UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

  

x

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

 

FOR THE QUARTERLY PERIOD ENDED:   February 29, 2016

 

¨

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

 

FOR THE TRANSITION PERIOD FROM _________ TO _________

 

Commission file number: 0-27587

 

ARKADOS GROUP, INC.

 

(Exact name of registrant as specified in its charter)

 

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

 

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

 

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

 

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)

Smaller reporting company x

 

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

 

The number of the registrant’s shares of common stock outstanding as of April 14, 2016 was 12,281,500. 

 

  

ARKADOS GROUP, INC.

Quarterly Report on Form 10-Q

Quarter Ended February 29, 2016

(FY 2016)

 

TABLE OF CONTENTS

  

	Page
PART I. UNAUDITED CONDENSED FINANCIAL INFORMATION	F-1
Item 1.  Financial Statements	F-1 to F-20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3. Quantitative and Qualitative Disclosures About Market Risk	6
Item 4. Controls and Procedures	7
PART II - OTHER INFORMATION	7
Item 1. Legal Proceedings	7
Item 1A.  Risk Factors	7
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 4.  Mine Safety Disclosures	8
Item 5. Other Information	8
Item 6. Exhibits	9
SIGNATURES	9

 

  

INTRODUCTORY NOTES

 

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

 

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Annual Reports on Form 10-K for the years ended May 31, 2015 and May 31, 2014 and other periodic reports filed with the SEC. Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that Arkados’ actual financial condition, operating results and business performance may differ materially from that projected or estimated in such forward-looking statements.

 

The information contained in this report, except as specifically dated, is as of February 29, 2016.

 

  

PART I. FINANCIAL INFORMATION

 

	Page
Item 1. Financial Statements
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets	F – 2
Condensed Consolidated Statements of Operations	F – 3
Condensed Consolidated Statements of Cash Flows	F – 4
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	F – 5 to F –20

 

  

ARKADOS GROUP, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		February 29, 2016				May 31, 2015
		(unaudited)
ASSETS
Current assets:
Cash		$	38,726			$	234,994
Accounts receivable			208,647				132,349
Inventory			96,870				156,705
Prepaid expenses and other current assets			10,122				12,004
Total current assets			354,365				536,052
Property and equipment, net of accumulated depreciation			7,905				-
Security deposit			20,384				1,874
Total assets		$	382,654			$	537,926
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses		$	1,004,155			$	2,655,132
Deferred revenue			86,269				267,291
Accrued income tax			63,082				63,082
Debt subject to equity being issued			456,930				456,930
Notes payable			315,832				345,832
Total current liabilities			1,926,268				3,788,267
Total liabilities			1,926,268				3,788,267
Stockholders' deficiency:
Convertible preferred stock, $.0001 par value; 5,000,000 shares authorized, zero shares outstanding			-				-
Common stock, $.0001 par value; 600,000,000 shares authorized; 12,131,500 and 11,099,833 shares issued and outstanding			1,213				1,110
Additional paid-in capital			39,709,518				36,840,157
Accumulated deficit			(41,254,345	)			(40,091,608	)
Total stockholders' deficiency			(1,543,614	)			(3,250,341	)
Total liabilities and stockholders' deficiency		$	382,654			$	537,926

 

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

 

  

ARKADOS GROUP, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended								Nine Months ended
		February 29,				February 28,				February 29,				February 28,
		2016				2015				2016				2015
Net sales		$	749,083			$	142,200			$	1,671,138			$	261,196
Cost of sales			372,021				-				907,010				-
Gross profit			377,062				142,200				764,128				261,196
Operating expenses:
Selling and general and administrative			282,292				574,945				1,592,547				2,016,313
Research and development			26,510				60,001				310,717				200,438
Total operating expenses			308,802				634,946				1,903,264				2,216,751
Income (loss) from operations			68,260				(492,746	)			(1,139,136	)			(1,955,555	)
Other income (expenses):
Interest expense			(7,013	)			(104,320	)			(22,471	)			(363,703	)
Loss on translation adjustments			-				-				(1,131	)			-
Other income			-				-				-				124,793
Gain on settlement of debt			-				-				-				44,071
Total other income (expenses)			(7,013	)			(104,320	)			(23,602	)			(194,839	)
Income (loss) before provision for income taxes			61,247				(597,066	)			(1,162,738	)			(2,150,394	)
Provision for income tax benefits			-				-				-				35,840
Net income (loss)		$	61,247			$	(597,066	)		$	(1,162,738	)		$	(2,114,554	)
Income (loss) per common share - basic and diluted		$	0.01			$	(0.11	)		$	(0.10	)		$	(0.44	)
Weighted average of common shares outstanding - basic and diluted			12,106,225				5,250,085				11,996,792				4,828,416

 

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

  

ARKADOS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended
		February 29, 2016				February 28, 2015
Cash flows from operating activities:
Net loss		$	(1,162,738	)		$	(2,114,554	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation			293,122				-
Issuance of warrants for services			158,399				306,770
Depreciation			527
Amortization of debt discount			-				269,322
Issuance of common stock for services			-				1,060,000
Reversal of accounts payable			-				(124,793	)
Gain on settlement of debt			-				(44,071	)
Interest accrued on debt subject to equity being issued			-				17,753
Changes in operating assets and liabilities:
Accounts receivable			(76,298	)			(22,000	)
Inventory			59,835				(40,000	)
Prepaid expenses and other current assets			1,882				8,519
Accounts payable and accrued expenses			233,967				310,337
Deferred revenue			(181,022	)			60,000
Accrued income tax benefits			-				(35,840	)
Net cash used in operating activities			(672,326	)			(348,557	)
Cash flows from investing activities:
Purchases of property and equipment			(8,432	)			-
Security deposit			(18,510	)			-
Net cash used in investing activities			(26,942	)			-
Cash flows from financing activities:
Proceeds from sales of common stock			503,000				-
Proceeds from related party advance			-				40,000
Proceeds from convertible debt			-				200,000
Payment of debt			(60,000	)			-
Proceeds from debt			60,000				-
Net cash provided by financing activities			503,000				240,000
Net decrease in cash			(196,268	)			(108,557	)
Cash at beginning of period			234,994				118,505
Cash at end of period		$	38,726			$	9,948
Schedule of non-cash transactions:
Common stock issued for accrued stock based compensation		$	250,833			$	-
Stock options issued for accrued stock based compensation		$	1,622,778			$	-
Common stock issued for debt exchange		$	41,332
Warrants issued to former employees to settle debt subject to equity being issued		$	-			$	747,536
Common stock issued or to be issued for debt subject to equity being issued		$	-			$	968,408
Common stock issued for transactions previously classified as common stock to be issued		$	-			$	1,835,486
Valuation of beneficial conversion feature of debt raise		$	-			$	71,000
Refinance of due to related party		$	-			$	130,000
Supplemental disclosure of cash flow information:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-

