ITEM 2. Unregistered Sales of Equity Securities and Use
of Proceeds
Common Stock
On September 30, 2015, we issued 95,250 shares of our restricted
common stock to one person in connection with the conversion, effective August 15, 2015, of $19,025 in debt owed by us to such
person at a conversion price of $0.20 per share.
On September 30, 2015, we issued 150,000 shares of our restricted
common stock to one person in connection with the conversion, effective May 15, 2015, of $30,000 in debt owed by us to such person
at a conversion price of $0.20 per share.
On September 30, 2015 we issued 796,000 shares of our restricted
common stock to one person in consideration of consulting services.
On September 30, 2015 we issued 19,500 shares of our restricted
common stock to one person pursuant to a July 23, 2015 Investor Relations Consulting Agreement (the “IRCA”). The IRCA
has a term of 12 months under which we are paying to consultant 6,500 shares per month. The 19,500 shares represent payment for
the first three months of the IRCA.
In October 2015, we issued 333,333 shares of our restricted
common stock to one person at a price of $0.30 per share or an aggregate of $100,000.
Options
On August 1, 2015, we issued 300,000 stock options under our
2014 Equity Incentive Plan to Sandra Tiffany. The options are exercisable upon vesting for a period of 10 years from issuance at
an exercise price of $0.34 per share.
On August 10, 2015, we issued 600,000 stock options under our
2014 Equity Incentive plan to John Poss. The options are exercisable upon vesting for a period of 10 years from issuance at an
exercise price of $0.30 per share.
On October 1, 2015 we issued 111,000 stock options under our
2014 Equity Incentive Plan to a consultant. The options are exercisable upon vesting for a period of 10 years from issuance at
an exercise price of $0.30 per share.
Convertible Note
We entered into a Note Purchase Agreement, dated May 12, 2015
and effective as of June 8, 2015, with Pacific Leaf Ventures, LP (“Pacific Leaf”), pursuant to which Pacific Leaf has
made installment loans (the “Loans”) to us in the aggregate amount of $1.5 million and is required to make $250,000
in additional Loans. To evidence the Loans, we issued to Pacific Leaf a 6% senior secured convertible promissory note (the “Note”),
bearing interest at the rate of 6% per annum, payable quarterly. All outstanding principal and interest due under the
Note is due and payable on May 12, 2020. We are required to prepay the outstanding principal amount of the Note on a quarterly
basis in an amount equal to 50% of the cash flow (accrued EBITDA) of GBS Nevada attributable to our percentage interest in GBS
Nevada. Pacific Leaf has the option, at any time and from time to time, prior to the date on which is made the payment in full
of the Note, to convert all or any portion of the outstanding principal amount of the Note into shares of our common stock at an
initial conversion price equal to $0.50 per share.
All of the foregoing securities were issued in reliance on the
exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 (the “
Securities Act
”)
and/or Rule 506 of Regulation D under the Securities Act, as amended.
ITEM 5. Other Information
CFO Appointment
Effective July 27, 2015, the board of directors hired John Poss
as our Chief Financial Officer.
Mr. Poss has over 30 years of experience working as a consultant
to companies facing major transitions and transformations. Mr. Poss began his career in the Washington, D.C. office of Arthur Andersen
& Co. and has served as Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Technology Officer
of both public and private companies in such diverse industries as homebuilding, mining, telecommunications, manufacturing, logistics,
construction lending and mortgage banking. For the past twenty months Mr. Poss served as Chief Executive Officer of Experiential
Teaching Online Corp., an educational content developer and for four years prior thereto owned and operated his own consulting
firm. Mr. Poss has also has worked extensively internationally, successfully negotiating agreements in countries throughout Asia,
Europe and the Americas. Mr. Poss graduated from the University of Texas in 1974 with a degree in accounting.
By letter agreement dated August 10, 2015, we confirmed the
terms of the employment of Mr. Poss as our Chief Financial Officer. The term of employment is one year subject to automatic extensions
for additional one year periods unless either party chooses to terminate such employment. We may terminate the Employment Agreement
at any time with or without cause. If we terminate the Employment Agreement without cause we are required to pay three months’
severance to Mr. Poss if the termination takes place during the first year of employment, four months’ severance if the termination
takes place during the second year of employment and six months’ severance if the termination takes place during the third
year or a subsequent year of employment. No severance payments are due in the case of a termination for cause. Similar severance
provisions apply to a termination by Mr. Poss for good reason but not to a termination by Mr. Poss without good reason. We are
paying Mr. Poss a monthly salary of $10,000 per month. In addition, in August 2015 we issued 600,000 options to Mr. Poss under
our 2014 Equity Incentive Plan. The options are exercisable upon vesting for a period of 10 years from issuance for the purchase
of shares of our common stock at a price of $0.30 per share. The options vest ratably on a monthly basis in equal installments
over the course of 30 months commencing on the seventh month of the employment period. In the event that Mr. Poss’ employment
is terminated by us for cause or by Mr. Poss without good reason, all unvested options at the time of termination will be cancelled.
In the event of a Change of Control, as such term is defined
in the 2014 Equity Incentive Plan, all of the options issued to Mr. Poss shall vest immediately. The number of options issuable
to Mr. Poss is subject to increase within 6 months of the commencement of Mr. Poss’ employment at the discretion of our Board
of Directors. At the end of the third year of employment, the compensation payable to Mr. Poss shall be renegotiated in good faith
by the parties.
Separation Agreement between GBS Sciences Nevada, LLC and
GBS Nevada Partners, LLC
In March 2015, we and GBS Sciences Nevada, LLC (“GBS Nevada”)
entered into a binding memorandum (the “Memorandum”) with GBS Nevada Partners, LLC (“GBS Partners”), the
minority member of GBS Nevada. Under the terms of such agreement, our equity in GBS Nevada was to increase from 55% to 65%, and
GBS Nevada was to retain its existing certification to cultivate and grow cannabis and, if and when issued by Clark County and/or
Las Vegas, Nevada, the delivery certification. It was further agreed that, if and when issued, the dispensary certification would
be assigned to an entity to be wholly-owned by GBS Partners. In consideration for such assignment, the entity operating the dispensaries
was to agree to purchase a minimum of 20% of its inventory of cannabis from GBS Nevada and pay to us 10% of all profits derived
from its dispensary business. In addition, GBS Nevada was to retain the delivery certificate and the exclusive right to provide
all delivery services on behalf of the dispensaries that are permitted by applicable state and local Nevada law. The actions contemplated
by the Memorandum were never taken because the delivery and dispensary certifications have yet to be issued and our ownership of
GBS Nevada remains at 55%.
On August 17, 2015, however, we entered into a letter agreement
with GB Partners to expand on the actions contemplated by the Memorandum and to effect an ownership separation. Pursuant thereto,
we are to become the sole shareholder of GBS Nevada which will retain the Clark County cultivation license and state certificates
together with all related SUPs and state certificates. GBS Partners will receive the Clark County and City of Las Vegas dispensary
location licenses, together with related SUPs and state certificates. In connection with the foregoing, the parties agreed to enter
into a Consignment and Delivery Agreement (“CDA”) with a term of ten years subject to optional extensions for additional
five year periods. The initial extension is automatic assuming neither party is in breach of the CDA. Further extensions thereafter,
will require mutual agreement of the parties.
Pursuant to the CDA, GBS Partners will provide GBS Nevada with
20% of its most prominent in-store retail merchandising shelf space for consignment sales. All after-tax consignment sale proceeds
resulting therefrom will be split equally between GBS Partners and GBS Nevada. The CDA will further provide that GBS Nevada will
establish and bear all expenses of operating and administrating a local delivery service from the dispensary locations. All product
sold through such services will be treated as a consignment sale and as such, all after-tax delivery consignment sale proceeds
will be split between GBS Nevada and GBS Partners on an 80/20 basis. The service may also include non-GBS Nevada product to be
sold through the service from GBS Partners’ county dispensary and in such event, GBS Nevada will retain 20% of the initial
sales price thereof.
