ARKADOS GROUP, INC.

On December 7, 2018, the Company drew Convertible Note Traunche #2 (“Traunche #2) totalling $1 million dollars, including $83,751 of deferred financing costs, receiving net proceeds of $916,249 against the October 31, 2018, Note Purchase Agreement with a group of noteholders (“AIP”), with a maturity date of December 7, 2019.  The principal on Tranche #2 bears an interest rate of U.S. Libor + 10% per annum, which is also payable on maturity.  Amounts due under Tranche #2 may be converted into shares of the Company’s common stock, $0.0001 par value per share, at any time at the option of the Holder, at a conversion price of $1.50 per share.

On January 30, 2019, the Company issued 14,708,125 shares of restricted common stock at $0.38 per share to certain warrant holders who were issued warrants between March 2018 and July 2018 in connection with the Tender Offer filed by the Company December 11, 2018. In connection with the Tender Offer the Company issued an additional an additional 2,451,356 warrants with an exercise price of $0.3753 per share as an inducement to the warrant holders to convert their outstanding warrants into common shares of the Company. The associated stock based compensation expense for the bonus warrants was $821,348. Investors also received credits for 14,351,047 MHz-Pops to be used to acquire new spectrum licenses. The associated cost of these licenses was $4,735,846 and is recorded as part of stock based comp expense on the statement of operations.

Operating expenses for Iota Networks increased by $6,917,772, or 63.5%, for the nine months ended February 28, 2019, as compared to the nine months ended February 28, 2018, primarily as a result of the following: (i) approximately $2.5 million is a result of the Company, during fiscal year 2019, entering into an agreement with a third-party R&D company to assist in researching and developing new products, (ii) approximately $864,000 is due to the Company incurring an increase in tower rent expense, of which, as of the period ended February 2019 the Company has yet to receive any invoices. (iii) Compensation expense increased as a result of the salaries for the CEO of the Company and President of Spectrum Programs as well as ICS adding employees in September 2018.  These increases were partially mitigated by the reallocation of approximately $2.9 million of salaries to ICS and Iota Communications.

In December 2018, the Company issued a Tender Offer Statement (“Tender Offer”) to the holders of the 18,281,494 warrants issued in connection with the Merger (Note 3).  As part of the Tender Offer the Company issued an additional 2,451,356 warrants with an exercise price of $0.3753 per share as an inducement to the warrant holders to convert their outstanding warrants into common shares of the Company.  The associated stock based compensation expense for the bonus warrants was $821,348. As a result of the inducement, warrant holders converted their warrants into 14,708,125 shares of the Company’s common stock.  Investors also received credits for 14,351,047 MHz-Pops to be used to acquire new spectrum licenses. The associated cost of these licenses was $4,735,846 and is recorded as part of stock based comp expense on the statement of operations. The Company raised approximately $4.11 million in net cash as a result of the Tender Offer.

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective due to the material weakness(es) in internal control over financial reporting described below.