	Options Outstanding and exercisable
	Number Outstanding		Weighted- Average Remaining Life In Years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$0.26 - $1.00		1,310,000		1.8	$	0.55		1,310,000
		1,310,000			$	0.55		1,310,000

Schedule of Share-based Compensation, Warrants, Activity [Table Text Block]

The issuance of warrants attributed to debt issuances are summarized as follows:

			Weighted
			Average
	Shares		Exercise Price
Outstanding at May 31, 2006		4,392,874	$	0.84
Granted		4,655,366		0.93
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2007		9,048,240		0.88
Granted		1,821,676		0.85
Exercised		0		—
Expired or cancelled		-825,000		0.67
Outstanding at May 31, 2008		10,044,916		0.84
Granted		4,022,225		0.25
Exercised		0		—
Expired or cancelled		-2,332,137		0.85
Outstanding at May 31, 2009		11,735,004		0.63
Granted		0		—
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2010		11,735,004		0.63
Granted		0		—
Exercised		0		—
Expired or cancelled		-6,499,057		0.70
Outstanding at May 31, 2011		5,235,945		0.50
Granted		660,000		0.035
Exercised		0		—
Expired or cancelled		0		—
Outstanding at May 31, 2012		5,895,945		0.50
Granted		0		—
Exercised		0		—
Expired or cancelled		0		—
Outstanding at August 31, 2012		5,895,945	$	0.50

Schedule of Share-based Compensation, Shares Authorized under Warrants Plans, by Exercise Price Range [Table Text Block]

The following table summarizes information about warrants outstanding and exercisable at August 31, 2012 and May 31, 2012:

	Outstanding and exercisable
	Number Outstanding		Weighted- average remaining life in years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$.01 to $.25		4,682,225		1.4	$	.21		4,682,225
$.26 - $.99		1,213,720		1.4	$	.85		1,213,720
		5,895,945						5,895,945

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Aug. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

9. COMMITMENTS AND CONTINGENCIES

The Company was utilizing premises on a month to month basis of one its shareholders during fiscal 2012 and year to date fiscal 2013.

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SALE OF LICENSE AND IP AGREEMENTS (Details Textual) (USD $)	1 Months Ended	12 Months Ended
	Jun. 30, 2011	May 31, 2011
Proceeds from Sale of Productive Assets, Total		$ 11,000,000
Proceeds from Sale of Intangible Assets		7,000,000
Proceeds from Sale of Other Assets	4,000,000
Secured Debt		20,000,000
Workers Compensation Liability		1,400,000
Employee-related Liabilities		5,200,000
Settlement Agreements [Member]
Accounts Payable		30,000,000
Extinguishment of Debt, Amount		10,862,241
Payments for Restructuring		3,862,241
Unsecured Debt		2,100,000
Settlement Agreements [Member] | Equity [Member]
Extinguishment of Debt, Amount		5,259,926
Settlement Agreements [Member] | Notes Payable, Other Payables [Member]
Extinguishment of Debt, Amount		$ 818,768

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DESCRIPTION OF BUSINESS (Details Textual) (Miletos Inc [Member], USD $)	1 Months Ended
	Mar. 31, 2004
Miletos Inc [Member]
Debt Instrument, Decrease, Forgiveness	$ 4,000,000

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Document And Entity Information	3 Months Ended
	Aug. 31, 2012
Document Information [Line Items]
Entity Registrant Name	ARKADOS GROUP, INC.
Entity Central Index Key	0001095130
Current Fiscal Year End Date	--05-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	AKDS
Entity Common Stock, Shares Outstanding	48,898,474
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 31, 2012
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual) (USD $)	2 Months Ended	3 Months Ended			12 Months Ended								101 Months Ended
	May 31, 2004	Aug. 31, 2012	Aug. 31, 2011	May 31, 2007	May 31, 2012	May 31, 2011	May 31, 2010	May 31, 2009	May 31, 2008	May 31, 2007	May 31, 2006	May 31, 2005	Aug. 31, 2012
Net income (loss)	$ 693,833	$ 51,435	$ (4,339,710)		$ (4,135,062)	$ (13,364,862)	$ 11,478,230	$ 6,762,218	$ 6,478,999	$ 6,033,075	$ 4,025,016	$ 7,001,365	$ 25,024,246
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Exercisable, Number (in shares)		5,895,945											5,895,945
Stock based compensation		$ 0	$ 0	$ 16,858		$ 603,974	$ 1,176,762			$ 100,146	$ 69,170	$ 724,811	$ 11,706,492
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Exercisable, Number (in shares)			5,895,945