The CDA will also provide for GBS Nevada to receive a non-dilutable
10% interest in the distributions, profits and equity of all entities that own or have the right to 100% of all dispensary operations.
GBS Nevada will also have the right to tag along with any sale or transfer of any direct or derivative interest in the dispensary
operation on a pari passu basis.
GBS Partners is required to reimburse GBS Nevada approximately
$307,000 for expenses incurred in connection with the application and issuance of an approved provisional state certificate from
both the Las Vegas and Clark County dispensaries. Approximately $61,000 of such amount is payable upon the governmental approval
of the license transfers. The balance of such amount is payable from the first sale proceeds from dispensary operations and in
all events no later than 2 years from the date the county dispensary receives its final certificate of occupancy (the “County
Certificate”) and opens for business. In the event that the County Certificate is not issued, GBS Partners can defer payment
of approximately $153,000 for a maximum of two additional years. Notwithstanding the foregoing, if GBS Partners finances the dispensary
operations with a third party resulting in the receipt of net proceeds by GBS Partners, then all expense amounts shall become immediately
due and payable.
Management Agreement between Growblox Sciences, Inc. and
Compassionate Team of Las Vegas LLC
On August 17, 2015, the Company entered into a Medical Marijuana
Establishment Management Agreement with Compassionate Team of Las Vegas LLC (“Compassionate Team”) pursuant to the
term of which the Company agreed to manage the operation of the Medical Marijuana Establishment for cultivation, located at 2601
Highland Drive, Las Vegas, Clark County, Nevada (“Real Property”). The responsibility and control of all operations
shall reside with Compassionate Team as licensee. Growblox Sciences agrees to provide all capital funding to the Medical Marijuana
Establishment for cultivation to become fully operational. Growblox Sciences will receive 70% of the total profits in connection
with management services provided which will be distributed on a quarterly basis. The effectiveness of the management agreement
is depended upon Compassionate Team providing Growblox Sciences with written proof of Provisional Medical Marijuana Establishment
Registration Certificate for cultivation and evidence of approved Special Use Permit and a Compliance Permit at the Real Property.
Issuance and Transfer of Provisional Cultivation and Production
Certificates
On August 14, 2015, Sandra Tiffany, the managing member of GWGA,
LLC (“GWGA”), LVIG Holdings LLC (“LVIG”) and LVOP Holdings LLC (“LVOP”) agreed to transfer
the State of Nevada, Division of Public and Behavioral Health (the “Division”) provisional Cultivation Establishment
Registration Certificates to be issued to GWGA and LVIG and the Division’s provisional Production Establishment Registration
Certificate to be issued to LVOP to us at such time that the Division allows for the transfer of such certificates. The certificates
have been issued and transferred to Ms. Tiffany by the respective entities
but have yet to be transferred by Ms. Tiffany
to us. In connection with the issuance of such certificates by the Division, in August 2015, we have agreed to issue 125,000 shares
of our restricted common stock to Ms. Tiffany. We have agreed to issue an additional 125,000 shares of our restricted common stock
to Ms. Tiffany at the time that the issued certificates are transferred to us. We further agreed to employ Ms. Tiffany as the General
Manager of GB Sciences Nevada LLC effective as of August 1, 2015.
In connection with the transfers to Ms. Tiffany of the provisional
cultivation and production certificate, Ms. Tiffany has or will make payment to her former partners in the aggregate amount of
$86,500. We have agreed by letter agreement dated September 23, 2015 to reimburse Ms. Tiffany for these payments on or before January
1, 2016 and to pay Ms. Tiffany an additional $10,000 in consideration of her work related to the project.
