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

9 Months Ended

Feb. 29, 2016

Debt Disclosure [Abstract]

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

5. NOTES PAYABLE, RELATED PARTY PAYABLES AND DEBT SUBJECT TO EQUITY BEING ISSUED

Notes Payable  

As a result of the Asset Sale, notes payable and convertible debentures having the aggregate principal amount of $17,269,689 and the related accrued interest of $3,671,137 as of May 31, 2010, were settled in part in December, 2010 in the amount of $5,570,059 and the balance was settled at the time of the June, 2011 closing of the Asset Sale by the Company’s payment of $3,526,523, the Company’s agreement to issue equity in an amount that has not been determined and accordingly is yet to be issued and the Company’s issuance of $688,768 of notes payable on May 31, 2012. In fiscal 2014, the Company borrowed $400,000. As of May 31, 2014, there was $939,894 of notes payable, net of debt discounts of $309,263. In fiscal 2015, the Company borrowed $200,000 and refinanced related party payables totaling $130,000. In addition, as discussed below, the Company issued common stock for the conversion of various notes payable and accrued interest. As of February 29, 2016 and May 31, 2015, notes payable of $315,832 and $345,832, net of debt discounts of $0, respectively, were outstanding. All notes payable matured on or before October 31, 2015 and, as such, are classified as current liabilities on the consolidated balance sheet.

Notes payable transactions include the following:

FY 2013 (Year Ended May 31, 2013) Transactions: 

In November and December, 2012, the Company received loans in the form of Convertible Notes in the aggregate principal amount of $200,000. The Convertible Notes bore interest at 6% per year and were scheduled to mature on November 15, 2014. In November 2014, the maturity date was extended to January 15, 2015. At any time during the term of the Convertible Notes, the holders had the right to convert any unpaid portion of the Convertible Notes into shares of common stock at a conversion price of $0.30 per share. The beneficial conversion feature was fair valued at $200,000 and was amortized over the life of the debt instrument. On April 1, 2015, the Company issued 764,294 shares for the conversion of the principal and accrued interest of $29,289. As a result of the conversion of the notes, the remaining unamortized beneficial conversion feature was written off in March 2015. See Note 6h. 

In April and May, 2013, the Company executed four Convertible Notes for loans in aggregate principal amount of $400,000. The Convertible Notes bore interest at 6% per year and were scheduled to mature on April 30, 2015. At any time during the term of the Convertible Notes, the holders had the right to convert any unpaid portion of the Convertible Notes into shares of common stock at an original conversion price of $0.60 per share for all Convertible Notes. The beneficial conversion feature was fair valued at $400,000 and was being amortized over the lives of the debt instruments. On March 16, 2015, the conversion price for the four Convertible Notes was amended to $0.30 per share. On April 1, 2015, the Company issued 1,487,150 shares for the conversion of the principal and accrued interest of $46,145. As a result of the conversion of the Convertible Notes, the remaining unamortized beneficial conversion features were written off in March 2015. See Note 6h.

FY 2014 (Year Ended May 31, 2014) Transactions: 

In October and November, 2013, the Company executed two Convertible Notes for loans in the aggregate principal amount of $400,000. The Convertible Notes bore interest at 6% per year and were scheduled to mature on October 31, 2015. At any time during the term of the Convertible Notes, the holders had the right to convert any unpaid portion of the Convertible Note into shares of common stock at an original conversion price of $1.20 per share. The beneficial conversion feature was fair valued at $107,500 and was being amortized over the life of the debt instrument. On March 16, 2015, the conversion price for the Convertible Note was amended to $0.30 per share. On April 1, 2015, the Company issued 1,445,772 shares for the conversion of the principal and accrued interest of $33,732. As a result of the conversion of the Convertible Note, the remaining unamortized beneficial conversion feature was written off in March 2015. See Note 6h. 

FY 2015 (Year Ended May 31, 2015) Transactions: 

In August, 2014, the Company executed two Convertible Note for loans in the aggregate principal amount of $200,000. The Convertible Notes bore interest at 6% per year and were scheduled to mature on October 31, 2015. At any time during the term of the Convertible Notes, the holders had the right to convert any unpaid portion of the Convertible Note and accrued interest into shares of common stock at an original conversion price of $0.60 per share. The beneficial conversion feature was fair valued at $71,000 and was being amortized over the life of the debt instrument. On March 16, 2015, the conversion price for the Convertible Note was amended to $0.30 per share. On April 1, 2015, the Company 690,663 shares for the conversion of the principal and accrued interest of $7,199. As a result of the conversion of the Convertible Note, the remaining unamortized beneficial conversion feature was written off in March 2015. See Note 6h.

