0001099215
2017-05-31
0001099215
2015-06-01
2016-05-31
0001099215
2016-06-01
2017-05-31
0001099215
2016-06-01
2016-08-31
0001099215
2017-06-01
2017-06-15
0001099215
2017-06-01
2017-08-31
0001099215
2017-07-01
2017-07-10
0001099215
2017-08-01
2017-08-10
0001099215
2017-08-31
0001099215
2017-10-11
0001099215
2016-05-31
0001099215
2016-08-31
0001099215
us-gaap:StockOptionMember
2017-06-01
2017-08-31
0001099215
us-gaap:StockOptionMember
2016-06-01
2016-08-31
0001099215
us-gaap:OperatingExpenseMember
2016-06-01
2016-08-31
0001099215
us-gaap:OperatingExpenseMember
2017-06-01
2017-08-31
0001099215
prtx:SeniorSecuredNoteMember
2013-10-11
0001099215
prtx:SeniorSecuredNoteMember
2013-10-01
2013-10-11
0001099215
prtx:NiobeVenturesLlcMember
prtx:SeniorSecuredNoteMember
2014-11-04
0001099215
prtx:NiobeVenturesLlcMember
prtx:SeniorSecuredNoteMember
2014-11-01
2014-11-04
0001099215
prtx:NiobeVenturesLlcMember
prtx:SeniorSecuredNoteMember
us-gaap:MinimumMember
2014-11-04
0001099215
prtx:NiobeVenturesLlcMember
prtx:SeniorSecuredNoteMember
us-gaap:MaximumMember
2014-11-04
0001099215
prtx:SeniorSecuredNoteMember
2015-11-02
2015-12-02
0001099215
prtx:SeniorSecuredNoteMember
2016-06-30
0001099215
prtx:NiobeVenturesLlcMember
2016-08-31
0001099215
prtx:SeniorSecuredNoteMember
2016-10-01
2016-10-31
0001099215
prtx:SeniorSecuredNoteMember
2017-05-16
2017-06-02
0001099215
prtx:SeniorSecuredNoteMember
2017-08-01
2017-08-22
0001099215
us-gaap:SubsequentEventMember
2017-09-15
0001099215
us-gaap:SubsequentEventMember
2017-09-01
2017-09-15
0001099215
prtx:NiobeVenturesLlcMember
2013-10-11
0001099215
prtx:SeniorSecuredNoteMember
prtx:NiobeVenturesLlcMember
2017-05-31
0001099215
prtx:SeniorSecuredNoteMember
prtx:NiobeVenturesLlcMember
2016-06-01
2017-05-31
xbrli:shares
iso4217:USD
iso4217:USD
xbrli:shares
xbrli:pure
10-Q
false
2017-08-31
2018
Q1
PROTALEX INC
0001099215
--05-31
Smaller Reporting Company
PRTX
28767582
487383
477258
107209
58133
594592
535391
2387
2132
596979
537523
489029
588669
57786
36106
546815
624775
20299366
21169366
1490416
1647977
22336597
23442118
0
0
77446343
77446343
-99186249
-100351226
-21739618
-22904595
596979
537523
2132
2387
288
288
0
0
448981
681829
331907
182943
255
255
-1139079
-1007417
1
1
129340
157561
-1268418
-1164977
0
0
-1268418
-1164977
28767582
28767582
-0.06
-0.04
142390
357936
255
255
180333
0
16137
-49076
-173116
77960
-1147743
-880125
1095000
870000
1095000
870000
-52743
-10125
0
0
0
0
444179
391436
0
0
100351226
-4563721
-9415450
3936796
4279100
3980543
3982543
180333
0
4180543
0
400000
9219366
9000000
0.03
5000000
0.03
7500000
10000000
10000000
7500000
2017-09-01
0.03
9000000
5030000
11250000
17403
17148
0.00001
0.00001
1000000
1000000
0
0
0
0
0.00001
0.00001
100000000
100000000
28767582
28767582
28767582
28767582
157561
129340
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt"> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Company is focused on the development of a class of biopharmaceutical drugs for treating autoimmune and inflammatory diseases including rheumatoid arthritis (RA) and Immune Thrombocytopenia (ITP). Its lead product, PRTX-100, is a highly-purified form of Staphylococcal protein A, a bacterial protein known to modify aspects of the human immune system.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Company maintains an administrative office in Florham Park, New Jersey and currently outsources all of its product development and regulatory activities, including clinical trial activities, manufacturing and laboratory operations, to third-party contract research organizations and facilities.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In April 2009, the Company ceased all operations and terminated all employees in light of insufficient funds to continue its clinical trials and related product development. The Company’s business was dormant until new management took control of its operations in November 2009. Since then the Company has been actively pursuing the commercial development of PRTX-100 for the treatment of RA and ITP. In the United States, the Company has open Investigational New Drug (IND) applications for the treatment of RA and ITP and in Europe, an open Investigational Medicinal Products Dossier (IMPD) for ITP.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> PRTX-100 has demonstrated effectiveness in animal models of autoimmune diseases as well as demonstrated activity on cultured human immune cells at very low concentrations, although the effectiveness of PRTX-100 shown in pre-clinical studies using animal models may not be predictive of the results of future human clinical trials. The safety, tolerability and pharmakinetics of PRTX-100 in humans have been characterized in six clinical studies and PRTX-100 has been granted Orphan Drug Designation (ODD) in the United States and Europe for the treatment of ITP. The Company does not anticipate generating operating revenue for the foreseeable future and does not currently have any products that are marketable.</div> </div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> NOTE 2. GOING CONCERN</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The ability of the Company to continue as a going concern is dependent upon developing products that receive regulatory approval and market acceptance. There is no assurance that these benchmarks will be realized. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> There is substantial doubt about the Company’s ability to continue as a going concern. From inception through August 31, 2017, the Company has incurred an accumulated deficit of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">100,351,226</font>. For the years ended May 31, 2017 and 2016, the Company had net losses of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">4,563,721</font> and $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">9,415,450</font>, respectively, and for the three months ended August 31, 2017, the Company had a net loss of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">1,164,977</font>. The Company utilized $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">3,936,796</font> and $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">4,279,100</font> of cash for operating activities for the years ended May 31, 2017 and 2016, respectively, and $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">880,125</font> during the three months ended August 31, 2017. As of August 31, 2017, the Company had cash and cash equivalents of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">477,258</font> and negative net working capital of $89,384. The Company has incurred negative cash flow from operating activities since its inception. The Company has spent, and subject to obtaining additional financing, expects to continue to spend, substantial amounts in connection with executing its business strategy, including continued development efforts relating to PRTX-100.