 

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

 

  

ARKADOS GROUP, INC. & SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED FEBRUARY 29, 2016 and FEBRUARY 28, 2015

(UNAUDITED)

 

1.

DESCRIPTION OF BUSINESS

 

Arkados Group, Inc. (the “Parent”) conducts business activities principally through its two wholly-owned subsidiaries, Arkados, Inc. (“Arkados”) and Arkados Energy Solutions, LLC (“AES”) (collectively, the “Company”).

 

The Company underwent a significant restructuring following December 23, 2010, during which substantially all of its assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”). Settlements reached in connection with the Asset Sale and the fulfillment of obligations in connection therewith, have been substantially completed.

 

Following the Asset Sale, the Company shifted its focus towards the following businesses:

 

Arkados - Software and hardware design and development of solutions that enable machine to machine communications for the Internet of Things (IoT). Arkados’ solutions are primarily focused on industrial and commercial applications such as building automation, energy management and predictive maintenance and are uniquely designed to drive a wide variety of full-featured, cutting edge solutions.

 

AES - Energy conservation services for commercial and industrial facilities owners and managers. AES’ services include implementing energy conservation measures such as LED lighting retrofits, oil to natural gas boiler conversions, co-generation system installation and solar PV system installations. In addition, AES sells technology solutions designed by Arkados, Inc. and others that serve to improve the effectiveness of the measures and increases return on investment for the customer.

 

Effective March 18, 2015, the Company implemented a reverse stock split of its outstanding common stock at a ratio of 1-for-30 shares. All share figures and results are reflected on a post-split basis. See Note 6.

 

The accompanying condensed consolidated financial statements as of February 29, 2016 (unaudited) and May 31, 2015 and for the three and nine months ended February 29, 2016 and 2015 (unaudited) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements and the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited financial statements and explanatory notes for the year ended May 31, 2015 as disclosed in our annual report on Form 10-K for that year. The results of the three and nine months ended February 29, 2016 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending May 31, 2016.

   

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

a.

Basis of Presentation - The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $41.3 million since inception, including a net loss of approximately $1.2 million for the nine months ended February 29, 2016. Additionally, the Company still had both working capital and stockholders’ deficiencies at February 29, 2016 and May 31, 2015 and negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

b.

Principles of consolidation - The consolidated financial statements include the accounts of the Parent, and its wholly-owned subsidiaries, which include AES and Arkados. Intercompany accounts and transactions have been eliminated in consolidation.

 

  

	c.	Revenue Recognition
		Arkados
		The Company enters into arrangements with end users for items which may include software license fees, services, maintenance and royalties or various combinations thereof. For each arrangement, revenues will be recognized when evidence of an agreement has been documented, the fees are fixed or determinable, collection of fees is probable, delivery of the product has occurred and no other significant obligations remain.   Revenues from software licensing are recognized in accordance with Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition.” Accordingly, revenue from software licensing is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.   License revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met. Deferred revenue represents license revenues billed but not yet earned. Sales of products are recognized when the products are shipped and the customer takes risk of ownership and assumes the risk of loss. Royalty income is recognized as it is earned and recorded when reported by the customer.   AES     Sales of products are recognized when the products are shipped and the customer takes risk of ownership and assumes the risk of loss. Service revenue is recognized when the service is completed. Deferred revenue represents revenues billed but not yet earned.

  

d.

Cash and cash equivalents - The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at both February 29, 2016 and May 31, 2015.

 

e.

Accounts receivable - Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.  At February 29, 2016 and May 31, 2015, the Company determined that an allowance for doubtful accounts was not needed.

 

f.

Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, "Fair Value Measurements and Disclosures," fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

 

		The three levels of the fair value hierarchy defined by ASC 820 are as follows:
		Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
		Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
		Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

  

g.

Earnings (Loss) Per Share (“EPS”) - Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes.

 

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares.

 

		Three and Nine Months ended
		February 29,/28,
		2016				2015
Convertible notes			84,059				2,122,497
Stock options			3,012,500				1,181,250
Warrants			5,059,320				3,104,654
Potentially dilutive securities			8,155,879				6,408,401

 

h.

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

 

		Stock based compensation expense was $0 and $329,770 for the three months ended February 29, 2016 and February 28, 2015, respectively, and $451,521 and $1,366,770 for the nine months ended February 29, 2016 and February 28, 2015, respectively.  See Note 7a.
		The following table presents stock based compensation expenses included in the Company’s consolidated statements of operations.

 

		Three Months ended
		February 29,				February 28,
		2016				2015
Selling, general and administrative		$	-			$	329,770
Research and development			-				-
		$	-			$	329,770

 

		Nine Months ended
		February 29,				February 28,
		2016				2015
Selling, general and administrative		$	311,593			$	1,366,770
Research and development			139,928				-
		$	451,521			$	1,366,770

 

  

i.

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

 

j.

Inventory - Inventory, which consists of finished goods and work-in-process (WIP) of AES, is valued at the lower of cost on a first-in, first-out basis or market.   Inventory consists of the following at February 29, 2016 and May 31, 2015.

 

		February 29,				May 31,
		2016				2015
		(unaudited)
Finished goods			83,347				147,605
Work-in-process (unbilled labor and consulting)			13,523				9,100
			96,870				156,705

 

k.

