Quarterly report pursuant to Section 13 or 15(d)

Note 12 - Notes Payable and Convertible Notes Payable (Tables)

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Note 12 - Notes Payable and Convertible Notes Payable (Tables)
3 Months Ended
Aug. 31, 2018
Debt Disclosure [Abstract]  
Schedule of Debt [Table Text Block]
   

August 31,

   

May 31,

 
   

2018

   

2018

 
                 

On February 7, 2018, the Company issued a note payable to Todd Blatt in the amount of $210,000 the “Blatt Note”).  This note accrues interest at a rate of 6% per annum and is due on February 7, 2019. During the three months ended August 31, 2018, the Company accrued interest in the amount of $1,726 on the Blatt Note. On July 20, 2018, the Company made principal and interest payments in the amount of $210,000 and $5,627, respectively, on the Blatt Note.

  $ -     $ 210,000  
                 

 On February 7, 2018, the Company issued a note payable to AJG Group in the amount of $200,000 the “AJG Note”).  This note accrues interest at a rate of 6% per annum and is due on February 7, 2019. During the three months ended August 31, 2018, the Company accrued interest in the amount of $641 on the AJG Note. On July 9, 2018, the Company made principal and interest payments in the amount of $100,000 and $3,337, respectively, on the AJG Note.  

    -       100,000  
                 

Secured note payable to Serenity Wellness Enterprises, LLC, as nominee (“Oasis Note”). dated June 27, 2018 in the principal amount of $4,000,000 and bearing interest at a rate of 6% per annum was issued pursuant to the Membership Interest Purchase Agreement with Alternative Solutions.  The note is due December 4, 2019, but may be prepaid at any time without penalty.   The Oasis Note is secured by all of the membership interests in Alternative Solutions and the Oasis LLCs and by the assets of the Oasis LLCs. 

 

The Company recognized an original issue discount of $189,180 on the Oasis Note.  During the three months ended August 31, 2018, $23,422 of this discount was charged to operations.  During the three months ended August 31, 2018, the Company accrued interest in the amount of $43,333 on this note.

    4,000,000       -  
                 

Total –  Notes Payable

  $ 4,000,000     $ 310,000  

Less: Discount

    (165,758

)

    -  

Notes Payable, Net of Discounts

  $ 3,834,242     $ 310,000  

Current portion

  $ 3,834,242     $ 310,000  

Long term portion

  $ -     $ -  
Short-term Debt [Text Block]
The following tables summarize the Company’s loan balances at August 31, 2018 and May 31, 2017:

   

August 31,

   

May 31,

 
   

2018

   

2018

 
                 

Notes payable to Jeffrey Binder, an officer and director of the Company, for advances to fund operations (the “Binder Funding Notes”). The Binder Funding Notes bear interest at a rate of 10% per annum, have no maturity date and are due on demand.  Effective May 31, 2017, pursuant to the Omnibus Loan Agreement, a conversion feature was added to the Binder Funding Notes whereby principal and accrued interest is convertible into common stock of the Company at a rate of $0.25 per share.

 

Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share and a discount in the amount of $35,023 related to the revaluation of the beneficial conversion feature of the Binder Funding Notes was charged to additional paid-in capital and amortized to interest expense.

 

During the twelve months ended May 31, 2018, Mr. Binder advanced a total of $440,579 to the Company under the Binder Funding Notes. During the year ended May 31, 2018, principal in the amount of $280,198 and accrued interest in the amount of $5,188 was transferred out of the Binder Funding Notes and used to fund four new convertible notes payable to Mr. Binder, which were converted or repaid as of May 31, 2018.  Also during the year ended May 31, 2018 the Company made principal payments in the aggregate of $237,794 under the Binder Funding Notes.  During the year ended May 31, 2018, the Company accrued interest in the amount of $7,364 on the Binder Funding Notes. During the year ended May 31, 2018, discounts in the amount of $385,637 related to the beneficial conversion feature of the Binder Funding Notes was charged to additional paid-in capital and amortized to interest expense.

