ARKADOS GROUP, INC. (Form: 10-K, Received: 08/27/2014 10:55:12)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended May 31, 2014

¨ 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

Securities registered under Section 12(b) of the Exchange Act:

Title of each class		Name of each exchange on which registered





Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.0001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

¨ Yes x No

Indicate by a 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-Accelerated filer ¨	Smaller reporting company x

Indicate by check mark wither the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates (65,863,928) computed by reference to the price ($0.06) at which the common equity was last sold on the last day of our most recently completed second fiscal quarter (November 30, 2013) was $4,551,835. (1)

The number of shares outstanding of the registrant's common stock, as of the last practicable date, August 25, 2014, was 133,714,407 (2)

_______________

(1) For purposes of calculating the aggregate market value of shares of our common stock issued and outstanding held by non-affiliates as set forth on the cover page of this Annual Report on Form 10-K, we have assumed that all outstanding shares are held by non-affiliates, except for shares held by each of our executive officers, directors and 5% or greater stockholders. In the case of 5% or greater stockholders, we have not deemed such stockholders to be affiliates unless there are facts and circumstances which would indicate that such stockholders exercise any control over our company, or unless they hold 10% or more of our outstanding common stock. These assumptions should not be deemed to constitute an admission that all executive officers, directors and 5% or greater stockholders are, in fact, affiliates of our company, or that there are not other persons who may be deemed to be affiliates of our company.

(2) 37,850,479 of which are shares that are as yet to be issued.

ARKADOS GROUP, INC.

FISCAL 2013 FORM 10-K

INDEX

PART I	1
ITEM 1. BUSINESS	1
ITEM 1A. RISK FACTORS	5
ITEM 1B. UNRESOLVED SEC STAFF COMMENTS	8
ITEM 2. DESCRIPTION OF PROPERTY	8
ITEM 3. LEGAL PROCEEDINGS	8
ITEM 4. SUMBISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.	8
PART II	9
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.	9
ITEM 6. SELECTED FINANCIAL DATA. .	11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	13
ITEM 8. FINANCIAL STATEMENTS.	14
ITEM 9A. CONTROLS AND PROCEDURES.	15
ITEM 9B. OTHER INFORMATION.	15
None.PART III	16
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.	16
ITEM 11. EXECUTIVE COMPENSATION.	17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.	20
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES	20
PART IV	21
ITEM 15. EXHIBITS.	21

As used in this Annual Report on Form 10-K, the terms “we”, “our” or “us” mean Arkados Group, Inc., a Delaware corporation and its consolidated subsidiaries, unless the context indicates otherwise.

NOTE RE: FORWARD LOOKING INFORMATION

All statements in this annual report on Form 10-K that are not historical are forward-looking statements, including statements regarding our “expectations,” “beliefs,” “hopes,” “intentions,” “strategies,” or the like. Such statements are based on management’s current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward looking statements. Some of these risks are detailed in Part I, Item 1A “Risk Factors” and elsewhere in this report. We caution investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the risk factors discussed in this Annual Report on Form 10-K. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

NOTE RE: CERTAIN MARKS

This Annual Report on Form 10-K contains registered and unregistered trademarks of Arkados Group, Inc and its subsidiaries and other companies, as indicated. Unless otherwise clear from the context or noted in this Annual Report, marks identified by “ ^® ” and “™” are registered marks and trademarks of Arkados Group, Inc. or its subsidiaries. All other trademarks and service marks are the property of their respective owners. HomePlug ^® is a registered trademark of the HomePlug Powerline Alliance.

iii

PART I

ITEM 1. BUSINESS

General

The registrant, Arkados Group, Inc., was incorporated in the State of Delaware in 1998. We conduct our business activities principally through Arkados, Inc., which is a wholly owned subsidiary. In September 2006, we changed our corporate name from CDKnet.com, Inc., to its current form to align our corporate identity with the “Arkados” brand developed by our subsidiary.

We were an early adopter in the powerline communication space, and experienced in home automation. Our Arkados, Inc. subsidiary was a member of the HomePlug Powerline Alliance, an independent trade organization which has developed global specifications for high-speed powerline communications, the world's leading professional association for the advancement of technology.

The Company underwent a significant restructuring after December 23, 2010 when substantially all of its then-existing assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”), as disclosed in the 8-K filed December 29, 2010 and further described (as to the closing) in the 8-K filed July 12, 2011. This restructuring, focusing on settlements with unsecured creditors of the Company, continued through May 31, 2014 and the date of this report.

Prior to and through December 23, 2010 (i.e. the date of the Asset Sale), we were principally engaged in developing and marketing technology and solutions enabling broadband communication, multimedia, and networking over standard household electrical lines. Most recently (i.e. following January, 2013), Arkados has shifted its focus towards development of a universal platform that provides software solutions for smart grid and smart home applications primarily in the areas of energy management, home health care, smart appliances and home security and entertainment.

Our executive offices are currently located at 211 Warren Street, Suite 320, Newark, New Jersey 07103. We can be reached at our principal offices by telephone at (862) 373-1988. Our website is www.arkadosgroup.com .

Except for the documents on our website that are expressly incorporated by reference into this report, the information contained on our website is not incorporated by reference into this report and should not be considered to be a part of this report. This includes the website referred to in the paragraph above, as well as other websites that we refer to elsewhere in this report. All of these website addresses are included in this document as inactive textual references only.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all other reports, and amendments to these reports, required of public companies with the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Copies of our fiscal year 2014 Form 10-K may also be obtained without charge by mailing a request to us at 211 Warren Street, Suite 320, Newark, New Jersey 07103 or by calling us at (862) 373-1988.

Overview

Business

We strive to be a leading software and hardware design company focused on developing solutions that enable machine to machine communications for the Internet of Things (IoT). Our solutions support smart grid and smart home applications primarily in the areas of home and building automation and energy management. The Company's solutions are uniquely designed to drive a wide variety of wireless and powerline communication (PLC)-based products, such as sensors, gateways, video cameras, appliances and other devices.

By utilizing our solutions, our goal is to have customers bring numerous sophisticated, full-featured products to market faster at a lower overall development cost. Additionally, our Linq Universal Service Platform (USP) allows for onboarding, provisioning and wellness monitoring of devices on a wireless or wired network.

While, during much of this period, the Company was focused on negotiating and finalizing the settlements and releases with its creditors, we were also ardently pursuing plans for product development. During the period May 31, 2013 through May 31, 2014, we still, however, rely on the services of outside independent contractors engaged in developing products or services.

Recent Announcements

Other than as discussed in our filed reports on Form 8-K, there have been no public announcements within the two-year period preceding the date of this report regarding new products or services.

Dependence on Financing Activities

We did not generate revenue during fiscal year 2014 and were completely dependent on outside sources of financing by former officers, directors, investors and related parties for our operations. Any such financing of operating expenses occurred through convertible debt and equity (common stock).

Following the December 23, 2010 Asset Sale, the Company engaged in the process of finalizing settlement and release agreements with its secured creditors, other noteholders, former employees and its other unsecured creditors. As a result of the Asset Sale and our restructuring, we reached settlement on approximately $13,849,716 of our pre-existing debt, which has been either released or converted to a right to receive common stock of the Company. Since May 31, 2013 and as of the date of this report, we fully and finally settled an additional $2,032,235 of unsecured debt existing at the time of the Asset Sale to ST Micro. We intend to offer settlements for any remaining unsecured debt outstanding in exchange for the Company’s agreement to issue shares of its common stock at the rate of one share for each $0.04 of principal and interest exchanged. The issuance of shares of the Company’s common stock is claimed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 3(a)(9) for exchanges of securities of the same issuer without payment of solicitation fees and Section 4(2) for sales not involving a public offering. The issuance of the warrants is claimed to be exempt from registration pursuant to Section 4(2) of the Securities Act.

Industry Background

While endeavoring to restructure the Company following the Asset Sale and settle obligations as a result of the Asset Sale, we retained the ability to pursue key elements of our software and platform solutions.

Electric meters with enhanced communication capabilities—an essential component of the smart grid—are becoming more prevalent. In 2011, more than 23% of all U.S. electrical customers had smart meters. These meters use two-way communication to connect utilities and their customers. They support demand response and distributed generation, can improve reliability, and also provide information that consumers can use to save money by managing their use of electricity.

According to research firm Zpryme, the smart grid core and enabled technology market will reach $220 billion in size by 2020. The explosive growth in this market is driven primarily by the first wave of smart grid implementation: advanced metering infrastructure (the “AMI”). Utilities throughout the world have aggressively implemented smart meters to residential and industrial customers mainly because it is the required first step to achieve a true smart grid and, secondarily, in response to significant government incentives to do so. AMI lays the foundation as a hub for networking and communication and is the gateway to the home area network (HAN). From the perspective of the end user (residential or industrial), in-home (or in-building) devices are not only capable of communicating with the other devices within the local network, but are also capable of communicating outward to the wide-area network (WAN) and implementing demand response protocols.

Our Products and Services

During the period covered by this report, our focus remained primarily upon achieving settlement and restructuring of our existing debt, but to a lesser extent when compared to last year. In addition to these activities, we developed a unique software system, called the Process and Event Management System (PEMS), designed for the manufacturing process whereby quality assurance and environmental data is gathered from multiple points in the process and stored in the cloud for use in generating usage reports in real time. This stored data is also critical from a historical perspective to assist the manufacturer in detecting ways of improving their processes and create more efficiencies, which in turn save money.

We also developed another unique software system called LinqUSP, which is a device management software platform that deals with command and control of electronic devices, data gathering and storage, provisioning onto a network and generating device wellness reports to users.

Strategic Relationships

We continue to foster our relationships with STMicroelectronics and Tatung. Each of these relationships will allow Arkados to engage in our devised strategy of developing software and platform solutions for smart energy and home automation services

Research and Development

Research and development in a rapidly changing technology environment is one of the keys to our success. We allocate resources as much as possible within current operational limits to explore and exploit advancements in mobile and cloud computing, data processing technologies, wireless and broadband technologies and energy storage technologies that will lead to new products and services within our core competencies. These include the development of new software with a focus on M2M bridges, home area networks (HAN) and the Internet of Things within the smart home/smart grid industries via our strategic partnerships.

Patents, Licenses and Trademarks

We continue to maintain our license with STMicroelectronics for patents relating to home automation services. As part of our future plans for smart energy and home automation services, we anticipate continuing to pursue development of patents for our software solutions, many of which will be based, wholly or in part on this license.

We continue to maintain, through our subsidiary, Arkados Inc., a provisional application (Application No. 61/873,249) for a patent covering systems and methods for provisioning of electronic devises onto a network and the subsequent monitoring and operation of the devices, as filed with the U.S. Patent and Trademark Office on September 3, 2013. Additional filings will be required to maintain the patent protection associated with this application, on or before September 3, 2014.

In addition, we maintain the federal registration of our “Arkados” and “ArkTIC” marks, as well as the stylized “a” design mark pictured below.

Competition

We face competition both from established device management and cloud service providers both nationally and internationally, as well as recent entrants in the field. Some of these competitors create solutions that are compliant with existing standards and specifications, while other competitors’ products are based on proprietary technologies.

Since our operations are still developing, and therefore, somewhat in flux, it is difficult to pinpoint direct competitors, however, the following represent those that are most closely identifiable at the current time:

Device Management and Cloud Services
Company	Service	Device Management
Amee UK	Amee	Environmental agency reporting
Arkessa	Arkessa	Remote device operation for IoT
Axeda	Axeda	M2M cloud and data management
Buglabs	Bugswarm	Machine to cloud solution
Carriots	Carriots Cloud	Application development platform
Evrything	Evrything	Digital identity for objects
GroveStreams	GroveStreams	Data gathering and analysis
HP	HP Cense	Data management of embedded devices
iDigi	iDigi Device Cloud	Device cloud platform
Sensinode	NanoService	Web services for end devices
Tonic Solutions	Nimbits	Distributed cloud solution
Exosite	OnePlatform	Cloud and data analytics for IoT
Sen.se	Open.Sen.se	Online apps for IoT
LogMeIn	Pachube	Public cloud for IoT
Paraimpu	Paraimpu	Social tool for connecting IoT
Neuaer	ProxPlatform	Location based service platform for IoT
Microstrain	SensorCloud	Cloud and data analytics for IoT
IoBridge	ThingSpeak	Open application development platform
Thingworx	Thingworx	Application development platform
Yaler	Yaler Platform	Web client for embedded systems

Of these, the services that most directly compete with Arkados’ LinqUSP include Thingworx, ThingSpeak and iDigi Device Cloud. This represents formidable competition to Arkados in that the companies behind these products are much more mature and better capitalized than Arkados. On the other hand, Arkados enjoys a great advantage in the form of its partnerships with Tatung and others. We are in some ways buffered from some of the challenges that many companies experience. The value from these partnerships in this regard comes in the form of product development guidance, market intelligence, existing partnerships, educated and capable sales personnel and a strong incentive to immediately implement and deploy, which drastically reduces time-to-market. For example, LinqUSP was originally conceived in May, 2013 and is ready for large-scale deployment only 8 months later.

Additionally, LinqUSP compares favorably on its features. The combination of an open platform, robust capabilities, scalability and versatility make LinqUSP potentially much more valuable than any of the competing solutions.

Sales and Marketing

We expect to develop our sales force to include a network of direct sales regions. As we develop our international relationships with Tatung and STMicroelectronics, we expect to establish international sales offices and develop relationships with organizations related to our business that will be located worldwide. We anticipate supplementing our direct sales force with sales representative organizations and distributors. The scope and development of our sales and marketing organization will depend, among other things, on the amount of capital available to us and when products are ready for testing.

Regulatory Environment

As they are developed, we intend to market our services internationally, as well as throughout the United States.

While we do not anticipate being subject to regulation of our services, we will endeavor to make those determinations as part of our strategic plans.

Backlog

We do not engage in manufacturing and had no backlog of orders.

Employees

Our CEO and our general counsel were the only salaried employees of the Company as of May 31, 2014. As of May 31, 2014, we had not reached settlements with respect to approximately $927,000 in compensation to our former employees. None of our former employees were parties to collective bargaining agreements.

Our future success depends, in part, on our ability to continue to attract, retain and motivate highly qualified technical, marketing, and management personnel and, as of the end of the period covered by this report and as of the date of filing, we continue to rely on the services of independent contractors for much of our sales/marketing. Technical, accounting and other functions that are critical to our continued and future success.

ITEM 1A. RISK FACTORS

An investment in our common stock is speculative in nature, involves a high degree of risk and should not be made by any investor who cannot afford the loss of their entire investment. Each prospective purchaser should carefully consider the following risks and speculative factors associated with our business and capital structure, as well as others described elsewhere in this report, before making any decision to buy, sell or hold our common stock.

Because we were previously delinquent in our reporting obligations, this report contains certain statements relating to historical events and financial performance of our company. Please note that the risk factors stated below are those that, at the time of the filing of this report we believe are related to our ongoing operations and not necessarily to those operations reflected in the financial statements included in this report.

Risks Related to Our Financial Condition

Dependence on financing.

Although, subsequent to the period described in this report, we have realized the potential to generate revenue, we did not, during the period covered and as of the date of filing, generated significant revenue compared to our operating expenses, and remain dependent on outside sources of financing. In the past, we have financed our operations by issuing secured and unsecured convertible debt and equity securities in private placements, in some cases with equity incentives for the investor in the form of warrants to purchase our common stock and have borrowed from related parties. We have sought and will continue to seek various sources of financing but there are no commitments from anyone to provide us with financing. If we are unable to obtain financing, we may have to suspend operations, sell assets and will not be able to execute our business plan.

Inability to obtain additional financing would result in the suspension of our business .

Our ability to continue our operations depends on our ability to obtain financing. If adequate funds are not available on acceptable terms, we may not be able to retain existing and/or attract new employees, support product development and fabrication, take advantage of market opportunities, develop or enhance new products, pursue acquisitions that would complement our existing product offerings or enhance our technical capabilities to develop new products or execute our business strategy.

If we lose key employees and consultants, including our Chairman and CEO, or are unable to attract or retain qualified personnel, our business could suffer.

Our future success depends, in part, on our ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering, and management personnel. Currently we have retained the services of a full-time Chief Executive Officer but have not retained other management or other full-time staff and rely almost exclusively on outside independent contractors to meet our operational and development needs. Any inability or postponement in retaining full-time staff could result in delays in development or fulfillment of any current strategic and operational plans.