Tiffany Employment Agreement
On August 1, 2015, we entered into a one-year Executive Employment
Agreement (the “Employment Agreement”) with Sandra Tiffany (the “Executive”) pursuant to which the Executive
serves as the General Manager of our subsidiary, GB Sciences Nevada, LLC. The Employment Agreement extends automatically for additional
one-year terms unless either party notifies the other, at least 15 days prior to the end of the then existing term, of their determination
not to renew. We may terminate the Employment Agreement at any time with or without cause. If we terminate the Employment Agreement
without cause we are required to pay three months’ severance to the Executive if the termination takes place during the first
year of employment, four months’ severance if the termination takes place during the second year of employment and six months’
severance if the termination takes place during the third year or any subsequent year of employment. No severance payments are
due in the case of a termination by us for cause. We must provide the Executive with advance notice in the case of a termination
for cause in which we identify the manner in which we believe the Executive has failed to perform her duties or identify the other
basis for such termination.
The Executive may terminate the Employment Agreement with or
without good reason by providing us with notice at least 10 days prior to the date of termination. If the termination is not for
good reason, we have no severance obligations to the Executive. If the termination is for good reason, the same severance requirements
applicable to a termination by us without cause shall apply.
The Executive’s duties under the Employment Agreement
include finalizing business plans and budgets, communicating and working with governmental agencies to assure compliance with applicable
rules and regulations, coordinating production, overseeing product sale and distribution, and developing operating procedures.
The Executive is also responsible for managing cultivation and production facilities and the recruiting, hiring and training of
employees.
The Executive is receiving an initial annual base salary of
$72,000 which is subject to review on an annual basis for possible increase as determined by our CEO and/or Board of Directors.
The Executive also received 300,000 stock options under our 2014 Equity Incentive Plan, each exercisable for the purchase of a
share of our common stock at an exercise price of $0.34 per share. The options vest ratably on a monthly basis over the course
of the 30 month period commencing in the seventh month of employment. In the event that the Agreement is terminated by us for cause
or by the Executive without good reason, all unvested options at the time of termination will be cancelled. At the end of the third
year of employment, the compensation payable to the Executive shall be renegotiated in good faith by the parties.
The Employment Agreement also provides for Executive’s
participation in the Company’s Nevada Operations Bonus Pool (the “Bonus Pool”) to be established on or before
December 31, 2015. The Executive’s participation in the Bonus Pool will allow the Executive to receive a bonus in the amount
of her annual salary if our Nevada operations achieve 90% of annual projected earnings. If and when the Nevada operations achieve
100% or more of annual projected earnings, Executive shall be entitled to additional compensation in an amount to be mutually determined
by the Executive and our CEO.
Pacific Leaf Note Purchase Agreement
We entered into a Note Purchase Agreement, dated May 12, 2015
and effective as of June 8, 2015 (the “Effective Date”), with Pacific Leaf Ventures, LP (the “Lender” or
“Pacific Leaf”), pursuant to which the Lender agreed to make installment loans to us in the aggregate amount of $1.75
million (the “Loans”). The purpose of the financing is to provide for the acquisition and installation of
an operating facility, equipment and other tangible assets by GB Nevada. Such facility and equipment will be dedicated to the cultivation
of cannabis and the extraction of oils and other constituents present in cannabis, subject at all times to Nevada legal requirements.
GBS Nevada holds a provisional certificate from the Division
of Public & Behavioral Health of the Nevada Department of Health and Human Services to operate an establishment to cultivate
medical cannabis at 3550 West Teco Avenue, in Clark County Nevada. The certificate is considered provisional until the
establishment is in compliance with applicable local government requirements and has received a state business operating license. Granted
in November 2014, the provisional certificate is subject to revocation if a medical marijuana establishment is not fully operational
within 18 months from receipt.
Pursuant to the terms and conditions of the Note Purchase Agreement
(the “Agreement”), the Lender has made advances to us as of November 6, 2015 in the aggregate amount of $1.5 million
and is required to make additional advances in the amount of $250,000. Currently, the Company expects to achieve operating revenues
in March or April 2016.The obligation of the Lender to make each periodic installment advance in connection with the Agreement
was and is to subject to satisfaction by us of certain conditions, including compliance with certain covenants and with Nevada
legal requirements and no material adverse events. The proceeds of the Agreement can be used only for the purchase of assets,
construction, and leasehold improvements related to the cultivation facility. Part of the assets purchased with the
proceeds of the Agreement will include extraction equipment developed by us in cooperation with Pacific Leaf. The Agreement
is secured by a first lien and security interest on (i) the equipment of GBS Nevada, including the equipment purchased with the
proceeds of the Agreement, and (ii) our equity in GBS Nevada.