 

During the three months ended August 31, 2018, Mr. Binder advanced as total of $81,961 to the Company under the Binder Funding Notes. During the three months ended August 31, 2018. The Company made principal payments to in the amount of $76,381 under the Binder Funding Notes. During the three months ended August 31, 2018, the Company accrued interest in the amount of $347 on the Binder Funding Notes. During the three months ended August 31, 2018, a discount in the amount of $ 81,961 related to the beneficial conversion feature of the Binder Funding Notes was charged to additional-paid in capital and amortized to interest expense.

  $ 5,716     $ 137  
   

August 31,

2018

   

May 31,

2018

 
                 

Notes payable to Newcan Investment Partners, LLC (“Newcan”), an entity owned by Frank Koretsky, a director of the Company, for advances to fund operations (the “Newcan Funding Notes”). The Newcan Funding Notes bear interest at a rate of 10% per annum, have no maturity date and are due on demand.  Effective May 31, 2017, pursuant to the Omnibus Loan Agreement, a conversion feature was added to the Newcan Funding Notes whereby principal and accrued interest is convertible into common stock of the Company at a rate of $0.25 per share.

 

Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share and a discount in the amount of $6,120 related to the revaluation of the beneficial conversion feature of the Newcan Funding Notes was charged to additional paid-in capital and amortized to interest expense.

 

During the twelve months ended May 31, 2018, Newcan advanced a total of $290,000 to the Company under the Newcan Funding Notes. During the year ended May 31, 2018, principal in the amount of $836,658 and accrued interest in the amount of $25,018 was transferred out of the Newcan Funding Notes and used to fund four new convertible notes payable to Newcan, which were converted or repaid as of May 31, 2018.).  During the year ended May 31, 2018, the Company accrued interest in the amount of $16,681 on the Newcan Funding Notes. During the year ended May 31, 2018, discounts in the amount of $210,120 related to the beneficial conversion feature of the Newcan Funding Notes was charged to additional paid-in capital and amortized to interest expense.

 

During the three months ended August 31, 2018, principal in the amount of $75,000 and accrued interest in the amount of $1,931 was transferred out of the Newcan Funding Notes and used to create a new convertible note payable to Newcan (“Newcan Convertible Note 8”). During the three months ended August 31, 2018, the Company accrued interest in the amount of $1,377 on the Newcan Funding Notes.

    -       75,000  
                 

Total – Demand Convertible Notes Payable, Related Parties

  $ 5,716     $ 75,137  

Total – Demand Convertible Notes Payable,  Related Parties - Current portion

  $ 5,716     $ 75,137  

Total – Demand Convertible Notes Payable, Related Parties -  Long term portion

  $ -     $ -  
Convertible Debt [Table Text Block]
   

August 31,  

2018

   

May 31,

2018

 
                 

Convertible promissory note payable to David Lamadrid (the “Lamadrid Note”) dated February 20, 2018 in the principal amount of $31,250 and bearing interest at a rate of 8% per annum.  The Lamadrid Note is due eighteen months from the date of issue.  Mr. Lamadrid may, at his option, convert all or a portion of the Lamadrid Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Lamadrid Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Lamadrid Note will be reset to such lower price. The Company recognized a discount of $31,250 on the Lamadrid Note related to the beneficial conversion feature at the time of issuance.  During the twelve months ended May 31, 2018, $942 of this discount was charged to operations.  During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $685 on this note.

 

During the three months ended August 31, 2018, interest in the amount of $562 was accrued on the Lamadrid note. During the three months ended August 31, 2018, the Lamadrid Note, in the amount of $$32,497, of which $31,250 was principal and $1,247 was accrued interest, was converted into 103,989 shares of common stock. During the three months ended August 31, 2018 the remaining discount in the amount of $30,308 was charged to operations.