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing

Our consolidated financial statements as of May 31, 2014 have been prepared under the assumption that we will continue as a going concern for the year ending May 31, 2014. Our independent registered public accounting firm has issued a report that included an explanatory paragraph referring to our recurring losses from operations and net capital deficiency and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty .

If we fail to comply with the rules under the Sarbanes-Oxley Act related to accounting controls and procedures, or if material weaknesses or other deficiencies are discovered in our internal accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

If we fail to comply with the rules under the Sarbanes-Oxley Act related to accounting controls and procedures, or, if material weaknesses or other deficiencies are discovered in our internal accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting beginning with our financial statements for the year ending May 31, 2014. We are in the process of documenting and testing our internal control procedures, and we may identify material weaknesses in our internal control over financial reporting and other deficiencies, including the lack of sufficient staff. If material weaknesses and deficiencies are detected or continue to remain unresolved, it could cause investors to lose confidence in our financial statements and result in a decline in our stock price and consequently affect our financial condition. In addition, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future. Our stock price, ability to obtain financing and the listing of our common stock on the OTCQB would be adversely impacted if we fail to maintain effective disclosure controls and procedures.

We expect losses will continue for the foreseeable future. Our stock price may be affected by such losses .

In our short history, we have not reported an operating profit and do not expect to report a profit in the near future, if at all. We have experienced losses from operations since inception. Losses are likely to continue, and may cause volatility in our stock price.

Risks Related To Our Common Stock and Its Market Value

If we fail to remain current on our reporting requirements, we could be removed from the OTCQB Market Tier which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTCQB Market Tier, such as us, must be reporting issuers under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTCQB Market Tier, and to be timely in such filings. If we fail to remain current on our reporting requirements or file late three times in 12 calendar months, our stock could be removed from the OTCQB Market Tier. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. There can be no assurance that in the future we will always be current in our reporting requirements.

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

SEC Rule 15g-9 establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

that a broker or dealer approve a person’s account for transactions in penny stocks; and

the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

obtain financial information and investment experience objectives of the person; and

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

sets forth the basis on which the broker or dealer made the suitability determination; and

that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

The market price of our common stock may be adversely affected by several factors.

The market price of our common stock could fluctuate significantly in response to various factors and events, including:

our ability to execute our business plan;

operating results below expectations;

announcements of technological innovations or new products by us or our competitors;

loss of any strategic relationship;

industry developments;

economic and other external factors; and

period-to-period fluctuations in our financial results.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock .

We have never paid cash dividends on our capital stock and do not anticipate paying cash dividends on our capital stock in the foreseeable future. The payment of dividends on our capital stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our common stock price appreciates.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. Amendments to Rule 144 effective in February 2008 also substantially reduce holding periods and eliminate burdens such as filing notices sale for non-affiliated holders. The amendments to the Rule are applicable to the purchasers of securities prior to and following the effective date of the amendments

Executive Officers of the Registrant

Our executive officers are:

Name		Position

Terrence DeFranco		Chairman of the Board

Terrence DeFranco		President, CEO and sole Director

ITEM 1B. UNRESOLVED SEC STAFF COMMENTS

None.

ITEM 2. DESCRIPTION OF PROPERTY

Our executive offices are located at 211 Warren Street, Suite 320, Newark, New Jersey 07103. The facility is approximately 500 square feet, occupied pursuant to a lease that is on a month-to-month basis.

All leases for other offices used by us in the past have expired and were not renewed.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is currently quoted on the OTCQB under the symbol “AKDS.”

Market Information

Our shares of common stock were first quoted on the Over-The-Counter Bulletin Board in 1999. The following table presents the high and low bid prices per share of our common stock as quoted for each quarter in the years ended May 31, 2014 and May 31, 2013 which information was provided by NASDAQ Trading and Market Services.

Fiscal Year ended May 31, 2014
	High Bid		Low Bid
Quarter ended:

May 31, 2014	$	0.08	$	0.0303
February 28, 2014	$	0.14	$	0.02
November 30, 2013	$	0.15	$	0.041
August 31, 2013	$	0.05	$	0.02

Fiscal Year ended May 31, 2013
	High Bid		Low Bid
Quarter ended:

May 31, 2013	$	0.07	$	0.04
February 29, 2013	$	0.07	$	0.005
November 30, 2012	$	0.02	$	0.005
August 31, 2012	$	0.029	$	0.011

The above prices represent inter-dealer quotations, without markup, markdown or commissions, and may not represent actual transactions. The trading volume of our common stock fluctuates and may be limited or nonexistent from time to time. As a result, the above prices should not be considered to represent a liquid trading market.

Holders

As of May 31, 2014, we had 236 stockholders of record of our common stock.

Dividend Policy

We have paid no dividends on our common stock and we do not expect to pay cash dividends in the foreseeable future. As of the date of this report, we do not have surplus from which we could pay dividends and intend to retain any future earnings to finance the growth and development of our business.

Recent Sales Of Unregistered Securities; Use Of Proceeds From Registered Securities

Information concerning our sales of unregistered securities during the period covered by this report has been reported by us on previously filed reports on Form 10-Q and Form 8-K.

In addition, subsequent to the period covered by this report, on August 11 and 12th, 2014, the Company executed Convertible Notes to each of two investors who had participated in financing the Company during the last 12 months, each for a loan in the principal amount of $100,000. Each of the notes bears interest at 6% per year and matures on October 31, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into restricted shares of common stock at a conversion price equal to $0.02 per share. These securities were issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act of 1933. The proceeds to the Company were used entirely for working capital.

Equity Compensation Plan Information

The following table sets forth certain information about our equity compensation plans and agreements as of May 31, 2014:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Plan Category	(a)		(b)		(c)

Equity compensation plans approved by security holders		—		—		—

Equity compensation plans not approved by security holders		37,437,500	$	0.05		62,562,500

Total		37,437,500	$	0.05		62,562,500

Our board adopted a stock option plan in 1998 which was approved by stockholders. The plan reserved 3,000,000 shares of old common stock for issuance upon the granting of incentive and non-qualified stock option until June 30, 2008 with terms up to 10 years from the dated of grant. As a result of a reverse stock split the number of shares available for grant was reduced to 60,000.

All options under this plan have expired prior to January 1, 2009.

In 2004, our board approved our 2004 Stock Option and Restricted Stock Plan (the “2004 Plan”) and set aside 6,000,000 shares for grant pursuant to incentive and non-qualified stock options, and restricted stock awards. The 2004 Plan was amended by the board in June 2006, to increase the number of shares subject to options that can be granted to our officers, directors, employees and consultants to 10,000,000. The Plan was later amended in March 2007 and November 2008 to increase this amount to 15,000,000 and 22,500,000, respectively. The term was most recently extended by our Board for an additional 10 years, in April, 2014, as well as amending the Plan to increase the amount of shares for which option grants could be exercised to 100,000,000. The 2004 Plan has not been approved by our stockholders and accordingly, no “incentive stock options” as defined in the Internal Revenue Code can be granted until such approval is obtained. The 2004 Plan had been administered by the Compensation Committee of our board of directors.

We believe the majority, if not all, of the options granted pursuant to the 2004 Plan have been terminated in accordance with the terms of the 2004 Plan as a result of the termination of employees and consultants in conjunction with the Asset Sale and settlement and releases obtained therewith.

In addition, in April, 2014, our board approved the issuance of additional options to acquire 35,437,500 shares of our common stock at $0.04 per share to key employees, including our CEO, general counsel and head of software development. All of these options are vested.

As of May 31, 2014, there were options to purchase 37,437,500 shares outstanding under the 2004 Plan, as amended, all of which were vested.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data should be read in conjunction with, and are qualified in their entirety by, the consolidated financial statements and related notes thereto contained in “Item 8. Financial Statements and Supplementary Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

	Year Ended May 31,
	2014			2013			2012			2011			2010
Revenues	$	—		$	—		$	—		$	134,480		$	295,870
Operating Expenses	$	(2,437,665	)	$	(394,953	)	$	(300,250	)	$	2,224,443		$	4,658,474
Other income (expense), net	$	520,234		$	(121,977	)	$	4,435,312		$	15,685,070		$	(6,821,032	)
Income (loss) before income taxes	$	(1,917,431	)	$	(516,930	)	$	4,135,062	²	$	13,464,862	¹	$	(11,478,230	)
Total assets	$	129,729		$	345,126		$	4,913		$	2,586		$	510,141
Long term obligations	$	322,555		$	62,677		$	—		$	—		$	—
Cash dividends declared	$	—		$	—		$	—		$	—		$	—
Net income (loss) per share basic and diluted	$	(0.03	)	$	(0.01	)	$	0.09		$	0.33		$	(0.35	)
Weighted average of common shares outstanding – diluted		68,999,697			48,898,474			47,579,132			40,354,028			33,109,891

Includes proceeds from the sale of assets/license to STMicroelectronics of $7,000,000, as well as debt forgiveness resulting from the payment of creditors from those proceeds.

Includes proceeds from the sale of assets/license to STMicroelectronics of $4,000,000, as well as debt forgiveness resulting from the payment of creditors from those proceeds.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Readers are urged to carefully review and consider the various disclosures made by us in this Form 10-K for the fiscal year ended May 31, 2014, and our other filings with the U.S. Securities and Exchange Commission. These reports and filings attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this Form 10-K speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Plan of Operation

Ongoing Negotiations with Certain Creditors

With respect to the classes of remaining creditors at the time of the Asset Sale to ST, the total debt that remained to be settled as of May 31, 2014 included approximately $927,000 due to former employees, and approximately $250,000 to Bridge Note Holders and other promissory note holders (such notes having been issued as part of those prior settlements). For the period June 1, 2014 through August 20, 2014, we settled approximately $747,000 of amounts due to former employees. This discussion, and therefore, these amounts do not include debt settled and subject to equity being issued as reflected in our financial statements, as those amounts are deemed fully resolved and settled, but for the issuance of the securities.

The current CEO of the Company is working diligently to obtain the remaining releases. We anticipate that substantially all of these claims will be settled in exchange for the issuance of common stock of the Company at a price of $0.04 (of the debt settled) per one (1) share of common stock, which is consistent with the offers made to all creditors who have already completed settlements, with the exception of bridge note holders who agreed to a price of $0.027 per share, as negotiated in December, 2010.

Software and Platform Solutions Development

As of the date of this report, we have not had significant revenue from operations since inception. Furthermore, we have financed operations with the proceeds primarily from related party lending from our major stockholder and affiliated lenders, as well as other stockholders and lenders. We continue to seek to restructure our operations following the Asset Sale and to complete the settlement of material obligations as a result of the Asset Sale. Despite selling our patents and other intellectual property to STMicroelectronics, we retained, through a license back from STMicroelectronics, the ability to pursue key elements of our anticipated software and platform solutions.

Arkados intends to continue to expand its relationship with Tatung by agreeing to partner on business and product development initiatives for smart grid applications. We anticipate that our relationships will position us to be able to commercially exploit opportunities in the various smart grid-related industries.

Electric meters with enhanced communication capabilities—an essential component of the smart grid—are becoming more prevalent. These meters use two-way communication to connect utilities and their customers. They support demand response and distributed generation, can improve reliability, and also provide information that consumers can use to save money by managing their use of electricity. The growth in the smart grid core and enabled technology market is driven primarily by the first wave of smart grid implementation: advanced metering infrastructure (the “AMI”). Utilities throughout the world have aggressively implemented smart meters to residential and industrial customers mainly because it is the required first step to achieve a true smart grid and, secondarily, in response to significant government incentives to do so. AMI lays the foundation as a hub for networking and communication and is the gateway to the home area network. From the perspective of the end user (residential or industrial), in-home (or in-building) devices are not only capable of communicating with the other devices within the local network, but are also capable of communicating outward to larger interconnected networks and implementing demand response protocols.

Every aspect of our business remains constrained by our limited capital resources and the threat of having to cease operations as a result of our lack of capital.

If we are unable to raise funds to finance our working capital needs, we will not have the capital necessary for ongoing operations.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. As of May 31, 2014, management believes the critical accounting policies applicable to the Company that are reflective of significant judgments and or uncertainties are limited to equity based transactions or convertible debt instruments.

Stock-Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model. ASC 718 is a complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. ASC 718 requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

Development Stage Activities

The Company adopted the new accounting guidance related to development stage enterprises. The new guidance eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ deficiency. The Company’s consolidated financial statements will be impacted by the adoption of this guidance primarily by the removal of inception-to-date information in the Company’s consolidated statements of operations, cash flows, stockholders’ deficiency, and related disclosures.

Impact of Debt with Conversion Features

The Company at times enters into financing transactions whereby such debt instruments contain conversion features into common stock and or may contain detachable equity rights. These debt inducement features may be considered freestanding and or beneficial conversion features in our financial statements pursuant to the accounting guidance under ASC 470-20. These features would be fair valued and recorded as a discount to the debt instrument and amortized over the life of the instrument. Additional valuation features of warrants, conversion features in debt, and similar terms that include “full-ratchet” or reset provisions, which mean that the exercise or conversion price adjusts to pricing in subsequent sales or issuances, no longer meet the definition of indexed to a company's own stock and are not exempt from equity classification provided in ASC Topic 815-15. This means that instruments that were previously classified in equity are reclassified to liabilities and ongoing measurement under ASC Topic 815. The amount of quarterly non-cash gains or losses we will record in future periods will be based upon the fair market value of our common stock on the measurement date.

The Year ended May 31, 2014

During the year ended May 31, 2014, we had revenues of $0 compared to $0 for the same period in 2013. We did not have any revenue during the current period, although management has focused on development of software that we anticipate, although cannot guarantee, will produce revenue in near-term future quarters. Total operating expenses for the year ended May 31, 2014 were $2,437,665 compared to $394,953 in the same period of fiscal year 2013. In both periods, the most significant expenses were personnel, professional fees and related expenses. During the fiscal year ended May 31, 2014 however, we did incur research and development expense in the amount of $200,626 to develop new products and services. In addition, the most significant part of our operating expenses related to compensation for our management and employees. Given our reliance on outside sources of capital, we expect significant additional charges relating to stock compensation. We also incurred $416,672 in interest expense on our outstanding convertible notes for the period ended May 31, 2014 as compared to $124,002 for the year ended May 31, 2013. In addition, as we have filed all tax returns that were previously outstanding, we may have an amount due of approximately $63,000 for state income taxes for periods of operation for the fiscal year ended May 31, 2011.

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 did not have any significant sources of revenue from our operations during the period. In October, 2013, as disclosed in our report for the 2nd quarter ended November 30, 2013, we issued convertible notes at 6% interest per annum in the principal amount totaling $400,000 to two investors who had previously invested in the Company. These notes are convertible at any time after issuance into common stock at a rate of $0.02 per share for each $1.00 of principal and interest converted. In March 2014, we engaged in a private offering of unregistered (restricted) common stock to accredited investors. This offering was on a best efforts, any or none basis and we had hoped to raise $3,000,000 to fund our general working capital. During the period of the offering, which subsequently closed at the end of April 2014, we raised $400,000 from three investors, all of which had invested previously in the Company. Through the date of this report, we have depended, in part, upon loans from investors and there can be no assurances that investors will make any additional loans to us.

Our present material commitments are the compensation of our employees, including our executive officers, and professional and administrative fees and expenses associated with the preparation of our filings with the Securities and Exchange Commission and other regulatory requirements.

As of May 31, 2014, we had cash of $118,505 and negative working capital of ($3,798,774) compared to cash of $345,126 and negative working capital of ($9,146,637) at May 31, 2013, an overall reduction in the working capital deficit of $5,347,863. The change in working capital since May 31, 2013 has resulted from $800,000 received in new financing during the year as described above, a decrease of approximately $226,000 in cash used to pay current expenses, and an increase of approximately $11,000 in prepaid expenses. In addition, however, we experienced net decreases in our liabilities as follows: $368,818 of notes payable (net of debt discount) that are now classified as short-term liabilities that were previously long-term liabilities, a net decrease of $779,295 in accounts payable and accrued expenses (resulting from a $234,596 increase in accounts payable and accrued expenses from operations and reduction of $1,013,891 settled in exchange for equity issued), $3,765,052 decrease in our debt which was settled in exchange for equity issued, and $429,612 decrease in notes payable which was settled in exchange for equity issued.