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt"> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Company has no significant payments due on long-term obligations. However, the Company anticipates entering into significant contracts to perform product manufacturing and to conduct clinical trials in the future and that it will need to raise additional capital to fund the ongoing FDA regulatory approval process. If the Company is unable to obtain approval of its future IND applications or otherwise advance the FDA approval process, its ability to sustain its operations would be significantly jeopardized.</div> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The most likely sources of additional financing include the sale of the Company’s equity or debt securities. On June 3, 2016, the Company filed Amendment #1 to the Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (SEC) (SEC File No. 333-206008), originally filed on July 31, 2015, with respect to a proposed public offering of Company securities.  There is no assurance that the Company will consummate a public offering of its securities, or any other offering.  Accordingly, additional capital that is required by the Company may not be available on reasonable terms, or at all.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> NOTE 3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The interim financial data contained in this Report is unaudited; however in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim period. The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading.  The results of operations in interim periods are not necessarily indicative of the results that may be expected for the full year.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Information regarding the organization and business of the Company, accounting policies followed by the Company and other important information is contained in the notes to the Company's financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2017. This Report should be read in conjunction with the Company’s Annual Report.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Estimates</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ from actual results.<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"></font></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"><b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Loss per Common Share</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Financial Accounting Standards Board (FASB) has issued guidance for “Earnings Per Share” which provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities consisting of employee stock options and warrants have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of August 31, 2017 and August 31, 2016, the Company had potentially dilutive securities consisting of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 3,980,543</font> and <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 3,982,543</font> stock options, respectively.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Cash and Cash Equivalents</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> For the purposes of reporting cash flows, the Company considers all cash accounts which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of 90 days or less to be cash and cash equivalents. The cash and cash equivalent deposits are not insured by The Federal Deposit Insurance Corporation.<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"></font></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"><b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Reclassifications</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Certain reclassifications have been made to the prior periods to conform to the current presentations in the financial statements.<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"></font></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Research and Development</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify">Research and development costs are expensed as incurred.<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"></font></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Share Based Compensation</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Effective June 1, 2006, the Company adopted the FASB accounting guidance for fair value recognition provisions of the “Accounting for Share-Based Payment”. This standard requires the Company to measure the cost of employee services received in exchange for equity share options granted based on the grant-date fair value of the options. The cost is recognized as compensation expense over the vesting period of the options. The fair value of compensation costs attributed to equity rights issued was $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">0</font> and $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">180,333</font> and is included in operating expenses for the three months ended August 31, 2017 and August 31, 2016, respectively. These amounts included both the compensation cost of stock options granted prior to but not yet vested as of June 1, 2006 and compensation cost for all options granted subsequent to May 31, 2006. In accordance with the modified prospective application transition method, prior period results are not restated.  Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification. No tax benefit was recorded as of August 31, 2017 in connection with these compensation costs due to the uncertainty regarding ultimate realization of certain net operating loss carryforwards. The Company has also implemented the SEC interpretations in Staff Accounting Bulletin (SAB) for “Share-Based Payments,” in connection with the adoption of FASB accounting guidance.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The accounting guidance requires the use of a valuation model to calculate the fair value of each stock-based award. The Company uses the Black-Scholes model to estimate the fair value of stock options granted based on the following assumptions:</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 20pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <i>Expected Term or Life</i>. The expected term or life of stock options granted issued represents the expected weighted average period of time from the date of grant to the estimated date that the stock option would be fully exercised. The weighted average expected option term was determined using a combination of the “simplified method” for plain vanilla options as allowed by the accounting guidance. The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 20pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <i>Expected Volatility</i>. Expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate. Expected volatility is based on the historical daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant date.