UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017
Or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-53461
SPECTRUM GLOBAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
British Columbia | 26-0592672 | |
(State or other jurisdiction
of incorporation or organization) |
(IRS Employer Identification No.) | |
300 Crown Oak Centre, Longwood, Florida | 32750 | |
(Address of principal executive offices) | (Zip Code) |
407-512-9102
(Registrant’s telephone number, including area code)
Mantra Venture Group Ltd.
Former FYE – May 31
(Former name, former address and former fiscal year, if changed since last report)
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 ☐ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ YES ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO
APPLICABLE
ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ☐ YES ☐ NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
443,543,290 common shares issued and outstanding as of January 22, 2018
Table of Contents
PART I – FINANCIAL INFORMATION | 1 | |
Item 1. | Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29 |
Item 4. | Controls and Procedures | 29 |
PART II – OTHER INFORMATION | 30 | |
Item 1. | Legal Proceedings | 30 |
Item 1A. | Risk Factors | 30 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30 |
Item 3. | Defaults Upon Senior Securities | 30 |
Item 4. | Mine Safety Disclosures | 30 |
Item 5. | Other Information | 30 |
Item 6. | Exhibits | 30 |
SIGNATURES | 31 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim consolidated financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars, unless otherwise noted.
1
SPECTRUM GLOBAL SOLUTIONS, INC.
(f/k/a Mantra Venture Group Ltd.)
Consolidated balance sheets as of November 30, 2017 (unaudited) and May 31, 2017 | 3 |
Consolidated statements of operations for the six months ended November 30, 2017 and 2016 (unaudited) | 4 |
Consolidated statements of cash flows for the six months ended November 30, 2017 and 2016 (unaudited) | 5 |
Notes to unaudited consolidated financial statements | 6 |
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SPECTRUM GLOBAL SOLUTIONS, INC.
(f/k/a Mantra Venture Group Ltd.)
Consolidated balance sheets
(Expressed in U.S. dollars)
November 30, | May 31, | |||||||
2017 | 2017 | |||||||
$ | $ | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | – | 345,102 | ||||||
Accounts receivable, net | 1,911,831 | 1,623,200 | ||||||
Prepaid expenses and deposits | 46,778 | 132,155 | ||||||
Total current assets | 1,958,609 | 2,100,457 | ||||||
Property and equipment, net | 40,609 | 96,030 | ||||||
Goodwill | 1,503,633 | 1,503,633 | ||||||
Customer lists, net | 844,257 | 892,127 | ||||||
Tradenames, net | 538,090 | 568,600 | ||||||
Other assets | 28,430 | 27,930 | ||||||
Total assets | 4,913,628 | 5,188,777 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Checks issued in excess of funds on deposit | 8,212 | – | ||||||
Accounts payable and accrued liabilities | 2,551,978 | 2,113,355 | ||||||
Due to related parties | 177,529 | 308,008 | ||||||
Loans payable | 359,672 | 235,441 | ||||||
Loans payable to related parties | 148,858 | – | ||||||
Convertible debentures (net of discount of $714,792 and $1,350,067, respectively) | 1,805,208 | 2,139,791 | ||||||
Derivative liability | 1,866,786 | 3,760,067 | ||||||
Contingent liability | 1,409,411 | 1,409,411 | ||||||
Series A preferred stock liability Authorized: 20,000,000 shares, par value $0.00001 Series A preferred stock Authorized: 8,000,000 shares, Issued and outstanding: 1,262,945 (May 31, 2017 – Nil) shares | 435,138 | – | ||||||
Total current liabilities | 8,762,792 | 9,966,073 | ||||||
Stockholders’ deficit | ||||||||
Common stock Authorized: 750,000,000 shares, par value $0.00001 Issued and outstanding: 274,998,800 (May 31, 2017 – 274,998,800) shares | 2,754 | 2,754 | ||||||
Additional paid-in capital | 15,724,447 | 15,724,447 | ||||||
Common stock subscribed | 74,742 | 74,742 | ||||||
Accumulated deficit | (19,555,383 | ) | (20,518,967 | ) | ||||
Total Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.) stockholders’ deficit | (3,753,440 | ) | (4,717,024 | ) | ||||
Non-controlling interest | (95,724 | ) | (60,272 | ) | ||||
Total stockholders’ deficit | (3,849,164 | ) | (4,777,296 | ) | ||||
Total liabilities and stockholders’ deficit | 4,913,628 | 5,188,777 |
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
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SPECTRUM GLOBAL SOLUTIONS, INC.
(f/k/a Mantra Venture Group Ltd.)
Consolidated statements of operations
(Expressed in U.S. dollars)
(Unaudited)
Three Months Ended November 30, | Three Months Ended November 30, | Six Months Ended November 30, | Six Months Ended November 30, | |||||||||||||
2017 $ | 2016 $ | 2017 $ | 2016 $ | |||||||||||||
Revenue | 2,006,933 | – | 5,122,854 | – | ||||||||||||
Cost of goods sold | 1,996,045 | – | 4,504,797 | – | ||||||||||||
Gross profit | 10,888 | – | 618,057 | – | ||||||||||||
Operating expenses | ||||||||||||||||
Depreciation and amortization | 65,669 | 8,404 | 133,800 | 15,925 | ||||||||||||
General and administrative | 504,886 | 96,390 | 1,063,014 | 132,119 | ||||||||||||
Salaries & wages | 204,949 | 45,744 | 464,709 | 91,488 | ||||||||||||
Total operating expenses | 775,504 | 150,538 | 1,661,523 | 239,532 | ||||||||||||
Loss from operations | (764,616 | ) | (150,538 | ) | (1,043,466 | ) | (239,532 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Gain (Loss) on settlement of debt | 3,368,128 | (19,418 | ) | 3,368,128 | (19,418 | ) | ||||||||||
Accretion of discounts on convertible debentures | (441,011 | ) | (151,557 | ) | (901,254 | ) | (318,740 | ) | ||||||||
Loss on change in fair value of derivatives | (440,021 | ) | (1,508,271 | ) | (310,186 | ) | (1,379,597 | ) | ||||||||
Interest expense | (107,184 | ) | (26,615 | ) | (185,091 | ) | (63,120 | ) | ||||||||
Total other income (expense) | 2,379,912 | (1,705,861 | ) | 1,971,597 | (1,780,875 | ) | ||||||||||
Net income (loss) for the period | 1,615,296 | (1,856,399 | ) | 928,131 | (2,020,407 | ) | ||||||||||
Less: net loss attributable to the non-controlling interest | 72,505 | 3,613 | 35,453 | 9,750 | ||||||||||||
Net income (loss) attributable to Spectrum Global Solutions, Inc. | 1,687,801 | (1,852,786 | ) | 963,584 | (2,010,657 | ) | ||||||||||
Net income (loss) per share attributable to Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.) common shareholders: | ||||||||||||||||
Basic | 0.01 | (0.02 | ) | 0.00 | (0.02 | ) | ||||||||||
Diluted | 0.00 | (0.02 | ) | 0.00 | (0.02 | ) | ||||||||||
Weighted average number of shares outstanding used in the calculation of net loss attributable to Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.) per common share: | ||||||||||||||||
Basic | 274,998,800 | 99,869,076 | 274,998,800 | 97,483,513 | ||||||||||||
Diluted | 1,229,305,428 | 99,869,076 | 1,229,593,453 | 97,483,513 |
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
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SPECTRUM GLOBAL SOLUTIONS, INC.
(f/k/a Mantra Venture Group Ltd.)
Consolidated statements of cash flows
(Expressed in U.S. dollars)
(Unaudited)
Six Months Ended November 30, 2017 $ | Six Months Ended November 30, 2016 $ | |||||||
Operating activities | ||||||||
Net income (loss) | 928,131 | (2,020,407 | ) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Loss on change in fair value of derivative liability | 227,421 | 1,206,006 | ||||||
Accretion of discounts on convertible debentures | 901,254 | 318,740 | ||||||
Depreciation and amortization | 133,800 | 15,925 | ||||||
Foreign exchange loss | 6,231 | 2,912 | ||||||
Initial derivative expenses | 82,766 | 171,102 | ||||||
Interest related to cash redemption premium on convertible notes | 17,500 | 9,875 | ||||||
(Gain) loss on settlement of debt | (3,368,128 | ) | 19,418 | |||||
Changes in operating assets and liabilities: | ||||||||
Amounts receivable | (288,631 | ) | 5,674 | |||||
Prepaid expenses and deposits | 85,377 | 11,655 | ||||||
Accounts payable and accrued liabilities | 617,182 | 47,512 | ||||||
Due to related parties | 64,725 | 51,574 | ||||||
Net cash used in operating activities | (592,372 | ) | (160,014 | ) | ||||
Financing activities | ||||||||
Repayment of capital lease obligations | – | (4,592 | ) | |||||
Repayment of loan payable | (160,000 | ) | – | |||||
Proceeds from notes payable | 250,200 | 20,282 | ||||||
Proceeds from loans from related parties | 148,858 | – | ||||||
Proceeds from issuance of convertible debentures | – | 134,500 | ||||||
Proceeds from issuance of common stock and subscriptions received | – | 5,000 | ||||||
Checks issued in excess of funds on deposit | 8,212 | 3,705 | ||||||
Net cash provided by financing activities | 247,270 | 158,895 | ||||||
Change in cash | (345,102 | ) | (1,119 | ) | ||||
Cash, beginning of period | 345,102 | 1,119 | ||||||
Cash, end of period | – | – | ||||||
Non-cash investing and financing activities: | ||||||||
Common stock issued to relieve common stock subscribed | – | 25,000 | ||||||
Common stock issued to settle accounts payable and debt | – | 108,212 | ||||||
Common stock issued for conversion of notes payable | – | 236,093 | ||||||
Preferred stock issued to settle accounts payable and amounts owed related parties | 374,263 | – | ||||||
Preferred stock issued to settle derivative liabilities | 2,453,667 | – | ||||||
Preferred stock issued to settle conversion of notes payable | 975,337 | – | ||||||
Original issue discounts | 27,800 | 24,999 | ||||||
Original debt discount against derivative liability | 250,200 | 134,500 | ||||||
Supplemental disclosures: | ||||||||
Interest paid | 2,808 | 657 | ||||||
Income taxes paid | – | – |
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
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SPECTRUM GLOBAL SOLUTIONS, INC.
Notes to the unaudited consolidated financial statements
November 30, 2017
(Expressed in U.S. dollars)
1. | Organization and Going Concern |
Spectrum Global Solutions, Inc. (the “Company”) (f/k/a Mantra Venture Group Ltd.) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company continued its corporate jurisdiction out of the State of Nevada and into the province of British Columbia, Canada. On April 25, 2017, the Company entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, the Company purchased 80.1% of the assets associated with InterCloud’s “AW Solutions” business. After the acquisition of AW Solutions, the Company provides professional, multi-service line, telecommunications infrastructure and outsource services to the wireless and wireline industry. On November 15, 2017, the Company changed its name to “Spectrum Global Solutions, Inc.”.
The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017. In the opinion of management, the accompanying financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has yet to acquire commercially exploitable energy related technology, and is unlikely to generate earnings in the immediate or foreseeable future. The recently acquired AW Solutions business has also incurred losses and experienced cash outflows from operations during its most recent fiscal years. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As of November 30, 2017, the Company has an accumulated loss of $19,555,383, and a working capital deficit of $6,804,183. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
2. | Significant Accounting Policies |
a. | Basis of Presentation/Principles of Consolidation |
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., AW Solutions, Inc.(from the date of acquisition, April 25, 2017), Tropical Communications, Inc. (from the date of acquisition, April 25, 2017) and AW Solutions Puerto Rico, LLC.(from the date of acquisition, April 25, 2017). All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.55% owned, Mantra Energy Alternatives Ltd., which is 88.21% owned and AW Solutions, Inc., Tropical Communications, Inc., and AW Solutions Puerto Rico, LLC which are all 80.1% owned. All inter-company balances and transactions have been eliminated.
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b. | Use of Estimates |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c. | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
d. | Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. At November 30, 2017, unbilled receivables totaled $44,054, and are included in accounts receivable. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts was $54,482 at November 30, 2017.
e. | Property and Equipment |
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
Automotive | 3-5 years straight-line basis | ||
Computer equipment and software | 3-7 years straight-line basis | ||
Leasehold improvements | 5 years straight-line basis | ||
Office equipment and furniture | 5 years straight-line basis | ||
Research equipment | 5 years straight-line basis |
f. | Goodwill |
Goodwill was generated through the acquisition of AW Solutions in fiscal 2017 as the total consideration paid exceeded the fair value of the net assets acquired.
The Company tests its goodwill for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the six months ended November 30, 2017.
g. | Intangible Assets |
At November 30, 2017 and May 31, 2017, definite-lived intangible assets primarily consist of non-compete agreements, tradenames and customer relationships which are being amortized over their estimated useful lives ranging from 1-10 years.
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The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
h. | Long-lived Assets |
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
i. | Foreign Currency Translation |
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.
j. | Income Taxes |
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2017. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
The Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014 in the amount of $166,084 plus penalties and interest of $87,027 for a total obligation due of $253,111. This tax assessment is included in accrued expenses at November 30, 2017.
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k. | Revenue Recognition |
The Company’s revenues are generated from infrastructure and professional services. The Company recognizes revenue on arrangements in accordance with ASC Topic 605-10, “Revenue Recognition”. The Company recognizes revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
The infrastructure and professional services revenues are derived from contracts to provide technical engineering services along with contracting services to commercial and governmental customers. The Company’s service contracts generally require specific tasks or services that the Company must perform under the contract. The Company recognizes revenues associated with these services upon the completion of the related task or service which is at the time the four revenue recognition criteria have been met. Direct costs incurred related to performance of the task or service are deferred and recorded as prepaid expense and are expensed when the related revenue is recognized.
The Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional performance method. Under this method, revenue is recognized in proportion to the value provided to the customer for each project as of each reporting date.
The Company records unbilled receivables for revenues earned, but not yet billed.
l. | Cost of Revenues |
Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.
m. | Research and Development Costs |
Research and development costs are expensed as incurred.
n. | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
o. | Loss Per Share |
The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of November 30, 2017, the Company had 954,594,653 (2016 – 352,678,654) dilutive potential shares outstanding.
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p. | Comprehensive Loss |
ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As of November 30, 2017 and 2016, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.
q. | Recent Accounting Pronouncements |
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which is effective for nonpublic entities for annual reporting periods, as amended, beginning after December 15, 2018. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for the Company on June 1, 2019, and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company continues to evaluate the standard and has not yet selected a transition method.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2016. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as non-current in the statement of financial position. The Company has elected to early adopt the requirements of ASU 2015-17 and the results of such adoption are presented within these consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2019. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company continues to evaluate the effects of ASU 2016-02 and does not expect that the adoption will have a material effect on its consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU 2016-08”). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-08 on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-10 on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The amendments in ASU 2016-12 provide clarifying guidance in certain narrow areas and add some practical expedients. Specifically, the amendments in this update (1) clarify the objective of the collectability criterion in step 1, and provides additional clarification for when to recognize revenue for a contract that fails step 1, (2) permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price (3) specify that the measurement date for noncash consideration is contract inception, and clarifies that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations, (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-12 on its consolidated financial statements.
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In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” (“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption of this standard is permitted. The Company is currently evaluating the effects of ASU 2017-01 on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted on testing dates after January 1, 2017. The Company is evaluating the effects of ASU 2017-04 on its consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or result of operations.
r. | Concentrations of Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the six months ended November 30, 2017, two customers accounted for 42% and 13%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 28% and 18%, respectively, of trade accounts receivable as of November 30, 2017.
The Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated within the domestic United States of America accounted for approximately 81% of consolidated revenues for the six month period ended November 30, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 19% of consolidated revenues for the six month period ended November 30, 2017.
s. | Fair Value Measurements |
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and.
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the six months ended November 30, 2017 and 2016. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of November 30, 2017 and May 31, 2017, consisted of the following:
Total fair value at November 30, 2017 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | ||||||||||||||
Description: | |||||||||||||||||
Derivative liability (1) | 1,866,786 | – | – | 1,866,786 |
Total fair value at May 31, 2017 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | ||||||||||||||
Description: | |||||||||||||||||
Derivative liability (1) | 3,760,067 | – | – | 3,760,067 |
(1) | The Company has estimated the fair value of these derivatives using the Monte-Carlo model and/or a Binomial Model based on various assumptions. |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 8 for additional information.
t. | Derivative Liabilities |
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of November 30, 2017 and May 31, 2017, the Company had a $1,866,786 and $3,760,067 derivative liability, respectively.
u. | Reclassifications |
Certain prior period amounts have been reclassified to conform to current presentation.
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3. | Property and Equipment |
November 30, 2017 $ | May 31, 2017 $ | ||||||||
Computers and office equipment | 308,649 | 308,649 | |||||||
Equipment | 378,505 | 378,505 | |||||||
Research equipment | 143,129 | 143,129 | |||||||
Software | 177,073 | 177,073 | |||||||
Vehicles | 94,356 | 94,356 | |||||||
Vehicles under capital lease | – | – | |||||||
Total | 1,101,712 | 1,101,712 | |||||||
Less: impairment | (44,419 | ) | (44,419 | ||||||
Less: accumulated depreciation | (1,016,684 | ) | (961,263 | ) | |||||
Equipment, Net | 40,609 | 96,030 |
During the six months ended November 30, 2017, the Company recorded $55,421 (2016 - $13,556) of amortization expense.
4. | Intangible Assets |
Cost $ | Accumulated amortization $ | Impairment $ | November 30, 2017 Net carrying value $ | May 31, 2017 Net carrying value $ | |||||||||||||||||
Customer relationship and lists | 901,548 | 57,291 | – | 844,257 | 892,127 | ||||||||||||||||
Trade names | 574,605 | 36,515 | – | 538,090 | 568,600 | ||||||||||||||||
1,476,153 | 93,806 | – | 1,382,347 | 1,460,727 |
During the six months ended November 30, 2017, the Company recorded $78,379 (2016 - $2,369) of amortization expense.
Estimated Future Amortization Expense:
$ | |||||
For year ending May 31, 2018 | 78,203 | ||||
For year ending May 31, 2019 | 156,405 | ||||
For year ending May 31, 2020 | 156,405 | ||||
For year ending May 31, 2021 | 156,405 | ||||
For year ending May 31, 2022 | 156,405 | ||||
For year ending May 31, 2023 | 156,405 | ||||
For year ending May 31, 2024 | 156,405 | ||||
For year ending May 31, 2025 | 156,405 | ||||
For year ending May 31, 2026 | 155,487 |
5. | Related Party Transactions |
a) | During the six months ended November 30, 2017, the Company incurred management fees of $12,011 (2016 - $68,616) to the former President of the Company. |
b) | During the six months ended November 30, 2017, the Company incurred management fees of $0 (2016 - $22,872) to the spouse of the former President of the Company. |
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c) | As of November 30, 2017, the Company owes a total of $195,204 (May 31, 2017 - $241,327) to the former President of the Company and his spouse, and a company controlled by the former President of the Company which is non-interest bearing, unsecured, and due on demand. |
d) | As of November 30, 2017, the Company owes $18,141 (May 31, 2017 - $17,305) to a former officer and a former director of the Company, which is non-interest bearing, unsecured, and due on demand. |
e) | As of November 30, 2017, the Company owes $51,849 (May 31, 2017 - $49,376) to Intercloud, which is non-interest bearing, unsecured, and due on demand. |
f) | As of November 30, 2017, pursuant to the acquisition AW Solutions, the Company owes a contingent liability of $1,409,411 to Intercloud. |
g) | On November 30, 2017, the Company received $18,858 pursuant to a promissory note issued to the Chief Executive Officer of the Company. The note issued is unsecured, due on November 30, 2018 and bears interest at a rate of 8% per annum. |
h) | On November 30, 2017, the Company received $130,000 pursuant to a promissory note issued to the President of the Company. The note issued is unsecured, due on November 30, 2018 and bears interest at a rate of 8% per annum. |
i) | On November 16, 2017, the Company issued 251,885 shares of Series A Preferred Stock with a fair value of $86,785 to settle $195,204 of amounts owed to the former President of the Company. The Company recognized a gain on settlement of debt of $108,419. |
6. | Loans Payable |
(a) | As of November 30, 2017, the amount of $49,109 (Cdn$63,300) (May 31, 2017 - $46,846 (Cdn$63,300)) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. |
(b) | As of November 30, 2017, the amount of $17,500 (May 31, 2017 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. |
(c) | As of November 30, 2017, the amounts of $7,500 and $28,705 (Cdn$37,000) (May 31, 2017 - $7,500 and $27,382 (Cdn$37,000)) are owed to a non-related party which are non-interest bearing, unsecured, and due on demand. |
(d) | As of November 30, 2017, the amount of $4,490 (May 31, 2017 - $4,490) is owed to a non-related party which is non-interest bearing, unsecured, and due on demand. |
(e) | During the year ended May 31, 2017, the amounts of $14,016 (Cdn$18,066) (May 31, 2017 - $13,370 (Cdn$18,066) was advanced by a non-related party. The amount owing is non-interest bearing, unsecured, and due on demand. |
(f) | In March 2012, the Company received $50,000 for the subscription of 10,000,000 shares of the Company’s common stock. During the year ended May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription would be returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded to the subscriber. |
(g) | On August 4, 2015, the Company borrowed $50,000 pursuant to a promissory note. The note was due on September 4, 2015. The note bears interest at 120% per annum prior September 4, 2015, and at 180% per annum after September 4, 2015. The holder of the note was also granted the rights to buy 100,000 shares of the Company’s common stock at a price of $0.15 per share until August 4, 2017. During the year ended May 31, 2016, the Company repaid the $50,000 note and $1,200 of accrued interest remains owing. |
The rights issued with the note qualified for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the warrants of $9,755 resulted in a discount to the note payable of $9,755. During the year ended May 31, 2016, the Company recorded accretion of $9,755.
(h) | As of November 30, 2017 and May 31, 2017, the amounts of $15,000 and $43,352 (Cdn$55,878) was owed to non-related parties. These advances are non-interest bearing, unsecured, and due on demand. |
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(i) | On April 12, 2017, received $12,000 pursuant to a promissory note. The note issued is unsecured, due on demand and bears interest at a rate of 10% per annum. |
(j) | On June 27, 2017, received $250,200 net of a $27,800 Original Issue Discount pursuant to a $278,000 promissory note. The note issued is unsecured, due on demand and bears interest at a rate of 12% per annum. The Company also issued a warrant with a term of three years to purchase up to 50,000,000 shares of common stock of the Company at an exercise price of $0.005 per share. The fair value of the warrants of $332,966 resulted in a discount to the note payable of $250,200 and the recognition of a loss on derivatives of $82,766. During the six months ended November 30, 2017, the Company repaid $160,000 of the loan and recorded accretion of $278,000, increasing the carrying value of the note to $118,000. |
7. | Convertible Debentures |
(a) | In October 2008, the Company issued three convertible debentures for total proceeds of $250,000 which bear interest at 10% per annum, are unsecured, and due one year from date of issuance. The unpaid amount of principal and accrued interest can be converted at any time at the holder’s option into 625,000 shares of the Company’s common stock at a price of $0.40 per share. The Company also issued 250,000 detachable, non-transferable share purchase warrants. Each share purchase warrant entitles the holder to purchase one additional share of the Company’s common stock for a period of two years from the date of issuance at an exercise price of $0.50 per share. |
In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company determined that the convertible debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price higher than the fair market value of the Company’s common shares at the time of issuance.
In accordance with ASC 470-20, the Company allocated the proceeds of issuance between the convertible debt and the detachable share purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.
On January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter.
On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the lender agreed to extend the due date until April 11, 2013 and the Company agreed to pay $43,890 of accrued interest within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition to the $150,000 principal outstanding on April 11, 2013. On April 29, 2013, the Company entered into an amended settlement agreement whereby the lender agreed to extend the due date to September 15, 2013 and the Company agreed to pay $6,836 of interest for the period from April 1 to September 15, 2013 upon execution of the agreement (paid) and granted the lender 100,000 stock options exercisable at $0.12 per share for a period of two years.
On November 15, 2013, the Company entered into a second settlement agreement amendment. Pursuant to the second amendment, on November 15, 2013, the Company agreed to pay interest of $4,438 (paid) and commencing February 1, 2014, the Company would make monthly payments of $10,000 on the outstanding principal and interest. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
The Company evaluated the modifications and determined that the creditor did not grant a concession. In addition, as the present value of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment of the debt and no gain or loss was recognized because the fair value of the old debt and new debt remained the same. The Company recorded the fair value of $12,901 for the stock options as additional paid-in capital and a discount. During the year ended May 31, 2014, the Company repaid $40,000 of the debenture. As of May 31, 2014 the Company had accreted $12,901 of the discount bring the carrying value of the convertible debenture to $114,661. During the year ended May 31, 2015, the Company repaid $54,808 decreasing the carrying value to $59,853. During the year ended May 31, 2017, the Company recorded an additional fee of $21,266 increasing the carrying value to $81,119. On November 16, 2017, the debenture and $15,423 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
At November 30, 2017, the other remaining debenture of $50,000 remained outstanding and past due.
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(b) | On August 19, 2013, the Company issued a convertible debenture for total proceeds of $10,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $10,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $10,000. As of November 30, 2017, the carrying value of the convertible promissory note was $10,000 and the note remained outstanding and in default. |
(c) | On December 27, 2013, the Company issued a convertible debenture for total proceeds of $5,000, which bear interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion features of $5,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value was be accreted over the term of the convertible debenture up to its face value of $5,000. As of November 30, 2017, the carrying value of the convertible promissory note was $5,000 and the note remained outstanding and in default. |
(d) | On February 4, 2014, the Company issued a convertible debenture for total proceeds of $15,000, which bears interest at 10% per annum, is unsecured, and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $15,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debenture up to its face value of $15,000. As of November 30, 2017, the carrying value of the convertible promissory note was $15,000 and the note remained outstanding and in default. |
(e) | On June 1, 2015, the Company issued a convertible note in the principal amount of $100,000 due on demand on or after December 1, 2015. The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. In no event shall the conversion price be lower than $0.00001. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. |
On October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. At May 31, 2017, $45,000 of the note had been assigned to the third party.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $310,266 resulted in a discount to the note payable of $100,000 and the recognition of a loss on derivatives of $210,266. During the year ended May 31, 2016, the Company issued 6,303,475 shares of common stock upon the conversion of $45,000 of principal. During the year ended May 31, 2016, the Company recorded accretion of $100,000 and recorded the cash redemption premium of $26,250 increasing the carrying value of the note to $81,250.
During the year months ended May 31, 2017, the Company issued 18,440,200 shares of common stock upon the conversion of $90,000 of principal. During the year ended May 31, 2017, the Company recorded a default fee of $51,820 increasing the carrying value of the note to $43,070. On November 16, 2017, the debenture and $13,644 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
(f) | On September 8, 2015, the Company issued a convertible note in the principal amount of $326,087. During the year ended May 31, 2016, the Company received the initial tranches of $280,000 net of a $26,087 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. |
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The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $479,626 resulted in a discount to the note payable of $280,000 and the recognition of a loss on derivatives of $204,626. During the year ended May 31, 2016, the Company recorded accretion of $120,175 and recorded a default fee of $76,522 increasing the carrying value of the note to $190,696.
During the year ended May 31, 2017, the Company recorded accretion of $185,913 increasing the carrying value of the note to $382,608. On November 16, 2017, the debenture and $79,881 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
(g) | On December 4, 2015, the Company issued a convertible note in the principal amount of $105,000 as an inducement to the holder of the convertible notes described in Note 7(g), to enter into an agreement to sell and assign the remaining outstanding principal to a third party. The note included a $10,000 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 52% discount to the lowest trading price during the previous 30 trading days to the date of conversion; or a 52% discount to the lowest trading price during the previous 30 trading days before the date the note was executed. On October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $216,108 resulted in a discount to the note payable of $95,000 and the recognition of a loss on derivatives of $111,108. During the year ended May 31, 2016, the Company recorded accretion of $82,560 and recorded a default of fee of $26,250 increasing the carrying value of the note to $48,690.
During the year ended May 31, 2017, the recorded accretion of $82,560 increasing the carrying value of the note to $131,250. On November 16, 2017, the debenture and $24,464 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
(h) | On March 10, 2016, the Company issued a convertible note in the principal amount of up to $166,666. During the year ended May 31, 2016, the Company received initial tranches of $65,000 net of a $16,666 original issue discount. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $218,785 resulted in a discount to the note payable of $81,666 and the recognition of a loss on derivatives of $158,785. During the year ended May 31, 2016, the Company recorded accretion of $20,015, and recorded a default fee of $20,417 increasing the carrying value of the note to $40,432.
On April 7, 2017, the Company entered into an amendment to the convertible note which allowed for the additional funding under the note of $40,000 with an original discount of $4,444. During the year ended May 31, 2017, the Company received additional tranches of $123,339. The initial fair value of the conversion feature of $245,571 resulted in a discount to the note payable of $127,783 and the recognition of a loss on derivatives of $117,788. During the year ended May 31, 2017, the Company recorded accretion of $133,721, and recorded a default fee of $31,946 increasing the carrying value of the note to $206,098. During the period from June 1, 2017 to November 16, 2017, the Company recorded accretion of $43,692. On November 16, 2017, the debenture and $33,359 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
(i) | On October 11, 2016, the Company issued a convertible note in the principal amount of up to $249,999. The Company received initial tranches of $42,500 net of a $24,999 original issue discount and $2,500 of financing fees. The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $121,902 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $76,902. During the year ended May 31, 2017, the Company recorded accretion of $26,953 increasing the carrying value of the note to $26,953. During the period from June 1, 2017 to November 16, 2017, the Company recorded accretion of $43,046 and a default fee of $17,500. On November 16, 2017, the debenture and $12,288 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
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(j) | On April 27, 2017, the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest on the outstanding principal due under the Unsecured Note accrues at a rate of 8% per annum. All principal and accrued interest under the Unsecured Note is due one year following the issue date of the Unsecured Note, and is convertible into shares of common stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion. |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $1,174,000 resulted in a discount to the note payable of $943,299. During the year ended May 31, 2017, the Company recorded accretion of $77,465 increasing the carrying value of the note to $1,134,166. During the six month period ended November 30, 2017, the Company recorded accretion of $418,071 increasing the carrying value of the note to $1,552,237.