Commitments

We do not have any commitments which are required to be disclosed in tabular form as of May 31, 2014.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS.

Our financial statements are filed under this Item 8, beginning on page F-1 of this report.

Arkados Group, Inc. and Subsidiaries

Development Stage Enterprise

CONTENTS

	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F – 2

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets	F – 3

Consolidated Statement of Operations	F – 4

Consolidated Statement of Changes in Stockholders’ Deficiency	F – 5

Consolidated Statement of Cash Flows	F – 6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	F – 7 to F – 18

F- 1

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Arkados Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Arkados Group, Inc. and subsidiaries as of May 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for each of the years ended May 31, 2014 and 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2014 and 2013, and the results of its operations and cash flows for each of the years ended May 31, 2014 and 2013 in conformity with generally accepted accounting principles in the United States.

The accompanying financial statements have been prepared assuming that Arkados Group, Inc. will continue as a going concern. As more fully described in Note 2a, the Company has incurred recurring operating losses and will have to obtain additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2a. The financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

	/s/ Liggett, Vogt & Webb, P.A.
	Certified Public Accountants

New York, New York

August 27, 2014

F- 2

ARKADOS GROUP, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	May 31, 2014			May 31, 2013

ASSETS

Current assets:
Cash	$	118,505		$	345,126
Prepaid expenses		11,224			-

Total current assets		129,729			345,126

Total assets	$	129,729		$	345,126

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
Accounts payable and accrued expenses	$	661,868		$	1,441,163
Payroll taxes and related penalties and interest payable		-			936,906
Accrued income tax		98,922			100,000
Due to related party		130,000			130,000
Debt subject to equity being issued		2,420,374			6,204,926
Notes payable, net of discount of $231,818 and $0, respectively		617,339			678,768
Total current liabilities		3,928,503			9,491,763

Long term liabilities:

Notes payable, net of discount of $77,445 and $537,323, respectively		322,555			62,677

Total liabilities		4,251,058			9,554,440

Commitments

Stockholders' deficiency:
Convertible preferred stock, $.0001 par value; 5,000,000 shares authorized, zero shares outstanding		-			-
Common stock, $.0001 par value; 600,000,000 and 100,000,000 shares authorized; 75,863,928 and 48,898,474 issued and outstanding		7,585			4,889
Common stock to be issued; 37,850,479 and 0 shares		1,835,486			-
Additional paid-in capital		29,720,041			24,552,807
Accumulated deficit		(35,684,441	)		(33,767,010	)
Total stockholders' deficiency		(4,121,329	)		(9,209,314	)

Total liabilities and stockholders' deficiency	$	129,729		$	345,126

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

F- 3

ARKADOS GROUP, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended
	May 31,			May 31,
	2014			2013

Net sales	$	-		$	-

Cost of sales		-			-

Gross profit		-			-

Operating expenses:
Selling and general and administrative		2,237,039			357,498
Research and development		200,626			37,455
Total operating expenses		2,437,665			394,953

Loss from operations		(2,437,665	)		(394,953	)

Other income (expenses):
Interest expense		(416,672	)		(124,002	)
Reversal of payroll taxes and related penalties and interest payable		936,906			-
Settlement of debt		-			2,025

Loss before provision for income taxes		(1,917,431	)		(516,930	)

Provision for income tax benefits		-			-

Net loss	$	(1,917,431	)	$	(516,930	)

Loss per common share - basic and diluted	$	(0.03	)	$	(0.01	)

Weighted average of common shares outstanding - basic and diluted		68,999,697			48,898,474

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

F- 4

ARKADOS GROUP, INC. and Subsidiaries

Consolidated Statements of Stockholders’ Deficiency

Years Ended May 31, 2014 and 2013


									Common			Additional					Total
	Preferred Stock				Common Stock				Stock to			Paid in		Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		be Issued			Capital		Deficit			Deficiency
Balance as of June 1, 2012		-	$	-		48,898,474	$	4,889	$	-		$	23,952,807	$	(33,250,080	)	$	(9,292,384	)
Valuation of equity rights and beneficial conversion features of debt raise		-		-		-		-		-			600,000		-			600,000
Net Loss		-		-		-		-		-			-		(516,930	)		(516,930	)
Balance as of May 31, 2013		-		-		48,898,474		4,889		-			24,552,807		(33,767,010	)		(9,209,314	)
Common stock issued under private placement agreements		-		-		10,000,000		1,000		-			399,000		-			400,000
Common stock to be issued for bridge notes and accrued interest		-		-		-		-		73,429			-		-			73,429
Common stock to be issued for promissory note and accrued interest		-		-		-		-		121,736			-		-			121,736
Common stock to be issued for debt subject to equity being issued		-		-		-		-		125,000			-		-			125,000
Common stock to be issued for accounts payable		-		-		-		-		338,806			-		-			338,806
Common stock to be issued for consulting agreements		-		-		-		-		217,000			-		-			217,000
Common stock issued for transactions previously classified as common stock to be issued		-		-		16,965,454		1,696		(875,971	)		874,275		-			-
Common stock to be issued for promissory note and accrued interest		-		-		-		-		340,486			-		-			340,486
Common stock to be issued for debt subject to equity being issued		-		-		-		-		945,000			-		-			945,000
Common stock to be issued for accrued expenses		-		-		-		-		550,000			-		-			550,000
Warrants to be issued for bridge notes and accrued interest		-		-		-		-		-			19,047		-			19,047
Warrants issued for consulting agreements		-		-		-		-		-			104,268		-			104,268
Valuation of beneficial conversion feature of debt raise		-		-		-		-		-			107,500		-			107,500
Stock compensation expense		-		-		-		-		-			968,092		-			968,092
Warrants issued to former employees		-		-		-		-		-			2,695,052		-			2,695,052
Net Loss		-		-		-		-		-			-		(1,917,431	)		(1,917,431	)
Balance as of May 31, 2014		-	$	-		75,863,928	$	7,585	$	1,835,486		$	29,720,041	$	(35,684,441	)	$	(4,121,329	)

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

F- 5

ARKADOS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended
	May 31, 2014			May 31, 2013
Cash flows from operating activities:
Net loss	$	(1,917,431	)	$	(516,930	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		335,561			62,677
Stock based compensation		1,072,360			-
Issuance of common stock for services		217,000			-
Write-off of debt subject to equity being issued		(4,500	)		-
Gain on settlement of debt		-			(2,025	)
Changes in operating assets and liabilities:
Prepaid expenses		(11,224	)		-
Payroll taxes and related penalties and interest payable		(936,906	)		-
Accounts payable and accrued expenses		234,597			206,491
Accrued income tax		(1,078	)		-
Debt subject to equity being issued		(15,000	)		-
Net cash used in operating activities		(1,026,621	)		(249,787	)

Cash flows from financing activities:
Proceeds from sales of common stock		400,000			-
Proceeds from convertible debt		400,000			600,000
Repayment of debt		-			(10,000	)
Net cash provided by financing activities		800,000			590,000

Net (decrease) increase in cash		(226,621	)		340,213

Cash at beginning of year		345,126			4,913

Cash at end of year	$	118,505		$	345,126

Schedule of non-cash transactions:
Warrants issued to former employees to settle debt subject to equity being issued	$	2,695,052		$	-
Common stock issued or to be issued for notes payable and accrued interest	$	535,650		$	-
Warrants to be issued for bridge notes and accrued interest	$	19,047		$	-
Common stock issued or to be issued for debt subject to equity being issued	$	1,070,000		$	-
Common stock issued or to be issued for accounts payable and accrued expenses	$	888,806		$	-
Valuation of beneficial conversion feature of debt raise	$	107,500		$	-

Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	4,159		$	-

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

F- 6

ARKADOS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MAY 31, 2014 and 2013

DESCRIPTION OF BUSINESS

Arkados Group, Inc. (the “Company”) conducts business activities principally through Arkados, Inc., which is a wholly-owned subsidiary.

Pursuant to an “Agreement and Plan of Merger” (“the Merger Agreement”) dated May 7, 2004 and consummated on May 24, 2004, CDKNET.COM merged a wholly-owned subsidiary, CDK Merger Corp., with Miletos, Inc. (the “Merger”). CDK Merger Corp. was renamed “Arkados, Inc.” On August 30, 2006, the Company changed its name from CDKNET.COM, Inc. to Arkados Group, Inc. All references to CDKNET.COM, Inc. have been changed accordingly. Since Arkados Group, Inc. and subsidiaries prior to May 7, 2004 had no meaningful operations, this merger has been recorded as a reorganization of Arkados, Inc. via a reverse merger with Arkados Group, Inc.

Miletos, Inc. was a newly established entity, which acquired the assets and business of Enikia, LLC (“Enikia”) in a public foreclosure sale on March 23, 2004 in exchange for the forgiveness of $4,000,000 of secured debt and the assumption of certain outstanding liabilities. The assets and certain liabilities acquired at the foreclosure sale have been recorded at historical cost basis. The new entity, Miletos, Inc. was predominately owned by a controlled group, which was the same controlled group of Enikia, LLC and the same group became majority holders.

The Company underwent a significant restructuring between December 23, 2010 and continuing beyond May 31, 2013 during which substantially all of its assets were acquired by STMicroelectronics (sometimes referred to hereinafter as the “Asset Sale”), as disclosed in the Form 8-K filed December 29, 2010 and further described (as to the closing) in the Form 8-K filed July 12, 2011.

Following the sale of its assets associated with the manufacture of microchips, the Company, shifted its focus towards software and hardware design and developing solutions that enable machine to machine communications for the Internet of Things (IoT). The Company’s solutions support smart grid and smart home applications primarily in the areas of home and building automation and energy management and are uniquely designed to drive a wide variety of wireless and powerline communication (PLC)-based products, such as sensors, gateways, video cameras, appliances and other devices.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net losses of approximately $35.7 million since inception, including a net loss of $1.9 million for the year ended May 31, 2014. Additionally, the Company still had both working capital and stockholders’ deficiencies at May 31, 2014 and 2013 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.

Principles of consolidation - The consolidated financial statements include the accounts of Arkados Group, Inc. (the “Parent”), and its wholly-owned subsidiaries, which include: CDKnet, LLC, Creative Technology, LLC, CDK Financial Corp. Diversified Capital Holdings, LLC, Arkados, Inc. and Arkados Wireless Technologies, Inc. Currently, Arkados, Inc., however, is the only active entity with operations. Intercompany accounts and transactions have been eliminated in consolidation.

Development Stage Activities - In June 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (“ASU 2014-10”). ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ deficiency. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however, early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended May 31, 2014. The Company’s consolidated financial statements were impacted by the adoption of ASU 2014-10 primarily by the removal of inception-to-date information in the Company’s consolidated statements of operations, cash flows, stockholders’ deficiency, and related disclosures.

F- 7

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 May 31, 2014 and 2013.

Fair Value of Financial Instruments - The carrying value of cash, prepaid expenses, 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. The Company cannot estimate the fair value of the remaining outstanding payroll tax penalties and interest recorded in connection with the 2004 merger and legacy payables. As defined in Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement” (“ASC 820”), 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.

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.

	Years ended May 31,
	2014		2013

Convertible notes		50,000,000		40,000,000
Stock options		37,437,500		2,960,000
Warrants		72,031,284		2,350,080

Potentially dilutive securities		159,468,784		45,310,080

F- 8

Stock Based Compensation - In computing the amount of stock based compensation, 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 for the years ended May 31, 2014 and 2013 was $1,072,360 and $0, respectively. The 2014 expense is included in selling and general and administrative expenses. See Notes 9A and 9B.

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.

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

Income Taxes –

The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. The Company evaluates, on a quarterly basis whether, based on all available evidence, if it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.

The Company accounts for uncertain tax provisions in accordance with ASC 740-10-05 “Accounting for Uncertainty in Income Taxes.” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition

F- 9

New Accounting Pronouncements –

In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists.” The amendments in this ASU are to improve the current U.S. GAAP because they are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carry-forwards, similar tax losses, or tax credit carry-forwards exist. Current U.S. GAAP does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

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 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company’s current consolidated financial statements will not be affected by the adoption of ASU 2014-09 as the Company has not recognized revenues for the years ended May 31, 2014 and 2013.

All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

3. SALE OF LICENSE AND IP AGREEMENTS

In December 2010, the Company entered into an agreement to sell substantially all of the assets used in the Company’s business of designing, developing and selling semiconductor products that incorporate power line communications and networking services and offering services related thereto (the “Asset Sale”) to STMicroelectronics, Inc. (“ST US”), a subsidiary of STMicroelectronics N.V. (“ST”), pursuant to an Asset Purchase Agreement, by and among the Company, the Companies Arkados, Inc., and Arkados Wireless Technologies, Inc. subsidiaries (collectively, “Arkados”) and ST US, dated as of December 23, 2010 (the “Purchase Agreement”). At the same time, the Company granted a license (the “License”) to ST US to use the Company’s intellectual property assets included in the Asset Sale pending the closing of such sale. In exchange for granting the License, the Company received gross proceeds of $7 million. 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, whereupon the Company received $4 million. At the time the Asset Sale was completed, ST US agreed to license back certain intellectual property on a non-exclusive basis to Arkados to facilitate the continuation and expansion of the Company’s home automation business, support the Company’s customers and, with adequate financing (of which there is no assurance), permit the Company to continue the development and marketing of smart grid products. ST US hired substantially all of the Company’s engineering and semiconductor employees (including Oleg Logvinov, the Company’s former CEO and director, who was engaged in and directed the semiconductor business).

Substantially all of the proceeds received pursuant to the License and the Asset Sale, after payment of expenses related to the transactions, were used to settle approximately $20 million of the Company’s outstanding secured debt issued during the period from December 2004 to August 31, 2008 (which was in default) and pay employees $1.4 million of $5.2 million due to them. The remainder of the proceeds received by the Company was used to pay other creditors and expenses incurred in connection with the Asset Sale to the extent funds were available to do so.

F- 10

As a condition to entering into the Purchase Agreement and the License, ST US required that the Company have written settlement agreements and releases with all of our secured creditors as well as all of our employees. Under the settlement agreements with creditors, the creditors agreed to settle the amounts owed (approximately $30,000,000), for an aggregate amount of $10,862,241 in cash, notes payable of $818,768 and another $5,259,926 in common stock of the Company which has yet to be issued. Of the cash settlements, $7,000,000 was paid in December 2010 out of proceeds from the $7,000,000 license fee received pursuant to the License (received in December, 2010), and $3,862,241 was paid at the closing out of proceeds from the Asset Sale (received in June, 2011). In exchange for the settlement amount, the secured creditors agreed to release their security interest in Arkados’ assets and most secured creditors released Arkados from any and all additional claims, if any, that the secured creditors may have had against Arkados. The secured creditors also agreed that ST and its affiliates were third party beneficiaries to the settlement agreements. Under the settlement agreements with the Company’s employees, the employees agreed to accept an aggregate of $1,429,949 and an amount of the Company’s equity rights to be negotiated after the closing as payment for back wages and unreimbursed expenses. The cash payment was paid to employees in December 2010 out of the license fee paid to the Company by ST US. Also, as a condition to entering into the Purchase Agreement and the License, the Company entered into standstill agreements with holders of approximately $2,100,000 of unsecured debt pursuant to which those unsecured creditors agreed, among other things, not to exercise remedies that they may have as creditors of Arkados, not to sell or transfer their debt, to release ST and its affiliates from any and all claims that they may have against ST, if any, and not to sue ST for any dealings that the creditors had with Arkados.

The Company is negotiating with its outstanding unsecured debt holders to compromise, extend the due date or convert outstanding debt into equity and thereby facilitate raising additional investor capital for the portion of the Company’s business that may continue. The amounts that the debt holders have agreed to settle through the 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.

