| Long-term Debt [Text Block] |
LONG
TERM
LIABILITIES
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February
28,
2013
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May
31,
2012
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Long-term
liabilities consists of:
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Credit
card facility loan, (a)
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$
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1,591,790
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$
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-
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Long-term
loan,(b)
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4,298,573
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3,882,000
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KeHE
loan, (c)
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770,000
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770,000
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Term
loan settlement (d)
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173,214
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-
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Debt
discount, (e)
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(121,000
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)
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(99,512
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)
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Total
debt
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$
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6,712,577
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$
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4,552,488
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Less
current portion
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(818,000
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)
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(250,000
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)
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Long
term debt
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$
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5,894,577
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$
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4,302,488
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(a)
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In
October 2012, two private lenders agreed to loan to the
Company a total of $1,700,000 secured and to be paid
down by using the Company's credit card receipts for
online purchases. The loan bears interest of 6% per
annum and matures on October 14, 2014. The lenders each
received one share of the Company's common stock for
each dollar they loaned, respectively. Accordingly, the
Company issued 1,700,000 shares of its common stock
valued at $136,000 which was accounted for as a debt
discount and amortized over the term of the note. The
proceeds are being used to pay down tax liabilities and
for operating capital. One of the lenders had
previously loaned the Company $150,000 under the term
loan which matured on December 31, 2011. As part of
this transaction, he agreed to postpone repayment of
that loan and all accrued interest thereon until the
$1,700,000 has been repaid or October 14, 2014,
whichever is earlier. As part of this
transaction, the Long-Term Lender (see (b) below)
extended the maturity date of the Long Term Loan from
February 2013 to September 2014. In February 2013,
one of the lenders under the Credit Card Facility
extended an additional loan of $150,000 to be added to
the credit card facility but that repayment of that
amount and all accrued interest thereon would be
postponed until the original $1,700,000 has been
repaid. The Company issued 150,000 shares of common
stock to one lender as part of a loan transaction of
$150,000 in February 2013. The Company has recorded a
debt discount of $10,500 which will be expensed over a
two year period, the life of the loan in connection to
these shares. As of February 28, 2013, the total amount
due under the Credit Card Facility Loan including
accrued interest is $1,637,765.
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(b)
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On
or about February 22, 2010, the Company entered a loan
agreement with one of its preferred shareholders and
term loan participants (the "Lender") for a loan of
$2.5 million (the "Long Term Loan"). On specified dates
since then, the Long Term Loan has been increased by a
total of $1,000,000. The original loan was conditional
upon the Lender obtaining a first security position on
all of the Company's assets. The loan was also
conditional upon the Company's repurchase from Lender
and its affiliate of 500,000 shares of the redeemable
convertible preferred stock held by them collectively,
repayment to the Lender of amounts Lender had
previously advanced to Borrower under the Term Loan
agreement (discussed above), and issuance to Lender of
9,275,000 shares of the Company's $.001 par value
common stock representing twenty percent of the
Company's outstanding common stock on a fully-diluted
basis. The maturity date of this Long Term Loan and all
related interest has been extended to September 2014.
As of February 28, 2013, the total amount due under the
Long Term Loan including accrued interest is
$4,374,163.
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(c)
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On
or about February 11, 2011, the Company entered into a
three-year marketing and distribution agreement
granting KeHE Distributors LLC the exclusive rights to
distribute into retail outlets all Artisanal products
with primary focus on the Company's 16-cheese
CheeseClock program. KeHE's exclusivity is dependent
upon KeHE meeting specific minimum annual sales. Under
the agreement, KeHE earns a commission of five percent
(5%) on all net sales to accounts serviced by KeHE and
may also earn stock options upon meeting specified
sales thresholds over the term of the agreement (See
Note 13 - Shareholders Equity for details). The
agreement further provides that KeHE will loan up to
$520,000 to the Company to facilitate the purchase of
inventory required for the KeHE accounts and that KeHE
will advance up to an additional $100,000 of marketing
funds to be used for in-store demonstrations and
related marketing costs. The loan bears interest at a
rate of 3-Month LIBOR plus 5% to be paid quarterly and
is secured by the Company's accounts receivable and
inventory. For so long as any amounts remain
outstanding under the loan or KeHE maintains its
exclusive distributor status and meets its annual
minimum purchases, the Company may not incur any debt
or issue any additional common stock without
KeHE’s consent, which consent shall not be
unreasonably withheld. As of May 2011, the Company had
drawn down $520,000 of the total amount permitted under
the agreement. In May 2011, it borrowed an additional
$250,000 from KeHE to be repaid within 60 days.
As an inducement for making this additional loan, the
Company modified the vesting terms of KeHE’s
4,880,000 options, which were to be earned based on
certain product purchase thresholds. Upon the execution
on May 9, 2011, of the amended Marketing and
Distribution Agreement, KeHE became fully vested on
440,000 three year options exercisable at $.30 a share.
The fair market value of these options, utilizing the
Black Scholes model, was $75,386. These costs were
amortized over 60 days. The remaining 4,440,000 of
options to be earned for future purchases of inventory
were to become fully vested on August 22, 2011, if the
$250,000 was not repaid. The additional funds were not
repaid and the remaining options vested. The fair
market value of these options, utilizing the Black
Scholes model, was $976,628 all of which was expensed
immediately. Pursuant to a second addendum to the
Marketing and Distribution Agreement, the parties
agreed that effective February 28, 2013, KeHE would no
longer be obligated to maintain on its staff a
salesperson dedicated to the Artisanal line of products
or to advance any additional funds under the
Agreement. In exchange, KeHE agreed to the
cancellation of the 4,880,000 stock options. The
addendum further provides that the Company will repay
on or before May 31, 2013, all amounts advanced by KeHE
under the Agreement, failing which a one-time penalty
of $50,000 shall apply. For this reason, the full
loan amount of $770,000 is now reported under Current
Portion of Long-Term Liabilities (Note 9). As of
February 28, 2013, the total amount due under the KeHE
Agreement including accrued interest is
$848,430.
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(d)
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In
December 2012, an agreement was reached with one of the
term lenders with respect to his portion of the Term
Loan that had matured on December 31, 2011 (see Note 9
- Notes Payable to Existing Shareholders). The
agreement provides for monthly payments of $4,000
through November 2016. The current portion
represents twelve months worth of payments of $48,000.
As of February 28, 2013, the total amount due to this
lender is $173,213.
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(e)
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An
unamortized debt discount attributed to the Long-Term
Loan as of February 28, 2013 was $121,000.
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Five-Year
Maturity of Debt Schedule as of February 28:
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Principal
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Fiscal
2014
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$
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1,492,000
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Fiscal
2015
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5,938,363
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Fiscal
2016
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48,000
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Fiscal
2017
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29,213
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Fiscal
2018
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-
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Total
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$
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7,507,576
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Such
five year maturity schedule of debt is exclusive of the
$121,000 of unamortized debt discount.
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