To evidence the Agreement, the Company issued to the Lender
a 6% senior secured convertible promissory note, bearing interest at a fixed rate of 6% per annum, payable quarterly (the “Note”). All
outstanding principal and interest due under the Note is due and payable on May 12, 2020. The Company is required to
repay the outstanding principal amount of the Note on a quarterly basis in an amount equal to 50% of the cash flow (accrued EBITDA)
of GBS Nevada attributable to the percentage interest in GBS Nevada.
Pacific Leaf has the option, at any time and from time to time,
prior to the date on which the Company makes payment in full on the Note, to convert all or any portion of the outstanding principal
amount of the Note into shares of common stock at an initial conversion price equal to $0.50. Pacific Leaf and any subsequent
holders of the note have or will be granted rights to piggyback registration on all shares of common stock issuable upon conversion
of the Note.
In a related matter, the Company also entered into an exclusive
perpetual license agreement with Pacific Leaf to make use of Pacific Leaf’s intellectual property for the cultivation of
cannabis and extraction of oils and other strains of cannabis that it has developed or acquired (the “Pacific Leaf Intellectual
Property”) for the sole use of GBS Nevada in its operations within the State of Nevada; it being understood that any other
use of the Pacific Leaf Intellectual Property requires the approval of the licensor.
The Company believes that the rights to the Pacific Leaf Intellectual
Property will give GBS Nevada a significant competitive advantage in the Nevada cannabis market. In consideration for
the license of the Pacific Leaf Intellectual Property, the Company has agreed to pay Pacific Leaf for a period of ten years out
of all periodic distributions received from GBS Nevada (based on the percentage equity in GBS Nevada) a royalty at the rate of
approximately 7.7% of the gross revenue earned by the Company from GBS Nevada for the initial five years, and a royalty at the
rate of approximately 3.85% of gross sales revenues of GBS Nevada in years six through ten.
As part of the Pacific Leaf license, the Company was also granted
the exclusive perpetual right in Nevada to use certain proprietary techniques developed by Pacific Leaf for the extraction of oils
from the product grown in the Nevada facility, using the extraction equipment financed by the proceeds of the Pacific Leaf loan. In
connection therewith, the Company has agreed to pay a royalty of $2.00 per extracted gram for a period of five years.
There can be no assurance that:
|
|
·
|
the Company will be able to comply with the covenants under the Pacific Leaf Note Purchase Agreement so as to enable the Company
to receive all of the anticipated funding thereunder;
|
|
|
·
|
there will not be cost over-runs in connection with the purchase and/or lease of the
cultivation facility and related equipment resulting in the proceeds of the Loan being insufficient to enable GBS Nevada to complete
the installation and commence production of cannabis for medical purposes;
|
|
|
·
|
a state business license to operate the medical cannabis facility will be issued, or
that the Company or GBS Nevada will not violate existing or newly imposed state, county and city regulations in Nevada that would
significant restrict or prohibit its proposed business activities; or
|
|
|
·
|
the proposed business to be conducted by GBS Nevada with the proceeds of the Loan will
prove profitable to the Company or its subsidiaries.
|
A default by the Company under the Note Purchase Agreement could
have a material adverse effect on the business.
Although the proposed and actual business activities of GBS
Nevada are not illegal within the State of Nevada, the production and sale of cannabis products violate federal laws as presently
constituted.
Agreement with Growblox Sciences, Puerto Rico
On May 7, 2015, the Company entered into certain agreements
with Growblox Sciences, Puerto Rico, LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico
(“GBSPR”). GBSPR was formed and is being capitalized primarily by Cesar Cordero-Kruger, a prominent
business executive and resident of Puerto Rico.