PAYROLL TAX LIABILITIES

Enikia was in arrears for several years in its payment of federal and state payroll taxes. Pursuant to the Merger Agreement, the Company assumed up to $1.2 million of the delinquent payroll taxes due and outstanding with the remaining difference being an assumed liability of the major shareholder of the Company. During the year ended May 31, 2006, the Company made payments to both federal and state of New Jersey taxing authorities in the amount of $874,000. The payments represented payroll taxes withheld by Miletos from its employees but not remitted to the taxing authorities. During the year ended May 31, 2008, an additional $64,106 payment was made to the State of New Jersey for payment of payroll taxes. At February 28, 2014 and May 31, 2013, there was $936,906 still recorded on the Company’s books as reserved against amounts possibly due and outstanding to both the federal and state tax authorities for penalties and interest incurred by Enikia related to its payroll liabilities. The Company is not aware of any past due obligations by the respective regulatory agencies on these assumed obligations and further believes that the statute of limitations has expired if there was a possible obligation assumed by the Company on behalf of Miletos. As a result, the Company reversed the liability of $936,906 and such reversal is reflected as other income in the consolidated statement of operations.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

As of May 31, 2014 and 2013, accounts payable and accrued expenses consist of the following amounts:

	May 31, 2014		May 31, 2013

Accounts payable	$	396,324	$	642,612
Accrued interest and penalties payable		137,736		181,710
Accrued other		127,808		616,841
	$	661,868	$	1,441,163

Accounts payable transactions included the following:

On September 10, 2013, the Company entered into a Settlement Agreement and Release with an unsecured creditor whereby the Company was released from all existing debt, including interest, in exchange for the issuance of 23,776,513 shares of common stock within 90 days of the signing of the Agreement. The Company has yet to issue such shares under this Settlement Agreement and has classified such shares as common stock to be issued. As of May 31, 2014 and 2013, there was $0 and $550,000 of payables due, respectively.

On September 19, 2013, the Company entered into a General Release with an unsecured creditor whereby the Company was released from all accounts payable totaling $130,863, in exchange for the issuance of common stock. See Note 8e.

On November 20, 2013, the Company entered into a Settlement Agreement and General Release with an unsecured creditor whereby the Company was released from all existing debt, including interest, totaling $207,943, in exchange for the issuance of 5,682,407 shares of common stock. See Note 8e.

F- 11

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

Notes Payable

As a result of the sale of the Company’s Asset Sale to STUS, the notes payable and convertible debentures of $17,269,689 and the related accrued interest of $3,671,137 as of May 31, 2010, have been settled in part with the December 2010 closing in the amount of $5,570,059 and the balance in June 2011 closing with cash of $3,526,523, an undetermined amount of equity yet to be issued and $688,768 of remaining notes payable as of May 31, 2012. As of May 31, 2013 there was $741,455 of notes payable, net of debt discount of $537,323, largely the result of additional debt investments during this year. In fiscal 2014, the Company received loans of $400,000. As of May 31, 2014, there was $939,894 of notes payable, net of debt discounts of $309,263.

Notes payable transactions include the following:

2013 Transactions

In November 2012, the Company received a loan in the form of a Convertible Note in the principal amount of $180,000. The note bears interest at 6% per year and matures on November 15, 2014. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.01 per share. The beneficial conversion feature was fair valued at $180,000 and is being amortized over the life the debt instrument.

In December 2012, the Company received a loan in the form of a Convertible Note in the principal amount of $20,000. The note bears interest at 6% per year and matures on November 15, 2014. If not paid upon maturity, the interest rate will increase to 12% per year. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.01 per share. The beneficial conversion feature was fair valued at $20,000 and is being amortized over the life the debt instrument.

On April 22, 2013, the Company executed two Convertible Notes for loans in principal amount of $40,000 each. Each note bears interest at 6% per year and matures on April 30, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.02 per share for both notes. The beneficial conversion feature was fair valued at $40,000 each and is being amortized over the life the debt instruments.

On April 22, 2013, the Company executed a Convertible Note for a loan in the principal amount of $120,000. The note bears interest at 6% per year and matures on April 30, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.02 per share. The beneficial conversion feature was fair valued at $120,000 and is being amortized over the life the debt instrument.

On May 2, 2013, the Company executed a Convertible Note for a loan in the principal amount of $200,000. The note bears interest at 6% per year and matures on April 30, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.02 per share. The beneficial conversion feature was fair valued at $200,000 and is being amortized over the life the debt instrument.

2014 Transactions

On September 6, 2013, the Company entered into a Settlement Agreement and General Release with a prior director who was also an unsecured creditor, whereby he released all existing debt and accrued interest totaling $18,190, in exchange for the issuance of 1,204,630 shares of common stock within 90 days of the signing of the Agreement. See Note 8c.

On September 9, 2013, the Company entered into a Settlement Agreement and General Release with an unsecured creditor whereby the Company was released from all existing debt and accrued interest totaling $74,286, in exchange for the issuance of 2,478,417 shares of common stock and the issuance of a warrant to exercise 1,435,000 shares of stock at $0.04 per share for a term of three years within 90 days of the signing of the Agreement. See Note 8c.

On September 19, 2013, the Company entered into a General Release with an unsecured creditor whereby the Company was released from a promissory note, including interest, totaling $121,736, in exchange for the issuance of common stock. See Note 8e.

On October 28, 2013, the Company executed a Convertible Note for a loan in the principal amount of $200,000. The note bears interest at 6% per year and matures on October 31, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.04 per share. The beneficial conversion feature was fair valued at $7,500 and is being amortized over the life the debt instrument.

On November 12, 2013, the Company executed a Convertible Note for a loan in the principal amount of $200,000. The note bears interest at 6% per year and matures on October 31, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.04 per share. The beneficial conversion feature was fair valued at $100,000 and is being amortized over the life the debt instrument.

Effective June 1, 2009, the Company adopted the provisions of EITF 07-05 “Determining Whether an Instrument (or Embedded Feature) is Indexed to a Company's Own Stock,” which was codified into ASC 815, “Derivatives and Hedging” (“ASC 815”) ASC 815 applies to any freestanding financial instruments or embedded features that have characteristics of a derivative and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. The Company had 11,075,004 of warrants with exercise reset provisions, with its debt issuances over the years, which are considered freestanding derivative instruments. ASC 815 requires that these warrants be recorded as liabilities as they are no longer afforded equity treatment. The assumptions were as follows: risk free rates from 1.32% to 1.39%, expected life terms ranging from 0.5 years to 2.0 years, an expected volatility range of 206% to 251% depending on the term of such equity contracts and a dividend rate of 0.0%. The fair value of the warrants issued and outstanding at May 31, 2010, attributed to this derivative liability has been determined to be immaterial due to the low stock price in comparison to the exercise price, hence there was no adjustment to make upon adoption of this accounting standard. As of May 31, 2014, all of these warrants expired.

F- 12

2015 Transactions

On August 11, 2014, the Company executed a Convertible Note for a loan in the principal amount of $100,000. The note bears interest at 6% per year and matures on October 31, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.02 per share. The beneficial conversion feature was fair valued at $35,500 and will be amortized over the life the debt instrument.

On August 12, 2014, the Company executed a Convertible Note for a loan in the principal amount of $100,000. The note bears interest at 6% per year and matures on October 31, 2015. At any time during the term of the loan, the holder of the note has the right to convert any unpaid portion of the note into shares of common stock. The conversion price shall equal $0.02 per share. The beneficial conversion feature was fair valued at $35,500 and will be amortized over the life the debt instrument.

Maturities of notes payable are as follows:

	Notes Payable		Debt Discount		Net
Year ending May 31, 2015	$	849,157	$	231,818	$	617,339
Year ending May 31, 2016		400,000		77,445		322,555
	$	1,249,157	$	309,263	$	939,894

Related Party Payables

The Company received an aggregate of $130,000 from several of its then directors during the first quarter of 2012. This obligation remains outstanding therefore the Company has reported a related party payable in the amount of $130,000 as of each of May 31 2014 and 2013.

Debt Subject To Equity Being Issued

As a direct result of the Sale of the License and IP Agreements to STUS 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 the Company’s secured creditors. There remains, however, approximately $0.9 million and $3.62 million of payments due the former employees as of May 31, 2014 and 2013, respectively.

The continuing settlements with unsecured and related parties resulted in gains being recorded in the amount of $482,784 in fiscal 2012. As of May 31, 2014 and 2013, there remained $2,420,374 and $6,204,926 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.

On January 6, 2013, the Company and Andreas Typaldos (“Typaldos”), former officer and director, entered into a Separation and Release Agreement (Separation Agreement”). Under the Separation Agreement, all prior agreements with Typaldos will be terminated and certain debts and obligations to Typaldos will be released in exchange for (1) $15,920 and (2) 14,073,966 shares of common stock. In addition, $19,000 will be paid to Typaldos’ son for an existing loan with the Company. The Company has yet to issue such shares under this Separation Agreement and the shares are classified as common stock to be issued. As of May 31, 2014 and 2013, there was $0 and $945,000 of payables due to Typaldos, respectively.

On September 11, 2013, the Company entered into a Settlement Agreement and General Release with a vendor in respect of all past due amounts prior to November 1, 2012 in exchange for a payment by the Company of $15,000 in cash and the issuance of 3,500,000 shares of the Company’s stock valued at $125,000 within 90 days of the signing of the Agreement. The Company paid $7,500 in December 2013 and $7,500 in March 2014. The Company issued the shares in February 2014. See Note 8d.

In April 2014, the Company entered into final supplemental agreements with various former employees to settle all outstanding claims. The Company issued warrants to purchase 67,376,284 shares of common stock at $0.04 per share for a five-year period to settle claims totaling $2,695,052.

F- 13

During the quarter ended August 31, 2012, the Company negotiated the settlement of additional debts resulting in $10,000 being paid for the settlement of $12,025 of recorded liabilities, resulting in a gain on the settlement of such debts being recorded in the amount of $2,025.

As of May 31, 2014, debt subject to equity being issued totaled $2,420,374.

2015 Transactions

During the period from June 1, 2014 to August 20, 2014, the Company entered into final supplemental agreements with former employees to settle all outstanding claims. The Company issued warrants to purchase 18,688,412 shares of common stock at $0.04 per share for a five-year period to settle claims totaling $747,537.

During the period from June 1, 2014 to August 20, 2014, the Company entered into a final supplemental agreement with a bridge note holder to settle all outstanding claims. The Company agreed to issue 4,450,630 shares of common stock to settle claims totaling $100,000. The shares have not been issued as of August 20, 2014.

INCOME TAXES

There was no provision for federal or state taxes for both of the years ended May 31, 2014 and 2013.

The components of deferred taxes were as follows:

	May 31,
	2014			2013
Deferred tax asset:
Net operating loss carry forward	$	6,679,000		$	6,908,000
Accrued compensation		371,000			1,420,000
Valuation allowance		(7,050,000	)		(8,328,000	)
Net deferred tax asset	$	—		$	—

The Company has a valuation allowance against the full amount of its net deferred taxes due to the uncertainty of realization of the deferred tax assets due to operating loss history of the Company. The valuation allowance for the year ended May 31, 2014 changed for an increase in the current year deductible losses of $199,000 and decreased by $428,000 for prior year changes to the net operating losses based on the tax returns filed and then reduced by another $1,049,000 due to accrued compensation being satisfied for equity with a nominal value. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.

A reconciliation of the statutory federal income tax benefit to actual tax benefit for the years ended May 31, 2014 and 2013 is as follows:

	2014			2013

Federal statutory income tax rates		(35	)%		(35	)%
State statutory income tax rate, net of federal benefit		(5	)		(5	)
Permanent differences – equity rights		30			4
Effect of net operating loss		10			36

Effective tax rate		—	%		—	%

As of May 31, 2014, the Company has federal net operating loss carryforwards of approximately $16,700,000 subject to expiration between fiscal years 2027 and 2034. The Company may have had a greater than 50% change in ownership of certain stock holdings by shareholders of the Company pursuant to Section 382 of the Internal Revenue Code. The net operating losses may be limited as to its utilization on an annual basis. Currently, no such evaluation has been performed.

The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The periods from fiscal 2011 through 2014 remain open to examination by the IRS and state jurisdictions. The Company believes it is not subject to any tax audit risk beyond those periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of interest expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the years ended May 31, 2014 and 2013.

F- 14

STOCKHOLDERS’ DEFICIENCY

Increase in authorized shares

A majority of the Company’s stockholders authorized, at the recommendation of the Company’s Board of Directors, an increase the number of shares of common stock from 100,000,000 to 600,000,000. The increase became effective on March 17, 2014.

2013 transactions

The Company raised $600,000 of debt with conversion features, converting such debt into equity at the option of the holders at exercise prices ranging from $0.01 to $0.02 a share. The beneficial conversion rights have been valued at $600,000 and are being amortized over the life of the related debt.

2014 transactions

The Company raised $400,000 of debt with conversion features, converting such debt into equity at the option of the holders at an exercise price of $0.04 a share. The beneficial conversion rights have been valued at $107,500 and are being amortized over the life of the related debt.

As described above, the Company signed settlement agreements with two bridge note holders and agreed to issue 3,683,047 shares of its common stock for $73,429 of bridge notes and accrued interest. Such shares would be exempt from registration. In addition, the Company agreed to issue a warrant to purchase 1,435,000 shares of common stock at a price of $0.04 per share for a term of three years to one note holder for $19,047 of bridge notes and accrued interest. The Company issued the shares on February 3, 2014. Prior to the issuance date, such shares were classified as common stock to be issued. In addition, the Company has not issued the warrants.

As described above, the Company agreed to issue 3,500,000 shares of its common stock for $125,000 of debt subject to equity being issued. Such shares would be exempt from registration. The Company issued the shares on February 3, 2014. Prior to the issuance date, such shares were classified as common stock to be issued.

As described above, the Company signed settlement agreements with two vendors and agreed to issue 6,682,407 shares of its common stock for $338,806 of accounts payable and $121,736 of a promissory note and accrued interest. Such shares would be exempt from registration. The Company issued the shares on February 3, 2014. Prior to the issuance date, such shares were classified as common stock to be issued.

The Company agreed to issue 3,100,000 shares of its common stock for $217,000 to two consultants and warrants to purchase 3,000,000 shares of common stock to one of the consultants valued at $95.410. The values of the issuances were expensed as there were no material disincentive terms in these agreements with the two consultants. The Company issued the shares on February 3, 2014. Prior to the issuance date, such shares were classified as common stock to be issued.

In March 2014, the Company commenced a $3,000,000 private placement for the sale of 75,000,000 shares of its common stock at $0.04 each. As of May 31, 2014, the Company has raised $400,000 through the sale of 10,000,000 shares to accredited investors. For the period June 1, 2014 through August 20, 2014, no additional shares have been issued.

2015 transactions

On July 16, 2014, the Company issued 20,000,000 shares of common stock to a consultant under the terms of a consulting agreement. The shares were valued at $0.05 per share which was the price of the common stock on the date of the consummation of an agreement with a customer. See Note 10.

STOCK-BASED COMPENSATION

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

A. Options

On April 8, 2014, the Company issued options to its chief executive officer and two of its key employees to purchase 35,437,500 shares of the Company’s common stock at an exercise price of $0.04 per share, the closing price of the Company common stock as quoted on the OTCQB. The options vest immediately and are exercisable for ten years. Stock based compensation related to these options amounted to $968,092 for the year ended May 31, 2014. No options were granted in the year ended May 31, 2013.

F- 15

The options issued were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.04; strike price - $0.04; expected volatility - 93.24%; risk-free interest rate - 1.5%; dividend rate - 0%; and expected term – 2 - 5 years.

The expected life is the number of years that the Company estimates, based upon history, that options will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. The Company did not use the volatility rate of its common stock price. Instead, the volatility rate was based on a blended rate of the Company’s common stock price as well as the stock prices of companies providing similar services..

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

				Weighted
				Average
	Shares			Exercise Price
Outstanding at May 31, 2012		3,610,000		$	0.55
Granted		—			—
Exercised		—
Expired or cancelled		(650,000	)		0.75
Outstanding at May 31, 2013		2,960,000			0.29
Granted		35,437,500			0.04
Exercised		—			—
Expired or cancelled		(960,000	)		0.36
Outstanding at May 31, 2014		37,437,500		$	0.05

F- 16

The following table summarizes information about options outstanding and exercisable at May 31, 2014:

	Options Outstanding and Exercisable
	Number Outstanding		Weighted- Average Remaining Life In Years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$0.00 - $0.04		35,437,500		9.89	$	0.04		35,437,500
$0.05 - $0.25		1,800,000		1.34		0.24		1,800,000
$0.26 - $0.30		200,000		0.76		0.30		200,000
		37,437,500		9.43	$	0.05		37,437,500

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

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

The aggregate intrinsic value totaled $177,188 and was based on the Company’s closing stock price of $0.045 as of May 31, 2014, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of May 31, 2014 was 35,437,500.

