DEBT	6 Months Ended
Nov. 30, 2013
DEBT
DEBT	F. Debt On May 10, 2013, the Company entered into the Loan Agreement with Prides Crossing Capital, L.P. and Prides Crossing Capital-A, L.P., (“Lenders”). The Loan Agreement provided for a $2.7 million, three-year term Loan with interest only until October 1, 2014. The Loan Agreement was amended on July 9, 2013 as described below to, among other things, allow the Company to repurchase 170,000 common shares from its largest shareholder as described in Note G below. On December 5, 2013, the Loan Agreement was again amended as described in Note I below. The December 2013 amendment was necessitated by the CADRA Sale. As of November 30, 2013, the Loan Agreement as amended on July 9, 2013 was in full force and effect and, as such, the balance sheet reflects the terms and conditions of that amended agreement which is described hereafter. Prior to the amended and restated Loan Agreement in December 2013 as described in Note I, the Loan was to mature on May 1, 2016 and carried an interest rate of 14% paid in arrears on a calendar quarter basis commencing on July 1, 2013 and continuing throughout the life of the Loan. Commencing on October 1, 2014, and continuing on the last day of each calendar quarter thereafter through May 1, 2016, the Company was to make quarterly principal payments of $135,000 with the remaining principal balance to be due and payable on May 1, 2016. The Company agreed to secure all of its obligations under the Loan by granting the Lenders a first priority security interest in all of the Company’s assets, including the Company’s intellectual property and pledges of (i) one hundred percent (100%) of the Company’s equity interests in its domestic subsidiaries and (ii) sixty-five percent (65%) of the Company’s equity interests in its foreign subsidiaries. In connection with the grant of the security interest in favor of the Lenders in the Company’s intellectual property, the Company had entered into an intellectual property security agreement with the Lenders and a source code escrow agreement with the Lenders and an independent third party. In addition, the Company’s CEO provided the Lenders with a personal guaranty of up to $500,000 secured by his equity interests in the Company. The Company agreed to pay the CEO $80,000 in consideration for extending that personal guaranty. This payment was included as a part of capitalized debt issuance costs. The Loan Agreement contained customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes in its business. In addition, the Loan Agreement contained financial covenants by the Company that establish (i) a maximum ratio of indebtedness to recurring revenue; (ii) a maximum ratio of indebtedness to EBITDA; and (iii) a minimum liquidity test (defined as the Company’s cash plus amounts available under a line of credit of up to $250,000). The Loan Agreement also imposed limits on capital expenditures for each calendar year during the term of the Loan Agreement. The Loan Agreement provided for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy. Upon an event of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Loan would become immediately due and payable and the Lenders commitments would be automatically terminated. Upon the occurrence and continuation of any other event of default, the Lenders could accelerate payment of all obligations and terminate the Lenders’ commitments under the Loan Agreement. On July 9, 2013, the Loan Agreement was amended (the “Amended Loan Agreement No. 1”) to allow the Company to repurchase 170,000 of its shares from Greenleaf and to increase the maximum ratio of indebtedness to EBITDA from 2.25:1 to 2.60:1 for the quarters ended May 31, 2013, August 31, 2013 and November 30, 2013. In consideration for entering into the Amended Loan Agreement No. 1, the Company issued the Lenders warrants to purchase 25,000 shares of common stock at an exercise price of $1.00 per share. The warrants were to vest monthly over three years, with accelerated vesting under certain circumstances including if the Loan was repaid prior to maturity, and terminate if not exercised on or before July 9, 2020. Upon issuance, the warrants did not meet the requirements for equity classification, because such warrants provide a cash-out election allowing the holder to a one time right to require the Company to repurchase all or a portion of the warrants. Therefore these warrants were required to be accounted for as a liability. Changes in fair value are recognized as either a gain or loss in the consolidated statement of operations under the caption “Other income.” The Company determined the fair value of the warrants using the Black-Scholes valuation model. The grant date fair value of the warrant of approximately $51,000 was recorded a liability, with a corresponding discount recorded on the debt. The debt discount was to be accreted through the remaining term of the Loan Agreement using the effective interest rate method. Accretion recorded as interest expense during the three and six months ended November 30, 2013 was approximately $4,000 and $6,000, respectively. As of November 30, 2013 the warrants were adjusted to fair value of $45,000 resulting in $6,000 of other income recorded during the six months ended November 30, 2013. In December 2013, the Company paid a pre-payment penalty of $81,000 and agreed to repurchase the outstanding warrant to purchase 25,000 shares of common stock at an exercise price of $1.00 per share in exchange for $19,000. (see Note I).