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 20pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <i>Risk-Free Interest Rate.</i> The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based awards.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> At August 31, 2017, there were <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 4,180,543</font> stock options outstanding, of which <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 3,980,543</font> were exercisable.  At August 31, 2017, the aggregate unrecognized compensation cost of unvested options, as determined using a Black-Scholes option valuation model, was $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">0</font>.  The remaining options will be valued once they vest upon the future events. The Company did not grant any options during the three months ended August 31, 2017, and <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 400,000</font> options expired.<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"></font></div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b>Estimates</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ from actual results.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b>Cash and Cash Equivalents</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> For the purposes of reporting cash flows, the Company considers all cash accounts which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of 90 days or less to be cash and cash equivalents. The cash and cash equivalent deposits are not insured by The Federal Deposit Insurance Corporation.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"><b>Reclassifications</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Certain reclassifications have been made to the prior periods to conform to the current presentations in the financial statements.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b>Research and Development</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify">Research and development costs are expensed as incurred.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt"></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b>Share Based Compensation</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Effective June 1, 2006, the Company adopted the FASB accounting guidance for fair value recognition provisions of the “Accounting for Share-Based Payment”. This standard requires the Company to measure the cost of employee services received in exchange for equity share options granted based on the grant-date fair value of the options. The cost is recognized as compensation expense over the vesting period of the options. The fair value of compensation costs attributed to equity rights issued was $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">0</font> and $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">180,333</font> and is included in operating expenses for the three months ended August 31, 2017 and August 31, 2016, respectively. These amounts included both the compensation cost of stock options granted prior to but not yet vested as of June 1, 2006 and compensation cost for all options granted subsequent to May 31, 2006. In accordance with the modified prospective application transition method, prior period results are not restated.  Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification. No tax benefit was recorded as of August 31, 2017 in connection with these compensation costs due to the uncertainty regarding ultimate realization of certain net operating loss carryforwards. The Company has also implemented the SEC interpretations in Staff Accounting Bulletin (SAB) for “Share-Based Payments,” in connection with the adoption of FASB accounting guidance.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The accounting guidance requires the use of a valuation model to calculate the fair value of each stock-based award. The Company uses the Black-Scholes model to estimate the fair value of stock options granted based on the following assumptions:</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 20pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <i>Expected Term or Life</i>. The expected term or life of stock options granted issued represents the expected weighted average period of time from the date of grant to the estimated date that the stock option would be fully exercised. The weighted average expected option term was determined using a combination of the “simplified method” for plain vanilla options as allowed by the accounting guidance. The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 20pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <i>Expected Volatility</i>. Expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate. Expected volatility is based on the historical daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant date.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 20pt; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <i>Risk-Free Interest Rate.</i> The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based awards.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> At August 31, 2017, there were <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 4,180,543</font> stock options outstanding, of which <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 3,980,543</font> were exercisable.  At August 31, 2017, the aggregate unrecognized compensation cost of unvested options, as determined using a Black-Scholes option valuation model, was $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">0</font>.  The remaining options will be valued once they vest upon the future events. The Company did not grant any options during the three months ended August 31, 2017, and <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 400,000</font> options expired.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
3980543