The weighted average fair value of options granted during the year ended May 31, 2014 was $0.027 per share. The total fair value of shares vested during the years ended May 31, 2014 and 2013 was $968,092 and $0, respectively.

As of May 31, 2014, there was no future compensation cost related to nonvested stock options.

B. Warrants

Issuances of warrants related to stock based compensation were as follows in the year ended May 31, 2014:

As discussed above, the Company agreed to issue warrants to purchase 3,000,000 shares of common stock to a consultant at exercise prices ranging from $0.10 to $0.20 per share. The warrants are exercisable for three years. Stock based compensation related to these warrants amounted to $95,410 for the year ended May 31, 2014.

On March 4, 2014, under the terms of a consulting agreement, the Company agreed to issue a warrant to purchase 220,000 shares of common stock to a consultant at exercise price of $0.04 per share. The warrant is exercisable for three years. Stock based compensation related to these warrants amounted to $8,858 for the year ended May 31, 2014.

No warrants were issued in the year ended May 31, 2013.

The issuance of warrants attributed to debt issuances are summarized as follows:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at May 31, 2012		5,895,945		$	0.50
Granted		—			—
Exercised		—			—
Expired or cancelled		(3,545,865	)		0.70
Outstanding at May 31, 2013		2,350,080			0.19
Granted		72,031,284			0.04
Exercised		—			—
Expired or cancelled		(2,350,080	)		0.19
Outstanding at May 31, 2014		72,031,284		$	0.04

F- 17

The following table summarizes information about warrants outstanding and exercisable at May 31, 2014:

	Outstanding and exercisable
	Number Outstanding		Weighted- average remaining life in years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$0.01 to $0.04		69,031,284		4.92	$	0.04		69,031,284
$0.05 to $0.20		3,000,000		2.48		0.15		3,000,000
		72,031,284		4.82	$	0.04		72,031,284

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

The warrants issued were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.06 - $0.07; strike price - $0.04 - $0.20; expected volatility - 93.24% - 96.33%; risk-free interest rate – 1.5%; dividend rate – 0%; and term - 3 years. The Company did not use the volatility rate of its common stock price. Instead, the volatility rate was based on a blended rate of the Company’s common stock price as well as the stock prices of companies providing similar services.

10.

COMMITMENTS

The Company utilized premises on a month-to-month basis of one its stockholders during fiscal 2012 and from June 2012 through December 2012. Beginning January 1, 2013 through the current date, the Company has been subletting office space on a month-to-month basis from a company owned by its chief executive officer at the rate of $1,668 per month.

Rent expense for the years ended May 31, 2014 and 2013 was $20,016 and $7,392, respectively.

On July 1, 2013, the Company entered into a consulting agreement whereby the consultant would be paid in shares of the Company’s common stock in lieu of cash after achieving certain milestones. 20 million shares were issued on July 16, 2014 upon the consummation of an agreement with a customer, another 30 million shares each will be issued upon gross revenue receipts of $500,000, $2,000,000 and $4,000,000, respectively.

On November 20, 2013, the Company entered into a one-year consulting agreement whereby the consultant received 3,000,000 shares of common stock and warrants to purchase 3,000,000 shares of common stock exercisable at prices ranging from $0.10 to $0.20 per share. In addition, the consultant is entitled to a 7% finder’s fee on the gross consideration paid for an acquisition identified by the consultant.

On March 4, 2014, the Company entered into a one-year consulting agreement which includes cash payments of $3,500 per month.

11.

SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of this filing. Specific transactions post year-end may be located in Note 6 and Note 8 under the subheading “2015 Transactions.”

F- 18

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. 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 May 31, 2014.

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 May 31, 2014. Due to its small size and limited financial resources, the Company has only one employee involved in accounting and financial reporting. As a result, there is no segregation of duties within the accounting function, leaving all aspects of financial control and physical control of cash in the hands of the same employee. In addition, our deficiencies also include a lack of timely financial statement preparation and account reconciliations, as well as, and as a result of limited financial resources, the ability to retain personnel with sufficient technical expertise regarding accounting for certain equity-based transactions. The CEO is currently working to retain a full-time Chief Financial Officer and to put it in place compensating levels of controls to provide for greater segregation of duties. There is no CFO at this time, however, and the CEO is also acting in the capacity of Principal Accounting Officer.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

There has been no change in our internal control over financial reporting identified in connection with the evaluation that occurred during the last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

For the period ending May 31, 2014, the directors, officers and key employees of the Company were as follows:

Name	Age	Position
Terrence DeFranco	48	Chairman/Sole Director, President and Chief Executive Officer

Mr. DeFranco is also the Managing Member of OneSource Advisors, a corporate consulting firm focused on providing strategic advisory services to boards of directors of public companies and acting Chief Executive Officer and founder of Edentify, Inc., an identity management software company. Previously, Mr. DeFranco was Chairman and CEO of Titan International Partners, a merchant banking and research firm focused on providing corporate and strategic advisory services and equity and debt financing to small-cap and middle market companies.

His background is primarily in the area of corporate finance and capital raising, previously serving as head of investment banking for Baird, Patrick & Co., Inc., a 50-year old NYSE-member firm and head of investment banking and founding partner of Burlington Securities Corp., a New York based investment banking and institutional equity trading firm.

Mr. DeFranco began his career on Wall Street in 1991 with PaineWebber, Inc., now UBS PaineWebber. Mr. DeFranco has been an active principal investor, senior manager and advisor to many early-stage companies and has extensive experience in dealing with issues related to the management and operations of small public companies. Mr. DeFranco is a graduate of the University of North Carolina at Chapel Hill with a BA in Economics.

The Company does not currently retain the services of a chief accounting officer and Mr. DeFranco also serves in that role. We continue our search for a full time Chief Financial Officer, but there can be no assurance that the Company will be able to identify and hire a qualified candidate in the near future.

Board Meetings

During the fiscal year ended May 31, 2014, our Board consisted of one director, Terrence DeFranco. Our Board, as presently comprised, takes action from time to time by unanimous (or sole) consent.

Board Committees

During the period covered by this report, our Board consisted solely of one director and therefore, we did not have a standing Audit or Compensation Committee. We hope to appoint new directors in the near future, however, and would re-establish both an Audit Committee and Compensation Committee promptly thereafter. The charters of the Audit and Compensation Committees were filed as exhibits to our report on Form 10-K for the period ended May 31, 2010.

Board Nominations and Appointments

In considering whether to nominate any particular candidate for election to the Board, the Board will use various criteria to evaluate each candidate, including an evaluation of each candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interest and the ability to act in the interests of our Stockholders. The Board plans to evaluate biographical information and interview selected candidates. The Board also plans to consider whether a potential nominee would satisfy the NASDAQ listing standards for “independence” and the SEC’s definition of “audit committee financial expert.” The Board does not plan to assign specific weights to particular criteria and no particular criterion will be a prerequisite for each prospective nominee.

We do not have a formal policy with regard to the consideration of director candidates recommended by our Stockholders, however, Stockholder recommendations relating to director nominees may be submitted in accordance with the procedures set forth below under the heading “Communicating with the Board of Directors”.

Communicating with the Board of Directors

Stockholders who wish to send communications to the Board may do so by writing to Mr. Terrence DeFranco, CEO Arkados Group, Inc., 211 Warren Street, Suite 320, Newark, New Jersey 07103. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder-Board Communication.” All such letters must identify the author as a Stockholder and must include the Stockholder’s full name, address and a valid telephone number. The name of any specific intended Board recipient should be noted in the communication. We will forward any such correspondence to the intended recipients; however, prior to forwarding any such correspondence, we will review such correspondence, and in our discretion, may not forward communications that relate to ordinary business affairs, communications that are primarily commercial in nature, personal grievances or communications that relate to an improper or irrelevant topic or are otherwise inappropriate for the Board’s consideration.

Code of Ethics

As part of our system of corporate governance, our Board of Directors has adopted a Code of Business Conduct and Ethics for directors and executive officers of the Company. This Code is intended to focus the Board and each director and executive officer on areas of ethical risk, provide guidance to directors and executive officer to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Each director and executive officer must comply with the letter and spirit of this Code. We intend to disclose any changes in or waivers from our Code of Business Conduct and Ethics by filing a Form 8-K or by posting such information on our website.

Section 16(a) Beneficial Ownership Reporting Compliance

We have determined that no persons who, during the fiscal year ended May 31, 2014, was a “Reporting Person” defined as a director, officer or beneficial owner of more than ten percent of our common stock which is the only class of securities registered under Section 12 of the Securities Exchange Act of 1934 (the “Act”), failed to file on a timely basis, reports required by Section 16 of the Act during the most recent fiscal year. We continue to plan to assist in filing all such forms timely in the future and to file any omitted filing. The foregoing is based solely upon a review of Forms 3 and 4 during the most recent fiscal year as furnished to us under Rule 16a-3(d) under the Act, and Forms 5 and amendments thereto furnished to us with respect to its most recent fiscal year, and any representation received by the Company from any reporting person that no Form 5 is required.

ITEM 11. EXECUTIVE COMPENSATION.

Compensation Discussion and Analysis.

At present, Terrence DeFranco, our Chairman and CEO is an at-will employee of the Company by virtue of an oral agreement entered into by the previous sitting Board of Directors. The agreement requires Mr. DeFranco to serve on a full-time basis and provides for bi-weekly compensation, based on a rate determined by comparison to executives of similarly sized companies in our industry. In addition, Mr. DeFranco is paid a monthly healthcare insurance expense and reimbursement of business-related expenses. Determinations with regard to bonus or option grants, are made by Mr. DeFranco solely, at this time.

SUMMARY COMPENSATION TABLE

The following table summarizes the total compensation of our Chief Executive Officers in 2014 and 2013, as well as all our other executive officers who received or would have received compensation in excess of $100,000 for the year ending May 31, 2014.

Name/ Principal Position	Year	Salary		Deferred Salary Paid		Option Award			All Other Compensation		Total Compensation
Terrence DeFranco	2014	$	206,723	$	-0-	$	578,177	(1)	$	1,101	$	786,001
President, Chief Executive Officer	2013	$	17,846	$	-0-	$	-0-		$	-0-	$	17,846
(from January 2, 2013)

Andreas Typaldos	2014	$	-0-	$	-0-	$	-0-		$	-0-	$	-0-
President, Chief Executive Officer	2013	$	-0-	$	-0-	$	-0-		$	-0-	$	-0-
(through January 2, 2013)

(1)

Reflects the aggregate grant date fair value computed in accordance with FASB ASC 718.

GRANTS OF PLAN-BASED AWARDS

The following grants were made for the Fiscal Year ended May 31, 2014 to named executive officers.

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards

Estimated Future Payouts Under

Equity Incentive Plan Awards

All Other

Stock

Awards:

Number of

Shares of

Stocks or

All Other

Option Awards:

Number of

Securities

Underlying

Exercise or

Base Price

of Option

Grant Date

Fair Value of

Stock and

Name

Grant

Date

Threshold

($)

Target

($)

Maximum

($)

Threshold

(#)

Target

(#)

Maximum

(#)

Units

(#)

Options

(#)

Awards

($/Sh)

Option

Awards

Terrence DeFranco

4/8/14

-0-

20,250,000

-0-

0.04

578,177

OPTION EXERCISES AND STOCK VESTED IN 2014

There were no exercises of options by executives or directors in the period ended May 31, 2014. No additional stock vested under previously issued options.

OUTSTANDING EQUITY AWARDS AT 2014 FISCAL YEAR-END

OPTION AWARDS

		Number of securities underlying unexercised options (#) Exercisable				Number of securities Underlying unexercised options (#) Unexercisable				Equity Incentive Plan awards: Number of securities Underlying unexercised Unearned Options (#)				Option Exercise Price ($)				Option Expiration Date
Terrence DeFranco			20,250,000				-				-			$	0.04			4/8/2024

Stock Option Plans

Our current policy is that all full time key employees are considered annually for the possible grant of stock options, depending upon employee performance. The criteria for the awards are experience, uniqueness of contribution to our business and the level of performance shown during the year. Stock options are intended to generate greater loyalty and help make each employee aware of the importance of their business success of the Company.

In April, 2014, the Company issued stock options to the following key personnel: options to acquire 20,250,000 shares of common stock its Chief Executive Officer, options to acquire 10,125,000 shares of common stock to its general counsel and options to acquire 5,062,500 shares of common stock its product development manager. Each of these employees were given an award based on their contributions to the development of the Company during the previous 12 months and, for certain of them, because they had done so at compensation rates that were below market. These were issued pursuant to and subject to the 2004 Plan.

In addition, during the period, there remained options to acquire 2,000,000 shares of our common stock that were vested and exercisable by former executives of the Company, pursuant to their severance agreements, these were, however, subsequently cancelled in conjunction with settlement agreements entered into after the reporting period.

As of May 31, 2014, there were options to purchase 37,437,500 shares of our Common Stock outstanding under various option plans.

A summary of our existing stock option plan is as follows:

Our 2004 Stock Option and Restricted Stock Plan, (“The 2004 Plan”), which was, in April, 2014, extended for an additional 10 years, is currently administered by our sole director. Our sole director designates the persons to receive options, the number of shares subject to the options and the terms of the options, including the option price and the duration of each option, subject to certain limitations. All stock options grants during 2014 were made from the 2004 Plan. The 2004 Plan also permits the issuance of restricted stock which is subject to vesting and forfeiture at such times, amounts and conditions.

The maximum number of shares of Common Stock available for issuance under the 2004 Plan, as amended, is 100,000,000 shares. The plan is subject to adjustment in the event of stock splits, stock dividends, mergers, consolidations and the like. Common Stock subject to options granted under the 2004 Plan that expire or terminate will again be available for options to be issued under each Plan.

The option price is payable in cash or by check or under cashless exercise provision determined by the Compensation Committee.

In the absence of a contrary provision in option agreements adopted by the Board of Directors, under the 2004 Plan, upon termination of an optionee’s employment or consultancy, all options held by such optionee will terminate, except that any option that was exercisable on the date employment or consultancy terminated may, to the extent then exercisable, be exercised within three months thereafter (or six months thereafter if the termination is the result of permanent and total disability of the holder), and except such three month period may be extended by our Board in its discretion. If an optionee dies while he is an employee or a consultant or during such three-month period, the option may be exercised within six months after death by the decedent’s estate or his legatees or distributees, but only to the extent exercisable at the time of death.

The 2004 Plan provides that outstanding options shall vest and become immediately exercisable in the event consolidation, merger or acquisition of stock, the result of which our stockholders will own less than 50% of the voting power of the reorganized, merged or consolidated company or the sale of substantially all of our assets and the options are not assumed by the surviving company. In such event, the holder will have 15 days to exercise the option and options will terminate on the expiration of such fifteen day period.

Compensation of Directors

During the period covered by this report, our executive officers did not receive compensation for their service as directors. They were reimbursed for expenses incurred in attending meetings, if applicable.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of August 27, 2014 by (i) each of our directors and executive officers, and (ii) all of our directors and executive officers as a group. Except for the directors and executive officers listed in the table below, no other individual or entity owns more than five (5%) of our outstanding shares of common stock. Except as otherwise indicated, we believe, based on information provided by each of the individuals named in the table below, that such individuals have sole investment and voting power with respect to such shares, subject to community property laws, where applicable. As of August 27, 2014, we had outstanding 133,714,407 shares of common stock. This number includes 37,850,479 of shares which we are obligated to issue but have not yet been issued. Except as stated in the table, the address of the holder is c/o our company, 211 Warren Street, Suite 320, Newark, NJ 07103.

Name of Beneficial Owner or Number of Persons in Group	Amount and Nature of Beneficial Ownership (1)			Percent of Class (2)

(a) Executive Officers & Directors

Terrence DeFranco		20,250,000	(3)		13.15	%

All executive officers and directors as a group (1 person)		20,250,000	(3)		13.15	%

(b) Other Beneficial Holders

MAT Research LLC		20,000,000			14.96	%

(1)

Beneficial ownership is determined in accordance with the rules of the Commission generally includes voting or investment power with respect to securities. Under the rules of the Commission, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares a power to vote or to direct the voting of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. In accordance with Commission rules, shares of Common Stock that may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionees. Subject to community property laws, where applicable, we believe the persons or entities named in the table above have sole voting and investment power with respect to all shares of the Common Stock indicated as beneficially owned by them.