On September 10, 2014, the Company executed two Convertible Notes to refinance due to related party, a previously issued outstanding note payable and accrued interest totaling $174,071. Each of these Convertible Notes had a principal balance of $65,000, bore interest at 6% per year and matured on October 31, 2015. The Convertible Notes were not paid at maturity and were in default. The terms of the two Convertible Notes have substantially been renegotiated as discussed below. The holders had the right to convert any unpaid portion of the Convertible Notes and accrued interest into shares of common stock at a conversion price of $1.20 per share. There was no beneficial conversion feature. The Company recognized a gain on the settlement of debt of $44,071 for the year ended May 31, 2015.

FY 2016 (Year Ended May 31, 2016) Transactions:

In January 2016, the Company executed a Promissory Note for a loan in the principal amount of $60,000. The Promissory Note bears interest at 6% per year, compounded quarterly, and matures on January 15, 2017. The proceeds from the Promissory Note were used to partially repay two Convertible Notes as discussed below.

On January 8, 2016, the Company entered into an Exchange Agreement with the noteholders of the Convertible Notes that were in default. On January 15, 2016, the Company applied the proceeds of the new Promissory Note together with the issuance of 50,000 shares of the Company’s common stock, to the payment of two outstanding 6% Convertible Notes that were in default having the aggregate outstanding principal amount of $130,000.  In exchange for the payment and the shares, the holders of the outstanding 6% Convertible Notes surrendered their notes, and the Company issued a new 6% Convertible Note December 31, 2016 to them in the original principal amount of $40,000.  The new Convertible Note bears interest at the rate of 6% per year, compounded quarterly, and matures on December 31, 2016. At any time during the term of the Convertible Note, the holders have the right to convert any unpaid portion of the Convertible Note and accrued interest into shares of common stock at an original conversion price of $1.20 per share. There is no beneficial conversion feature. The holders further agreed that their extension of the maturity of the outstanding Convertible Notes had been effective from October 31, 2015 until January 15, 2016.

Debt Subject to Equity Being Issued

As a direct result of the Sale of the License and IP Agreements to ST US and the mandate to obtain debt releases, the Company has been able to reach settlements with its secured creditors and employees, with cash payments to the secured creditors made as of the December 2010 and June 2011 closings. Nothing further is owed to the Company’s secured creditors. There remains, however, approximately $179,000 of payments due the former employees as of both February 29, 2016 and May 31, 2015.

The continuing settlements with unsecured and related parties resulted in gains being recorded in the amount of $482,784 in fiscal 2012. As of both February 29, 2016 and May 31, 2015, there remained $456,930 of debts to be settled via cash payments and/or the issuance of equity on as yet to be determined or negotiated terms. The majority of debt holders who have settled have agreed to accept equity for their remaining debt.

FY 2013 (Year Ended May 31, 2013):

On January 6, 2013, the Company and a former officer and director (the Former Officer”) entered into a Separation and Release Agreement (Separation Agreement”). Under the Separation Agreement, all prior agreements with the Former Officer were terminated and certain debts and obligations to the Former Officer were released in exchange for (1) a cash payment of $15,920 and (2) the issuance of 469,132 shares of the Company's common stock. In addition, $19,000 was to be paid to the Former Officer’s son for an existing loan with the Company. The Company issued such shares under this Separation Agreement in September 2014. As of both February 29, 2016 and May 31, 2015 no payables were due to the Former Officer. See Note 6c.

 FY 2015 (Year Ended May 31, 2015):

In fiscal 2015, the Company entered into final supplemental agreements with former employees to settle all outstanding claims. The Company issued warrants to purchase 622,947 shares of its common stock at $1.20 per share exercisable for a five-year period ending in 2020 to settle claims totaling $747,535.

During the year ended May 31, 2015, the Company entered into final supplemental agreements with bridge note holders to settle all outstanding claims. The Company issued 648,381 shares of its common stock to settle claims totaling $466,000 in September 2014 and 256,486 shares of its common stock to settle claims totaling $207,753 on April 1, 2015. See Note 6d.

During the year ended May 31, 2015, the Company agreed to issue 418,669 shares of its common stock to settle claims totaling $502,408 from previous holders of unsecured debt. The shares were issued in January 2015. See Note 6e.