(k) | On April 28, 2017, the Company entered into and closed on a Securities Purchase Agreement (“Purchase Agreement”) with an institutional investor (the “Lender”), pursuant to which the Company issued to the Lender a senior secured convertible promissory note in the aggregate principal amount of $440,000 (the “Secured Note”) for an aggregate purchase price of $400,000, and a warrant with a term of three years to purchase up to 27,500,000 shares of common stock of the Company at an exercise price of $0.0255 per share. The interest on the outstanding principal due under the Secured Note accrues at a rate of 8% per annum. All principal and accrued interest under the Secured Note is due on April 27, 2018 and is convertible into shares of the Company’s Common Stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the conversion, subject to adjustment upon the occurrence of certain events. |
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $1,744,661 and the fair value of the warrants of $425,918 resulted in a discount to the note payable of $400,000 and the recognition of a loss on derivatives of $1,770,579. During the year ended May 31, 2017, the Company recorded accretion of $54,526, increasing the carrying value of the note to $54,526. During the six month period ended November 30, 2017, the Company recorded accretion of $118,446 increasing the carrying value of the note to $172,971.
8. | Derivative Liabilities |
The embedded conversion option of the convertible debenture described in Note 7(f) contains a conversion feature that qualifies for embedded derivative classification. The fair value of the liability will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible note payable described in Note 7(f), the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the convertible note described in Notes 7(f) to 7(m). The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
During the year ended May 31, 2017, the Company reclassified 350,000 options exercisable at $0.03 until March 16, 2017 with a fair value of $2,350, 2,000,000 warrants exercisable at $0.03 until August 29, 2018 with a fair value of $13,745, 533,333 warrants exercisable at $0.80 with a fair value of $Nil, 4,075,000 warrants exercisable at $0.37 with a fair value of $16,978 and a $59,853 note convertible at $0.40 with a fair value of $41 that qualified for treatment as derivative liabilities.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
November 30, 2017 | May 31, 2017 | ||||||||
Balance at the beginning of year | $ | 3,760,067 | $ | 978,245 | |||||
Original discount limited to proceeds of notes | 250,200 | 1,746,783 | |||||||
Fair value of derivative liabilities in excess of notes proceeds received | 82,766 | 1,965,269 | |||||||
Reclassification of instruments previously classified as equity | - | 32,934 | |||||||
Derivative liability settled through the issuance of preferred stock | (2,453,667 | ) | - | ||||||
Conversion of derivative liability | - | (195,595 | ) | ||||||
Change in fair value of embedded conversion option | 227,421 | (767,569 | ) | ||||||
Balance at the end of the year | $ | 1,866,786 | $ | 3,760,067 |
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The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model or a Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | ||||||||
At issuance | 134-213% | 0.07-0.74% | 0 | % | 0.50-2.00 | ||||||
At May 31, 2017 | 215-346% | 0.84-1.44% | 0 | % | 0.96-2.91 | ||||||
At November 30, 2017 | 106-277% | 1.44-1.78% | 0 | % | 0.40-2.41 |
9. | Common Stock |
On November 15, 2017, the Company revised its authorized share capital to increase the number of authorized common shares from 275,000,000 common shares with a par value of $0.00001, to 750,000,000 common shares with a par value of $0.00001. |
(a) | As of November 30, 2017 and May 31, 2016, the Company’s subsidiary, Mantra Energy Alternatives Ltd., had received subscriptions for 67,000 shares of common stock at Cdn$1.00 per share for proceeds of $66,277 (Cdn$67,000), which is included in common stock subscribed, net of the non-controlling interest portion of $7,231. |
(b) | As of November 30, 2017 and May 31, 2016, the Company’s subsidiary, Climate ESCO Ltd., had received subscriptions for 210,000 shares of common stock at $0.10 per share for proceeds of $21,000, which is included in common stock subscribed, net of the non-controlling interest portion of $7,384. |
10. | Preferred Stock |
On November 15, 2017, the Company created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of 8,000,000 shares, to be designated as Series A Preferred Shares. The principal terms of the Series A Preferred Shares are as follows:
Voting rights – The Series A Preferred Shares do not have voting rights.
Dividend rights – The holders of the Series A Preferred Shares shall not be entitled to receive any dividends. However, no dividends (other than those payable solely in Common Stock) shall be paid on the Common Stock or any class or series of capital stock ranking junior, as to dividends, to the Series A Preferred during any fiscal year of the Corporation until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A Preferred a dividend in an amount per share equal to (i) the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock times (ii) the amount per share of the dividend to be paid on the Common Stock.
Conversion rights – The holders of the Series A Preferred Shares have the right to convert each Class A Preferred Share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock into which each share of the Series A Preferred Shares may be converted shall be determined by dividing the sum of the Stated Value of the Series A Preferred Shares ($0.25 per share) being converted and any accrued and unpaid dividends by the Conversion Price in effect at the time of the conversion. The Series A Preferred Shares may be converted at an initial conversion price of 75% of the lowest VWAP during the ten (10) trading day period immediately preceding the date a conversion notice is delivered.
Liquidation rights - Upon the occurrence of any liquidation, each holder of Series A Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made in respect of the Common Stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A Preferred Shares upon liquidation, an amount per share of Series A Preferred Shares equal to the amount that would be receivable if the Series A Preferred Shares had been converted into Common Stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the following Series A Preferred Shares as a liability.
a) | On November 16, 2017, the Company issued 251,885 shares of Series A Preferred Stock with a fair value of $86,785 to settle $195,204 of amounts owed to the former President of the Company. The Company recognized a gain on settlement of debt of $108,419. |
b) | On November 16, 2017, the Company issued 1,011,060 shares of Series A Preferred Stock with a fair value of $348,354 to settle convertible notes with a carrying value of $975,337, $179,059 of accrued interest and $2,453,667 of associated derivative liabilities. The Company recognized a gain on settlement of debt of $3,259,709. |
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11. | Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants:
Number of warrants | Weighted average exercise price $ | ||||||||
Balance, May 31, 2016 | 7,025,000 | 0.34 | |||||||
Issued | 27,833,333 | 0.03 | |||||||
Expired | (650,000 | ) | 0.04 | ||||||
Balance, May 31, 2017 | 34,208,333 | 0.08 | |||||||
Issued | 50,000,000 | 0.005 | |||||||
Expired | (633,333 | ) | 0.70 | ||||||
Balance, November 30, 2017 | 83,575,000 | 0.03 |
As of November 30, 2017, the following share purchase warrants were outstanding:
Number of warrants | Exercise price $ | Expiry date | |||||||
1,000,000 | 0.03 | April 15, 2018 | |||||||
666,667 | 0.03 | May 4, 2018 | |||||||
4,075,000 | 0.37 | April 10, 2019 | |||||||
333,334 | 0.03 | August 29, 2018 | |||||||
27,500,000 | 0.03 | April 28, 2020 | |||||||
50,000,000 | 0.005 | June 27, 2020 | |||||||
83,575,000 |
12. |
Stock Options |
The following table summarizes the continuity of the Company’s stock options:
Number of options | Weighted average exercise price $ | Weighted average remaining contractual life (years) | Aggregate intrinsic value $ | ||||||||||||||
Outstanding, May 31, 2016 | 1,500,000 | 0.16 | |||||||||||||||
Expired | (1,150,000 | ) | 0.20 | ||||||||||||||
Outstanding, May 31, 2017 and November 30, 2017 | 350,000 | 0.03 | 0.46 | – | |||||||||||||
Exercisable, May 31, 2017 and November 30, 2017 | 350,000 | 0.03 | 0.46 | – |
Additional information regarding stock options as of November 30, 2017 is as follows:
Number of options | Exercise price $ | Expiry date | |||||||
350,000 | 0.03 | May 17, 2018 | |||||||
350,000 |
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13. | Commitments and Contingencies |
(a) | On May 23, 2012, a former employee of the Company delivered a Notice of Application seeking judgment against the Company for approximately $55,000. The hearing of that Application took place on July 31, 2012, at which time the former employee obtained judgment in the approximate amount of $55,000. The Company did not defend the amount of the judgment and the amount is included in accounts payable, but claims a complete set-off on the basis that the former employee retains 1,000,000 shares of common stock of the Company as security for payment of the outstanding consulting fees owed to him. On November 30, 2012, the Company commenced a separate action against the former employee seeking a return of the 1,000,000 shares of common stock and a stay of execution of the judgment. That application is pending and has not yet been heard or determined by the court. The payment of the judgment claim of approximately $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common stock noted above. The probable outcome of the Company’s claim for the return of the shares cannot yet be determined as the Company has not received a response from the former employee in over a year. |
(b) | On November 15, 2013, the Company entered into a second settlement agreement with the $150,000 debenture holder described in Note 10(a). Pursuant to the second amendment, on November 15, 2013, the Company agreed to make monthly payments of $10,000 on the outstanding principal and interest. Payments were made until December 2014, but have not been made after. The plaintiff was seeking relief of amounts owed along with 10% interest per annum, from the date of judgments. All amounts are recorded in these financial statements. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. |
(c) | On September 3, 2015, a former prospective employee of the Company delivered a Notice of Claim seeking judgment against the Company for approximately $11,400. During the year ended May 31, 2017 the prospective employee received a judgement which is recorded in these financial statements. |
(d) | On March 14, 2016, the Company entered into a consulting agreement. Pursuant to the agreement, the Company will pay the consultant $10,000 per month ($20,000 paid) and issue 550,000 shares per month for a period of three months. At November 30, 2017, the Company had not issued the shares to the consultant due to non-performance. |
(e) | On September 10, 2016, the Company entered into a debt settlement agreement to settle $7,500 of amounts owed for services in exchange for 2,000,000 common shares. The Company has not yet issued the shares. The Company will record the debt settlement upon the issuance of shares. |
(f) | On August 22, 2016, the Company entered into a consulting agreement for the provision of consulting services until November 22, 2016. Pursuant to the agreement the Company will pay the consultant $5,000 per month and issue 2,000,000 shares of common stock to the consultant. On December 7, 2016, the Company entered into a settlement agreement. Pursuant to the agreement, the Company agreed to issue the consultant 1,000,000 common shares in exchange for fully releasing and discharging the Company of any and all further obligations. |
(g) | The Company leases certain of its properties under leases that expire on various dates through 2019. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. |
(h) | Rent expense incurred under the Company’s operating leases amounted to $149,174 during the six months ended November 30, 2017. |
(i) | The future minimum obligation during each year through 2019 under the leases with non-cancelable terms in excess of one year is as follows: |
Future | |||||
Minimum | |||||
Lease | |||||
Years Ending May 31, | Payments | ||||
2018 | $ | 58,855 | |||
2019 | 29,841 | ||||
2020 | 6,854 | ||||
Total | $ | 95,550 |
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14. | Segment Disclosures |
During the six months ended November 30, 2016, the Company operated in one operating segment in one geographical area.
During the six months ended November 30, 2017, the Company had two operating segments including:
● | AW Solutions which is in the business of the provision of professional, multi-service line, telecommunications infrastructure and outsource services to the wireless and wireline industry and, |
● | Mantra Energy Alternatives (MEA) which consists of the rest of the Company’s operations. |
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the MEA reporting segment in one geographical area, Canada and the AW Solutions operating segment in two geographical areas, the United States and Puerto Rico.
Financial statement information by operating segment for six months ended November 30, 2017 is presented below:
Mantra Ventures $ | AW Solutions $ | Total $ | |||||||||||
Net Sales | – | 5,122,854 | 5,122,854 | ||||||||||
Operating (loss) income | (876,659 | ) | (166,807 | ) | (1,043,466 | ) | |||||||
Interest expense | 182,283 | 2,808 | 185,091 | ||||||||||
Depreciation and amortization | - | 133,800 | 133,800 | ||||||||||
Total Assets as of November 30, 2017 | 5,733 | 4,908,099 | 4,903,832 |
Geographic information for the six months ended and as of November 30, 2017 is presented below:
Revenues $ | Long-Lived Assets $ | ||||||||
Puerto Rico | 984,561 | 7,627 | |||||||
United States | 4,138,293 | 2,947,392 | |||||||
Consolidated Total | 5,122,854 | 2,955,019 |
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15. | Net Income (Loss) Per Share |
Three Months | Three Months | Six Months | Six Months | ||||||||||||||
Ended | Ended | Ended | Ended | ||||||||||||||
November 30, | November 30, | November 30, | November 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
$ | $ | $ | $ | ||||||||||||||
Numerator: | |||||||||||||||||
Net income | 1,687,801 | (1,852,786 | ) | 963,584 | (2,010,657 | ) | |||||||||||
Convertible note interest | 48,934 | - | 97,867 | - | |||||||||||||
Adjusted diluted net income | 1,736,735 | (1,852,786 | ) | 1,061,451 | (2,010,657 | ) | |||||||||||
Denominator: | |||||||||||||||||
Weighted average shares outstanding used in computing net income per share: | |||||||||||||||||
Basic | 274,998,800 | 99,869,076 | 274,998,800 | 97,483,513 | |||||||||||||
Effect of dilutive stock options and convertible notes payable | 850,061,840 | – | 850,349,865 | – | |||||||||||||
Effect of preferred shares | 104,244,788 | – | 104,244,788 | – | |||||||||||||
Diluted | 1,229,305,428 | 99,869,076 | 1,229,593,453 | 97,483,513 | |||||||||||||
Net income per share applicable to common stockholders: | |||||||||||||||||
Basic | 0.01 | (0.02 | ) | 0.00 | (0.02 | ) | |||||||||||
Diluted | 0.00 | (0.02 | ) | 0.00 | (0.02 | ) |
16. | Subsequent Events
| |
(a) | On December 15, 2017, the Company issued 11,800,000 shares of common stock upon the conversion of $33,000 of principal and interest of $2,640 pursuant to a convertible promissory note due April 27, 2018. | |
(b) | On December 28, 2017, the Company’s Board of Directors approved an issuance of 136,148,490 shares of common stock to employees, directors or consultants for compensation and services rendered. Issuances approved thereunder had the following conditions: 1) Issue’s have to be employed or associated with the company for a minimum of 12 continuous months; 2) issuances will vest after 12 months; and 3) at the Company’s option, issuances may be converted to preferred shares; 4) voting rights shall not be affected by vesting and voting will be on an issued basis; and 5) if within 12 month period Issue’s leave or are no longer associated with the Company, issuances shall be returned to the Company. | |
(c) | On January 3, 2018, the Company issued 20,516,000 shares of common stock upon the conversion of $67,702.80 of principal pursuant to a convertible promissory note due April 25, 2018. |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plan”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited consolidated financial statements are stated in United States dollars ($) and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “$”refer to United States dollars and all references to "common stock" refer to the common shares in our capital stock.
Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to Spectrum Global Solutions, Inc., a British Columbia, Canada corporation, and its consolidated subsidiaries.
The information that appears on our website at www.SpectrumGlobalSolutions.com is not part of this report.
Description of Business
We were incorporated in Nevada on January 22, 2007. On December 8, 2008 we continued our corporate jurisdiction out of the State of Nevada and into the Province of British Columbia, Canada. Our principal offices are located at 300 Crown Oak Centre, Longwood, Florida 32750. Our telephone number is (407) 512-9102. On January 2, 2018, we changed our fiscal year end to December 31.
We are a leading provider of services and solutions in the telecommunications sector and research developer of alternative energy alternatives in the energy sector. The telecommunications sector provides services and solutions throughout the United States, Guam, Canada and the Caribbean. Our energy sector services are related to research and development of alternative energy technologies.
Our telecommunications division, which was acquired on April 25, 2017, is supported by its subsidiaries: AW Solutions, Inc., AW Solutions Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AW Solutions”). AW Solutions provides a broad range of professional services and solutions to top tier communication carriers and Fortune 1000 enterprise customers. The telecommunication division offers carriers, service providers and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition; architectural, structural and civil design and analysis; construction management; construction; installation; warehousing and logistics; maintenance services, that support the build-out and upgrade and operation of some of the most advanced networks, small cell, Wi-Fi, fiber and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation networks, our long term relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts with major wireless, commercial wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers (OEM’s) and prime contractor/project management organization provides us a significant opportunity as a long term leading and well respected industry leader in this marketplace.
