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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 2, 2007, the Company Sole Board of Directors approved the appointment of Mr. Lonnie Hayward to the Board of Directors. Mr. Hayward was appointed to fill a vacancy and as permitted by the Company’s Articles of Incorporation and By-laws. On November 15, 2007, Mr. Lonnie Hayward resigned from the board of directors and as vice president. The Company has no immediate plans to fill these vacancies.
During July 2004, the Company received short term loans from Sheridan Westgarde, the Company’s CEO, Lonnie Hayward, consultant, and Robert Marchand in an amount aggregating $42,000 which was used, along with Company’s available cash, to fund the purchase of the 50 percent working interest in the Prado Field lease. The Company agreed to repay the loan amount borrowed once funding becomes available and agreed to pay an additional 20 percent of the amount borrowed over the next 12 months. Following the closing of the $250,000 convertible debentures in August 2004, Mr. Westgarde and Mr. Hayward were repaid their principal amounts plus 10 percent, while Mr. Marchand declined repayment in favor of re-investing his principal and proceeds with the Company. The remaining 10 percent will be paid within the next 10 months. As of fiscal year ended May 31, 2008 the remaining 10 percent has not been paid.
In June of 2005, the Company entered into a working capital loan agreement with United Business Associates (“UBA”), a company owned by the Company’s current CEO and Lonnie Hayward, a consultant. In November 2005 the Company revised the UBA agreement terms such that the loan will have a six-month interest free period commencing on January 1, 2006, following which it will bear interest at 20% and be payable on demand. As of November 30, 2005 the Company had used $195,073 of these funds for the purchase and development of the Brookshire lease and additional investment in the Hamill Lease to increase production. These advances from UBA are included in Notes Payable in the consolidated balance sheet. During April 2007, the Board of Directors approved the issuance of 421,690 shares of Series A Convertible Preferred stock to United Business Associates (UBA), a Company controlled by our CEO Sheridan Westgarde and a consultant Mr. Lonnie Hayward. The stock was issued as full settlement of the amount owed to UBA, as previously recorded in the Company’s notes payable and accrued interest. During January 2008, 210,845 of these shares were canceled as part of an agreement with Hollund Industrial Robotics Inc, and Mr. Lonnie Hayward (See Note 6 - Notes to Consolidated Financial Statements).
The Company had in the past advanced $100,000 for the construction of one TigerLynk underwater manipulator machine, which was partially completed. During October of 2006 the Company acquired all rights, title and interest to the patented TigerLynk manipulator system from Gary Ackles (“Ackles”), former CEO of the Company. The purchase involved total payments to Ackles of $261,970 in cash, while Ackles conceded $450,889 in other amounts owed to him. Additional commitments made to Ackles were; 1) a 50/50 (percent) profit share agreement with Ackles on the first 5 Tiger•Lynk™ machines sold, 2) a 7.5 percent royalty assignment on the first five machines, reducing to 5 percent on each successive machine. Additionally, the Company has committed to issue to Ackles 5 percent of its issued and outstanding stock to Ackles, pending the increase in authorized shares, as incentive to completing the settlement agreement (See Note 6 – Notes to Consolidated Financial Statements). On February 26, 2008, the Company finalized an agreement to sell all rights, title and interest in the Tiger-Lynk technology to Hollund Industrial Robotics Systems Inc, a privately held Canadian company (HIRS). The agreement with HIRS includes the mechanical arm assembly stored at the Company's participating manufacturing facility in Kamloops British Columbia. Terms of the sale were finalized on February 20, 2008. Those terms include the Company being relinquished of all prior commitments in royalties and stock made to Gary Ackles and the Company receiving $314,000 from HIRS, comprised of a $64,000 in deposits already paid and 10 equal payments of $25,000, commencing March 1, 2008 and finishing December 1, 2008. Additionally, the terms of the sale Mr. Lonnie Hayward, a principal of HIRS, and former Director of the Company, agreed to relinquish to the Company all common and/or preferred stock held by him at the time of the transaction. In the event of default on the payment terms all rights acquired by HIRS per the agreement shall terminate at the discretion of the Company. During March 2008, the Company entered into the Addendum to the Purchase and Sale Agreement Dated January 20, 2008 and the Letter Agreement Dated February 20, 2008, whereby it was agreed that the Company would accept 750,000 shares of Hollund Industrial Inc common stock (parent company of HIRS and traded on the "PinkSheets" trading system)., and payable to the Legacy Investment in consideration for the March 1 st payment due (See Notes 6 and 19 – Notes to Consolidated Financial Statements). During
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June 2008, the Company signed an additional addendum to the agreement with Hollund, further modifying the terms of payment. The new terms reduced the $205,100 principal amount remaining to be paid by Hollund to $140,000, a reduction of $65,100. New terms of payment for the $140,000 were; $30,000 by July 15, 2008, $30,000 by September 15, 2008 and the balance of $80,000 to be paid in three monthly payments due on the 1 st day of December 2008, January 2009, and February of 2009. The Company has recorded a write-down of $65,100 to its Hollund receivable.
Also in October 2006, the Company completed a settlement agreement with Legacy, whereby the Company will exchange 1.08 percent of its issued and outstanding shares, pending the increase in the Company’s authorized shares, for the total of $124,000 owed to Legacy, comprised of $80,000 for unpaid licensing fees and a $44,000 loan (See Notes 16 and 18 – Notes to Consolidated Financial Statements). Previous to this agreement the Company was operating under the expectation that the mechanical assembly and components of the Tiger•Lynk™ AR-120 machine, constructed and stored at a manufacturing facility in Kamloops, British Columbia Canada, would be exchanged for amounts owed Legacy, however this is no longer the case . The final settlement reached relinquishes Ackles and Legacy of any rights, title or interest in the equipment . During April 2008, the Company completed its planned increase in authorized shares (See Note 18 – Notes to Consolidated Financial Statements) but has yet to issue this stock.