    -       31,250  
                 

Unsecured convertible note issued to Jeffery Binder, an officer and director of the Company, dated April 6, 2018 in the original principal amount of $37,500 (the “Binder Convertible Note 9”).  The Binder Convertible Note 9 was funded with the conversion of $37,500 of unpaid accrued salary due to Mr. Binder.  This note bears interest at the rate of 10% per annum.  No interest payments are required until July 1, 2019, at which time all accrued interest becomes due and payable.  Commencing October 1, 2019, the first of eight principal payments in the amount of $4,688 will become due; subsequent payments will become due on the first day of each January, April, July and October until paid in full.  This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.3125 converted.  The Company recognized a discount of $37,500 on the Binder Convertible Note 9 related to the value of the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, the Company amortized $1,890 of this discount to interest expense.

 

During the twelve months ended May 31, 2018 and 2017, interest in the amount of $565 and $0 was accrued on Binder Convertible Note 9, respectively. 

 

During the three months ended August 31, 2018, interest in the amount of $699 was accrued on the Binder Convertible Note 9. During the three months ended August 31, 2018, the Company made a principal payment in the amount of $37,000 on the Binder Convertible Note 9. During the three months ended August 31, 2018 the remaining discount in the amount of $35,610 was charged to operations.

    -       37,500  
                 

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated, August 6, 2018 in the original amount of $75,000 (the “Newcan Convertible Note 8”).  The Newcan Convertible Note 8 was funded with the conversion of $75,000 of advances Newcan made to the Company under the Newcan Funding Notes.  This note bears interest at the rate of 10% per annum.  No interest payments are required until January 1, 2020, at which time all of the accrued interest becomes due and payable.  Commencing on January 1, 2020, the first of eight principal payments in the amount of $9,375 will become due; subsequent principal payments will become due on the first day of each April, July, October, and January until paid in full.  This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.40 converted.  The Company recognized a discount of $58,594 on the Newcan Convertible Note 8 related to the value of the beneficial conversion feature at the time of issuance. During the three months ended August 31, 2018, the Company amortized $1,272 of this discount to interest expense. During the three months ended August 31, 2018, the Company accrued interest in the amount of $514 on the Newcan Convertible Note 8.

    75,000       -  
                 

Total – Convertible Notes Payable, Related Parties

  $ 75,000     $ 68,750  

Less: Discount

    (57,322

)

    (65,918

)

Convertible Notes Payable, Related Parties, Net of Discounts

  $ 17,678     $ 2,832  
                 

Convertible Notes Payable, Related Parties, Net of Discounts, Current Portion

  $ -     $ 2,832  

Convertible Notes Payable, Related Parties, Net of Discounts, Long-term Portion

    17,678       -  
   

August 31,

2018

   

May 31,

2018

 
                 

Convertible promissory note payable to Darling Capital, LLC (the “Darling Note”) dated February 5, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $500,000 and the Darling Note has an original issue discount of $50,000.  The Darling Note is due eighteen months from the date of issue.  Darling may, at its option, convert all or a portion of the Darling Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Darling Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Darling Note will be reset to such lower price. The Company recognized a discount of $550,000 on the Darling Note related to the beneficial conversion feature at the time of issuance.  During the twelve months ended May 31, 2018, $40,427 of this discount was charged to operations.  During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $13,863 on this note.

 

During the three months ended August 31, 2018, the Company accrued interest in the amount of $1,447 on this note. During the three months ended August 31, 2018, the holder of the Darling Note converted $565,000, of which $550,000 was principal and $15,000 was accrued interest into 1,808,000 shares of common stock. Also, during the three months ended August 31, 2018, the remaining discount in the amount of $509,573 was charged to operations.

    -       550,000  
                 

Convertible promissory note payable to Efrat Investments, LLC (the “Efrat Note”) dated February 12, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $50,000 and the Efrat Note has an original issue discount of $5,000.  The Efrat Note is due eighteen months from the date of issue.  Efrat may, at its option, convert all or a portion of the Efrat Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Efrat Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Efrat Note will be reset to such lower price. The Company recognized a discount of $55,000 on the Efrat Note related to the beneficial conversion feature at the time of issuance.  During the twelve months ended May 31, 2018, $2,974 of this discount was charged to operations.  During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $1,302 on this note.