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 0.5in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt"> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is 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. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require 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. Specifically, the amendments (1) provide a definition of the term <i>substantial doubt,</i> (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows or financial condition. The Company does not believe that accounting standards currently adopted will have a material effect on the accompanying financial statements.</div> </div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> NOTE 5. RELATED PARTIES</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt"> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Niobe Ventures, LLC, a Delaware limited liability company (“Niobe”), the majority stockholder of the Company and the holder of the Consolidated Note (defined in Note 6, below), is controlled by Arnold P. Kling, the Company’s president and director.</div> </div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify">NOTE 6. SENIOR SECURED NOTES - RELATED PARTY</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On October 11, 2013, the Company issued a Consolidated, Amended and Restated Promissory Note to Niobe in the principal amount of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">9,219,366</font> (the “Consolidated Note”).  The face amount of the Consolidated Note reflects the $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">9.0</font> million aggregate principal amount of outstanding secured notes then held by Niobe (the “Secured Notes”) plus interest accrued at <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">3</font>% per annum on each note from its respective date of issuance.  The terms of the Consolidated Note were identical to the Secured Notes except that: <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">(a) the maturity date was changed to September 1, 2015, which was after the latest maturity date of any of the Secured Notes; and (b) it provided for partial mandatory repayment in the event that the Company received aggregate gross proceeds in excess of $7.5 million from a single or multiple “Liquidity Events” in an amount equal to twenty-five (25%) percent of such gross proceeds (the “Mandatory Prepayment Amount”). </font> A “Liquidity Event” means <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">(a) the sale of any of the Company’s equity, or equity-linked, securities, and (b) the receipt of proceeds, directly or indirectly related to a development and/or commercialization relationship entered into with an unaffiliated third party.</font> In the Secured Notes, the entire principal amount of each note was due, at Niobe’s election, upon the consummation of an equity financing of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">7.5</font> million or greater.  Consistent with the terms of the Secured Notes and related security agreements entered into, the Company’s obligations under the Consolidated Note are secured by a first priority perfected security interest in all of the Company’s assets pursuant to a Consolidated, Amended and Restated Security Agreement dated October 11, 2013.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On November 4, 2014, the Company entered into a new Credit Facility Agreement (the “2014 Credit Facility Agreement”) pursuant to which the Company may borrow up to an additional $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">5.0</font> Million from Niobe, in the form of secured loans, at any time prior to December 31, 2015 (the “2014 Credit Facility”). Each loan made to the Company by Niobe under the 2014 Credit Facility Agreement has been represented by a senior secured promissory note bearing interest at a rate of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">3</font>% per annum which matures on September 1, 2016 (each an “Original Note”). The obligations of the Company pursuant to each Original Note have been secured by a first priority perfected security interest in all of the assets of the Company pursuant to the Second Consolidated, Amended and Restated Security Agreement between the Company and Niobe, entered into at the same time as the 2014 Credit Facility Agreement (the “Security Agreement”).</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In addition, on November 4, 2014, the Company entered into a Note Modification Agreement (the “Note Modification Agreement”) with Niobe pursuant to which the Consolidated Note was further amended to increase the threshold amount requiring a Mandatory Prepayment from $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">7.5</font> Million to more than $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">10</font> Million. As a result, partial prepayment will now be triggered in the event of a Liquidity Event in which the Company receives gross proceeds in excess of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">10</font> million. All other terms and provisions of the Consolidated Note remained unchanged and in full force and effect.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On December 1, 2015, the 2014 Credit Facility was amended to increase the funds available for loans to the Company to $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">7.5</font> million and to extend the expiration date of such credit facility to December 31, 2016 pursuant to which the Company and Niobe entered into and an Amended and Restated 2014 Credit Facility Agreement (the “Amended and Restated Agreement”). Each loan under the Amended and Restated Agreement has been and will be represented by a senior secured promissory note bearing interest at a rate of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">3</font>% per annum which matures on <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">September 1, 2017</font> (each a “New Note”). In addition, the Security Agreement was also amended and restated to secure the Company’s obligations under all the Original Notes and all the New Notes.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On June 30, 2016, the 2014 Credit Facility was again amended to increase the funds available for loans to the Company to $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">9.0</font> million (the “Second Amended and Restated Agreement”). Each loan under the Second Amended and Restated Agreement has been represented by a New Note. In addition, the Security Agreement was also amended and restated to secure the Company’s obligations under all the notes issued and outstanding under the 2014 Credit Facility as of June 30, 2016 and all the New Notes issued pursuant to the Second Amended and Restated Agreement.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On August 31, 2016, the Company and Niobe agreed to extend the maturity date of the Consolidated Note and the maturity dates of all thirteen outstanding Original Notes with an aggregate principal amount of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">5,030,000</font>, from September 1, 2016 to September 1, 2017. All other terms and provisions of the Consolidated Note and Original Notes remained unchanged and in full force and effect.