Property and equipment – Property and equipment is recorded at cost.  Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets.  Expenditures that enhance the useful lives of the assets are capitalized and depreciated.  Maintenance and repairs are expensed as incurred.  When properties are retired or otherwise disposed of, related costs and related accumulated depreciation are removed from the accounts.

 

l.

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

  

m.

Foreign Currency Transactions – The Company accounts for foreign currency translation pursuant to ASC 830. The functional currency of the Company is the United States dollar. Under ASC 830, all assets and liabilities denominated in foreign currencies are translated into United States dollars using the current exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated in foreign currencies are reflected in the statement of operations as gain (loss) on foreign currency transactions.

  

n.

New Accounting Pronouncements –

 

		In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance, and creates an ASC 606, “Revenue from Contracts with Customers.”
		The core principle of the guidance is that an entity 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. To achieve that core principle, an entity should apply the following steps
		Step 1: Identify the contract(s) with a customer.
		Step 2: Identify the performance obligations in the contract.
		Step 3: Determine the transaction price.
		Step 4: Allocate the transaction price to the performance obligations in the contract.
		Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

  

		ASU 2014-09 was scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date” (“ASU 2015-14”) which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods after December 15, 2017, including interim periods within that reporting period.  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effects of adopting ASU 2014-09 on its consolidated financial statements for fiscal 2016 and fiscal 2015 but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements for fiscal 2014 as the Company did not recognize revenues for such year.
		In June 2014, ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”) was issued.  ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 becomes effective for interim and annual periods beginning on or after December 15, 2015. Early adoption is permitted.  The Company is currently evaluating the effects of adopting ASU 2014-12 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.

    

		In June 2014, ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”) was issued.  Before the issuance of ASU 2014-15, there was no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. This guidance is expected to reduce the diversity in the timing and content of footnote disclosures. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards as specified in the guidance. ASU 2014-15 becomes effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2014-15 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
		In January 2015, the FASB issued ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). ASU 2015-01 eliminates the concept of an extraordinary item from accounting principles generally accepted in the United States of America. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 becomes effective for interim and annual periods beginning on or after December 15, 2015. Early adoption is permitted.  The Company is currently evaluating the effects of adopting ASU 2015-01 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
		In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”) as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards, which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, “Elements of Financial Statements,” which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. FASB Concepts Statement No. 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company will evaluate the effects of adopting ASU 2015-03 if and when it is deemed to be applicable.

 

  

		In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" ("ASU 2015-11") ASU 2015-11 requires reporting entities measuring inventories under the first-in, first-out or average cost methods to measure inventory at the lower of cost or net realizable value, where net realizable value is "estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation." Inventory was previously required to be measured at the lower of cost or market value, where the measurement of market value had several potential outcomes. ASU 2015-11 becomes effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted provided that presentation is applied to the beginning of the fiscal year of adoption. A reporting entity may apply the amendment prospectively. The Company is currently evaluating the effects of adopting ASU 2015-11 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
		In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17").  ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated balance sheet. ASU 2015-17 becomes effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted.  A reporting entity should apply the amendment prospectively or retrospectively. The Company is currently evaluating the effects of adopting ASU 2015-17 on its consolidated financial statements.
		All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

 

3.

ASSET SALE

 

In December 2010, the Company entered into an agreement to sell substantially all of the assets (the “Asset Sale”) to STMicroelectronics, Inc. (“ST US”), a subsidiary of STMicroelectronics N.V. (“ST”). The Asset Sale was predicated on the Company settling its secured debt and a significant part of its unsecured debt and closed in June, 2011. The Company is negotiating with its remaining unsecured debt holders to compromise, extend the due date or convert outstanding debt into equity. Debt holders who have agreed to settle through receipt of the Company’s equity are labeled as “Debt Subject to Equity Being Issued” on the balance sheet. Except as set forth above, there is no binding commitment on anyone’s part to complete the transactions.

 

  

4.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

As of February 29, 2016 and May 31, 2015, accounts payable and accrued expenses consist of the following amounts:   

 

		February 29,				May 31,
		2016				2015
		(Unaudited)
Accounts payable		$	749,568			$	463,911
Accrued board of director fees (see Notes 6i and 7A)			-				1,873,611
Accrued interest payable			109,217				98,078
Accrued payroll			48,382				54,882
Accrued other			96,988				164,650
		$	1,004,155			$	2,655,132

 

In fiscal 2015, the Company determined that certain accounts payable had been settled in prior periods and should be written off. Balances totaling $124,793 were reversed and recognized as other income.

  

5.

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

 

Notes Payable 

 

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

  

Notes payable transactions include the following:

 

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

 

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

 

  

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

  

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

Debt Subject to Equity Being Issued

 

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

 

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

 

FY 2013 (Year Ended May 31, 2013):

 

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

 

 FY 2015 (Year Ended May 31, 2015):

 

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

 

  

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

 

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

 

6.

STOCKHOLDERS’ DEFICIENCY

 

Reverse Stock Split  

 

Effective March 18, 2015, the Company implemented a reverse stock split of its outstanding common stock at a ratio of 1-for-30 shares.  In connection with the reverse stock split, the Company’s Certificate of Incorporation was amended such that the Company’s issued and outstanding common stock was proportionally reduced. The number of authorized shares and the par value of the Company’s common stock and preferred stock were not affected by the reverse stock split. Stockholders will not receive fractional shares but instead will receive cash in an amount equal to the fraction of a share that stockholder would have been entitled to receive multiplied by the sale price of the common stock as last reported on February 12, 2015, the last business day prior to the first public disclosure/announcement of the reverse stock split.

 

Private Placement Offering

 

On March 15, 2015, the Company commenced a private placement offering (the “PPO”) to accredited investors for up to 2,500,000 shares of its common stock and warrants to purchase 2,500,000 shares of its common stock at $2.00 per share (each share and warrant constitutes a “Unit”) for total gross proceeds of $1,500,000. The warrants are immediately exercisable and have a term of three years. The Units are being offered by the Company on a “best efforts” “any-or-none” basis in Units of 166,666 shares although the Company may accept fractional Units. See Notes 6g, 6j and 7B for the shares and warrants subscribed for through the date of this report.