DEBT

6 Months Ended

Nov. 30, 2013

F. Debt

On May 10, 2013, the Company entered into the Loan Agreement with Prides Crossing Capital, L.P. and Prides Crossing Capital-A, L.P., (“Lenders”). The Loan Agreement provided for a $2.7 million, three-year term Loan with interest only until October 1, 2014.

The Loan Agreement was amended on July 9, 2013 as described below to, among other things, allow the Company to repurchase 170,000 common shares from its largest shareholder as described in Note G below. On December 5, 2013, the Loan Agreement was again amended as described in Note I below. The December 2013 amendment was necessitated by the CADRA Sale.

As of November 30, 2013, the Loan Agreement as amended on July 9, 2013 was in full force and effect and, as such, the balance sheet reflects the terms and conditions of that amended agreement which is described hereafter.

Prior to the amended and restated Loan Agreement in December 2013 as described in Note I, the Loan was to mature on May 1, 2016 and carried an interest rate of 14% paid in arrears on a calendar quarter basis commencing on July 1, 2013 and continuing throughout the life of the Loan. Commencing on October 1, 2014, and continuing on the last day of each calendar quarter thereafter through May 1, 2016, the Company was to make quarterly principal payments of $135,000 with the remaining principal balance to be due and payable on May 1, 2016.

The Company agreed to secure all of its obligations under the Loan by granting the Lenders a first priority security interest in all of the Company’s assets, including the Company’s intellectual property and pledges of (i) one hundred percent (100%) of the Company’s equity interests in its domestic subsidiaries and (ii) sixty-five percent (65%) of the Company’s equity interests in its foreign subsidiaries. In connection with the grant of the security interest in favor of the Lenders in the Company’s intellectual property, the Company had entered into an intellectual property security agreement with the Lenders and a source code escrow agreement with the Lenders and an independent third party. In addition, the Company’s CEO provided the Lenders with a personal guaranty of up to $500,000 secured by his equity interests in the Company. The Company agreed to pay the CEO $80,000 in consideration for extending that personal guaranty. This payment was included as a part of capitalized debt issuance costs.

The Loan Agreement contained customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes in its business. In addition, the Loan Agreement contained financial covenants by the Company that establish (i) a maximum ratio of indebtedness to recurring revenue; (ii) a maximum ratio of indebtedness to EBITDA; and (iii) a minimum liquidity test (defined as the Company’s cash plus amounts available under a line of credit of up to $250,000). The Loan Agreement also imposed limits on capital expenditures for each calendar year during the term of the Loan Agreement.

The Loan Agreement provided for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy. Upon an event of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Loan would become immediately due and payable and the Lenders commitments would be automatically terminated. Upon the occurrence and continuation of any other event of default, the Lenders could accelerate payment of all obligations and terminate the Lenders’ commitments under the Loan Agreement.

On July 9, 2013, the Loan Agreement was amended (the “Amended Loan Agreement No. 1”) to allow the Company to repurchase 170,000 of its shares from Greenleaf and to increase the maximum ratio of indebtedness to EBITDA from 2.25:1 to 2.60:1 for the quarters ended May 31, 2013, August 31, 2013 and November 30, 2013. In consideration for entering into the Amended Loan Agreement No. 1, the Company issued the Lenders warrants to purchase 25,000 shares of common stock at an exercise price of $1.00 per share. The warrants were to vest monthly over three years, with accelerated vesting under certain circumstances including if the Loan was repaid prior to maturity, and terminate if not exercised on or before July 9, 2020.

Upon issuance, the warrants did not meet the requirements for equity classification, because such warrants provide a cash-out election allowing the holder to a one time right to require the Company to repurchase all or a portion of the warrants. Therefore these warrants were required to be accounted for as a liability. Changes in fair value are recognized as either a gain or loss in the consolidated statement of operations under the caption “Other income.”

The Company determined the fair value of the warrants using the Black-Scholes valuation model. The grant date fair value of the warrant of approximately $51,000 was recorded a liability, with a corresponding discount recorded on the debt. The debt discount was to be accreted through the remaining term of the Loan Agreement using the effective interest rate method. Accretion recorded as interest expense during the three and six months ended November 30, 2013 was approximately $4,000 and $6,000, respectively. As of November 30, 2013 the warrants were adjusted to fair value of $45,000 resulting in $6,000 of other income recorded during the six months ended November 30, 2013.

In December 2013, the Company paid a pre-payment penalty of $81,000 and agreed to repurchase the outstanding warrant to purchase 25,000 shares of common stock at an exercise price of $1.00 per share in exchange for $19,000. (see Note I).

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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