|6 Months Ended|
May 31, 2016
On April 13, 2016, the Company entered into an agreement to finance a new restaurant owned by Philo Group, LLC (“Philo”). Between April 13, 2016 and May 31, 2016, the Company provided $250,000 in financing to Philo under the terms of a Senior Secured Property Note dated April 4, 2016, as amended (the “Philo Note”). The Philo Note bears interest at a rate of sixteen percent (16%) per annum, requires monthly interest payments, and was due within six (6) months from the date of issue. Due to delays in the opening of the restaurant, the Philo Note has not yet been repaid and is in default. The Company has not made a formal demand upon Philo for payment but has reserved its rights as provided for in the Philo Note. The Company is currently in discussions with Philo regarding payment of the Philo Note and actively monitoring the restaurant operations. The Philo Note features an original issue discount of $75,000 and allows for legal fees up to $5,000. The Philo Note is personally guaranteed by the principal of Philo and secured by all assets of Philo. In addition, the principal of Philo has agreed to further secure the loan by pledging several pieces of real property located in California.
The original issue discount of $75,000 on the Philo Note is being amortized as interest income through the maturity date using the interest rate method. During the three and six months ended May 31, 2016, the Company recorded $21,841 of interest income from the discount accretion and $8,208 of interest income based upon the 16% contractual rate.
JS Technologies, Inc.
On August 4, 2015, the Company entered into a Secured Promissory Note (the “JST Note”) with JS Technologies, Inc. (“JST”). Under the JST Note, the Company entered into an agreement to lend up to $400,000 to JST in order to provide short-term financing pending the Company’s proposed acquisition of JST. The JST Note accrues interest at a rate of ten percent (10%) per annum and was due on August 5, 2016. The JST Note is secured by substantially all of the assets of JST. Between December 3, 2015 and February 26, 2016, the Company loaned JST $120,000 pursuant to the term of the JST Note, which included an original issue discount of $13,333 to the overall JST Note. Of the $120,000 loaned to JST, a payment of $95,000 was made by the Company and a payment of $25,000 was made by MCKEA Holdings, LLC (“MCKEA”) directly to JST on the Company’s behalf. Through May 31, 2016, the note receivable was offset by a payment of $19,674 by JST and JST’s payment of $10,000 directly to a third-party noteholder. The $10,000 payments made by JST reduced the Company’s outstanding note payable. The JST Note was fully repaid on June 15, 2016.
The original issue discount of $13,333 on the JST Note was being amortized as interest income using the effective interest rate method. During the three and six months ended May 31, 2016, the Company recorded $9,358 and $13,333, respectively, of interest income from the discount accretion and $2,860 and $5,326, respectively, of interest income based upon the 10% contractual rate.
The entire disclosure for financing receivables. Examples of financing receivables include, but are not limited to, loans, trade accounts receivables, notes receivable, credit cards, and receivables relating to a lessor's right(s) to payment(s) from a lease other than an operating lease that is recognized as assets.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef