Quarterly report pursuant to Section 13 or 15(d)

Note 11 - Related Party Transactions

v3.3.0.814
Note 11 - Related Party Transactions
3 Months Ended
Aug. 31, 2015
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
Note 11 – Related Party Transactions

During the three months ended August 31, 2015 and 2014, the Company accrued related party payables in the amount of $0 and $0, respectively, for amounts due to officers and directors related to expenses paid on behalf of the Company.  As of August 31, 2015 and May 31, 2015 the Company had related party payables in the amount of $17,930 and $18,455.

During the three months ended August 31, 2015 and 2014, the Company recorded imputed interest of $271 and $0, respectively on related party payables due to a director and officer of the Company.

During the three months ended August 31, 2015 and 2014, the Company accrued compensation in the amount $31,250 and $0, respectively to Jeffrey Binder pursuant to his employment agreement.  Mr. Binder has deferred all salary since the commencement of the agreement.  At August 31, 2015 and May 31, 2015 total accrued compensation to Mr. Binder was $137,500 and $106,250, respectively.

On April 17, 2015, CLS Labs Colorado, Inc. (“CLS Labs Colorado”), a wholly owned subsidiary of the Company, loaned $500,000 (the “Note”) to Picture Rock Holdings, LLC, a Colorado limited liability company (“PRH”), to be used by PRH in connection with the financing of the building out, equipping, and development of a grow facility by PRH that will be operated by a licensed third-party marijuana grower.  Pursuant to the Note, as amended by the parties effective June 30, 2015, PRH will repay the principal due under the Note in twenty (20) equal quarterly installments of Twenty Five Thousand Dollars ($25,000) commencing three (3) months after a certificate of occupancy is issued with respect to the grow facility (the “CO Date”) and continuing until paid in full. Interest will accrue on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum and will be paid quarterly in arrears commencing on the CO Date and continuing until paid in full.  All remaining outstanding principal and any accumulated unpaid interest due under the Note will be due and payable on the five-year anniversary of the CO Date.  In the event of default as defined in the agreements related to the Note, all amounts under the Note shall become at once due and payable.  During the year ended May 31, 2015, the Company recorded an impairment related to the note receivable in the amount of $500,000.  This receivable is recorded on the balance sheet as of August 31, 2015 and May 31, 2015 in the amount of $0 and $0, net of allowance in the amount of $500,000.

On April 17, 2015, prior to Alan Bonsett’s appointment as Chief Operating Officer, the Company, through CLS Labs Colorado, entered into an arrangement with PRH (the “Colorado Arrangement”) to, among other things, (i) license its proprietary technology, methods and processes to PRH in Colorado in exchange for a fee; (ii) sub-lease warehouse and office space in Denver, Colorado to PRH where PRH can grow, extract and process cannabis and other plant products in exchange for lease payments totaling an aggregate of $1,067,067 over a seventy-two (72) month term; (iii) build a processing facility and lease such facility, including equipment, to PRH in exchange for a monthly fee; and (iv) loan $500,000 to PRH to be used by PRH in connection with its financing of the building out, equipping, and development of a marijuana grow facility. Mr. Bonsett, as an owner of PRH, will indirectly receive the benefits of the Colorado Arrangement.  Because construction of the Grow Facility is not yet complete, the business to be operated by PRH pursuant to the Colorado Arrangement has not yet produced revenues.

Koretsky Notes

During the year ended May 31, 2015, the Company borrowed $600,000 from Frank Koretsky, a director of the Company, to fund operations.  During the three months ended August 31, 2015 the Company borrowed an additional $130,000 from Mr. Koretsky to fund operations.  These loans are unsecured, due not less than one year after the date they were made, and bear interest at a rate of 6% per annum.  As of August 31, 2015 and May 31, 2015, the outstanding principal balance was $730,000 and $600,000 and the Company had accrued interest in the amount of $12,723 and $3,337. The balance of the loan terms have not yet been finalized.

Binder Note Payable

During the three months ended August 31, 2015 the Company borrowed $20,000 from Jeffrey Binder, a director and officer of the Company, to fund operations.  This loan is unsecured, due not less than one year after the date of the loan, and bears interest at a rate of 6% per annum.  As of August 31, 2015 and May 31, 2015, the outstanding principal balance was $20,000 and $0 and the Company had accrued interest in the amount of $66 and $0. The balance of the loan terms have not yet been finalized.