(2)

In determining percentage of outstanding, we included shares issued and outstanding, shares obligated to be issued and the securities identified (if consisting of derivative securities) as if issued.

(3)

Consisting of options to acquire common stock. The beneficial ownership reported here results from options with an exercise price that exceeds the current market price, but are otherwise currently exercisable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None during the period.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed and unbilled for the fiscal years ended May 31, 2014 and 2013 for professional services rendered by our principal accountants for the audits of our annual financial statements, and the review of our financial statements included in our quarterly reports on Form 10-Q were approximately $31,000 and $22,000, respectively.

Audit-Related Fees

The aggregate fees billed for the fiscal years ended May 31, 2014 and 2013 for assurance and related services rendered by our principal accountants related to the performance of the audit or review of our financial statements, specifically accounting research, were $0 and $0, respectively.

Tax and Other Fees

There aggregate fees billed for the fiscal years ended May 31, 2014 and 2013 for tax related or other services rendered by our principal accountants in connection with the preparation of our federal and state tax returns were $3,500 and $3,500, respectively.

Approval of Non-audit Services and Fees

We do not have an audit committee. Our sole director/CEO pre-approves all services, including both audit and non-audit services, provided by our independent accountants. For audit services, each year the independent auditor provides our sole director with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be formally accepted by the sold director before the audit commences.

PART IV

ITEM 15. EXHIBITS.

EXHIBIT INDEX

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

File

Number

Exhibit

Filing

Date

Filed

Herewith

2.1

Agreement and Plan of Merger dated as of May 7, 2004 between CDKnet.com, Inc., CDK Merger Corp., Miletos, Inc. and Andreas Typaldos, as Representative of Certain Stockholders of Miletos, Inc.

10-K

0-27587

2.1

9/17/04

2.2

Amendment dated May 21, 2004 to the Agreement and Plan of Merger dated as of May 7, 2004 between CDKnet.com, Inc., CDK merger Corp., Miletos, Inc. and Andreas Typaldos, as Representative of Certain Stockholders of Miletos, Inc.

10-K

0-27587

2.2

9/17/04

2.3

Amendment Number 2, dated January 19, 2005, amending the Agreement and Plan of Merger, dated as of May 7, 2004, by and among CDKNet.Com, Inc., CDK Merger Corp., and Miletos, Inc., and Andreas Typaldos, in his individual capacity and as representative of the following stockholders of the Company: Renee Typaldos, Patra Holdings LLC, Andreas Typaldos Family Limited Partnership and Renee Typaldos Family Partnership, Ltd.

10-QSB

0-27587

2.1

1/23/06

2.4

Agreement and Plan of Merger dated as of February 13, 2007, among Arkados Group, Inc., a Delaware corporation, Arkados Wireless Technologies, Inc., a Delaware corporation and a newly formed wholly owned subsidiary Arkados Group, Inc. and Aster Wireless Inc., a Delaware corporation.

8-K

0-27587

2.1

2/21/07

2.5

Asset Purchase Agreement, dated as of December 23, 2010, by and among Arkados, Inc., Arkados Group, Inc., Arkados Wireless Technologies, Inc. and STMicroelectronics, Inc.

8-K

0-27587

2.1

12/29/10

3i.1

Articles of Incorporation of the Registrant.

10-SB

0-27587

3.1

10/7/99

3i.2

Amendment to the Articles of Incorporation.

10-SB

0-27587

3.2

10/7/99

3i.3

Certificate of Merger of the Registrant.

10-SB

0-27587

3.4

10/7/99

3i.4

Amendment to the Articles of Incorporation.

10-SB

0-27587

3.5

10/7/99

3i.5

Amended and Restated Series A Designation

10-QSB

0-27587

3.1

2/14/03

3i.6

Amendment to Certificate of Incorporation (Reverse Split) filed November 31, 2003.

10-QSB

0-27587

3.1

2/17/04

3i.7	Certificate of Amendment to Certificate of Incorporation	10-QSB	0-27587	3.2	2/17/04

3i.7a	Certificate of Amendment to Certificate of Incorporation					X

3i.8	Certificate of Ownership and Merger dated August 30, 2006.	8-K	0-27587	3.1	9/1/06

3ii.1	By-Laws of the Registrant.	10-SB	0-27587	3.3	10/7/99

4.1	Specimen of Common Stock Certificate.	10-K	0-27587	4.1	10/10/06

4.2	Form of Stock Option Grant Agreement under the CDKnet.com, Inc. 2004 Stock Option and Restricted Stock Plan.	10-K	0-27587	4.7	9/17/04

4.3	Form of 6% Secured Convertible Debenture due December 28, 2008	8-K/A	0-27587	4.1	7/11/06

4.4	Form of Common Stock Purchase Warrant (long term and short term warrants differ as to price and expiration date as set forth in footnotes to the form filed)	8-K/A	0-27587	4.2	7/11/06

4.5	Registration Rights Agreement, dated as of December 28, 2005, by and among the Registrant, Bushido Capital Master Fund, L.P., Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K/A	0-27587	4.3	7/11/06

4.6	Form of Request for Extension of 6% Convertible Subordinated Note due July 7, 2007	8-K	0-27587	4.2	7/17/07

4.7	Form of three year warrant exercisable at $0.85	8-K	0-27587	4.3	7/17/07

4.8	Form of 6% Secured Convertible Debenture due December 28, 2008, as amended December 15, 2007	8-K	0-27587	4.1	12/12/07

4.9	Form of Common Stock Purchase Warrant, as amended December 15, 2007	8-K	0-27587	4.2	12/12/07

4.10	Form of 6% Secured Convertible Debenture due December 28, 2008, as amended April 2, 2008	8-K	0-27587	4.2	04/08/08

4.11	Form of Request for Extension	8-K	0-27587	4.2	07/22/08

4.12	Form of Extension, Waiver and Conversion Agreement	8-K	0-27587	4.3	07/22/08

4.13	Form of 6% Secured Convertible Debenture due June 28, 2009, as amended August 7, 2008 (convertible at $0.25).	8-K	0-27587	4.1	08/11/08

4.14	Form of New Warrant exercisable at $0.25 per share.	8-K	0-27587	4.2	08/11/08

4.15	Form of warrant exercisable at $0.25 per share until June 30, 2013	8-K	0-27587	4.3	08/11/08

4.16	Form of Option exercisable at $0.04 issued to employees in April, 2014					X

4.17a	Form of 6% Convertible Note due November 15, 2014					X

4.17b	Form of 6% Convertible Note due April 30, 2015					X

4.17c	Form of 6% Convertible Note due October, 2015					X

10.1	Technology Horizons Corp. 1998 Equity Incentive Plan.	10-SB	0-27587	10.1	10/7/99

10.2	Registration Rights Agreements dated as of May 21, 2004 between CDKnet.Com, Inc. and several stockholders.	10-K	0-27587	10.17.1 10.17.2	9/17/04

10.3	Consulting Agreement dated as of May 21, 2004 between CDKnet.Com, Inc. and Andreas Typaldos.	10-K	0-27587	10.18	9/17/04

10.4	Employment Agreement dated as of May 23, 2004 between CDKnet.Com, Inc. and Oleg Logvinov.	10-K	0-27587	10.19	9/17/04

10.5	Silicon Product Development Production Collaboration Agreement dated July 28, 2004 between GDA Technologies, Inc. and Arkados, Inc.	10-K	0-27587	10.23	9/17/04

10.6	Form of 10% convertible extendible note due June 8, 2005 in the aggregate authorized principal amount of $750,000	10-QSB	0-27587	10.1	4/19/05

10.7	Form of three year warrant exercisable at $0.67	10-QSB	0-27587	10.2	4/19/05

10.8	Form of registration rights agreement relating to the 10% convertible extendible notes and three year warrants	10-QSB	0-27587	10.3	4/19/05

10.9	Stock Option Grant Agreement dated June 21, 2005	8-K	0-27587	10.1	6/24/05

10.10	Form of Securities Purchase Agreement	8-K	0-27587	10.1	7/14/05

10.11	Form of 6% Convertible Subordinated Note due July 7, 2007 in the aggregate authorized principal amount of $2.4 million	8-K	0-27587	10.2	7/14/05

10.12	Form of three year warrant exercisable at $0.35	8-K	0-27587	10.3	7/14/05

10.13	Securities Purchase Agreement, dated as of December 28, 2005, by and among the Registrant, Bushido Capital Master Fund, L.P., Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K	0-27587	99.1	1/4/06

10.14	Security Agreement, dated as of December 28, 2005, by and among the Registrant, Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K	0-27587	99.2	1/4/06

10.15	Subsidiary Guarantee dated as of December 28, 2005 executed by Arkados, Inc.	8-K	0-27587	99.3	1/4/06

10.16	Waiver dated as of January 17, 2006 to the Securities Purchase Agreement, dated as of December 28, 2005, by and among the Registrant, Bushido Capital Master Fund, L.P., Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	10-QSB	0-27587	10.1	1/23/06

10.17	Additional Issuance Agreement dated February 1, 2006 between the Registrant and Bushido Capital Master Fund, L.P.	8-K	0-27587	99.4	2/6/06

10.18	Amended and Restated Extension Waiver and Debt Conversion Agreement dated as of February 1, 2006 by and among the Registrant and each of the holders of the Registrant’s outstanding 10% Convertible Extendable Notes originally due June 8, 2005, 6% Convertible Notes original due October 15, 2005 and that Grid Note dated October 15, 2004	8-K	0-27587	99.5	2/6/06

10.19	Debt Conversion Agreement (Note) dated as of January 11, 2006 between the Registrant and William Carson	8-K	0-27587	99.6	2/6/06

10.20	Debt Conversion Agreement (Advances) dated as of January 11, 2006 between the Registrant and William Carson	8-K	0-27587	99.7	2/6/06

10.21	Debt Conversion Agreement (Advances) dated as of January 11, 2006 between the Registrant and Gennaro Vendome	8-K	0-27587	99.8	2/6/06

10.22	Second Additional Issuance Agreement dated February 24, 2006 between the Registrant and Bushido Capital Master Fund, L.P., Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K	0-27587	99.5	3/2/06

10.23	Third Additional Issuance Agreement dated March 31, 2006 between the Registrant and Cargo Holdings LLC	8-K	0-27587	99.6	4/6/06

10.24	Letter Agreement dated march 31, 2006 between the Registrant and Bushido Capital Master Fund, L.P., Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K	0-27587	99.7	4/6/06

10.25	Warrant agreement dated March 20, 2006 issued to Emerging Capital Markets LLC	8-K	0-27587	99.8	4/6/06

10.26	Lease Agreement effective May 8, 2006 between Arkados, Inc. and Bridgeview Plaza Associates.	8-K	0-27587	99.1	5/9/06

10.27	Securities Purchase Agreement, dated as of December 28, 2005, by and among the Registrant, Bushido Capital Master Fund, L.P., Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K/A	0-27587	99.1	7/11/06

10.28	Security Agreement, dated as of December 28, 2005, by and among the Registrant, Gamma Opportunity Capital Partners, L.P. Class A, and Gamma Opportunity Capital Partners, L.P. Class C	8-K/A	0-27587	99.2	7/11/06

10.29	Subsidiary Guarantee dated as of December 28, 2005 executed by Arkados, Inc.	8-K/A	0-27587	99.3	7/11/06

10.30	Letter Amendment dated June 30, 2006 to the Consulting Agreement with Andreas Typaldos dated May 21, 2004	8-K/A	0-27587	99.4	7/11/06

10.31	Amendment Agreement dated August 18, 2006 between CDKnet.com, Inc., Bushido Capital Master Fund, LP, Gamma Opportunity Capital Partners, LP (Classes A and C), and Cargo Holdings LLC	8-K	0-27587	99.1	8/24/06

10.32	Additional Issuance Agreement dated September 26, 2006 between Arkados Group, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC - Series BUS, Andreas Typaldos and Andreas Typaldos Family Limited Partnership	8-K	0-27587	99.5	10/2/06

10.33	Waiver and Amendment Agreement dated September 26, 2006 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.6	10/2/06

10.34	Waiver and Amendment Agreement dated October 24, 2006 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.6	10/30/06

10.35	Third Additional Issuance Agreement dated November 30, 2006 between Arkados Group, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos and Andreas Typaldos Family Limited Partnership	8-K	0-27587	99.6	12/5/06

10.36	Waiver and Amendment Agreement dated November 30, 2006 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.7	12/5/06

10.37	Fourth Additional Issuance Agreement dated January 8, 2007 between Arkados Group, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos and Andreas Typaldos Family Limited Partnership	8-K	0-27587	99.8	5/11/07

10.38	Fifth Additional Issuance Agreement dated February 28, 2007 between Arkados Group, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos and Andreas Typaldos Family Limited Partnership	8-K	0-27587	99.9	5/11/07

10.39	Sixth Additional Issuance Agreement dated March 6, 2007 between Arkados Group, Inc., Crucian Transition, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos and Andreas Typaldos Family Limited Partnership	8-K	0-27587	99.10	5/11/07

10.40	Waiver and Amendment Agreement dated January 8, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.11	5/11/07

10.41	Waiver and Amendment Agreement dated February 28, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.12	5/11/07

10.42	Waiver and Amendment Agreement dated March 6, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.13	5/11/07

10.43	Seventh Additional Issuance Agreement dated March 6, 2007 between Arkados Group, Inc., Crucian Transition, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos and Andreas Typaldos Family Limited Partnership	8-K	0-27587	99.14	5/11/07

10.44	Waiver and Amendment Agreement dated May 7, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.15	5/11/07

10.45	Eighth Additional Issuance Agreement dated May 30, 2007 between Arkados Group, Inc., Crucian Transition, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos, Andreas Typaldos Family Limited Partnership, Kathryn Typaldos, Herbert H. Sommer and Joel C. Schneider	8-K	0-27587	99.16	6/05/07

10.46	Ninth Additional Issuance Agreement dated May 31, 2007 between Arkados Group, Inc., Crucian Transition, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos, Andreas Typaldos Family Limited Partnership, Kathryn Typaldos, Herbert H. Sommer and Joel C. Schneider	8-K	0-27587	99.17	6/05/07

10.47	Waiver and Amendment Agreement dated May 30, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.18	6/05/07

10.48	Waiver and Amendment Agreement dated May 31, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.19	6/05/07

10.49	Limited waiver letter dated October 10, 2006 relating to the Employment Agreement dated as of May 23, 2006 between Arkados Group, Inc. (formerly CDKnet.com, Inc.) and Oleg Logvinov	10-K	0-27587	10.34	10/10/06

10.50	Limited waiver letter dated November 9, 2006 relating to the employment agreement dated as of May 23, 2004 between Arkados Group, Inc. (formerly CDKnet.com, Inc.) and Oleg Logvinov.	10-QSB	0-27587	10.1	1/12/07

10.51	Employment Agreement dated as of December 27, 2007 between Arkados Group, Inc. and Barbara Kane-Burke.	8-K	02-27587	99.1	4/25/07

10.52	Solicitation Agreement between Arkados Group, Inc. and Trident Partners, Ltd	8-K	0-27587	99.1	7/17/07

10.53	Letter Amendment dated September 10, 2007 to the Consulting Agreement with Andreas Typaldos dated May 21, 2004	10-KSB	0-27587	10.53	9/13/07

10.54	Amendment Agreement dated December 6, 2007 between Arkados Group, Inc., Bushido Capital Master Fund, LP, Gamma Opportunity Capital Partners, LP (Classes A and C), Cargo Holdings LLC, Crucian Transition, Inc., Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos Family Limited Partnership, Kathryn Typaldos, Herbert H. Sommer and Joel C. Schneider.	8-K	0-27587	99.1	12/12/07

10.55	Tenth Additional Issuance Agreement dated December 15, 2007 between Arkados Group, Inc., Crucian Transition, Inc., Bushido Capital Master Fund, LP, Pierce Diversified Strategy Master Fund, LLC – Series BUS, Andreas Typaldos, Andreas Typaldos Family Limited Partnership, Kathryn Typaldos, Herbert H. Sommer, Joel C. Schneider, Gennaro Vendome and William H. Carson	8-K	0-27587	99.20	12/22/07