 

The Company has negotiated with certain holder of its outstanding unsecured debt to compromise, extend the due date of or convert their outstanding debt into shares of the Company’s common stock . Amounts that the debt holders have agreed to settle through their receipt of the Company’s shares are classified as “Debt Subject to Equity Being Issued” on the consolidated balance sheet.

  

Issuances of Common Stock

 

FY 2015 (Year Ended May 31, 2015):

  

a.

On July 16, 2014, the Company issued 666,667 shares of its common stock to a consultant under the terms of a consulting agreement.  The shares were valued at $1.50 per share which was the price of the common stock on the date of the consummation of an agreement with a customer.  See Note 9.

 

b.

As described above, the Company signed a Settlement Agreement and Release with an unsecured creditor and agreed to issue 792,550 shares of its common stock for $550,000 of accounts payable and $310,977 of a promissory note and accrued interest. The Company issued such shares under this Settlement Agreement in September 2014.  Prior to the issuance date, such shares were classified as common stock to be issued.

 

c.

As described above, the Company entered into a Separation Agreement with Typaldos and agreed to issue 469,132 shares of its common stock as part of the Agreement. The Company issued such shares under this Separation Agreement in September 2014.  Prior to the issuance date, such shares were classified as common stock to be issued.

 

d.

As described above, the Company entered into final supplemental agreements with bridge note holder to settle all outstanding claims. In September 2014, the Company agreed to issue 648,381 shares of its common stock to settle claims totaling $466,000. Prior to the issuance date, such shares were classified as common stock to be issued.  On April 1, 2015, the Company issued 256,486 shares of its common stock to settle claims totaling $207,754.

  

e.

As described above, the Company settled all outstanding claims with previous holders of unsecured debt. In September 2014, the Company issued 418,669 shares of its common stock to settle claims totaling $502,408.

 

f.

On February 19, 2015, the Company issued 50,000 shares of its common stock to a consultant under the terms of an investor relations agreement.  The shares were valued at $1.20 per share which was the price of the common stock on the date the agreement was signed.   See Note 9.

 

g.

For the period March 15, 2015 through May 31, 2015, investors subscribed for an aggregate of 833,330 shares of the Company’s in the PPO, and the Company received gross proceeds of $500,000 from those subscriptions. The shares were issued on April 7, 2015.

  

h.

As described above, on April 1, 2015, the Company issued 4,387,879 shares of its common stock for the conversion of notes payable of $1,200,000 and accrued interest of $116,364.

 

  

FY 2016 (Year Ended May 31, 2016):  

 

i.

On June 25, 2015, the Company issued 108,333 shares of its common stock to its chairman/chief executive officer and 35,000 shares of its common stock to an officer/former director for services rendered to the Company’s board of directors in fiscal 2015.  The shares were valued at $1.75 per share.  The value of the shares totaling $250,833 was charged as stock compensation in fiscal 2015.

 

j.

For the period June 1, 2015 through the date of the filing of this report, 838,334 shares of the Company's common stock have been subscribed for under the PPO and the Company has received gross proceeds of $503,000.

 

k.

As discussed above, the Company entered into an Exchange Agreement with the noteholders of two Convertible Notes that were in default. Under the agreement, the Company agreed to issue 50,000 shares of its common stock to the noteholders. Such shares were issued on April 8, 2016.

 

l.

On April 8, 2016, the Company issued 150,000 shares of common stock to a consultant under an agreement entered into on February 23, 2016. See “Consulting Agreements” under Note 10.

 

7.

STOCK-BASED COMPENSATION

 

The Company accounted for its stock based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, “Compensation – Stock Compensation”.

 

A. Options

 

No options were granted in the year ended May 31, 2015.

 

On June 25, 2015, the Company issued options to its chairman/chief executive officer and an officer/former director for services rendered to the Company’s board of directors during fiscal 2015 to purchase a total of 1,300,000 shares of its common stock as follows:

 

1.

Chairman/chief executive officer – options to purchase 1,000,000 shares of the Company's common stock at $0.60 per share.

2.

Officer/former director – options to purchase 300,000 shares of the Company's common stock at $0.60 per share.

 

The options vested immediately and are exercisable for three years. The options issued were valued using the Black-Scholes option pricing model under the assumptions below. The value of the options totaling $1,622,778 was charged as stock compensation in fiscal 2015.

 

The assumptions are as follows - stock price - $1.75; strike price - $0.60; expected volatility – 91.35%; risk-free interest rate - 0.73%; dividend rate - 0%; and expected term – 1.5 years.

 

On October 16, 2015, the Company issued options to employees to purchase 700,000 shares of its common stock at $1.00 per share. The options issued were valued using the Black-Scholes option pricing model under the assumptions below. The value of the options totaling $293,122 was charged as stock compensation.

 

The assumptions are as follows - stock price - $1.00; strike price - $1.00; expected volatility – 89.12%; risk-free interest rate - 0.91%; dividend rate - 0%; and expected term – 1.5 years.

 

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

 

						Weighted
						Average
		Shares				Exercise Price
Outstanding at June 1, 2014			1,247,917			$	1.53
Granted			—				—
Exercised			—				—
Expired or cancelled			(235,417	)			2.95
Outstanding at May 31, 2015			1,012,500				1.20
Granted			2,000,000				0.74
Exercised			—				—
Expired or cancelled			—				—
Outstanding at February 29, 2016			3,012,500			$	0.89

 

  

The following table summarizes information about options to purchase shares of the Company's common stock outstanding and exercisable at February 29, 2016:

 

								Weighted-				Weighted-
								Average				Average
Range of				Outstanding				Remaining Life				Exercise				Number
exercise prices:				Options				In Years				Price				Exercisable
$	0.60				1,300,000				2.32			$	0.60				1,300,000
$	1.00				700,000				2.63				1.00				700,000
$	1.20				1,012,500				8.14				1.20				1,012,500
					3,012,500				4.35			$	0.89				3,012,500

 

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

 

The employee stock option plan stock options are exercisable for ten years from the grant date and vest over various terms from the grant date to three years.