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Through our subsidiary in the energy division, Mantra Energy Alternatives Ltd. (“MEA”) has developed cutting edge “green” technologies that can mitigate and reduce the carbon footprint of generators and consumers of fossil fuels, MEA mission and strategy of development and research efforts to acquire and commercially exploit various new energy related technologies through licenses and purchases. These energy technologies and services are to enable the sustainable consumption, production and management of resources on a residential, commercial and industrial scales on a national and international level. The company also provides marketing and graphic design services to help companies optimize their environmental awareness presence through the eyes of government, industry and the general public.
Overview
Due to the acquisition of AW Solutions on April 25, 2017 and our inability to obtain further funding to develop mixed-reactant fuel cell (“MRFC”) technology, we intend to revisit our pursuit of this line of business and may consider the sale, restructuring or disposition of the energy business unit to focus on pursuing the telecommunication line of business. We have not made any decision on the future of our energy businesses at this time.
Our partially owned subsidiary MEA has itself undertaken financing activities to raise money for research and development by issuing common shares. MEA and the Company have sought funding to develop a prototype unit for the MRFC technology but to date has been unsuccessful. We also have a number of inactive subsidiaries, which we may engage in various businesses in the future but have no current plans to do so at this time. Since the inception as an energy technology research and development company in 2007, we have incurred operational losses and we have completed several rounds of financing to fund our operations. We have paused development in moving these technologies toward commercial applications until further funding is received.
Telecommunications Services and Solutions
Through the acquisition of AW Solutions on April 25, 2017, we have expanded our business into the telecommunications industry, expanded our customer base and geographic reach. Our company is comprised of the following:
AW Solutions. - AW Solutions, Inc., a Florida corporation (April 17, 2006), AW Solutions Puerto Rico, LLC, Puerto Rico corporation (March, 14, 2011) and Tropical Communications, Inc., a Florida corporation (May 9, 1984), (Collectively known as, “AW Solutions”). We are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry.
We are a leading provider of professional services and infrastructure solutions to both the telecommunications industry, utility entities and enterprises sectors. Our engineering, design, construction, installation, maintenance service offerings supported by our professional teams to support the build-out, maintenance, upgrade and operation of some of the most advanced fiber optic, Ethernet, copper, wireless, wireline, utility and enterprise networks. Our breadth of comprehensive services enables our customers to selectively augment existing services or to outsource entire projects or operational functions. We divide our service offering into Infrastructure and Professional Services.
We offer a full array of operations, construction, project and program management professional required to facilitate the full turn-key completion of networks from the design and planning phase, engineer evaluation and sign off, regulatory, installation, commissioning and maintain various types of Wi- Fi and wide-area networks, DAS networks, and small cell distribution networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs) and enterprise customers. Our services and teams support the deployment of new networks and technologies, as well as expand and maintain existing networks. We also design, install and maintain hardware solutions for the leading OEMs that support voice, data and optical networks. Our consulting and professional solutions to the service-provider and enterprise market in support of all facets of telecommunications and next-generation networks, including project management, network implementation, network installation, network upgrades, rebuilds, maintenance and consulting services. Our global certified professional services organization offers consulting, design, engineering, integration, implementation and ongoing support of all solutions offered by our company. We believe our ability to respond rapidly is a differentiating factor for national and international-based customers needing a broad range of our services and solutions.
Energy Services and Solutions
Mantra Energy Alternatives Ltd. – MEA is a British Columbia, Canada corporation, which was incorporated in Nevada on January 22, 2007. On December 8, 2008, we made a jurisdiction change from the State of Nevada into the Province of British Columbia, Canada. We focus our business strategy in the energy sector in the ongoing research and development to commercialize alternative energy technologies and services to the residential, commercial and industrial marketplace. Continued focus and desire is to refine the technologies and exploratory efforts into strategic relationships, joint ventures, partnerships with third parties to assist in commercialization. MEA has successfully acquired and owns a process for the electro-reduction of carbon dioxide (“ERC”) and has secured world licenses for a mixed-reaction fuel cell (“MRFC”) which supports commercial applications.
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We do not have any sales for energy services and solutions and our activities have been primarily research and development. In the past, we have either contracted out our development work to various laboratories or carried out research and development on these technologies in our own laboratory in Vancouver, BC. These activities have included: experimentation to improve the process performance; process and economic modeling to optimize the costs of a commercial system; design and simulation of pilot systems for technology demonstration and validation; business development activities such as the establishment of strategic and technology development partners; and the design and fabrication of laboratory prototypes, among others.
We have engaged in the research and development of alternative energy technologies and services primarily in ERC and MRFC through our subsidiary, MEA.
Results of Operations for the Six Month Periods Ended November 30, 2017 and November 30 2016
Revenues
Our operating results for the six month periods ended November 30, 2017 and November 30, 2016 are summarized as follows:
Six
Months Ended November 30, 2017 | Six Months Ended
November 30, 2016 | Difference | ||||||||||
Revenue | $ | 5,122,854 | $ | - | $ | 5,122,854 | ||||||
Operating expenses | $ | 1,661,523 | $ | 239,532 | $ | 1,421,991 | ||||||
Other income (expense) | $ | 1,971,597 | $ | (1,780,875 | ) | $ | 3,752,472 | |||||
Net income (loss) | $ | 963,584 | $ | (2,010,657 | ) | $ | 2,974,241 |
Revenue generated during the six months ended November 30, 2017, was $5,122,854 compared to (Nil) revenues during the same period ended November 30, 2016. During this period ended November 30, 2017, all of our revenues and a significant portion of our expenses were generated by our acquired telecommunications division (AW Solutions, Inc.; AW Solutions Puerto Rico, LLC; Tropical Communications, Inc.) on April 25, 2017.
Expenses
During the six months ended November 30, 2017, our operating expenses were $1,661,523 compared to operating expenses of $239,532 for the six month period ended November 30, 2016. The increase on operating expense is a result of the acquisition of the telecommunication division on April 25, 2017, which consisting of AW Solutions, Inc., AW Solutions Puerto Rico LLC, and Tropical Communications, Inc. These expenses include general and administrative costs, all of our corporate costs, as well as costs from our subsidiaries management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting and professional fees, information technology, provisions for recoveries of bad debt and other costs not directly related to performance of our services under customer contracts. We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage of revenue will decrease if we succeed in increasing revenues.
General and administrative costs were $1,063,014 for the six months ended November 30, 2017 compared to $148,044 for the six months ended November 30, 2016. Salaries and wages were $464,709 for the six months ended November 30, 2017 compared to $91,488 for the six months ended November 30, 2016. Depreciation and amortization costs were $133,800 for the six months ended November 30, 2017 compared to $15,925 for the six months ended November 30, 2016.
Other Income (Expense)
For the six months ended November 30, 2017, we had other income of $1,971,597 compared to a net loss of $1,780,875 the same period in 2016. The increase was primarily due a gain on settlement of debt of $3,368,128 and a decrease in loss from the change in fair value of conversion features of $1,069,411 which was offset by an increase in accretion of discounts on convertible debentures of $582,514.
Net Income (Loss)
For the six months ended November 30, 2017, we incurred a net income of $963,584, compared to a net loss of $2,010,657 for the same period in 2016.
26
Results of Operations for the Three Month Periods Ended November 30, 2017 and November 30, 2016
Revenues
Our operating results for the three month periods ended November 30, 2017 and November 30, 2016 are summarized as follows:
Three Months Ended
November 30, 2017 |
Three Months Ended November 30, 2016 | Difference | ||||||||||
Revenue | $ | 2,006,933 | $ | - | $ | 2,006,933 | ||||||
Operating expenses | $ | 775,504 | $ | 150,538 | $ | 624,966 | ||||||
Other income (expense) | $ | 2,379,912 | $ | (1,705,861 | ) | $ | 4,085,773 | |||||
Net income (loss) | $ | 1,615,296 | $ | (1,852,786 | ) | $ | 3,468,082 |
Revenue generated during the three months ended November 30, 2017 was $2,006,933 compared to (Nil) revenues during the same period ended November 30, 2016. During this period ended November 30, 2017, all of our revenues and a significant portion of our expenses were generated by our acquired telecommunications division (AW Solutions, Inc.; AW Solutions Puerto Rico, LLC; Tropical Communications, Inc.) on April 25, 2017.
Expenses
During the three months ended November 30, 2017, our operating expenses were $775,504 compared to operating expenses of $150,538 for the three month period ended November 30, 2016. The increase on operating expense is a result of the acquisition of the telecommunication division on April 25, 2017, which consisting of AW Solutions, Inc., AW Solutions Puerto Rico LLC, and Tropical Communications, Inc. These expenses include general and administrative costs, all of our corporate costs, as well as costs from our subsidiaries management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting and professional fees, information technology, provisions for recoveries of bad debt and other costs not directly related to performance of our services under customer contracts. We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage of revenue will decrease if we succeed in increasing revenues.
General and administrative costs were $504,886 for the three months ended November 30, 2017, compared to $96,390 for the three months ended November 30, 2016. Salaries and wages were $204,949 for the three months ended November 30, 2017, compared to $45,744 for the three months ended November 30, 2016. Depreciation and amortization costs were $65,669 for the three months ended November 30, 2017, compared to $8,404 for the three months ended November 30, 2016.
Other Income (Expense)
For the three months ended November 30, 2017, we had other income of $2,379,912 compared to other expenses of $1,705,861 the same period in 2016. The increase was primarily due a gain on settlement of debt of $3,368,128 and a decrease in loss from the change in fair value of conversion features of $1,068,250 which was offset by an increase in accretion of discounts on convertible debentures of $289,454.
Net Income (Loss)
For the three months ended November 30, 2017, we incurred a net income of $1,687,801, compared to a net loss of $1,852,786 for the same period in 2016.
Liquidity and Capital Resources
As of November 30, 2017, our total current assets were $1,958,609 and our total current liabilities were $8,762,792, resulting in a working capital deficit of $6,804,183 compared to a working capital deficit of $7,865,616 as of May 31, 2017.
We suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard, we have historically raised additional capital through equity offerings and loan transactions.
27
Cash Flows
Six Months Ended November 30, | Six Months Ended November 30, | |||||||
Statement of Operations Data: | ||||||||
Net Cash Used In Operating Activities | $ | (592,372 | ) | $ | (160,014 | ) | ||
Net Cash Used In Investing Activities | $ | - | $ | - | ||||
Net Cash Provided by Financing Activities | $ | 247,270 | $ | 158,895 | ||||
Change In Cash | $ | (345,102 | ) | $ | (1,119 | ) |
The decrease in cash that we experienced in the period ended November 30, 2017, compared to the decrease during the period ended November 30, 2016, is primarily due to the acquisition of AW Solutions and its subsidiaries and increased funding requirements for ongoing operating activities. During the period ended November 30, 2017, the repayment of loans payable of $160,000 was made, and proceeds were received from a note payable of $250,200, which created the cash balance as noted above. We expect that our cash position will increase, due to operating profits in the telecommunication division. Over the coming months and year, subject to raising additional funds, we plan to primarily concentrate on our telecommunications business and associated projects.
In order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities or shareholders loans. There is no assurance that we will be successful in completing any further private placement financing. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts we spend on our business activities and administrative expenses in order to be within the amount of capital resources that are available to us.
As of November 30, 2017, we had cash of $Nil compared to $Nil as of November 30, 2016. Our cash balance at the beginning of this year was $345,102.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Inflation
The effect of inflation on our revenue and operating results has not been significant.
28
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer concluded that, as a result of the material weaknesses described below, as of November 30, 2017, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
a) | Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis; |
b) | We do not have a functioning audit committee. As a result, there is ineffective independent oversight in the establishment and monitoring of required internal controls and procedures; and |
c) | We do not have any formally adopted internal controls surrounding its cash and financial reporting procedures. |
We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters. In addition, as funds are available, we will take the following action to enhance our internal controls: Hiring additional knowledgeable personnel with technical accounting expertise to further support our current accounting personnel, which management estimates will cost approximately $200,000 per annum. Our operations are relatively small, but with the acquisition of AW Solutions (April 2017) we expect that both our technical and accounting expertise will be improved, however our overall financial requirements will only increase. We continue to have net cash losses each quarter, we do not anticipate being able to hire additional internal personnel until such time as our operations are profitable on a cash basis or until our operations are large enough to justify the hiring of additional accounting personnel. We currently engage an outside accounting firm to assist us in the preparation of our consolidated financial statements this past year and will plan to evaluate our internal capabilities as we integrate the business segments with AW Solutions to address the sufficient number of internal accounting personnel to achieve compliance. As necessary, we will engage consultants in the future in order to ensure proper accounting for our consolidated financial statements.
Due to the fact that our internal accounting staff consists solely of a Chief Executive Officer, who functions as our Principal Accounting Officer, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turn over issues within the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. There been no material developments with respect to the information previously reported under Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017.