10.56	Waiver and Amendment Agreement dated December 15, 2007 between Arkados Group, Inc. and Bushido Capital Master Fund, L.P., Gamma Opportunities Capital Partners, LP Class A, Gamma Opportunities Capital Partners, LP Class C and Cargo Holdings LLC	8-K	0-27587	99.21	12/22/07

10.57	Waiver and Amendment Agreement dated April 2, 2008 between Arkados Group, Inc., and certain holders of Arkados Group, Inc. 6% secured convertible debentures due December 28, 2008.	8-K	0-27587	99.1	04/08/08

10.58	Solicitation Agreement between Arkados Group, Inc. and Trident Partners, Ltd	8-K	0-27587	99.1	07/22/08

10.59	Waiver and Amendment Agreement dated April 2, 2008 between Arkados Group, Inc., and certain holders of Arkados Group, Inc. 6% secured convertible debentures due December 28, 2008.	8-K	0-27587	99.1	08/11/08

10.60	License Agreement dated June 24, 2011, by and between STMicroelectronics, Inc., a Delaware corporation and Arkados, Inc., a Delaware corporation.	10-K	0-27587	10.60	08/30/13

10.61	Form of Employee Release Agreement (Asset Sale)	8-K	0-27587	10.3	12/29/10

10.62	Form of Unsecured Creditor Release Agreement (Asset Sale)	8-K	0-27587	10.4	12/29/10

10.63	Form of Secured Creditor Release Agreement (Asset Sale)	8-K	0-27587	10.5	12/29/10

10.64	Form of Creditor’s Rights Agreement (Asset Sale)	8-K	0-27587	10.6	12/29/10

10.65	Software Development Agreement with Tatung Co., a Taiwan corporation dated June 28, 2013.	10-Q	0-27587	10.65	10/10/13

10.66	License Agreement with Exegin Technologies, Limited, dated June 14, 2013.	10-Q	0-27587	10.66	10/10/13

10.67	Consulting Agreement with MAT Research, LLC, an Oregon company, dated July 1, 2013.	10-Q	0-27587	10.67	10/13/13

10.69	Securities Purchase Agreement (Tai Jee Pan) dated October 28, 2013	10-Q	0-27587	10.69	1/15/14

10.70	Securities Purchase Agreement (Richmake) dated October 28, 2013	10-Q	0-27587	10.70	1/15/14

10.71	Advisory Agreement with Constellation Asset Advisors, Inc. dated November 20, 2013.	10-Q	0-27587	10.71	1/15/14

10.72	Investor Services Agreement with Porter LeVay and Rose, Inc. dated September 1, 2013.	10-Q	0-27587	10.72	1/15/14

10.73	Consulting Agreement with Sentegrity LLC	10-Q	0-27587	10.73	4/14/14

10.74	Process and Event Management Master Agreement dated July 10, 2014 between Arkados, Inc. and Tatung Co.	8-K	0-27587	99.1	7/16/14

14.1	Code of Business Conduct and Ethics	10-K	0-27587	14.1	9/17/04

14.2	Code of Ethics for Financial Executives	10-K	0-27587	14.2	9/17/04

21	Subsidiaries of the Registrant.					X

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

31.2	Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).					X

32.1	Certification of Chief Executive Officer of pursuant to 18 U.S.C. - Section 1350.					X

32.2	Certification of Chief Financial Officer of pursuant to 18 U.S.C. - Section 1350.					X

101* The following material from Arkados Group, Inc.'s Form 10-K Report for the fiscal year ended May 31, 2014, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Shareholders' Deficiency, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Financial Statements.

* Furnished, not filed.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report on to be signed on its behalf by the undersigned, thereunto duly authorized.

	Arkados Group, Inc. (Registrant)

	By:	/s/ Terrence DeFranco
		President and Chief Executive Officer

	By:	/s/ Terrence DeFranco
		Principal Financial and Accounting Officer

Date: August 27, 2014

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date: August 27, 2014	By: /s/ Terrence DeFranco
	Terrence DeFranco, Sole Director

Exhibit 3i.7a

STATE OF DELAWARE

CERTIFICATE OF AMENDMENT

OF CERTIFICATE OF INCORPORATION

FOR

ARKADOS GROUP, INC.

Arkados Group, Inc., (the “Corporation”) organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify:

FIRST: At a meeting of the Board of Directors of Arkados Group, Inc. held February 4, 2014, resolutions were duly adopted setting forth the proposed amendment of the Certificate of Incorporation of said Corporation, declaring such amendment to be advisable. The resolution setting forth the amendment is as follows:

RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered “FOURTH” so that, as amended, said Article Fourth shall be and read as follows:

“FOURTH: Number of Shares. The total number of shares of stock which the Corporation shall have authority to issue is: six hundred and five million (605,000,000), of which six hundred million (600,000,000) shall be shares of Common Stock, $.0001 par value, and five million (5,000,000) shall be shares of Preferred Stock, $.0001 par value ("Preferred Stock") without designation and any prior designations are hereby revoked and cancelled ."

THIRD: That, pursuant to Section 228 of the General Corporation Law of the State of Delaware, as of February 6, 2014, the Corporation obtained the consents in writing to the amendment as stated in the above resolution, signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize such amendment (i.e. 53%).

FOURTH: Such amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, Arkados Group, Inc. has caused this certificate to be signed this 17th day of March, 2014.

	By:	/s/ Terrence DeFranco
		Terrence DeFranco,
		President, Chief Executive Officer

Exhibit 4.16

No. ____________

ARKADOS GROUP, INC.

COMMON STOCK PURCHASE OPTION

THE OPTION REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THIS OPTION MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT.

OPTION CERTIFICATE

THIS OPTION CERTIFICATE (the "Option Certificate") certifies that for value received, _________________________ ( the "Holder"), is the owner of this option (the "Option"), which entitles the Holder to purchase at any time on or before the Expiration Date (as defined below) __________________________________ (________________) shares (the "Option Shares") of fully paid non-assessable shares of the common stock (the "Common Stock") of ARKADOS GROUP, INC., a Delaware corporation (the "Company"), at a Exercise Price per Option Share of Four Cents ($0.04) (the "Exercise Price"), in lawful money of the United States of America by bank or certified check, subject to adjustment as hereinafter provided or by cashless exercise as provided in Section 2(a). This Option is issued for services rendered by Holder to Company.

OPTION; EXERCISE PRICE .

This Option shall entitle the Holder to purchase the Option Shares at the Exercise Price. The Exercise Price and the number of Option Shares evidenced by this Option Certificate are subject to adjustment as provided in Article 6.

EXERCISE; EXPIRATION DATE .

(a) This Option is exercisable, at the option of the Holder, at any time after the date of issuance and on or before the Expiration Date (as defined below) by (i) delivering to the Company written notice of exercise (the "Exercise Notice"), stating the number of Option Shares to be purchased thereby, accompanied by bank or certified check payable to the order of the Company for the Option Shares being purchased or (ii) presentation and surrender of this Option to the Company at its principal executive offices with a written notice of the holder's intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "Cashless Exercise. In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Option for that number of shares of Common Stock determined by multiplying the number of Option Shares to which it would otherwise be entitled by a fraction, (x) the numerator of which shall be the difference between the closing market price per share of the Common Stock on the last business day prior to the date the exercise is delivered to the Company (the “Current Market Price”) and the Exercise Price and (y) the denominator of which shall be the Current Market Price per share of Common Stock. Within ten (10) business days of the Company's receipt of the Exercise Notice accompanied by the consideration for the Option Shares being purchased, or a Cashless Exercise, the Company shall instruct its transfer agent to issue and deliver to the Holder a certificate representing the Option Shares being purchased. In the case of exercise for less than all of the Option Shares represented by this Option Certificate, the Company shall cancel this Option Certificate upon the surrender thereof and shall execute and deliver a new Option Certificate for the balance of such Option Shares.

(b) Expiration . The term "Expiration Date" shall mean 5:00 p.m., New York time, on the tenth (10 ^th ) anniversary of the date set forth in the signature block of this Option or if such date in the State of New York shall be a holiday or a day on which banks are authorized to close, then 5:00 p.m., New York time, the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close.

RESTRICTIONS ON TRANSFER .

(a) Restrictions . This Option, and the Option Shares or any other security issuable upon exercise of this Option may not be assigned, transferred, sold, or otherwise disposed of unless (i) there is in effect a registration statement under the Act covering such sale, transfer, or other disposition or (ii) the Holder furnishes to the Company an opinion of counsel, reasonably acceptable to counsel for the Company, to the effect that the proposed sale, transfer, or other disposition may be effected without registration under the Act, as well as such other documentation incident to such sale, transfer, or other disposition as the Company's counsel shall reasonably request.

(b) Legend . Any Option Shares issued upon the exercise of this Option shall bear substantially the following legend:

“The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended. The shares have been acquired for investment and may not be offered, sold or otherwise transferred in the absence of an effective registration statement and with respect to the shares or an exemption from the registration requirements of said act that is then applicable to the shares, as to which a prior opinion of counsel acceptable to the issuer or transfer agent may be required.”

RESERVATION OF SHARES .

The Company covenants that it will at all time reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon exercise of this Option, such number of shares of Common Stock as shall then be issuable upon the exercise of this Option. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of this Option shall be duly and validly issued and fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issue thereof.

LOSS OR MUTILATION .

If the Holder loses this Option, or if this Option is stolen, destroyed or mutilated, the Company shall issue an identical replacement Option upon the Holder's delivery to the Company of a customary agreement to indemnify the Company for any losses resulting from the issuance of the replacement Option.

PROVISIONS REGARDING ADJUSTMENTS TO STOCK .

(a)

Stock Dividends, Subdivisions and Combinations . If at any time the Company shall:

(i) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, additional shares of Common Stock,

(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,

then (A) the number of shares of Common Stock for which this Option is exercisable into immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Option is exercisable into immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (B) the Exercise Price shall be adjusted to equal (x) the current Exercise Price immediately prior to the adjustment multiplied by the number of shares of Common Stock for which this Option is exercisable into immediately prior to the adjustment divided by (y) the number of shares of Common Stock for which this Option is exercisable into immediately after such adjustment.

(b) Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Exercise Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Exercise Price at the time in effect for this Option and (iii) the number of shares of Common Stock and the amount, if any, or other property which at the time would be received upon the exercise of this Option.

(c) Notices of Record Date . In the event of any fixing by the Company of a record date for the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any shares of Common Stock or other securities, or any right to subscribe for, purchase or otherwise acquire, or any option for the purchase of, any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to the Holder at least thirty (30) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or rights, and the amount and character of such dividend, distribution or right.

(d) Merger, Consolidation, etc . In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with another corporation (or in the case of any sale, transfer, or other disposition to another corporation of all or substantially all the property, assets, business, and goodwill of the Company), the Holder of this Option shall thereafter be entitled to purchase the kind and amount of shares of capital stock which this Option entitled the Holder to purchase immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, transfer, or other disposition; and in any such case appropriate adjustments shall be made in the application of the provisions of this Section 6 with respect to rights and interests thereafter of the Holder of this Option to the end that the provisions of this Section 6 shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter purchasable upon the exercise of this Option.

(e) Fractional Shares . No certificate for fractional shares shall be issued upon the exercise of this Option, but in lieu thereof the Company shall purchase any such fractional shares calculated to the nearest cent or round up the fraction to the next whole share.

(f) Rights of the Holder . The Holder of this Option shall not be entitled to any rights of a shareholder of the Company in respect of any Option Shares purchasable upon the exercise hereof until such Option Shares have been paid for in full and issued to it. As soon as practicable after such exercise, the Company shall deliver a certificate or certificates for the number of full shares of Common Stock issuable upon such exercise, to the person or persons entitled to receive the same.

RepResentations and Optionies .

The Holder, by acceptance of this Option, represents and options to, and covenants and agrees with, the Company as follows:

(a) The Option is being acquired for the Holder's own account for investment and not with a view toward resale or distribution of any part thereof, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same.

(b) The Holder is aware that the Option is not registered under the Act or any state securities or blue sky laws and, as a result, substantial restrictions exist with respect to the transferability of the Option and the Option Shares to be acquired upon exercise of the Option.

(c ) The Holder is an accredited investor as defined in Rule 501(a) of Regulation D under the Act and is a sophisticated investor familiar with the type of risks inherent in the acquisition of securities such as the Option, and its financial position is such that it can afford to retain the Option and the Option Shares for an indefinite period of time without realizing any direct or indirect cash return on this investment.

NO IMPAIRMENT.

The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Option, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Option above the amount payable therefore upon such exercise immediately prior to such increase in par value, (b) take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non assessable shares of Common Stock upon the exercise of this Option, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Option. Upon the request of Holder, the Company will at any time during the period this Option is outstanding acknowledge in writing, in form satisfactory to Holder, the continuing validity of this Option and the obligations of the Company hereunder.

NO REGISTRATION RIGHTS.

There are no registration rights associated with this Option or the underlying Option Shares when issued.

10.

SUPPLYING INFORMATION.

The Company shall cooperate with Holder and each holder of Option Shares in supplying such information pertaining to the Company as may be reasonable necessary for such Holder and each holder of Option Shares to complete and file any information reporting forms presently or hereafter required by the Securities and Exchange Commission as a condition to the availability of an exemption from the Act for the sale of Option Shares.

LIMITATION OF LIABILITY.

No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the Exercise Price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

MISCELLANEOUS .

(a) Transfer Taxes; Expenses . The Holder shall pay any and all underwriters' discounts, brokerage fees, and transfer taxes incident to the sale or exercise of this Option or the sale of the underlying shares issuable hereunder, and shall pay the fees and expenses of any special attorneys or accountants retained by it.

(b) Successors and Assigns . Subject to compliance with the provisions of Section 3, this Option and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Holder. The provisions of this Option are intended to be for the benefit of all Holders from time to time of this Option, and shall be enforceable by any such Holder.

( c) Notice . Any notice or other communication required or permitted to be given to the Company shall be in writing and shall be delivered by certified mail with return receipt or delivered in person against receipt, addressed to the Company at 211 Warren Street, Suite 320, Newark, New Jersey 07103.

(d) Governing Law . This Option Certificate shall be governed by, and construed in accordance with, the internal laws of the State of New Jersey, without reference to the conflicts of laws provisions thereof.

IN WITNESS WHEREOF, the Company has caused this Option Certificate to be duly executed as of the date set forth below.

	Arkados Group, Inc.
	By:	VOID
		Name: Terrence DeFranco
		Title: President, CEO

Issuance Date: VOID

ARKADOS GROUP, INC.

FORM OF EXERCISE OF OPTION

No. O201x-C-E-00x

¨ The undersigned hereby elects to exercise this Option as to _____________ shares of the Common Stock of Arkados Group, Inc., a Delaware corporation, covered thereby. Enclosed herewith is a bank or certified check in the amount of $_____________ payable to the Company.

Delivery of exercise notice requiring a payment by check must be by national courier (Fedex, UPS, etc.) to:

Arkados Group, Inc.

211 Warren Street, Suite 320,

Newark, NJ 07103

Attn: Terrence DeFranco

¨ The undersigned hereby elects to effect a cashless exercise of this Option as to _____________ shares. The Company is authorized to deduct from the requested number exercised and to issue me that number of shares of its Common Stock determined by the formula set forth in Section 2(a) of the Option.

Please note: if the exercise involves a cashless exercise for the entire amount (i.e. no cash due the Company), please execute this notice in blue ink, scan and email to the Company’s general counsel via email at kvennera@arkadosgroup.com .

The shares should be sent to me at the address provided below.

Date:_______________
	(Signature)

	Name (Printed) :

	Address:



	Social Security Number (for individual holder) or Employer Identification Number (Tax ID) (for entity) :

Exhibit 4.17a

This Note and the securities represented hereby have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be transferred in violation of such Act, the rules and regulations thereunder or any state securities laws or the provisions of this Note.

ARKADOS GROUP, INC.