 

During the three months ended August 31, 2018, the Company accrued interest in the amount of $898 on this note. During the three months ended August 31, 2018, the holder of the Efrat Note converted $57,200, of which $55,000 was principal and $2,200 was accrued interest into 183,040 shares of common stock. Also, during the three months ended August 31, 2018, the remaining discount in the amount of $52,026 was charged to operations.

    -       55,000  
   

August 31,

2018

   

May 31,

2018

 
                 

Convertible promissory note payable to YA II PN, Ltd. (the “YA II PN Note”) dated May 14, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $750,000, and the note is due November 14, 2019.  YA II PN may, at its option, convert all or a portion of the YA II PN Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.40 per share.  The YA II PN Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.40 per share of common stock, the conversion price of the YA II PN Note will be reset to such lower price. The Company recognized a discount of $750,000 related to the beneficial conversion feature at the time of issuance.  Commencing on December 1, 2018, the first of eight payments in the amount of $93,750 will become due; subsequent payments will become due on the first day of each of the following months until paid in full. During the twelve months ended May 31, 2018, $23,224 of this discount was charged to operations.  During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $2,795 on this note.

 

During the three months ended August 31, 2018, the Company charged $19,112 of the discount to operations. Also, during the three months ended August 31, 2018, the Company accrued interest in the amount of $15,123 on this note.

 

During the three months ended August 31, 2018, a reset event occurred. As a result, the conversion price of the YA II PN Note was reduced to $0.34 per share of common stock. This was considered a material modification of the note; the remaining balance of the discount to the note in the amount of $699,628 was charged to interest expense, a new discount in the amount of $750,000 was charged to additional paid-in capital, and $105,469 of the new discount was amortized to interest expense during the three months ended August 31, 2018.

    750,000       750,000  
                 

 Unsecured convertible note issued to Jay Lasky (the “Lasky Note”), dated May 3, 2018 in the original principal amount of $25,000.  This note bears interest at the rate of 10% per annum.  No interest payments are required until July 1, 2019, at which time all accrued interest becomes due and payable.  Commencing on October 1, 2019, the first of eight principal payments in the amount of $3,125 will become due; subsequent payments will become due on the first day of each January, April, July and October until paid in full.  The Lasky Note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.40 converted.  The Company recognized a discount of $7,301 on the Lasky Note related to the beneficial conversion feature at the time of issuance.  During the twelve months ended May 31, 2018, $149 of this discount was charged to operations.  During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $192 on this note.

 

During the three months ended August 31, 2018, $498 of this discount was charged to operations.  During the three months ended August 31, 2018, the Company accrued interest in the amount of $630 on this note.

    25,000       25,000  
                 

Convertible promissory note payable to YA II PN, Ltd. (the “YA II PN Note 2”) dated July 20, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $500,000, and the note is due November 14, 2019.  YA II PN may, at its option, convert all or a portion of the YA II PN Note 2 and accrued but unpaid interest into shares of common stock at a conversion price of $0.40 per share.  The YA II PN Note 2 also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.40 per share of common stock, the conversion price of the YA II PN Note 2 will be reset to such lower price. The Company recognized a discount of $362,500 related to the beneficial conversion feature at the time of issuance.  Commencing on December 1, 2018, the first of eight payments in the amount of 62,500 will become due; subsequent payments will become due on the first day of each of the following months until paid in full. During the three months ended August 31, 2018, $31,587 of this discount was charged to operations.  During the three months ended August 31, 2018, the Company accrued interest in the amount of $4,603 on this note.

    500,000       -  
                 

Total - Convertible Notes Payable

  $ 1,275,000     $ 1,380,000  

Less: Discount

    (982,098 )     (1,295,527

)

Convertible Notes Payable, Net of Discounts

  $ 292,902     $ 84,473  
                 

Total - Convertible Notes Payable, Net of Discounts, Current Portion

  $ -     $ 43,401  

Total - Convertible Notes Payable, Net of Discounts, Long-term Portion

  $ 292,902     $ 41,072  
Schedule of Amortization of Debt Discount [Table Text Block]

Discounts on notes payable amortized to interest expense – 3 months ended August 31, 2018 and 2017, respectively  

  $ 1,598,502     $ 39,489