Item 1A. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Since the beginning of the six month period ended November 30, 2017, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit # | Exhibit Description | |
31.1 | Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certifications of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 SCH | XBRL Taxonomy Extension Schema Document | |
101 CAL | XBRL Taxonomy Calculation Linkbase Document | |
101 LAB | XBRL Taxonomy Labels Linkbase Document | |
101 PRE | XBRL Taxonomy Presentation Linkbase Document | |
101 DEF | XBRL Taxonomy Extension Definition Linkbase Document |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SPECTRUM GLOBAL SOLUTIONS, INC. | ||
Date: January 22, 2018 | By: | /s/ Roger M. Ponder |
Roger M. Ponder | ||
Chief Executive Officer and Principal Financial Officer |
31
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Roger Ponder, certify that:
1. | I have reviewed this Annual Report on Form 10-Q of Spectrum Global Solutions, 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. | The registrant's other certifying officer(s) and I are 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 our 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 our 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 our 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. | The registrant's other certifying officer(s) and I have disclosed, based on our 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 persons 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: January 22, 2018
/s/ Roger Ponder | |
Roger Ponder | |
Chief Executive Officer and Director | |
(Principal Executive Officer, | |
Principal
Financial Officer and Principal Accounting Officer) |
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
I, Roger M. Ponder , hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | the Annual Report on Form 10-Q of Spectrum Global Solutions, Inc. for the period ended November 30, 2017 (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 results of operations of Spectrum Global Solutions, Inc. |
Dated: January 22, 2018
/s/ Roger Ponder | |
Roger Ponder | |
Chief Executive Officer and Director | |
(Principal Executive Officer, | |
Principal
Financial Officer and Principal Accounting Officer) |
|
Spectrum Global Solutions, Inc. |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Jan. 22, 2018 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Spectrum Global Solutions, Inc. | |
Entity Central Index Key | 0001413891 | |
Trading Symbol | sgsif | |
Amendment Flag | false | |
Current Fiscal Year End Date | --05-31 | |
Document Type | 10-Q | |
Document Period End Date | Nov. 30, 2017 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 443,543,290 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Nov. 30, 2017 |
May 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Convertible debentures, net of discount | $ 714,792 | $ 1,350,067 |
Series A Preferred stock liability shares authorized | 20,000,000 | 20,000,000 |
Series A Preferred stock, par value | $ 0.00001 | $ 0.00001 |
Series A Preferred stock, shares authorized | 8,000,000 | 8,000,000 |
Series A Preferred stock, shares issued | 1,262,945 | |
Series A Preferred stock, shares outstanding | 1,262,945 | |
Common stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized | 750,000,000 | 750,000,000 |
Common stock, shares issued | 274,998,800 | 274,998,800 |
Common stock, shares outstanding | 274,998,800 | 274,998,800 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Income Statement [Abstract] | ||||
Revenue | $ 2,006,933 | $ 5,122,854 | ||
Cost of goods sold | 1,996,045 | 4,504,797 | ||
Gross profit | 10,888 | 618,057 | ||
Operating expenses | ||||
Depreciation and amortization | 65,669 | 8,404 | 133,800 | 15,925 |
General and administrative | 504,886 | 96,390 | 1,063,014 | 132,119 |
Salaries & wages | 204,949 | 45,744 | 464,709 | 91,488 |
Total operating expenses | 775,504 | 150,538 | 1,661,523 | 239,532 |
Loss from operations | (764,616) | (150,538) | (1,043,466) | (239,532) |
Other income (expense) | ||||
Gain (Loss) on settlement of debt | 3,368,128 | (19,418) | 3,368,128 | (19,418) |
Accretion of discounts on convertible debentures | (441,011) | (151,557) | (901,254) | (318,740) |
Loss on change in fair value of derivatives | (440,021) | (1,508,271) | (310,186) | (1,379,597) |
Interest expense | (107,184) | (26,615) | (185,091) | (63,120) |
Total other income (expense) | 2,379,912 | (1,705,861) | 1,971,597 | (1,780,875) |
Net income (loss) for the period | 1,615,296 | (1,856,399) | 928,131 | (2,020,407) |
Less: net loss attributable to the non-controlling interest | 72,505 | 3,613 | 35,453 | 9,750 |
Net income (loss) attributable to Spectrum Global Solutions, Inc. | $ 1,687,801 | $ (1,852,786) | $ 963,584 | $ (2,010,657) |
Net income (loss) per share attributable to Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.) common shareholders: | ||||
Basic | $ 0.01 | $ (0.02) | $ 0.00 | $ (0.02) |
Diluted | $ 0.00 | $ (0.02) | $ 0.00 | $ (0.02) |
Weighted average number of shares outstanding used in the calculation of net loss attributable to Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.) per common share: | ||||
Basic | 274,998,800 | 99,869,076 | 274,998,800 | 97,483,513 |
Diluted | 1,229,305,428 | 99,869,076 | 1,229,593,453 | 97,483,513 |
Organization and Going Concern |
6 Months Ended | ||
---|---|---|---|
Nov. 30, 2017 | |||
Organization and Going Concern [Abstract] | |||
Organization and Going Concern |
Spectrum Global Solutions, Inc. (the “Company”) (f/k/a Mantra Venture Group Ltd.) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company continued its corporate jurisdiction out of the State of Nevada and into the province of British Columbia, Canada. On April 25, 2017, the Company entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement”) with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, the Company purchased 80.1% of the assets associated with InterCloud’s “AW Solutions” business. After the acquisition of AW Solutions, the Company provides professional, multi-service line, telecommunications infrastructure and outsource services to the wireless and wireline industry. On November 15, 2017, the Company changed its name to “Spectrum Global Solutions, Inc.”.
The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2017. In the opinion of management, the accompanying financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has yet to acquire commercially exploitable energy related technology, and is unlikely to generate earnings in the immediate or foreseeable future. The recently acquired AW Solutions business has also incurred losses and experienced cash outflows from operations during its most recent fiscal years. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As of November 30, 2017, the Company has an accumulated loss of $19,555,383, and a working capital deficit of $6,804,183. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months. |
Significant Accounting Policies |
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Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies |
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., AW Solutions, Inc.(from the date of acquisition, April 25, 2017), Tropical Communications, Inc. (from the date of acquisition, April 25, 2017) and AW Solutions Puerto Rico, LLC.(from the date of acquisition, April 25, 2017). All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.55% owned, Mantra Energy Alternatives Ltd., which is 88.21% owned and AW Solutions, Inc., Tropical Communications, Inc., and AW Solutions Puerto Rico, LLC which are all 80.1% owned. All inter-company balances and transactions have been eliminated.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. At November 30, 2017, unbilled receivables totaled $44,054, and are included in accounts receivable. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts was $54,482 at November 30, 2017.
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
Goodwill was generated through the acquisition of AW Solutions in fiscal 2017 as the total consideration paid exceeded the fair value of the net assets acquired.
The Company tests its goodwill for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the six months ended November 30, 2017.
At November 30, 2017 and May 31, 2017, definite-lived intangible assets primarily consist of non-compete agreements, tradenames and customer relationships which are being amortized over their estimated useful lives ranging from 1-10 years.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2017. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
The Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014 in the amount of $166,084 plus penalties and interest of $87,027 for a total obligation due of $253,111. This tax assessment is included in accrued expenses at November 30, 2017.
The Company’s revenues are generated from infrastructure and professional services. The Company recognizes revenue on arrangements in accordance with ASC Topic 605-10, “Revenue Recognition”. The Company recognizes revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
The infrastructure and professional services revenues are derived from contracts to provide technical engineering services along with contracting services to commercial and governmental customers. The Company’s service contracts generally require specific tasks or services that the Company must perform under the contract. The Company recognizes revenues associated with these services upon the completion of the related task or service which is at the time the four revenue recognition criteria have been met. Direct costs incurred related to performance of the task or service are deferred and recorded as prepaid expense and are expensed when the related revenue is recognized.
The Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional performance method. Under this method, revenue is recognized in proportion to the value provided to the customer for each project as of each reporting date. The Company records unbilled receivables for revenues earned, but not yet billed.
Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.
Research and development costs are expensed as incurred.
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of November 30, 2017, the Company had 954,594,653 (2016 – 352,678,654) dilutive potential shares outstanding.
ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As of November 30, 2017 and 2016, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which is effective for nonpublic entities for annual reporting periods, as amended, beginning after December 15, 2018. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for the Company on June 1, 2019, and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company continues to evaluate the standard and has not yet selected a transition method.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2016. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as non-current in the statement of financial position. The Company has elected to early adopt the requirements of ASU 2015-17 and the results of such adoption are presented within these consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2019. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company continues to evaluate the effects of ASU 2016-02 and does not expect that the adoption will have a material effect on its consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU 2016-08”). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-08 on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-10 on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The amendments in ASU 2016-12 provide clarifying guidance in certain narrow areas and add some practical expedients. Specifically, the amendments in this update (1) clarify the objective of the collectability criterion in step 1, and provides additional clarification for when to recognize revenue for a contract that fails step 1, (2) permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price (3) specify that the measurement date for noncash consideration is contract inception, and clarifies that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations, (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-12 on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” (“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption of this standard is permitted. The Company is currently evaluating the effects of ASU 2017-01 on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted on testing dates after January 1, 2017. The Company is evaluating the effects of ASU 2017-04 on its consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or result of operations.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the six months ended November 30, 2017, two customers accounted for 42% and 13%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 28% and 18%, respectively, of trade accounts receivable as of November 30, 2017.
The Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated within the domestic United States of America accounted for approximately 81% of consolidated revenues for the six month period ended November 30, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 19% of consolidated revenues for the six month period ended November 30, 2017.
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and.
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the six months ended November 30, 2017 and 2016. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of November 30, 2017 and May 31, 2017, consisted of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 8 for additional information.
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of November 30, 2017 and May 31, 2017, the Company had a $1,866,786 and $3,760,067 derivative liability, respectively.
Certain prior period amounts have been reclassified to conform to current presentation. |
Property and Equipment |
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Property and Equipment |
During the six months ended November 30, 2017, the Company recorded $55,421 (2016 - $13,556) of amortization expense. |
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Intangible Assets |
During the six months ended November 30, 2017, the Company recorded $78,379 (2016 - $2,369) of amortization expense.
Estimated Future Amortization Expense:
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Loans Payable |
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Loans Payable |
The rights issued with the note qualified for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the warrants of $9,755 resulted in a discount to the note payable of $9,755. During the year ended May 31, 2016, the Company recorded accretion of $9,755.
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Convertible Debentures |
In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company determined that the convertible debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price higher than the fair market value of the Company’s common shares at the time of issuance.
In accordance with ASC 470-20, the Company allocated the proceeds of issuance between the convertible debt and the detachable share purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.
On January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter.
On July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement agreement, the lender agreed to extend the due date until April 11, 2013 and the Company agreed to pay $43,890 of accrued interest within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition to the $150,000 principal outstanding on April 11, 2013. On April 29, 2013, the Company entered into an amended settlement agreement whereby the lender agreed to extend the due date to September 15, 2013 and the Company agreed to pay $6,836 of interest for the period from April 1 to September 15, 2013 upon execution of the agreement (paid) and granted the lender 100,000 stock options exercisable at $0.12 per share for a period of two years.
On November 15, 2013, the Company entered into a second settlement agreement amendment. Pursuant to the second amendment, on November 15, 2013, the Company agreed to pay interest of $4,438 (paid) and commencing February 1, 2014, the Company would make monthly payments of $10,000 on the outstanding principal and interest. On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
The Company evaluated the modifications and determined that the creditor did not grant a concession. In addition, as the present value of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment of the debt and no gain or loss was recognized because the fair value of the old debt and new debt remained the same. The Company recorded the fair value of $12,901 for the stock options as additional paid-in capital and a discount. During the year ended May 31, 2014, the Company repaid $40,000 of the debenture. As of May 31, 2014 the Company had accreted $12,901 of the discount bring the carrying value of the convertible debenture to $114,661. During the year ended May 31, 2015, the Company repaid $54,808 decreasing the carrying value to $59,853. During the year ended May 31, 2017, the Company recorded an additional fee of $21,266 increasing the carrying value to $81,119. On November 16, 2017, the debenture and $15,423 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
At November 30, 2017, the other remaining debenture of $50,000 remained outstanding and past due.
On October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. At May 31, 2017, $45,000 of the note had been assigned to the third party.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $310,266 resulted in a discount to the note payable of $100,000 and the recognition of a loss on derivatives of $210,266. During the year ended May 31, 2016, the Company issued 6,303,475 shares of common stock upon the conversion of $45,000 of principal. During the year ended May 31, 2016, the Company recorded accretion of $100,000 and recorded the cash redemption premium of $26,250 increasing the carrying value of the note to $81,250.
During the year months ended May 31, 2017, the Company issued 18,440,200 shares of common stock upon the conversion of $90,000 of principal. During the year ended May 31, 2017, the Company recorded a default fee of $51,820 increasing the carrying value of the note to $43,070. On November 16, 2017, the debenture and $13,644 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $479,626 resulted in a discount to the note payable of $280,000 and the recognition of a loss on derivatives of $204,626. During the year ended May 31, 2016, the Company recorded accretion of $120,175 and recorded a default fee of $76,522 increasing the carrying value of the note to $190,696.
During the year ended May 31, 2017, the Company recorded accretion of $185,913 increasing the carrying value of the note to $382,608. On November 16, 2017, the debenture and $79,881 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $216,108 resulted in a discount to the note payable of $95,000 and the recognition of a loss on derivatives of $111,108. During the year ended May 31, 2016, the Company recorded accretion of $82,560 and recorded a default of fee of $26,250 increasing the carrying value of the note to $48,690.
During the year ended May 31, 2017, the recorded accretion of $82,560 increasing the carrying value of the note to $131,250. On November 16, 2017, the debenture and $24,464 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $218,785 resulted in a discount to the note payable of $81,666 and the recognition of a loss on derivatives of $158,785. During the year ended May 31, 2016, the Company recorded accretion of $20,015, and recorded a default fee of $20,417 increasing the carrying value of the note to $40,432.
On April 7, 2017, the Company entered into an amendment to the convertible note which allowed for the additional funding under the note of $40,000 with an original discount of $4,444. During the year ended May 31, 2017, the Company received additional tranches of $123,339. The initial fair value of the conversion feature of $245,571 resulted in a discount to the note payable of $127,783 and the recognition of a loss on derivatives of $117,788. During the year ended May 31, 2017, the Company recorded accretion of $133,721, and recorded a default fee of $31,946 increasing the carrying value of the note to $206,098. During the period from June 1, 2017 to November 16, 2017, the Company recorded accretion of $43,692. On November 16, 2017, the debenture and $33,359 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $121,902 resulted in a discount to the note payable of $45,000 and the recognition of a loss on derivatives of $76,902. During the year ended May 31, 2017, the Company recorded accretion of $26,953 increasing the carrying value of the note to $26,953. During the period from June 1, 2017 to November 16, 2017, the Company recorded accretion of $43,046 and a default fee of $17,500. On November 16, 2017, the debenture and $12,288 of accrued interest was converted into Series A Preferred Stock as described in Note 10(b).
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $1,174,000 resulted in a discount to the note payable of $943,299. During the year ended May 31, 2017, the Company recorded accretion of $77,465 increasing the carrying value of the note to $1,134,166. During the six month period ended November 30, 2017, the Company recorded accretion of $418,071 increasing the carrying value of the note to $1,552,237.
The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $1,744,661 and the fair value of the warrants of $425,918 resulted in a discount to the note payable of $400,000 and the recognition of a loss on derivatives of $1,770,579. During the year ended May 31, 2017, the Company recorded accretion of $54,526, increasing the carrying value of the note to $54,526. During the six month period ended November 30, 2017, the Company recorded accretion of $118,446 increasing the carrying value of the note to $172,971. |
Derivative Liabilities |
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Derivative Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Liabilities |
The embedded conversion option of the convertible debenture described in Note 7(f) contains a conversion feature that qualifies for embedded derivative classification. The fair value of the liability will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible note payable described in Note 7(f), the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the convertible note described in Notes 7(f) to 7(m). The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
During the year ended May 31, 2017, the Company reclassified 350,000 options exercisable at $0.03 until March 16, 2017 with a fair value of $2,350, 2,000,000 warrants exercisable at $0.03 until August 29, 2018 with a fair value of $13,745, 533,333 warrants exercisable at $0.80 with a fair value of $Nil, 4,075,000 warrants exercisable at $0.37 with a fair value of $16,978 and a $59,853 note convertible at $0.40 with a fair value of $41 that qualified for treatment as derivative liabilities.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model or a Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
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Common Stock |
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Common Stock/Preferred Stock [Abstract] | |||||||||||
Common Stock |
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Preferred Stock |
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Common Stock/Preferred Stock [Abstract] | |||||||||
Preferred Stock |
On November 15, 2017, the Company created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of 8,000,000 shares, to be designated as Series A Preferred Shares. The principal terms of the Series A Preferred Shares are as follows:
Voting rights – The Series A Preferred Shares do not have voting rights.
Dividend rights – The holders of the Series A Preferred Shares shall not be entitled to receive any dividends. However, no dividends (other than those payable solely in Common Stock) shall be paid on the Common Stock or any class or series of capital stock ranking junior, as to dividends, to the Series A Preferred during any fiscal year of the Corporation until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A Preferred a dividend in an amount per share equal to (i) the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock times (ii) the amount per share of the dividend to be paid on the Common Stock.
Conversion rights – The holders of the Series A Preferred Shares have the right to convert each Class A Preferred Share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock into which each share of the Series A Preferred Shares may be converted shall be determined by dividing the sum of the Stated Value of the Series A Preferred Shares ($0.25 per share) being converted and any accrued and unpaid dividends by the Conversion Price in effect at the time of the conversion. The Series A Preferred Shares may be converted at an initial conversion price of 75% of the lowest VWAP during the ten (10) trading day period immediately preceding the date a conversion notice is delivered.