6% CONVERTIBLE NOTE

DUE November 15, 2014

Number: 201x-1

Principal: US$xxx,xxx

Original Issue Date: Xxxx xx, 201x

Registered Holder: Xxxx

Arkados Group, Inc., a Delaware corporation (the “ Company ”) with principal offices at 211 Warren Street, Suite 320, Newark, NJ 07103, for value received, hereby promises to pay the registered holder hereof (the “Holder”) the principal sum set forth above on November 15, 2014 (the “ Maturity Date ”), in such coin or currency of the United States of America as at the time of payment shall be the legal tender for the payment of public and private debts, and to pay interest, less any amounts required by law to be deducted or withheld, computed on the basis of a 365-day year, on the unpaid principal balance hereof from the date hereof (the “ Original Issue Date ”), at the rate of 6% per year, compounded quarterly, until such principal sum shall have become due and payable, or has been converted pursuant to Section 1.1, below. Interest shall be paid, on Maturity, or if the principal of the Note is earlier converted pursuant to Section 1.1 below, upon such exchange or conversion. All references herein to dollar amounts refer to U.S. dollars and all references to Common Stock shall refer to voting stock.

This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twelve percent 12% per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is made and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Company by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.

The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.1 Conversion Right . The Holder shall have the right from time to time, and at any time during the period beginning on the effective date of the Company’s Amendment to its Certificate of Incorporation increasing the Company’s authorized shares of Common Stock discussed in Section 1.3 below, and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) — each in respect of the remaining outstanding principal amount of this Note — to convert all or any part of the outstanding and unpaid principal amount of this Note and any outstanding accrued interest into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Company into which such Common Stock shall hereafter be changed or reclassified, at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Company by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail to the Company before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if applicable, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to this Note.

1.2 Conversion Price . The conversion price (the “Conversion Price”) shall be equal to $0.02 (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).

1.3 Authorized Shares . The Company covenants that during the period the conversion right exists, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Company is required at all times to have authorized and reserved a sufficient number of shares equal to at least the number issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Company’s obligations pursuant to the Purchase Agreement. The Company represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Company shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Company shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Company hereby acknowledges that the number of shares of its Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued and issuable upon conversion of or otherwise pursuant to the Note (based on the Conversion Price) and any other shares of Common Stock issued or issuable pursuant to the terms of this Note, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders, if necessary, to authorize additional shares to meet the Company’s obligations under this Section 1.3, in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares.

1.4 Method of Conversion .

(a) Mechanics of Conversion . Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Company a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Company.

(b) Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless the entire unpaid principal amount of this Note is so converted. The Holder and the Company shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

(c) Payment of Taxes . The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Company shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Company the amount of any such tax, or shall have established to the satisfaction of the Company that such tax has been paid.

(d) Delivery of Common Stock Upon Conversion . Upon receipt by the Company from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Company shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

(e) Obligation of Company to Deliver Common Stock . Upon receipt by the Company of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Company’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Company before 6:00 p.m., New York, New York time, on such date.

(f) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

(g) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) a reasonable equivalent approximation of the damages would be $100 per day, for each day beyond the Deadline that the Company fails to deliver such Common Stock through willful or deliberate acts on the part of the Company. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Company by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Company agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, and interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Company or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Company who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Company shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Company or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not reasonably accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

1.6 Effect of Certain Events.

(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Company, the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or the consolidation, merger or other business combination of the Company with or into any other Person (as defined below) or Persons when the Company is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Company shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Company shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note), and (b) the Holder hereof has an opportunity to participate in the transaction as if such Holder was a holder of common stock immediately prior to the closing of such transaction and receive the consideration paid to the other holders of Common Stock of the Company, or have this Note assumed by the acquirer giving effect to the identical conversion price, at the election of the Holder hereof. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

(c) Adjustment Due to Distribution . If the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Company’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

(d) Adjustment Due to Dilutive Issuance . If, at any time when any Notes are issued and outstanding, the Company issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance.

The Company shall be deemed to have issued or sold shares of Common Stock if the Company in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Company shall be deemed to have issued or sold shares of Common Stock if the Company in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e) Purchase Rights . If, at any time when any Notes are issued and outstanding, the Company issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(f) Notice of Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Company, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

1.7 Reserved.

1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) all be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Company to comply with the terms of this Note. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Company’s failure to convert this Note.

1.9 Prepayment. The Company shall have no right of prepayment or redemption of this Note.

ARTICLE II. CERTAIN COVENANTS

2.1 Distributions on Capital Stock . So long as the Company shall have any obligation under this Note, the Company shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Company’s disinterested directors.

2.2 Restriction on Stock Repurchases . So long as the Company shall have any obligation under this Note, the Company shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares.

2.3 Sale of Assets . So long as the Company shall have any obligation under this Note, the Company shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

2.4 Advances and Loans . So long as the Company shall have any obligation under this Note, the Company shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Company, except loans, credits or advances (a) in existence or committed on the date, (b) made in the ordinary course of business or (c) not in excess of $500,000 .

2.5 Stockholder Approval. The Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 2.5, in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares.

2.6 Reporting Requirements. The Company will within 60 days from the date of this Note to take all necessary actions to bring the Company current with its reporting requirements of the Exchange Act.

ARTICLE III. EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest . The Company fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

3.2 Conversion and the Shares . The Company fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Company directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for five (5) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Company to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Company to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Company’s transfer agent in order to process a conversion; such advanced funds shall be paid by the Company to the Holder within forty eight (48) hours of a demand from the Holder.

3.3 Breach of Covenants . The Company breaches any covenant or other term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Company from the Holder.

3.4 Breach of Representations and Warranties . Any representation or warranty of the Company made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

3.5 Receiver or Trustee . The Company or any subsidiary of the Company shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

3.6 Judgments . Any money judgment, writ or similar process shall be entered or filed against the Company or any subsidiary of the Company or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

3.7 Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company.

3.8 Failure to Comply with the Exchange Act . The Company shall fail to comply with the reporting requirements of the Exchange Act; and/or the Company shall cease to be subject to the reporting requirements of the Exchange Act.

3.9 Liquidation . Any dissolution, liquidation, or winding up of Company or any substantial portion of its business.

3.10 Cessation of Operations . Any cessation of operations by Company or Company admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Company’s ability to continue as a “going concern” shall not be an admission that the Company cannot pay its debts as they become due.

3.11 Maintenance of Assets . The failure by Company to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

3.12 Financial Statement Restatement . The restatement of any financial statements filed by the Company with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

3.13 Reverse Splits . The Company effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

3.14 Reserved.

3.15 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Company of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder . “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Company, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Company to the Holder.

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE COMPANY SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, , and/or 3.15 exercisable through the delivery of written notice to the Company by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3.1 hereof), the Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Section 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

If the Company fails to pay the Default Amount within twenty (20) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Company remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Company, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Company equal to the Default Amount divided by the Conversion Price then in effect.

ARTICLE IV. MISCELLANEOUS

4.1 Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

4.2 Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

If to the Company, to:

Terrence DeFranco

President

211 Warren Street

Suite 320

Newark, NJ 07103

If to the Holder:

With a copy by fax only to (which copy shall not constitute notice): N/A

4.3 Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Company and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

4.4 Assignability . This Note shall be binding upon the Company and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

4.5 Cost of Collection . If default is made in the payment of this Note, the Company shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.6 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of New Jersey except with respect to the Default Interest Rate, which will be governed by the law of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New Jersey or in the federal courts located in the state and county of Santa Clara. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Company and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

4.7 Certain Amounts . Whenever pursuant to this Note the Company is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Company and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Company represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Company and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

4.8 Purchase Agreement . By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

4.9 Notice of Corporate Events . Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Company shall provide the Holder with prior notification of any meeting of the Company’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Company of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Company or any proposed liquidation, dissolution or winding up of the Company, the Company shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Company shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

4.10 Remedies . The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

IN WITNESS WHEREOF, Company has caused this Note to be signed in its name by its duly authorized officer as of the issuance date.

	ARKADOS GROUP, INC.

	By: VOID

EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert US$_______________ principal amount plus interest in the amount of US$______________ per day accruing through the Date of Conversion of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of ARKADOS GROUP, INC., a Delaware corporation (the “Company”) according to the conditions of the convertible note of the Company dated as of August ___, 2014 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

The Company shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

Name of DTC Prime Broker:

Account Number:

The undersigned hereby requests that the Company issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

Date of Conversion:	________________________

Total obligation converted:	US$ ____________________

Applicable Conversion Price:	US$0.02 per US$1.00 of Principal and interest converted

Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes:	_________________________

Amount of Principal Balance Due remaining
Under the Note after this conversion:	_________________________

U.S. Social Security Number/Taxpayer
Identification Number/Employer Identification Number	_________________________

PLEASE NOTE: If non-US individual or company, you will be required to complete a W-8-BEN (individual) or W-8-BEN-E (entity) prior to acceptance of the conversion.

Acknowledgement:

By: _____________________________________________

(signature)

Name (printed) : ___________________________________

Title: ____________________________________________

Date: __________________

Exhibit 4.17b

ARKADOS GROUP, INC.

6% CONVERTIBLE NOTE

DUE April 30. 2015

Number: 201x-1

Principal: US$xxx,xxx

Original Issue Date: Xxxx xx, 201x

Registered Holder: Xxxx

Arkados Group, Inc., a Delaware corporation (the “ Company ”) with principal offices at 211 Warren Street, Suite 320, Newark, NJ 07103, for value received, hereby promises to pay the registered holder hereof (the “Holder”) the principal sum set forth above on April 30, 2015 (the “ Maturity Date ”), in such coin or currency of the United States of America as at the time of payment shall be the legal tender for the payment of public and private debts, and to pay interest, less any amounts required by law to be deducted or withheld, computed on the basis of a 365-day year, on the unpaid principal balance hereof from the date hereof (the “ Original Issue Date ”), at the rate of 6% per year, compounded quarterly, until such principal sum shall have become due and payable, or has been converted pursuant to Section 1.1, below. Interest shall be paid, on Maturity, or if the principal of the Note is earlier converted pursuant to Section 1.1 below, upon such exchange or conversion. All references herein to dollar amounts refer to U.S. dollars and all references to Common Stock shall refer to voting stock.

The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.4 Method of Conversion .

1.6 Effect of Certain Events.

1.7 Reserved.

1.9 Prepayment. The Company shall have no right of prepayment or redemption of this Note.

ARTICLE II. CERTAIN COVENANTS

2.6 Reporting Requirements. The Company will within 60 days from the date of this Note to take all necessary actions to bring the Company current with its reporting requirements of the Exchange Act.

ARTICLE III. EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest . The Company fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

3.9 Liquidation . Any dissolution, liquidation, or winding up of Company or any substantial portion of its business.

3.13 Reverse Splits . The Company effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

3.14 Reserved.

ARTICLE IV. MISCELLANEOUS

If to the Company, to:

Terrence DeFranco

President

211 Warren Street

Suite 320

Newark, NJ 07103

If to the Holder:

With a copy by fax only to (which copy shall not constitute notice): N/A

4.5 Cost of Collection . If default is made in the payment of this Note, the Company shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.8 Purchase Agreement . By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

IN WITNESS WHEREOF, Company has caused this Note to be signed in its name by its duly authorized officer as of the issuance date.

	ARKADOS GROUP, INC.

	By: VOID

EXHIBIT A

NOTICE OF CONVERSION

Box Checked as to applicable instructions:

Name of DTC Prime Broker:

Account Number:

Date of Conversion:	________________________

Total obligation converted:	US$ ____________________

Applicable Conversion Price:	US$0.02 per US$1.00 of Principal and interest converted

Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes:	_________________________

Amount of Principal Balance Due remaining
Under the Note after this conversion:	_________________________

U.S. Social Security Number/Taxpayer
Identification Number/Employer Identification Number	_________________________

PLEASE NOTE: If non-US individual or company, you will be required to complete a W-8-BEN (individual) or W-8-BEN-E (entity) prior to acceptance of the conversion.

Acknowledgement:

By: _____________________________________________

(signature)

Name (printed) : ___________________________________

Title: ____________________________________________

Date: __________________

Exhibit 4.17c

ARKADOS GROUP, INC.

6% CONVERTIBLE NOTE

DUE October 31, 2015

Number: 201x-1

Principal: US$xxx,xxx

Original Issue Date: Xxxx xx, 201x

Registered Holder: Xxxx

Arkados Group, Inc., a Delaware corporation (the “ Company ”) with principal offices at 211 Warren Street, Suite 320, Newark, NJ 07103, for value received, hereby promises to pay the registered holder hereof (the “Holder”) the principal sum set forth above on October 31, 2015 (the “ Maturity Date ”), in such coin or currency of the United States of America as at the time of payment shall be the legal tender for the payment of public and private debts, and to pay interest, less any amounts required by law to be deducted or withheld, computed on the basis of a 365-day year, on the unpaid principal balance hereof from the date hereof (the “ Original Issue Date ”), at the rate of 6% per year, compounded quarterly, until such principal sum shall have become due and payable, or has been converted pursuant to Section 1.1, below. Interest shall be paid, on Maturity, or if the principal of the Note is earlier converted pursuant to Section 1.1 below, upon such exchange or conversion. All references herein to dollar amounts refer to U.S. dollars and all references to Common Stock shall refer to voting stock.

The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.4 Method of Conversion .

1.6 Effect of Certain Events.

1.7 Reserved.

1.9 Prepayment. The Company shall have no right of prepayment or redemption of this Note.

ARTICLE II. CERTAIN COVENANTS

2.6 Reporting Requirements. The Company will within 60 days from the date of this Note to take all necessary actions to bring the Company current with its reporting requirements of the Exchange Act.

ARTICLE III. EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest . The Company fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

3.9 Liquidation . Any dissolution, liquidation, or winding up of Company or any substantial portion of its business.

3.13 Reverse Splits . The Company effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

3.14 Reserved.

ARTICLE IV. MISCELLANEOUS

If to the Company, to:

Terrence DeFranco

President

211 Warren Street

Suite 320

Newark, NJ 07103

If to the Holder:

With a copy by fax only to (which copy shall not constitute notice): N/A

4.5 Cost of Collection . If default is made in the payment of this Note, the Company shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.8 Purchase Agreement . By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

IN WITNESS WHEREOF, Company has caused this Note to be signed in its name by its duly authorized officer as of the issuance date.

	ARKADOS GROUP, INC.

	By: VOID

EXHIBIT A

NOTICE OF CONVERSION

Box Checked as to applicable instructions:

Name of DTC Prime Broker:

Account Number:

Date of Conversion:	________________________

Total obligation converted:	US$ ____________________

Applicable Conversion Price:	US$0.02 per US$1.00 of Principal and interest converted

Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes:	_________________________

Amount of Principal Balance Due remaining
Under the Note after this conversion:	_________________________

U.S. Social Security Number/Taxpayer
Identification Number/Employer Identification Number	_________________________

PLEASE NOTE: If non-US individual or company, you will be required to complete a W-8-BEN (individual) or W-8-BEN-E (entity) prior to acceptance of the conversion.

Acknowledgement:

By: _____________________________________________

(signature)

Name (printed) : ___________________________________

Title: ____________________________________________

Date: __________________

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

Arkados, Inc., a Delaware corporation.

Arkados Energy Solutions, LLC, a limited liability company organized under the laws of the State of Delaware

CDKnet, LLC, a limited liability company organized under the laws of the State of New York.

Creative Technology, LLC, a limited liability company organized under the laws of the State of New York.

EXHIBIT 31.1

CERTIFICATIONS

I, Terrence DeFranco, certify that:

I have reviewed this Form 10-K of Arkados Group, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting

Date: August 27, 2014	/s/ Terrence DeFranco

	Terrence DeFranco, CEO

EXHIBIT 31.2

CERTIFICATIONS

I, Terrence DeFranco, certify that:

I have reviewed this Form 10-K of Arkados Group, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date August 27, 2014	/s/ Terrence DeFranco
	Terrence DeFranco
	Principal Accounting Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Arkados Group, Inc. on Form 10-K for the period ending May 31, 2014 as filed with the Securities and Exchange Commission on August 27, 2014 (the “Report”), I, Terrence DeFranco, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/Terrence DeFranco
	Terrence DeFranco
	Chief Executive Officer
	August 27, 2014

A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Arkados Group, Inc. (the “Company”) on Form 10-K for the period ending May 31, 2014 as filed with the Securities and Exchange Commission on August 27, 2014 (the “Report”), I, Terrence DeFranco, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ Terrence DeFranco
	Terrence DeFranco
	Principal Accounting Officer
	August 27, 2014