 

B. Warrants

 

The issuance of warrants to purchase shares of the Company's common stock including those attributed to debt issuances are summarized as follows:

 

						Weighted
						Average
		Shares				Exercise Price
Outstanding at June 1, 2014			2,401,043			$	1.34
Granted			1,536,943				1.63
Exercised			—				—
Expired or cancelled			—				—
Outstanding at May 31, 2015			3,937,986				1.45
Granted			1,121,334				1.75
Exercised			—				—
Expired or cancelled			—				—
Outstanding at February 29, 2016			5,059,320			$	1.52

 

The following table summarizes information about warrants to purchase shares of the Company's common stock outstanding and exercisable at February 29, 2016:

 

				Outstanding and exercisable
								Weighted-				Weighted-
Range of								average				average
exercise				Number				remaining life				exercise				Number
prices				outstanding				in years				price				exercisable
$	1.00				283,000				2.72			$	1.00				283,000
$	1.20				3,004,656				3.39				1.20				3,004,656
$	2.00				1,671,664				2.24				2.00				1,671,664
	$3.00 to $6.00				100,000				0.73				4.50				100,000
					5,059,320				2.52			$	1.52				5,059,320

 

  

Issuances of warrants to purchase shares of the Company's common stock were as follows:

 

FY 2015 (Year Ended May 31, 2015):  

 

a.

Warrants to purchase 622,947 shares of the Company's common stock were issued in exchange for certain past due indebtedness outstanding. Such warrants were determined to have been issued at fair value since such settlements were negotiated by the Company with each debt holder.

 

b.

Warrants to purchase 88,000 shares of the Company's common stock were issued to a consultant for services rendered under a consulting contract. The warrants issued were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.46 - $1.87; strike price - $1.20; expected volatility - 100.00%; risk-free interest rate - 1.5%; dividend rate - 0%; and expected term - 3 years. The value of the warrants totaling $349,721 was charged as consulting.

 

c.

As discussed above, warrants to purchase 833,330 shares of the Company's common stock were issued under the PPO.

 

FY 2016 (Year Ended May 31, 2016):  

 

d.

As discussed above, warrants to purchase 838,334 shares of the Company's common stock were issued under the PPO.

 

e.

In November 2015, a warrant to purchase 250,000 shares of the Company's common stock at $1.00 per share was issued to a vendor as a bonus payment for services rendered in connection with a software development agreement. The warrant issued was valued using the Black-Scholes option pricing model under the following assumptions: stock price - $1.00; strike price - $1.00; expected volatility - 87.54%; risk-free interest rate - 1.21%; dividend rate - 0%; and expected term - 3 years. The value of the warrant totaling $139,928 was charged as research and development.

 

e.

In November 2015, a warrant to purchase 33,000 shares of the Company's common stock at $1.00 per share was issued to a consultant for services rendered under a consulting contract. The warrant issued was valued using the Black-Scholes option pricing model under the following assumptions: stock price - $1.00; strike price - $1.00; expected volatility - 87.54%; risk-free interest rate - 1.21%; dividend rate - 0%; and expected term - 3 years. The value of the warrant totaling $18,471 was charged as consulting.  See Note 10.

 

The expense attributed to the issuances of the warrants was recognized as they vested/earned. These warrants are exercisable for three years from the grant date.

 

8.

LICENSE AGREEMENTS

 

Master Agreement – License of (“PEMS-SF” ™)

 

On July 10, 2014, the Company entered into a Master Agreement to license our Process and Event Management System (“PEMS-SF” ™) with Tatung Corporation (“Tatung”).

 

The basic fee generation structure of the Agreement allows for (1) a one-time licensing fee for each PEMS-SF-enabled stations or subsystems installed, (2) separate fees of up to 10% of the software fees for software updates, maintenance and technical support, (3) on-going service fees based on units of products manufactured utilizing PEMS-SF; and (4) an annual service fee for cloud-based services and data storage.

 

The Master Agreement has a year-to-year term but can be terminated by either party upon 60 days’ prior written notice. Upon termination or expiration of this agreement, we are not required to provide any continuing or ongoing processing of data or other services that, pursuant to a sub-agreement, are discontinued upon termination, however, the customer shall retain any perpetual rights granted in a sub-agreement or schedule. The term of any sub-agreements is concomitant and co-terminus with the Master Agreement term.

 

Revenue recognized under the Master Agreement amounted to $31,300 and $66,500 for the three months ended February 29, 2016 and February 28, 2015, respectively and $169,300 and $66,500 for the nine months ended February 29, 2016 and 2014, respectively.

 

Agreement – License of Meter Collar and Bridge Programmable Logic Controllers

 

In October 2014, the Company entered into a year-to-year term agreement with Tatung to license its meter collar and bridge programmable logic controllers. The license is paid on a per copy (ordered) fee, and is on a perpetual, worldwide, non-exclusive, transferable basis.

 

  

Revenue recognized under the agreement amounted to $-0- and $20,000 for the three months ended February 29, 2016 and 2015, respectively and $87,500 and $20,000 for the nine months ended February 29, 2016 and 2015, respectively.

 

 In March, 2015 the Company entered into a one-year agreement, with automatic one-year renewals until terminated by either party with sixty (60) days’ notice, with Tatung to provide services in the area of business development and as a representative to sell its products. Tatung will pay a monthly retainer fee for this service. Revenue recognized under this agreement was $220,000 and $307,500 for the three and nine months ended February 29, 2016, respectively.

 

9.

PROVISION FOR INCOME TAX BENEFITS

 

The provision for income tax benefits of $35,840 for nine months ended February 29, 2016 represents the reversal of over-accruals from prior periods.

 

10.

COMMITMENTS

 

Leases

 

The Company sublet office space on a month-to-month basis from a company affiliated with its chief executive officer at a rate of $1,668 per month through September 2014.

 

Effective October 1, 2014 as amended on January 15, 2015, the Company entered a lease for its office space at a total monthly rental of $1,874. The lease expired on January 15, 2016 but can be renewed for two additional one-year terms. The Company renewed this agreement for its office space at a total monthly rental of $2,034. The lease expires on January 15, 2017, but can be renewed for two additional one-year terms.