Liquidation rights - Upon the occurrence of any liquidation, each holder of Series A Preferred Shares then outstanding shall be entitled to receive, out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made in respect of the Common Stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A Preferred Shares upon liquidation, an amount per share of Series A Preferred Shares equal to the amount that would be receivable if the Series A Preferred Shares had been converted into Common Stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the following Series A Preferred Shares as a liability.
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Share Purchase Warrants |
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Share Purchase Warrants [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants:
As of November 30, 2017, the following share purchase warrants were outstanding:
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Stock Options |
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Stock Options [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options |
The following table summarizes the continuity of the Company’s stock options:
Additional information regarding stock options as of November 30, 2017 is as follows:
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Commitments and Contingencies |
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Commitments and Contingencies |
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Segment Disclosures |
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Segment Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Disclosures |
During the six months ended November 30, 2016, the Company operated in one operating segment in one geographical area.
During the six months ended November 30, 2017, the Company had two operating segments including:
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the MEA reporting segment in one geographical area, Canada and the AW Solutions operating segment in two geographical areas, the United States and Puerto Rico.
Financial statement information by operating segment for six months ended November 30, 2017 is presented below:
Geographic information for the six months ended and as of November 30, 2017 is presented below:
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Net Income (Loss) Per Share |
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Net Income (Loss) Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Per Share |
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Subsequent Events [Abstract] | |||||||||||||||||||
Subsequent Events |
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Significant Accounting Policies (Policies) |
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Basis of Presentation/Principles of Consolidation |
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., AW Solutions, Inc.(from the date of acquisition, April 25, 2017), Tropical Communications, Inc. (from the date of acquisition, April 25, 2017) and AW Solutions Puerto Rico, LLC.(from the date of acquisition, April 25, 2017). All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.55% owned, Mantra Energy Alternatives Ltd., which is 88.21% owned and AW Solutions, Inc., Tropical Communications, Inc., and AW Solutions Puerto Rico, LLC which are all 80.1% owned. All inter-company balances and transactions have been eliminated. |
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Use of Estimates |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
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Cash and Cash Equivalents |
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. |
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Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. At November 30, 2017, unbilled receivables totaled $44,054, and are included in accounts receivable. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts was $54,482 at November 30, 2017. |
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Property and Equipment |
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
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Goodwill |
Goodwill was generated through the acquisition of AW Solutions in fiscal 2017 as the total consideration paid exceeded the fair value of the net assets acquired.
The Company tests its goodwill for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the six months ended November 30, 2017. |
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Intangible Assets |
At November 30, 2017 and May 31, 2017, definite-lived intangible assets primarily consist of non-compete agreements, tradenames and customer relationships which are being amortized over their estimated useful lives ranging from 1-10 years.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. |
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Long-lived Assets |
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. |
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Foreign Currency Translation |
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income. |
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Income Taxes |
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2017. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
The Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014 in the amount of $166,084 plus penalties and interest of $87,027 for a total obligation due of $253,111. This tax assessment is included in accrued expenses at November 30, 2017. |
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Revenue Recognition |
The Company’s revenues are generated from infrastructure and professional services. The Company recognizes revenue on arrangements in accordance with ASC Topic 605-10, “Revenue Recognition”. The Company recognizes revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
The infrastructure and professional services revenues are derived from contracts to provide technical engineering services along with contracting services to commercial and governmental customers. The Company’s service contracts generally require specific tasks or services that the Company must perform under the contract. The Company recognizes revenues associated with these services upon the completion of the related task or service which is at the time the four revenue recognition criteria have been met. Direct costs incurred related to performance of the task or service are deferred and recorded as prepaid expense and are expensed when the related revenue is recognized.
The Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional performance method. Under this method, revenue is recognized in proportion to the value provided to the customer for each project as of each reporting date. The Company records unbilled receivables for revenues earned, but not yet billed. |
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Cost of Revenues |
Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs. |
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Research and Development Costs |
Research and development costs are expensed as incurred. |
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Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period. |
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Loss Per Share |
The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of November 30, 2017, the Company had 954,594,653 (2016 – 352,678,654) dilutive potential shares outstanding. |
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Comprehensive Loss |
ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As of November 30, 2017 and 2016, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements. |
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Recent Accounting Pronouncements |
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which is effective for nonpublic entities for annual reporting periods, as amended, beginning after December 15, 2018. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for the Company on June 1, 2019, and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company continues to evaluate the standard and has not yet selected a transition method.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2016. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as non-current in the statement of financial position. The Company has elected to early adopt the requirements of ASU 2015-17 and the results of such adoption are presented within these consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2019. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company continues to evaluate the effects of ASU 2016-02 and does not expect that the adoption will have a material effect on its consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU 2016-08”). The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-08 on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-10 on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The amendments in ASU 2016-12 provide clarifying guidance in certain narrow areas and add some practical expedients. Specifically, the amendments in this update (1) clarify the objective of the collectability criterion in step 1, and provides additional clarification for when to recognize revenue for a contract that fails step 1, (2) permit an entity, as an accounting policy election, to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price (3) specify that the measurement date for noncash consideration is contract inception, and clarifies that the variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations, (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Further, accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. The guidance is effective for the Company beginning June 1, 2019. The Company is currently evaluating the effects of ASU 2016-12 on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business” (“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption of this standard is permitted. The Company is currently evaluating the effects of ASU 2017-01 on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). This standard will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period, and will be applied prospectively. Early adoption of this standard is permitted on testing dates after January 1, 2017. The Company is evaluating the effects of ASU 2017-04 on its consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or result of operations. |
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Concentrations of Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the six months ended November 30, 2017, two customers accounted for 42% and 13%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 28% and 18%, respectively, of trade accounts receivable as of November 30, 2017.
The Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated within the domestic United States of America accounted for approximately 81% of consolidated revenues for the six month period ended November 30, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 19% of consolidated revenues for the six month period ended November 30, 2017. |
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Fair Value Measurements |
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and.
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the six months ended November 30, 2017 and 2016. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of November 30, 2017 and May 31, 2017, consisted of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 8 for additional information. |
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Derivative Liabilities |
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of November 30, 2017 and May 31, 2017, the Company had a $1,866,786 and $3,760,067 derivative liability, respectively. |
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Reclassifications |
Certain prior period amounts have been reclassified to conform to current presentation. |
Significant Accounting Policies (Tables) |
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Schedule of property and equipment estimated useful lives |
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Schedule of financial assets and liabilities fair value measured on a recurring basis |
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Property and Equipment (Tables) |
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Property and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of property and equipment |
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Intangible Assets (Tables) |
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Schedule of intangible assets |
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Schedule of estimated future amortization expense |
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Derivative Liabilities (Tables) |
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Summary of changes in the fair value of the Company's Level 3 financial liabilities |
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Schedule of assumptions used in the calculations |
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Share Purchase Warrants (Tables) |
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Summary of share purchase warrants |
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Summary of share purchase warrants outstanding |
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Stock Options (Tables) |
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Schedule of stock options |
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Schedule of additional information regarding stock options |
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Commitments and Contingencies (Tables) |
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Schedule of future minimum obligation leases with non-cancelable terms |
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Segment Disclosures (Tables) |
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Schedule of information by operating segment |
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Schedule of geographic information |
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Net Income (Loss) Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net Income (Loss) Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of net income (loss) per share |
|
Organization and Going Concern (Details) - USD ($) |
Nov. 30, 2017 |
May 31, 2017 |
Apr. 25, 2017 |
---|---|---|---|
Organization and Going Concern (Textual) | |||
Accumulated loss | $ (19,555,383) | $ (20,518,967) | |
Working capital deficit | $ 6,804,183 | ||
Asset Purchase Agreement [Member] | InterCloud [Member] | |||
Organization and Going Concern (Textual) | |||
Business acquisition, percentage | 80.10% |
Significant Accounting Policies (Details 1) - USD ($) |
Nov. 30, 2017 |
May 31, 2017 |
May 31, 2016 |
||||
---|---|---|---|---|---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||||
Derivative liability | $ 1,866,786 | [1] | $ 3,760,067 | $ 978,245 | |||
Quoted prices in active markets (Level 1) | |||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||||
Derivative liability | [1] | ||||||
Significant other observable inputs (Level 2) | |||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||||
Derivative liability | [1] | ||||||
Significant unobservable inputs (Level 3) | |||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |||||||
Derivative liability | $ 1,866,786 | $ 3,760,067 | $ 978,245 | ||||
|
Property and Equipment (Details) - USD ($) |
Nov. 30, 2017 |
May 31, 2017 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Total | $ 1,101,712 | $ 1,101,712 |
Less: impairment | (44,419) | (44,419) |
Less: accumulated depreciation | (1,016,684) | (961,263) |
Equipment, Net | 40,609 | 96,030 |
Computers and office equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total | 308,649 | 308,649 |
Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total | 378,505 | 378,505 |
Research equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total | 143,129 | 143,129 |
Software [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total | 177,073 | 177,073 |
Vehicles [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total | 94,356 | 94,356 |
Vehicles under capital lease [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Total |
Property and Equipment (Details Textual) - USD ($) |
6 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Property and Equipment (Textual) | ||
Amortization expense | $ 55,421 | $ 13,556 |
Intangible Assets (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Nov. 30, 2017 |
May 31, 2017 |
|
Finite-Lived Intangible Assets [Line Items] | ||
Cost | $ 1,476,153 | |
Accumulated amortization | 93,806 | |
Impairment | ||
Net carrying value | 1,382,347 | $ 1,460,727 |
Customer relationship and lists [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Cost | 901,548 | |
Accumulated amortization | 57,291 | |
Impairment | ||
Net carrying value | 844,257 | 892,127 |
Trade names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Cost | 574,605 | |
Accumulated amortization | 36,515 | |
Impairment | ||
Net carrying value | $ 538,090 | $ 568,600 |
Intangible Assets (Details 1) |
Nov. 30, 2017
USD ($)
|
---|---|
Intangible Assets [Abstract] | |
For year ending May 31, 2018 | $ 78,203 |
For year ending May 31, 2019 | 156,405 |
For year ending May 31, 2020 | 156,405 |