Under the terms of a commercialization agreement between the
Company and GBSPR, the Company has granted to GBSPR the exclusive world-wide rights to all of our technology and intellectual property
to:
(a) manufacture, produce, lease and license
our indoor series of controlled-climate indoor agricultural technology growing and cultivation chambers engineered and designed
to produce medical grade cannabis and other plant extracts (the “Growblox Chambers”) and provide remote diagnostic
monitoring and servicing of the Growing Chambers to third party growers and processors of hemp, cannabis and other plant extracts;
(b) sell to the Company, for resale and
distribution throughout the world, in all territories and jurisdictions (including states in the United States) where the sale
and use of such products are permitted, any and all pharmaceutical raw materials and products as well as neutraceuticals and cosmeceutical
skin care products derived from medical-grade cannabis and hemp raw materials that were cultivated and grown in Growblox Chambers;
(c) use the trademarks and packaging
developed by the Company to be used to identify all cannabis products grown in Growblox Chambers;
(d) provide technical support for the
licensing, permitting and other requisite applications for the cannabis business in Puerto Rico and related markets;
(e) access all research supporting the
Growblox Chambers and educational materials previously developed or collected in the future by the Company to the extent associated
or used with GBSPR Business; and
(f) access all of the dispensary related
technology, proprietary information and contacts including, without limitation, technology, proprietary information, and contacts.
All rights not granted to GBSPR under the commercialization
agreement are retained by the Company and include the (i) right to conduct pre-clinical and clinical trials and ongoing research
and development to create cannabis-based therapies for specific clinical conditions based on an understanding of how cannabinoids
interact with the natural receptors in the human body; (ii) formulation of targeted combinations of active ingredients to combat
specific conditions and diseases; (iii) use of proprietary cannabinoid formulations, to develop palliative and curative pharmaceutical
treatment options and products for patients with certain critical diseases; (iv) exclusive right to sell, dispense and
market cannabinoid and hemp based pharmaceutical raw materials and products as well as neutraceuticals and cosmeceutical skin care
products throughout the world, either directly, through distributors or under other agreements with third parties; and (iv) right,
directly, or through one or more of our subsidiaries (other than GBSPR), to cultivate, grow, dispense and sell medical-grade cannabis
or marijuana in Nevada and Colorado.
To the extent that GBSPR produces and sells to the Company for
resale or distribution pharmaceutical raw materials and products, neutraceuticals and/or cosmeceutical skin care products derived
from plants cultivated and grown in Growblox Chambers (collectively, the “Finished Products”), the Company has agreed
to establish mutually acceptable transfer pricing between GBSPR and the Company for such Finished Products; failing which agreement,
an independent third party will arbitrate such pricing and pricing policies. In the event that GBSPR is unable to fulfill
100% of the requirements of the customers for Growblox Chambers or Finished Products, GBSPR will subcontract such production to
third parties that are reasonably acceptable to the Company. Neither the Company nor GBSPR may commercially sell (as
opposed to leasing or licensing) Growblox Chambers without the consent of both parties.
The grant of rights under the commercialization agreement was
subject to the condition that GBSPR obtain not less than $1.25 million of equity financing by no later than September 30, 2015;
failing which we could unilaterally terminate the agreement. If we decide to terminate the agreement, Cesar Cordero-Kruger
who has invested the initial $300,000 of capital to GBSPR, will be responsible for obtaining the remaining $950,000 of capital.
Mr. Cordero-Kruger, on behalf of GBSPR, intended to raise the equity financing in Puerto Rico but, due in part to delays in the
development of our business, was not able to do so. We are presently discussing with Mr. Cordero-Kruger an extension of the equity
financing timeline.
Upon consummation of the contemplated $1.25 million capitalization
of GBSPR, the Company will be the majority owner of its equity, owning approximately 66% of the GBSPR membership interests; Mr.