 

Our AES subsidiary leases offices in Jericho, New York. The facility is approximately 1,850 square feet, occupied pursuant to a lease that commenced on August 1, 2015 and expires September 30, 2018. The average annual rent over the term of the lease is approximately $57,300. This amount does not include taxes and other occupancy costs for the premises.

 

Rent expense for all locations including occupancy costs for the three and nine months ended February 29, 2016 was $31,611 and $53,056, respectively. Rent expense including occupancy costs for the three and nine months ended February 28, 2015 was $6,034 and $16,042, respectively.

 

Consulting Agreements

 

On May 12, 2015, the Company entered into a three-month consulting agreement for the raising of capital whereby the consultant received a payment of approximately $3,000. In addition, the consultant is entitled to a success fee of 5% of all monies raised as a direct result of introductions (as defined) made by the consultant.

 

On November 15, 2015, the Company entered into a one-year consulting agreement to provide advisory services whereby the consultant received a payment of a warrant to purchase 33,000 shares of the Company's common stock at $1.00 per share.

 

On February 23, 2016, we entered into a consulting agreement with LPF Communications under which LPF Communications is to provide certain investor relations services for a period of up to six months. We have agreed to pay for the services by issuing two tranches of 150,000 shares of our Common Stock each, with the second tranche becoming issuable only if we do not terminate the consulting agreement on or prior to June 8, 2016. Pursuant to the agreement, we issued the first tranche of 150,000 shares to the consultant on April 8, 2016.

  

11.

CONCENTRATIONS OF CREDIT RISK

 

Cash

 

The Company maintains principally all cash balances in two financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. The exposure to the Company is solely dependent upon daily bank balances and the respective strength of the financial institutions. The Company has not incurred any losses on these accounts.

 

Net Sales

 

Major customers for the three months ended February 29, 2016 and 2015 are set forth in the table below.

  

		Three Months Ended
		February 29,
		2016				2015
Customer 1			42	%			53	%
Customer 2			29	%			47	%
Customer 3			19	%			-

 

Major customers for the nine months ended February 29, 2016 and 2015 are set forth in the table below.

 

		Nine Months Ended
		February 29,
		2016				2015
Customer 1			36	%			63	%
Customer 2			20	%			37	%
Customer 3			13	%			-

 

Accounts Receivable

 

Major accounts receivable as of February 29, 2016 and May 31, 2015 are set forth in the table below.

 

		February 29,				May 31,
		2016				2015
Customer 1			39	%			39	%
Customer 2			29	%			28	%
Customer 3			28	%			28	%

   

 

12.

RELATED PARTY TRANSACTIONS

 

For the period from March 2015 to May 31, 2015, AES performed consulting services for an entity that is controlled by a former officer of AES and who was also a former director of the Company. No consulting services were performed for both the three and nine months ended February 29, 2016 and 2015.

 

In August 2015, AES entered into an agreement to provide energy services for the related entity. For the three and nine months ended February 29, 2016, net sales recognized totaled $-0- and $142,070, respectively.

 

  

13.

BUSINESS SEGMENT INFORMATION

 

As of February 29, 2016, the Company had two operating segments, Arkados and AES.

 

The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.

 

The accounting policies of each of the segments are the same as those described in the Summary of Significant Accounting Policies. The Company evaluates performance based primarily on income (loss) from operations

 

Information about segments is as follows:

 

		Arkados				AES				Consolidated
Three Months Ended February 29, 2016
Revenues from external customers		$	260,590			$	488,493			$	749,083
Income (Loss) from operations		$	91,279			$	(23,019	)		$	68,260
Three Months Ended February 28, 2015
Revenues from external customers		$	142,200			$	-			$	142,200
Loss from operations		$	(492,651	)		$	(95	)		$	(492,746	)
Nine Months Ended February 29, 2016
Revenues from external customers		$	542,883			$	1,128,255			$	1,671,138
Loss from operations		$	(420,525	)		$	(718,611	)		$	(1,139,136	)
Nine Months Ended February 28, 2015
Revenues from external customers		$	261,196				-			$	261,196
Loss from operations		$	(1,942,138	)		$	(13,417	)		$	(1,955,555	)
Total assets at February 29, 2016 (unaudited)		$	87,370			$	295,284			$	382,654
Total assets at May 31, 2015		$	283,154			$	254,772			$	537,926

 

14.

SUBSEQUENT EVENTS

 

The Company issued 200,000 shares of its common stock on April 8, 2016 as discussed in Equity footnotes 6k and 6l.

 

  

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

 

Overview

 

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

  

Arkados Group, Inc., through its subsidiaries (together, the “Company”), is a global provider of scalable and interoperable Internet of Things solutions focused on industrial automation and energy management. We execute our business as a software developer, and system integrator and services business focused on developing unique, cutting-edge solutions that enable machine to machine communications with specific applications for Smart Lighting, Smart Factory and Smart Building. Additionally, we work with commercial property owners and managers to optimize energy efficiency in their facilities through various energy conservation measure, such as LED lighting retrofits, oil-to-natural gas boiler conversions, solar PV system installations and co-generation system installation. Ultimately, we utilize our technology solutions to deliver full featured products that help our customers to maximize their return on investment and reduce their energy consumption.  

 

We remain engaged in the process of seeking settlements with certain of our unsecured creditors from the periods prior to the Asset Sale to STMicroelectronics in December 2010 (the "Asset Sale").

  

We have executed several agreements that have enabled us to provide the services contemplated in the industrial automation industry. Although we have begun to generate revenue from operations of our Arkados, Inc. subsidiary, this revenue is not sufficient to meet our monthly operating expenses and we remain dependent on outside sources of financing to fund our operations. There is no assurance that we will be able to secure any amount of investment or this or any other purpose. If we are unable to obtain financing, we may be forced to limit or cease our operations.

 

We effected a reverse 1-for-30 split of our common stock on March 18, 2015 and also amended our bylaws, both of which were approved by our shareholders. More information on these actions may be reviewed in our Information Statement filed with the Securities and Exchange Commission (“SEC”) on February 24, 2015.