For year ending May 31, 2021 | 156,405 |
For year ending May 31, 2022 | 156,405 |
For year ending May 31, 2023 | 156,405 |
For year ending May 31, 2024 | 156,405 |
For year ending May 31, 2025 | 156,405 |
For year ending May 31, 2026 | $ 155,487 |
Intangible Assets (Details Textual) - USD ($) |
6 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Intangible Assets (Textual) | ||
Amortization expense | $ 78,379 | $ 2,369 |
Related Party Transactions (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Nov. 16, 2017 |
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
Apr. 28, 2017 |
|
Related Party Transactions (Textual) | |||||||
Due to related parties | $ 177,529 | $ 177,529 | $ 308,008 | ||||
Contingent liability | 1,409,411 | 1,409,411 | 1,409,411 | ||||
Promissory note issued | 2,000,000 | $ 440,000 | |||||
Gain on settlement of debt | 3,368,128 | $ (19,418) | 3,368,128 | $ (19,418) | |||
Series A Preferred Stock [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Due to related parties | $ 975,337 | ||||||
Series A Preferred Stock, shares | 1,011,060 | ||||||
Series A Preferred Stock, value | $ 348,354 | ||||||
Gain on settlement of debt | 3,259,709 | ||||||
Former President [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Management fees | 12,011 | 68,616 | |||||
Promissory note issued | 130,000 | $ 130,000 | |||||
Due date | Nov. 30, 2018 | ||||||
Interest rate | 8.00% | ||||||
Former President [Member] | Series A Preferred Stock [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Due to related parties | $ 195,204 | ||||||
Series A Preferred Stock, shares | 251,885 | ||||||
Series A Preferred Stock, value | $ 86,785 | ||||||
Gain on settlement of debt | $ 108,419 | ||||||
Former President Spouse [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Management fees | $ 0 | $ 22,872 | |||||
Former President and President Spouse [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Due to related parties | 195,204 | 195,204 | 241,327 | ||||
Former Officer and Director [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Due to related parties | 18,141 | 18,141 | 17,305 | ||||
Intercloud [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Due to related parties | 51,849 | 51,849 | $ 49,376 | ||||
Contingent liability | 1,409,411 | 1,409,411 | |||||
Chief Executive Officer [Member] | |||||||
Related Party Transactions (Textual) | |||||||
Promissory note issued | $ 18,858 | $ 18,858 | |||||
Due date | Nov. 30, 2018 | ||||||
Interest rate | 8.00% |
Loans Payable (Details) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 04, 2017
$ / shares
shares
|
Apr. 12, 2017
USD ($)
|
Aug. 04, 2015
USD ($)
|
Jun. 27, 2017
USD ($)
$ / shares
shares
|
Nov. 30, 2017
USD ($)
|
Nov. 30, 2016
USD ($)
|
Nov. 30, 2017
USD ($)
|
Nov. 30, 2016
USD ($)
|
May 31, 2016
USD ($)
|
Nov. 30, 2017
CAD
|
May 31, 2017
USD ($)
|
May 31, 2017
CAD
|
Sep. 04, 2015 |
Mar. 31, 2012
USD ($)
shares
|
|
Loans Payable (Textual) | ||||||||||||||
Common stock subscribed | $ 74,742 | $ 74,742 | $ 74,742 | $ 50,000 | ||||||||||
Common stock share subscriptions | shares | 10,000,000 | |||||||||||||
Notes payable | 250,200 | $ 20,282 | ||||||||||||
Accretion expense | 441,011 | $ 151,557 | 901,254 | 318,740 | ||||||||||
Loss on derivatives | (440,021) | $ (1,508,271) | (310,186) | (1,379,597) | ||||||||||
Original issue discounts | 27,800 | $ 24,999 | ||||||||||||
Derivatives and Hedging [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Initial fair value of warrants | 9,755 | |||||||||||||
Notes payable | 9,755 | |||||||||||||
Accretion expense | $ 9,755 | |||||||||||||
Loans Payable [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 49,109 | 49,109 | CAD 63,300 | 46,846 | CAD 63,300 | |||||||||
Loans Payable One [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 17,500 | 17,500 | 17,500 | |||||||||||
Loans Payable Two [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 7,500 | 7,500 | 7,500 | |||||||||||
Loans Payable Three [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 28,705 | 28,705 | 37,000 | 27,382 | 37,000 | |||||||||
Loans Payable Four [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 4,490 | 4,490 | 4,490 | |||||||||||
Loans Payable Five [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 14,016 | 14,016 | CAD 18,066 | 13,370 | 18,066 | |||||||||
Loans Payable Six [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Owed to a non-related party | 15,000 | 15,000 | $ 43,352 | CAD 55,878 | ||||||||||
Promissory Note [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Promissory note | $ 12,000 | $ 50,000 | ||||||||||||
Accrued interest | 1,200 | |||||||||||||
Repaid notes | 160,000 | $ 50,000 | ||||||||||||
Common stock at a price | $ / shares | $ 0.15 | $ 0.005 | ||||||||||||
Due date | Sep. 04, 2015 | |||||||||||||
Initial fair value of warrants | $ 332,966 | |||||||||||||
Notes payable | $ 250,200 | |||||||||||||
Accretion expense | 278,000 | |||||||||||||
Shares of Company's common stock | shares | 100,000 | 50,000,000 | ||||||||||||
Loans bears interest rate | 10.00% | 12.00% | ||||||||||||
Loss on derivatives | $ 82,766 | |||||||||||||
Warrant term | 3 years | |||||||||||||
Increasing carrying value | $ 118,000 | $ 118,000 | ||||||||||||
Original issue discounts | $ 278,000 | |||||||||||||
Promissory Note [Member] | Maximum [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Interest rate | 180.00% | |||||||||||||
Promissory Note [Member] | Minimum [Member] | ||||||||||||||
Loans Payable (Textual) | ||||||||||||||
Interest rate | 120.00% |
Convertible Debentures (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 16, 2017 |
Jul. 18, 2012 |
Oct. 31, 2008 |
Nov. 15, 2013 |
Apr. 29, 2013 |
Jan. 19, 2012 |
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
May 31, 2015 |
May 31, 2014 |
Apr. 11, 2013 |
|
Convertible Debentures (Textual) | ||||||||||||||
Proceeds from issuance of convertible debentures | $ 134,500 | |||||||||||||
Accretion expense | $ 441,011 | $ 151,557 | $ 901,254 | $ 318,740 | ||||||||||
Stock options granted | 350,000 | 350,000 | 350,000 | |||||||||||
Additional fee | $ 21,266 | |||||||||||||
Increasing the carrying value | $ 81,119 | |||||||||||||
Other remaining debenture value | $ 50,000 | |||||||||||||
Convertible Debentures [Member] | ||||||||||||||
Convertible Debentures (Textual) | ||||||||||||||
Proceeds from issuance of convertible debentures | $ 250,000 | |||||||||||||
Convertible debentures bear interest rate | 10.00% | |||||||||||||
Common stock, shares converted | 625,000 | |||||||||||||
Common stock, conversion price | $ 0.40 | |||||||||||||
Purchase of warrants | 250,000 | |||||||||||||
Warrant, description | Each share purchase warrant entitles the holder to purchase one additional share of the Company's common stock for a period of two years from the date of issuance at an exercise price of $0.50 per share. | |||||||||||||
Additional paid-in capital convertible debentures | $ 45,930 | |||||||||||||
Accretion expense | 45,930 | |||||||||||||
Convertible debentures carrying value | $ 250,000 | $ 150,000 | $ 59,853 | $ 114,661 | ||||||||||
Debenture holders to settle convertible debenture | $ 150,000 | $ 50,000 | $ 54,808 | 40,000 | $ 150,000 | |||||||||
Accounts payable and accrued interest | $ 122,535 | |||||||||||||
Debt instrument, description | The Company agreed to pay $43,890 of accrued interest within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition to the $150,000 principal outstanding on April 11, 2013. | Pursuant to the agreement, the debt holder agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months, beginning March 1, 2012 and continuing on the first day of each month thereafter. | ||||||||||||
Debt instrument, periodic payment, interest | 4,438 | $ 6,836 | ||||||||||||
Stock options granted | 100,000 | |||||||||||||
Stock options exercisable | $ 0.12 | |||||||||||||
Debt instrument, periodic payment | 10,000 | |||||||||||||
Stock options fair value | $ 12,901 | |||||||||||||
Accretion of discounts on convertible debt | $ 12,901 | |||||||||||||
Due date | Sep. 15, 2013 | |||||||||||||
Present value of amended future cash flows, description | In addition, as the present value of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment of the debt and no gain or loss was recognized because the fair value of the old debt and new debt remained the same. | |||||||||||||
Stock options period of years | 2 years | |||||||||||||
Accrued interest | $ 15,423 |
Convertible Debentures (Details Textual 1) - USD ($) |
6 Months Ended | ||||||
---|---|---|---|---|---|---|---|
Feb. 04, 2014 |
Dec. 27, 2013 |
Aug. 19, 2013 |
Nov. 30, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
Apr. 28, 2017 |
|
Convertible Debentures (Textual) | |||||||
Proceeds from issuance of convertible debentures | $ 134,500 | ||||||
Debt instrument, face amount | $ 2,000,000 | $ 440,000 | |||||
Convertible Debentures One [Member] | |||||||
Convertible Debentures (Textual) | |||||||
Proceeds from issuance of convertible debentures | $ 10,000 | ||||||
Debt instrument, interest rate | 10.00% | ||||||
Common stock, conversion price | $ 0.04 | ||||||
Additional paid-in capital convertible debentures | $ 10,000 | ||||||
Carrying value of convertible promissory note | 10,000 | ||||||
Debt instrument, face amount | $ 10,000 | ||||||
Due date of issuance | 2 years | ||||||
Convertible Debentures Two [Member] | |||||||
Convertible Debentures (Textual) | |||||||
Proceeds from issuance of convertible debentures | $ 5,000 | ||||||
Debt instrument, interest rate | 10.00% | ||||||
Common stock, conversion price | $ 0.04 | ||||||
Additional paid-in capital convertible debentures | $ 5,000 | ||||||
Carrying value of convertible promissory note | 5,000 | ||||||
Debt instrument, face amount | $ 5,000 | ||||||
Due date of issuance | 2 years | ||||||
Convertible Debentures Four [Member] | |||||||
Convertible Debentures (Textual) | |||||||
Proceeds from issuance of convertible debentures | $ 15,000 | ||||||
Debt instrument, interest rate | 10.00% | ||||||
Common stock, conversion price | $ 0.04 | ||||||
Additional paid-in capital convertible debentures | $ 15,000 | ||||||
Carrying value of convertible promissory note | $ 15,000 | ||||||
Debt instrument, face amount | $ 15,000 | ||||||
Due date of issuance | 2 years |
Convertible Debentures (Details Textual 2) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 16, 2017 |
Sep. 08, 2015 |
Jun. 01, 2015 |
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
May 31, 2016 |
Apr. 28, 2017 |
Oct. 11, 2016 |
|
Convertible Debentures (Textual) | |||||||||||
Fair value of conversion feature | |||||||||||
Convertible debentures, net of discount | $ 714,792 | $ 714,792 | 1,350,067 | $ 24,999 | |||||||
Accretion expense | $ 441,011 | $ 151,557 | $ 901,254 | $ 318,740 | |||||||
Debt instrument, face amount | 2,000,000 | $ 440,000 | |||||||||
Convertible Debentures Six [Member] | |||||||||||
Convertible Debentures (Textual) | |||||||||||
Convertible note principal amount | $ 100,000 | 45,000 | |||||||||
Due date | Dec. 01, 2015 | ||||||||||
Common stock, conversion price | $ 0.00001 | ||||||||||
Fair value of conversion feature | 310,266 | ||||||||||
Loss on derivatives | 210,266 | ||||||||||
Convertible debentures, net of discount | $ 100,000 | ||||||||||
Common stock, shares converted | 18,440,200 | 6,303,475 | |||||||||
Conversion of stock, amount converted | $ 90,000 | $ 45,000 | |||||||||
Accretion expense | 51,820 | 100,000 | |||||||||
Debt instrument, premium | 26,250 | ||||||||||
Debt instrument, description | The note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135% for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available upon approval by the holder. | ||||||||||
Debt instrument, interest rate terms, description | The note bears interest at 12% per annum and is convertible into common shares of the Company at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. | ||||||||||
Convertible debentures carrying value | 43,070 | 81,250 | |||||||||
Accrued interest | $ 13,644 | ||||||||||
Convertible Debentures Seven [Member] | |||||||||||
Convertible Debentures (Textual) | |||||||||||
Convertible note principal amount | $ 326,087 | ||||||||||
Fair value of conversion feature | 479,626 | 280,000 | |||||||||
Loss on derivatives | 204,626 | ||||||||||
Convertible debentures, net of discount | $ 280,000 | 26,087 | |||||||||
Accretion expense | 185,913 | 120,175 | |||||||||
Debt instrument, premium | 76,522 | ||||||||||
Debt instrument, interest rate terms, description | The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. | ||||||||||
Convertible debentures carrying value | $ 382,608 | $ 190,696 | |||||||||
Accrued interest | $ 79,881 |
Convertible Debentures (Details Textual 3) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 16, 2017 |
Apr. 28, 2017 |
Apr. 07, 2017 |
Oct. 11, 2016 |
Mar. 10, 2016 |
Dec. 04, 2015 |
Apr. 27, 2017 |
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 16, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
May 31, 2016 |
Sep. 08, 2015 |
|
Convertible Debentures (Textual) | |||||||||||||||
Accretion expense | $ 441,011 | $ 151,557 | $ 901,254 | $ 318,740 | |||||||||||
Convertible debentures, net of discount | $ 24,999 | $ 714,792 | 714,792 | $ 1,350,067 | |||||||||||
Convertible Debentures Eight [Member] | |||||||||||||||
Convertible Debentures (Textual) | |||||||||||||||
Convertible note principal amount | $ 105,000 | $ 326,087 | |||||||||||||
Debt instrument, interest rate terms, description | The note bears interest at 10% per annum and is convertible into common shares of the Company at a 52% discount to the lowest trading price during the previous 30 trading days to the date of conversion; or a 52% discount to the lowest trading price during the previous 30 trading days before the date the note was executed.
|
||||||||||||||
Accretion expense | 82,560 | $ 82,560 | |||||||||||||
Loss on derivatives | $ 111,108 | ||||||||||||||
Convertible debentures carrying value | 216,108 | ||||||||||||||
Convertible debentures, net of discount | 10,000 | 26,087 | |||||||||||||
Notes payable | $ 95,000 | ||||||||||||||
Notes of carrying value | 131,250 | 48,690 | |||||||||||||
Debt instrument, fee amount | 26,250 | ||||||||||||||
Accrued interest | $ 24,464 | ||||||||||||||
Convertible Debentures Nine [Member] | |||||||||||||||
Convertible Debentures (Textual) | |||||||||||||||
Convertible note principal amount | $ 166,666 | ||||||||||||||
Debt instrument, interest rate terms, description | The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
|
||||||||||||||
Accretion expense | 20,015 | ||||||||||||||
Loss on derivatives | $ 158,785 | ||||||||||||||
Convertible debentures carrying value | 218,785 | ||||||||||||||
Convertible debentures, net of discount | 16,666 | ||||||||||||||
Notes payable | $ 81,666 | ||||||||||||||
Notes of carrying value | 40,432 | ||||||||||||||
Debt instrument, fee amount | 20,417 | ||||||||||||||
Convertible Debentures Nine [Member] | Additional Tranches [Member] | |||||||||||||||
Convertible Debentures (Textual) | |||||||||||||||
Accretion expense | 43,692 | 133,721 | |||||||||||||
Loss on derivatives | 117,788 | ||||||||||||||
Convertible debentures carrying value | 245,571 | ||||||||||||||
Additional paid-in capital convertible debentures | $ 40,000 | ||||||||||||||
Convertible debentures, net of discount | $ 4,444 | ||||||||||||||
Notes payable | 127,783 | ||||||||||||||
Received additional tranches | 123,339 | ||||||||||||||
Notes of carrying value | 206,098 | ||||||||||||||
Debt instrument, fee amount | 31,946 | ||||||||||||||
Accrued interest | 33,359 | ||||||||||||||
Convertible Debentures Ten [Member] | |||||||||||||||
Convertible Debentures (Textual) | |||||||||||||||
Convertible note principal amount | $ 249,999 | ||||||||||||||
Debt instrument, interest rate terms, description | The note bears interest at 10% per annum and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the date the note was executed.
|
||||||||||||||
Accretion expense | $ 43,046 | 26,953 | |||||||||||||
Loss on derivatives | $ 76,902 | ||||||||||||||
Convertible debentures carrying value | 121,902 | ||||||||||||||
Convertible debentures, net of discount | 42,500 | ||||||||||||||
Notes payable | $ 45,000 | ||||||||||||||
Financing fees, description | The Company received initial tranches of $42,500 net of a $24,999 original issue discount and $2,500 of financing fees. | ||||||||||||||
Notes of carrying value | 26,953 | ||||||||||||||
Debt instrument, fee amount | 17,500 | $ 17,500 | |||||||||||||
Accrued interest | $ 12,288 | ||||||||||||||
Convertible Debentures Eleven [Member] | |||||||||||||||
Convertible Debentures (Textual) | |||||||||||||||
Convertible note principal amount | $ 2,000,000 | ||||||||||||||
Debt instrument, interest rate terms, description | All principal and accrued interest under the Unsecured Note is due one year following the issue date of the Unsecured Note, and is convertible into shares of common stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion. | ||||||||||||||
Accretion expense | 418,071 | 77,465 | |||||||||||||
Convertible debentures carrying value | $ 1,174,000 | ||||||||||||||
Convertible debentures, net of discount | $ 65,000 | ||||||||||||||
Notes payable | $ 943,299 | ||||||||||||||
Notes of carrying value | 1,552,237 | 1,134,166 | |||||||||||||
Convertible Debentures Twelve [Member] | |||||||||||||||