Cordero-Kruger will own approximately 15.9% of such membership interests, Dr. Andrea Small-Howard, a director and chief technology
officer will own approximately 2.1% of such membership interests and Joseph J. Bianco, a GBSPR Board member will own approximately
8.3% of such membership interests. The remaining percentage of ownership of such membership interests will be owned by other non-related
party investors.
Under the terms of the GBSPR operating agreement, Mr. Cordero-Kruger
is the managing member of GBSPR, entitled to designate a majority of the five member board of managers of GBSPR, and is delegated
with the authority to manage the business of GBSPR, subject only to certain major decisions defined in the operating agreement
(dealing primarily with matters of finance, related party transactions and amending agreements among the parties) which require
unanimous approval of the Board or approval by the Company. The Company has designated Craig Ellins, President and CEO,
and Joseph J. Bianco as members of the GBSPR Board.
The operating agreement also provides that the investors (including
Mr. Cordero-Kruger) who have provided the maximum $1.25 million of capital to GBSPR will hold Class A membership interests that
entitle them to exclusive rights to certain research and development tax credits available to residents of the Commonwealth of
Puerto Rico. The Company and its affiliates and associates hold Class B membership interests, which are identical to
the Class A membership interest, other than the right to the research and development tax credits.
Assuming it completes its initial $1.25 million capitalization,
GBSPR may seek to raise an additional $4.75 million of capital in 2015 or thereafter to enable it to expand its business activities. The
operating agreement provides that the terms of such additional financing, if undertaken, have to be unanimously approved by all
members of the GBSPR board, including the Company’s designees. Under certain conditions, after three years, the operating
agreement provides that Mr. Cordero-Kruger or his designated members of the GBSPR board may require the Company to acquire the
remaining equity of GBSPR under a formula or consummate another liquidity event for the members of GBSPR.
There can be no assurance that the proposed initial $1.25 million
capitalization of GBSPR will be consummated, or that the contemplated $4.75 million of additional financing will be undertaken
or completed upon terms and conditions that are acceptable to GBSPR, if at all. There can also be no assurance that:
|
|
·
|
the proposed business activities of GBSPR will be successful;
|
|
|
·
|
the ongoing research and development will result in pre-clinical trials or clinical trials that will result in the production
of any pharmaceutical or related products that will either be commercially accepted or permitted to be sold by the FDA or any other
state or federal regulatory authority; or
|
|
|
·
|
the Company will ever be able to purchase or be permitted to resell medical grade cannabis or other Finished Products.
|
Trenk Consulting Agreement
Effective October 1, 2015 we entered into a 3-year Consulting
Agreement (the “Consulting Agreement”) with Steven Trenk (the “Consultant”) pursuant to which Consultant
will assist us in the development of our Cannaplex project. The Cannaplex project involves the syndication of an 80% interest in
the physical property owned by Consultant and leased to us for purposes of cultivating marijuana to be used for medical purposes
and creating a center for related professional and/or entertainment services. Consultant will assist with arranging for third-party
financing needed for such syndication. The Consulting Agreement can be cancelled by mutual agreement if the parties determine that
the Cannaplex project cannot be funded or is unable to proceed for other reasons. The Consulting Agreement may also be terminated
by us for cause. In connection with the services to be provided by the Consultant under the Consulting Agreement, we are obligated
to issue to Consultant upon execution of the Consulting Agreement and on the first and second anniversaries thereof, options to
purchase 111,000 shares of our common stock at an exercise price of $0.30 per share. The initial 111,000 options were issued by
us on October 1, 2015.
Share Cancellations
During the three months ended September 30, 2015, the Company
cancelled 892,400 shares of common stock. 392,400 of the cancelled shares represented shares that had been erroneously issued
upon vesting of options that were never exercised. 100,000 of the cancelled shares represented the excess number of shares that
had been erroneously issued under an employment agreement. 400,000 of the shares represented shares issued under an employment
agreement which were subject to forfeiture in the event that the employee (Cathryn Kennedy) ceased to remain in the employment
of the Company on certain specified dates which proved to be the case.