 

Corporate Background

 

Arkados Group, Inc. was incorporated in 1998 and carries out its activities through its two wholly-owned subsidiaries, Arkados, Inc. ( “Arkados”), a Delaware corporation and Arkados Energy Solutions, LLC ( “AES”), a Delaware limited liability company. Arkados and AES combine to create opportunities to exploit the growth in the Internet of Things across multiple verticals with our software solutions, while simultaneously building a focus in smart facility (building, factory, school, hospital, etc.) applications based on our core advantages in industrial types of environments. We are based in Newark, New Jersey at the Economic Development Corporation at the New Jersey Institute of Technology. The Company’s shares trade on the Over-The-Counter QB market under the ticker symbol AKDS.

 

Following the Asset Sale, the Company shifted its focus towards development of a universal platform that provides software solutions for Internet of Things applications primarily in the areas of energy management, health care, smart industrial machines and smart factory.

  

RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015

 

For the Three Months Ended February 29, 2016

 

		Arkados				AES				Total
Revenue		$	260,590			$	488,493			$	749,083
Cost of Sales			-				372,021				372,021
Gross Profit			260,590				116,472				377,062
Gross Profit Percentage			100	%			24	%			50	%
Operating Expenses			169,311				139,491				308,802
Operating Income (Loss)			91,279				(23,019	)			68,260
Other income (expenses)			(7,013	)			-				(7,013	)
Income (loss) before benefit from income taxes		$	84,266			$	(23,019	)		$	61,247

 

For the Three Months Ended February 28, 2015

 

		Arkados				AES				Total
Revenue		$	142,200			$	-			$	142,200
Cost of Sales			-				-				-
Gross Profit			142,200				-				142,200
Gross Profit Percentage			100	%			0	%			100	%
Operating Expenses			634,851				95				634,946
Operating Income (Loss)			(492,651	)			(95	)			(492,746	)
Other income (expenses)			(104,320	)			-				(104,320	)
Income (loss) before benefit from income taxes		$	(596,971	)		$	(95	)		$	(597,066	)

 

Variance

 

		Arkados				AES				Total
Revenue		$	118,390			$	488,493			$	606,883
Cost of Sales			-				372,021				372,021
Gross Profit			118,390				116,472				234,862
Gross Profit Percentage			0	%			24	%			-50	%
Operating Expenses			(465,540	)			139,396				(326,144	)
Operating Income (Loss)			583,930				(22,924	)			561,006
Other income (expenses)			97,307				-				97,307
Income (loss) before benefit from income taxes		$	681,237			$	(22,924	)		$	658,313

   

For the Nine Months Ended February 29, 2016

 

		Arkados				AES				Total
Revenue		$	542,883			$	1,128,255			$	1,671,138
Cost of Sales			3,000				904,010				907,010
Gross Profit			539,883				224,245				764,128
Gross Profit Percentage			99	%			20	%			45.7	%
Operating Expenses			960,408				942,856				1,903,264
Operating Income (Loss)			(420,525	)			(718,611	)			(1,139,136	)
Other income (expenses)			(23,602	)			-				(23,602	)
Income (loss) before benefit from income taxes		$	(444,127	)		$	(718,611	)		$	(1,162,738	)

 

  

For the Nine Months Ended February 28, 2015

 

		Arkados				AES				Total
Revenue		$	261,196			$	-			$	261,196
Cost of Sales			-				-				-
Gross Profit			261,196				-				261,196
Gross Profit Percentage			100	%			0	%			100	%
Operating Expenses			2,203,334				13,417				2,216,751
Operating Income (Loss)			(1,942,138	)			(13,417	)			(1,955,555	)
Other income (expenses)			(194,839	)			-				(194,839	)
Income (loss) before benefit from income taxes		$	(2,136,977	)		$	(13,417	)		$	(2,150,394	)

 

Variance
		Arkados				AES				Total
Revenue		$	281,687			$	1,128,255			$	1,409,942
Cost of Sales			3,000				904,010				907,010
Gross Profit			278,687				224,245				502,932
Gross Profit Percentage			-1	%			20	%			-54	%
Operating Expenses			(1,242,926	)			929,439				(313,487	)
Operating Income (Loss)			1,521,613				(705,194	)			816,419
Other income (expenses)			171,237				-				171,237
Income (loss) before benefit from income taxes		$	1,692,850			$	(705,194	)		$	987,656

 

Revenue for the three months ended February 29, 2016 increased by $606,883 mainly due to increased revenue from our AES segment. This revenue is derived mainly from the installation of LED lighting retrofit services of $488,493 and $118,390 mostly from the licensing of PEMS-SF and Meter Collar and IHB PLCs.

 

Revenue for the nine months ended February 29, 2016 increased by $1,409,942 mainly due to increased revenue from our AES segment in the amount of $1,128,255. This revenue is mainly derived from LED retrofit services.

 

Gross profit for the three months ended February 29, 2016 increased $234,862 mainly due to increased sales in both our Arkados and AES segments. Gross profit for the nine months ended February 29, 2016 increased by $502,932.

 

We are highly dependent upon certain customers. During the three and nine months ended February 29, 2016, three customers accounted for 90% and 69% of our revenue, respectively. During the three and nine months ended February 28, 2015, two customers accounted for 100% of our revenue. The complete loss of or significant reduction in business from, or a material adverse change in the financial condition of any of our customers could cause a material and adverse change in our revenues and operating results.

 

As of February 29, 2016, three customers held 96% of our accounts receivable compared to three customers holding 96% of our accounts receivable as of May 31, 2015

 

Income from operations for the three months ended February 29, 2016 increased $561,006 over the same period last year, mainly due to increased revenue. For the nine months ended February 29, 2016, our loss from operations decreased $816,419 mainly due to increased revenue and the reduction of stock based compensation from the previous year of approximately $902,000.

 

During the nine months ended February 29, 2016, we had stock based compensation of $451,521.

 

Interest expense on our existing debt for the three and nine months ended February 29, 2016 was $7,013 and $22,471, respectively. Interest expense for the three and nine months ended February 28, 2015 was $104,320 and $363,703, respectively. Interest expense includes the amortization of beneficial conversion features on certain convertible debt securities. Amortization amounted to $-0- and $269,322 for the periods ended February 29, 2016 and February 28, 2015, respectively. Interest expense decreased as the result of the conversion of a substantial portion of the notes payable.