Convertible Debentures (Textual) | |||||||||||||||
Convertible note principal amount | $ 440,000 | ||||||||||||||
Debt instrument, interest rate terms, description | The interest on the outstanding principal due under the Secured Note accrues at a rate of 8% per annum. All principal and accrued interest under the Secured Note is due on April 27, 2018 and is convertible into shares of the Company’s Common Stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the conversion, subject to adjustment upon the occurrence of certain events. |
||||||||||||||
Accretion expense | 118,446 | 54,526 | |||||||||||||
Loss on derivatives | $ 1,770,579 | ||||||||||||||
Convertible debentures carrying value | 1,744,661 | ||||||||||||||
Additional paid-in capital convertible debentures | $ 425,918 | ||||||||||||||
Notes of carrying value | $ 172,971 | $ 54,526 | |||||||||||||
Warrants to purchase of common stock | 27,500,000 | ||||||||||||||
Term of warrants | 3 years | ||||||||||||||
Aggregate purchase price of common stock | $ 400,000 | ||||||||||||||
Exercise price | $ 0.0255 |
Derivative Liabilities (Details) - USD ($) |
6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Nov. 30, 2017 |
May 31, 2017 |
||||
Derivative [Line Items] | |||||
Balance at the beginning of year | $ 3,760,067 | $ 978,245 | |||
Balance at the end of the year | 1,866,786 | [1] | 3,760,067 | ||
Level 3 [Member] | |||||
Derivative [Line Items] | |||||
Balance at the beginning of year | 3,760,067 | 978,245 | |||
Original discount limited to proceeds of notes | 250,200 | 1,746,783 | |||
Fair value of derivative liabilities in excess of notes proceeds received | 82,766 | 1,965,269 | |||
Reclassification of instruments previously classified as equity | 32,934 | ||||
Derivative liability settled through the issuance of preferred stock | (2,453,667) | ||||
Conversion of derivative liability | (195,595) | ||||
Change in fair value of embedded conversion option | 227,421 | (767,569) | |||
Balance at the end of the year | $ 1,866,786 | $ 3,760,067 | |||
|
Derivative Liabilities (Details 1) |
6 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
May 31, 2017 |
|
Derivative [Line Items] | ||
Expected Dividend Yield | 0.00% | 0.00% |
Maximum [Member] | ||
Derivative [Line Items] | ||
Expected Volatility | 277.00% | 346.00% |
Risk-free Interest Rate | 1.78% | 1.44% |
Expected Life (in years) | 2 years 4 months 28 days | 2 years 10 months 28 days |
Minimum [Member] | ||
Derivative [Line Items] | ||
Expected Volatility | 106.00% | 215.00% |
Risk-free Interest Rate | 1.44% | 0.84% |
Expected Life (in years) | 4 months 24 days | 11 months 15 days |
At issuance [Member] | ||
Derivative [Line Items] | ||
Expected Dividend Yield | 0.00% | |
At issuance [Member] | Maximum [Member] | ||
Derivative [Line Items] | ||
Expected Volatility | 213.00% | |
Risk-free Interest Rate | 0.74% | |
Expected Life (in years) | 2 years | |
At issuance [Member] | Minimum [Member] | ||
Derivative [Line Items] | ||
Expected Volatility | 134.00% | |
Risk-free Interest Rate | 0.07% | |
Expected Life (in years) | 6 months |
Derivative Liabilities (Details Textual) |
12 Months Ended |
---|---|
May 31, 2017
USD ($)
$ / shares
shares
| |
Convertible Notes [Member] | |
Derivative Liabilities (Textual) | |
Convertible notes amount | $ 59,853 |
Common stock, conversion price | $ / shares | $ 0.40 |
Fair value of convertible notes | $ 41 |
Warrants [Member] | |
Derivative Liabilities (Textual) | |
Warrants exercisable | shares | 2,000,000 |
Warrants exercise price | $ / shares | $ 0.03 |
Fair value of warrant | $ 13,745 |
Warrants exercisable date | Aug. 29, 2018 |
Options [Member] | |
Derivative Liabilities (Textual) | |
Options exercisable | shares | 350,000 |
Fair value of options | $ 2,350 |
Options exercise price | $ / shares | $ 0.03 |
Options exercisable date | Mar. 16, 2017 |
Warrants One [Member] | |
Derivative Liabilities (Textual) | |
Warrants exercisable | shares | 533,333 |
Warrants exercise price | $ / shares | $ 0.80 |
Fair value of warrant | |
Warrants Two [Member] | |
Derivative Liabilities (Textual) | |
Warrants exercisable | shares | 4,075,000 |
Warrants exercise price | $ / shares | $ 0.37 |
Fair value of warrant | $ 16,978 |
Common Stock (Details) |
6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Nov. 30, 2017
USD ($)
$ / shares
shares
|
May 31, 2016
USD ($)
$ / shares
shares
|
Nov. 30, 2017
CAD
CAD / shares
shares
|
Nov. 15, 2017
$ / shares
shares
|
May 31, 2017
$ / shares
shares
|
May 31, 2016
CAD
CAD / shares
shares
|
|
Common Stock (Textual) | ||||||
Common stock price | $ / shares | $ 0.00001 | $ 0.00001 | ||||
Common stock, shares authorized | 750,000,000 | 750,000,000 | 750,000,000 | |||
Common Stock [Member] | Maximum [Member] | ||||||
Common Stock (Textual) | ||||||
Common stock price | $ / shares | $ 0.00001 | |||||
Common stock, shares authorized | 750,000,000 | |||||
Common Stock [Member] | Minimum [Member] | ||||||
Common Stock (Textual) | ||||||
Common stock price | $ / shares | $ 0.00001 | |||||
Common stock, shares authorized | 275,000,000 | |||||
Common Stock [Member] | Mantra Energy Alternatives Ltd. [Member] | ||||||
Common Stock (Textual) | ||||||
Proceeds from common stock subscriptions | $ 66,277 | $ 66,277 | CAD 67,000 | CAD 67,000 | ||
Common stock, shares subscribed | 67,000 | 67,000 | 67,000 | 67,000 | ||
Common stock price | CAD / shares | CAD 1.00 | CAD 1.00 | ||||
Net of non-controlling interest | $ | $ 7,231 | $ 7,231 | ||||
Common Stock [Member] | Climate ESCO Ltd. [Member] | ||||||
Common Stock (Textual) | ||||||
Proceeds from common stock subscriptions | $ | $ 21,000 | $ 21,000 | ||||
Common stock, shares subscribed | 210,000 | 210,000 | 210,000 | 210,000 | ||
Common stock price | $ / shares | $ 0.10 | $ 0.10 | ||||
Net of non-controlling interest | $ | $ 7,384 | $ 7,384 |
Preferred Stock (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|---|
Nov. 16, 2017 |
Nov. 15, 2017 |
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
|
Preferred Stock (Textual) | |||||||
Series A Preferred stock, shares authorized | 8,000,000 | 8,000,000 | 8,000,000 | ||||
Series A Preferred stock, shares issued | 1,262,945 | 1,262,945 | |||||
Due to related parties | $ 177,529 | $ 177,529 | $ 308,008 | ||||
Gain on settlement of debt | $ 3,368,128 | $ (19,418) | 3,368,128 | $ (19,418) | |||
Associated derivative liabilities | $ 2,453,667 | ||||||
Series A Preferred Stock [Member] | |||||||
Preferred Stock (Textual) | |||||||
Series A Preferred stock, shares authorized | 20,000,000 | ||||||
Series A Preferred stock, shares issued | 8,000,000 | ||||||
Conversion rights, description | The number of shares of Common Stock into which each share of the Series A Preferred Shares may be converted shall be determined by dividing the sum of the Stated Value of the Series A Preferred Shares ($0.25 per share) being converted and any accrued and unpaid dividends by the Conversion Price in effect at the time of the conversion. The Series A Preferred Shares may be converted at an initial conversion price of 75% of the lowest VWAP during the ten (10) trading day period immediately preceding the date a conversion notice is delivered. | ||||||
Series A Preferred Stock, shares | 1,011,060 | ||||||
Series A Preferred Stock, value | $ 348,354 | ||||||
Due to related parties | 975,337 | ||||||
Gain on settlement of debt | 3,259,709 | ||||||
Accrued interest | 179,059 | ||||||
Associated derivative liabilities | $ 2,453,667 | ||||||
Series A Preferred Stock [Member] | Former President [Member] | |||||||
Preferred Stock (Textual) | |||||||
Series A Preferred Stock, shares | 251,885 | ||||||
Series A Preferred Stock, value | $ 86,785 | ||||||
Due to related parties | 195,204 | ||||||
Gain on settlement of debt | $ 108,419 |
Share Purchase Warrants (Details) - $ / shares |
6 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
May 31, 2017 |
|
Share Purchase Warrants [Abstract] | ||
Number of warrants, Beginning Balance | 34,208,333 | 7,025,000 |
Number of warrants, Issued | 50,000,000 | 27,833,333 |
Number of warrants, Expired | (633,333) | (650,000) |
Number of warrants, Ending Balance | 83,575,000 | 34,208,333 |
Weighted average exercise price, Beginning Balance | $ 0.08 | $ 0.34 |
Weighted average exercise price, Issued | 0.005 | 0.03 |
Weighted average exercise price, Expired | 0.70 | 0.04 |
Weighted average exercise price, Ending Balance | $ 0.03 | $ 0.08 |
Share Purchase Warrants (Details 1) - $ / shares |
Nov. 30, 2017 |
May 31, 2017 |
May 31, 2016 |
---|---|---|---|
Class of Warrant or Right [Line Items] | |||
Number of warrants | 83,575,000 | 34,208,333 | 7,025,000 |
Exercise price | $ 0.03 | $ 0.08 | $ 0.34 |
Expiry date April 15, 2018 [Member] | |||
Class of Warrant or Right [Line Items] | |||
Number of warrants | 1,000,000 | ||
Exercise price | $ 0.03 | ||
Expiry date May 4, 2018 [Member] | |||
Class of Warrant or Right [Line Items] | |||
Number of warrants | 666,667 | ||
Exercise price | $ 0.03 | ||
Expiry date April 10, 2019 [Member] | |||
Class of Warrant or Right [Line Items] | |||
Number of warrants | 4,075,000 | ||
Exercise price | $ 0.37 | ||
Expiry date August 29, 2018 [Member] | |||
Class of Warrant or Right [Line Items] | |||
Number of warrants | 333,334 | ||
Exercise price | $ 0.03 | ||
Expiry date April 28, 2020 [Member] | |||
Class of Warrant or Right [Line Items] | |||
Number of warrants | 27,500,000 | ||
Exercise price | $ 0.03 | ||
Expiry date June 27, 2020 [Member] | |||
Class of Warrant or Right [Line Items] | |||
Number of warrants | 50,000,000 | ||
Exercise price | $ 0.005 |
Stock Options (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Nov. 30, 2017 |
May 31, 2017 |
|
Stock Options [Abstract] | ||
Number of options Outstanding, Beginning | 350,000 | 1,500,000 |
Number of options, Expired | (1,150,000) | |
Number of options Outstanding, Ending | 350,000 | 350,000 |
Number of options, Exercisable | 350,000 | 350,000 |
Weighted average exercise price, Outstanding | $ 0.03 | $ 0.16 |
Weighted average exercise price, Expired | 0.20 | |
Weighted average exercise price Outstanding, Ending | 0.03 | 0.03 |
Weighted average exercise price, Exercisable | $ 0.03 | $ 0.03 |
Weighted average remaining contractual life (years), Ending | 5 months 16 days | |
Weighted average remaining contractual life (years), Exercisable | 5 months 16 days | |
Aggregate intrinsic value Outstanding, Ending | ||
Aggregate intrinsic value, Exercisable |
Stock Options (Details 1) - $ / shares |
Nov. 30, 2017 |
May 31, 2017 |
May 31, 2016 |
---|---|---|---|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Number of options | 350,000 | 350,000 | 1,500,000 |
Exercise price | $ 0.03 | $ 0.03 | $ 0.16 |
Expiry date: May 17, 2018 [Member] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Number of options | 350,000 | ||
Exercise price | $ 0.03 |
Commitments and Contingencies (Details) |
May 31, 2017
USD ($)
|
---|---|
Commitments and Contingencies [Abstract] | |
2018 | $ 58,855 |
2019 | 29,841 |
2020 | 6,854 |
Total | $ 95,550 |
Commitments and Contingencies (Details Textual) - USD ($) |
1 Months Ended | 6 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 07, 2016 |
Sep. 10, 2016 |
Aug. 22, 2016 |
Mar. 14, 2016 |
Sep. 03, 2015 |
May 23, 2012 |
Nov. 15, 2013 |
Nov. 30, 2012 |
Jul. 31, 2012 |
Nov. 30, 2017 |
May 31, 2015 |
May 31, 2014 |
Oct. 31, 2008 |
|
Commitments and Contingencies (Textual) | |||||||||||||
Lease term, description | The Company leases certain of its properties under leases that expire on various dates through 2019. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. | ||||||||||||
Lease expense | $ 149,174 | ||||||||||||
Settlement amount | $ 11,400 | $ 55,000 | $ 55,000 | ||||||||||
Settlement agreement terms, description | The Company commenced a separate action against the former employee seeking a return of the 1,000,000 shares of common stock and a stay of execution of the judgment. That application is pending and has not yet been heard or determined by the court. The payment of the judgment claim of approximately $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common stock noted above. The probable outcome of the Company's claim for the return of the shares cannot yet be determined. | ||||||||||||
Employee retains, shares | 1,000,000 | ||||||||||||
Settlement Agreement [Member] | |||||||||||||
Commitments and Contingencies (Textual) | |||||||||||||
Settlement amount | $ 7,500 | ||||||||||||
Stock issued in exchange of services, shares | 2,000,000 | ||||||||||||
Consulting Agreement [Member] | |||||||||||||
Commitments and Contingencies (Textual) | |||||||||||||
Consulting agreement description | Consulting agreement for the provision of consulting services until November 22, 2016. | The Company will pay the consultant $10,000 per month ($20,000 paid) and issue 550,000 shares per month for a period of three months. At November 30, 2017, the Company had not issued the shares to the consultant due to non-performance. | |||||||||||
Consulting agreement periodic payment | $ 5,000 | ||||||||||||
Stock issued in exchange of services, shares | 1,000,000 | 2,000,000 | |||||||||||
Convertible Debentures [Member] | |||||||||||||
Commitments and Contingencies (Textual) | |||||||||||||
Settlement agreement terms, description | Payments were made until December 2014, but have not been made after. The plaintiff was seeking relief of amounts owed along with 10% interest per annum, from the date of judgments. All amounts are recorded in these financial statements. | ||||||||||||
Convertible debentures carrying value | $ 150,000 | $ 59,853 | $ 114,661 | $ 250,000 | |||||||||
Debt instrument, periodic payment | $ 10,000 |
Segment Disclosures (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
May 31, 2017 |
|
Segment Reporting Information [Line Items] | |||||
Net Sales | $ 2,006,933 | $ 5,122,854 | |||
Operating (loss) income | (764,616) | (150,538) | (1,043,466) | (239,532) | |
Interest expense | 107,184 | 26,615 | 185,091 | 63,120 | |
Depreciation and amortization | 65,669 | $ 8,404 | 133,800 | $ 15,925 | |
Total Assets as of November 30, 2017 | 4,913,628 | 4,913,628 | $ 5,188,777 | ||
Mantra Ventures [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Net Sales | |||||
Operating (loss) income | (876,659) | ||||
Interest expense | 182,283 | ||||
Depreciation and amortization | |||||
Total Assets as of November 30, 2017 | 5,733 | 5,733 | |||
AW Solutions [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Net Sales | 5,122,854 | ||||
Operating (loss) income | (166,807) | ||||
Interest expense | 2,808 | ||||
Depreciation and amortization | 133,800 | ||||
Total Assets as of November 30, 2017 | $ 4,908,099 | $ 4,908,099 |
Segment Disclosures (Details 1) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Segment Reporting Information [Line Items] | ||||
Revenues, Consolidated Total | $ 2,006,933 | $ 5,122,854 | ||
Long-Lived Assets, Consolidated Total | 2,955,019 | |||
Puerto Rico [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Revenues, Consolidated Total | 984,561 | |||
Long-Lived Assets, Consolidated Total | 7,627 | |||
United States [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Revenues, Consolidated Total | 4,138,293 | |||
Long-Lived Assets, Consolidated Total | $ 2,947,392 |
Segment Disclosures (Details Textual) - Segments |
6 Months Ended | |
---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Segment Disclosures (Textual) | ||
Number of operating segments | 2 | 1 |
Net Income (Loss) Per Share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Nov. 30, 2017 |
Nov. 30, 2016 |
Nov. 30, 2017 |
Nov. 30, 2016 |
|
Numerator: | ||||
Net income | $ 1,687,801 | $ (1,852,786) | $ 963,584 | $ (2,010,657) |
Convertible note interest | 48,934 | 97,867 | ||
Adjusted diluted net income | $ 1,736,735 | $ (1,852,786) | $ 1,061,451 | $ (2,010,657) |
Weighted average shares outstanding used in computing net income per share: | ||||
Basic | 274,998,800 | 99,869,076 | 274,998,800 | 97,483,513 |
Effect of dilutive stock options and convertible notes payable | 850,061,840 | 850,349,865 | ||
Effect of preferred shares | 104,244,788 | 104,244,788 | ||
Diluted | 1,229,305,428 | 99,869,076 | 1,229,593,453 | 97,483,513 |
Net income per share applicable to common stockholders: | ||||
Basic | $ 0.01 | $ (0.02) | $ 0.00 | $ (0.02) |
Diluted | $ 0.00 | $ (0.02) | $ 0.00 | $ (0.02) |
Subsequent Events (Details) - Subsequent Event [Member] - USD ($) |
Jan. 03, 2018 |
Dec. 28, 2017 |
Dec. 15, 2017 |
---|---|---|---|
Susequent Events (Textual) | |||
Common stock, shares converted | 20,516,000 | 11,800,000 | |
Convertible note principal amount | $ 67,702.80 | $ 33,000 | |
Due date | Apr. 25, 2018 | Apr. 27, 2018 | |
Interest | $ 2,640 | ||
Board of Directors Chairman [Member] | |||
Susequent Events (Textual) | |||
Common stock, shares converted | 136,148,490 | ||
Debt Instrument, Description | 1) Issue's have to be employed or associated with the company for a minimum of 12 continuous months; 2) issuances will vest after 12 months; and 3) at the Company's option, issuances may be converted to preferred shares; 4) voting rights shall not be affected by vesting and voting will be on an issued basis; and 5) if within 12 month period Issue's leave or are no longer associated with the Company, issuances shall be returned to the Company. |
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