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On October 31, 2016, the 2014 Credit Facility was amended to increase the funds available for loans to the Company to $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">11.25</font> million and to extend the expiration date of such facility to June 15, 2017 (the “Third Amended and Restated Agreement”). Each loan under the Third Amended and Restated Agreement will be represented by a senior secured promissory note bearing interest at a rate of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">3</font>% per annum which matures on March 31, 2018 (each a “2018 Note”). The Security Agreement was also amended and restated to secure the Company’s obligations under all the notes issued under the 2014 Credit Facility as of October 31, 2016 and all the 2018 Notes. In addition, the Company and Niobe also agreed to extend to March 31, 2018, the maturity dates of the Consolidated Note and all the notes issued and outstanding under the 2014 Credit Facility as of October 31, 2016.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt"> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> As of May 31, 2017, the outstanding principal balance under the 2014 Credit Facility totaled $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">11,080,000</font>. During the year ended May 31, 2017, the Company borrowed an aggregate of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">3,980,000</font>.</div> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On June 1, 2017, the 2014 Credit Facility was amended to increase the funds available for loans to the Company to $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">13.05</font> million and to extend the expiration date of such facility to March 31, 2018 (the “Fourth Amended and Restated Agreement”). Each loan under the Fourth Amended and Restated Agreement will be represented by a 2018 Note. The Security Agreement was also amended and restated to also secure the Company’s obligations under all 2018 Notes issued pursuant to the Fourth Amended and Restated Agreement.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <b> </b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On June 15, 2017, July 10, 2017 and August 10, 2017, the Company borrowed $290,000, $290,000 and $290,000, respectively, under the 2014 Credit Facility pursuant to the Fourth Amended and Restated Agreement and issued Niobe a new 2018 Note for each borrowing in the same principal amount of each loan.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On August 22, 2017, the Company and Niobe agreed to extend the maturity date of all outstanding notes issued to Niobe from the current maturity date of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">March 31, 2018</font> to a new maturity date of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">September 1, 2018</font>.  All other terms and provisions of such notes remained unchanged and in full force and effect.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-INDENT: 0.25in; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> As of August 31, 2017, the outstanding principal balance under the 2014 Credit Facility totaled $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">11,950,000</font>. During the three months ended August 31, 2017, the Company borrowed an aggregate of $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">870,000</font>; $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">290,000</font> on June 15, 2017, $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">290,000</font> on July 10, 2017, and $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">290,000</font> on August 10, 2017. Payment of the principal and accrued interest on all outstanding notes issued under the 2014 Credit Facility will, at Niobe’s election, automatically become immediately due and payable if the Company undertakes certain Fundamental Transactions or upon an Event of Default, both as defined in such notes. The Company’s obligations under all such notes are secured by the Security Agreement, as amended.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
290000
290000
290000
870000
11950000
2018-03-31
2018-09-01
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify">NOTE 7. SUBSEQUENT EVENTS</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"> </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On September 15, 2017, the Company borrowed an additional $<font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt">290,000</font> under the terms of the Fourth Amended and Restated Agreement and issued Niobe a 2018 Note with a maturity date of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> September 1, 2018</font></font> for the loan in the same principal amount.</div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Company has evaluated all other subsequent events and has determined that there were no other subsequent events to recognize or disclose in these financial statements.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
290000
2018-09-01
(a) the maturity date was changed to September 1, 2015, which was after the latest maturity date of any of the Secured Notes; and (b) it provided for partial mandatory repayment in the event that the Company received aggregate gross proceeds in excess of $7.5 million from a single or multiple Liquidity Events in an amount equal to twenty-five (25%) percent of such gross proceeds (the Mandatory Prepayment Amount).
(a) the sale of any of the Companys equity, or equity-linked, securities, and (b) the receipt of proceeds, directly or indirectly related to a development and/or commercialization relationship entered into with an unaffiliated third party.
89384
<div style="MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif" align="justify"><b><font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> </font>Loss per Common Share</b></div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="CLEAR:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Financial Accounting Standards Board (FASB) has issued guidance for “Earnings Per Share” which provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss to common stockholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities consisting of employee stock options and warrants have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of August 31, 2017 and August 31, 2016, the Company had potentially dilutive securities consisting of <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 3,980,543</font> and <font style="FONT-FAMILY: 'Times New Roman','serif'; FONT-SIZE: 10pt"> 3,982,543</font> stock options, respectively.</div> </div><table border="0" style="width:100%; table-layout:fixed;" cellspacing="0" cellpadding="0"><tr><td></td></tr></table>
13050000
7500000
0.03
11080000
3980000