 

The provision for income tax benefits of $35,840 for the nine months ended February 28, 2015 represents the reversal of over accruals from prior periods. 

 

  

Liquidity and Capital Resources

 

Our principal source of operating capital has been provided in the form of the private placement of convertible debt securities. We do not have any significant sources of revenue or recurring profits from our operations. We may be unable to raise additional working capital through sales of our equity and debt securities. Through the third quarter of fiscal 2016, we have depended, in substantial part, upon loans from investors evidenced by convertible notes, and there are no assurances that investors will make any additional loans to us, in which case we may not be able to continue as a going concern.

 

As of February 29, 2016, we had cash of $38,726 as compared to $234,994 as of May 31, 2015.

 

Operating Activities

 

Operating activities used $672,326 in cash for the nine months ended February 29, 2016. The decrease in cash was primarily attributable to funding our operating loss for the period.

 

Investing Activities

 

For the nine months ended February 29, 2016, net cash used in investing activities was $26,942. Cash used in investing activities was attributable to the purchase of property and equipment for $8,432 and to a security deposit on an office lease in the amount of $18,510.

 

Financing Activities

 

For the nine months ended February 29, 2016, net cash provided by financing activities was $503,000. The Company received $503,000 from the sale of units from its March 2015 private placement offering (the "PPO").

 

On March 15, 2015, the Company commenced the PPO to accredited investors for up to 2,500,000 shares of its common stock and warrants to purchase 2,500,000 shares of its common stock at an exercise price of $2.00 per share (each share and warrant constitutes a “Unit”) for total gross proceeds of $1,500,000. The warrants are immediately exercisable and have a term of three years. The Units are being offered by the Company on a “best efforts” “any-or-none” basis in Units of 166,666 shares although the Company may accept fractional Units. For the period March 15, 2015 through the date of this report, 1,671,664 Units have been subscribed for under the PPO and the Company has received gross proceeds of $1,003,000. The Company did not sell any Units during the three months ended February 29, 2016. The Company’s efforts to sell Units is ongoing.

 

The proceeds of the PPO are being used for working capital purposes.

 

Critical Accounting Policies

 

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended May 31, 2015. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies are limited to equity based transactions or convertible debt instruments. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended May 31, 2015.

 

Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

  

Item 4. Controls and Procedures.

 

We strive to maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer, as appropriate, to allow timely decisions regarding required disclosure. As a result of this evaluation, we concluded that our disclosure controls and procedures were not effective for the period ended February 29, 2016

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 15d-15(f) of the Exchange Act) for our Company. Our sole officer and director, who is chief executive officer and is also acting in the capacity of principal accounting officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of the end of the period covered by this report, based on the criteria set forth in the Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this evaluation, we concluded that our financial reporting controls and procedures were not effective for the period ended February 29, 2016. Due to its small size and limited financial resources, the Company has only one employee involved in accounting and financial reporting and relies on outside contractors for the majority of its accounting. As a result of engaging an outside accounting firm to assist with our books, there is some added segregation of duties within the accounting function and financial control, however, all aspects of physical control of cash remains in the hands of the same employee. Our Chief Executive Officer is currently seeking to retain a full-time chief financial officer and to put in place additional compensating levels of controls to provide for greater segregation of duties. As of the date of this quarterly report, however, we have not employed a separate chief financial officer, and the chief executive officer continues to act as our Principal Accounting Officer.

 

There has been no significant change in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

Changes in Internal Control Over Financial Reporting

 

None. 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There has been no material change in any of the matters set forth in Item 3 of our annual report on Form 10-K for the fiscal year ended May 31, 2015 and no new litigation commenced since the filing of our most recent annual report on Form 10-K that would be required to be disclosed in response to this Item.

 

Item 1A.   Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended May 31, 2015 which could materially affect our business, financial condition or future results. There have been no other material changes during the fiscal quarter ended February 29, 2016 to the risk factors discussed in the periodic reports noted above that have not already been disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2015.

  

 

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

 

On January 8, 2016 we entered into an exchange agreement with two persons who held $130,000 aggregate principal amount of our promissory notes which had matured. Pursuant to that agreement on January 8, 2016, we issued 50,000 shares of our Common Stock to the two noteholders as part of a transaction in which the noteholders reduced the aggregate principal amount of notes held by them to $40,000 and extended the maturity date of the notes in exchange for a cash payment of $60,000 and the issuance of these shares. The issuances of shares of our Common Stock to the noteholders was exempt from the registration requirements of the Securities Act under Section 4(a)(2) thereof as a transaction not involving a public offering. The certificate that evidences the shares of our Common Stock that we have issued to the noteholders bears a legend restricting its transferability.

 

On February 23, 2016, we entered into a consulting agreement with LPF Communications under which LPF Communications is to provide certain investor relations services for a period of up to six months. We have agreed to pay for the services by issuing two tranches of 150,000 shares of our Common Stock each, with the second tranche becoming issuable only if we do not terminate the consulting agreement on or prior to June 8, 2016. Pursuant to the agreement, we issued the first tranche of 150,000 shares to the consultant on April 8, 2016. The issuance of shares of our Common Stock to the consultant was exempt from the registration requirements of the Securities Act under Section 4(a)(2) thereof as a transaction not involving a public offering. The certificate that evidences the shares of our Common Stock that we have issued to the consultant bears a legend restricting its transferability.

  

Item 3.   Defaults Upon Senior Securities.

 

None.

 

Item 4.   Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

  

Item 6. Exhibits.

 

(a) Exhibits.

 

31.1

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

 

32.1

Certificate of Chief Executive Officer/Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

 

	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Document
	101.DEF	XBRL Taxonomy Extension Definition Document
	101.LAB	XBRL Taxonomy Extension Labeled Document
	101.PRE	XBRL Taxonomy Extension Presentation Document

 

SIGNATURES

 

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

 

	ARKADOS GROUP, INC.
Dated: April 20, 2016
	By:	/s/ Terrence DeFranco
		Terrence DeFranco
		President and Chief Executive Officer,
		Principal Accounting Officer