Note 11 - Related Party Transactions |
6 Months Ended |
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Nov. 30, 2015 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions Disclosure [Text Block] |
Note 11 – Related Party Transactions
During the six months ended November 30, 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 November 30, 2015 and May 31, 2015 the Company had related party payables in the amount of $17,930 and $18,455.
During the six months ended November 30, 2015 and 2014, the Company recorded imputed interest of $539 and $0, respectively, on related party payables due to directors and an officer of the Company.
During the six months ended November 30, 2015 and 2014, the Company accrued compensation in the amount $75,000 and $25,000, respectively, to Jeffrey Binder pursuant to his employment agreement. Mr. Binder has deferred all salary since the commencement of the agreement. At November 30, 2015 and May 31, 2015, total accrued compensation to Mr. Binder was $175,000 and $106,250, respectively.
Effective August 1, 2015, the Company and Alan Bonsett entered into a five-year employment agreement. Pursuant to the agreement, Mr. Bonsett commenced serving as the Company’s Chief Operating Officer on August 15, 2015. Under the agreement, Mr. Bonsett is entitled to receive an annual salary of $150,000. Further, he is entitled to receive a performance bonus equal to 2% of the Company’s annual EBITDA, up to a maximum annual cash compensation of $1 million (including his base salary), and annual stock options, exercisable at the fair market value of the Company’s common stock on the date of grant, in an amount equal to 2% of its annual EBITDA up to $42.5 million and 4% of its annual EBITDA in excess of $42.5 million. Additionally, Mr. Bonsett is entitled to a one-time signing bonus of 250,000 (post Reverse-Split) shares of restricted common stock of the Company, valued at $327,500, which will become fully vested one year from the effective date of the agreement. The shares were valued based on the closing market price on the grant date. During the six months ended November 30, 2015, the Company recognized share based compensation of $109,167.
On April 17, 2015, CLS Labs Colorado, Inc. (“CLS Labs Colorado”), a wholly owned subsidiary of CLS Labs, 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 and October 31, 2015, PRH will repay the principal due under the Note in twenty (20) equal quarterly installments of Twenty Five Thousand Dollars ($25,000) commencing one (1) month after the first harvest of marijuana plants at the grow facility (the “Harvest 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 Harvest 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 Harvest 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 November 30, 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 was only completed in December 2015, the business to be operated by PRH pursuant to the Colorado Arrangement has not yet produced revenues.
Related Party Notes Payable
The Company has notes payable outstanding to Jeffrey Binder, and officer and director, and to Frank Koretsky, a director; see note 9.
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