Quarterly report pursuant to Section 13 or 15(d)

Equity

v3.19.1
Equity
3 Months Ended
Mar. 31, 2019
Stockholders' Equity Note [Abstract]  
Equity

3. Equity

 

The following table illustrates the common stock transactions for the quarter ended March 31, 2019:

 

Category   Common Shares  
Cash, common shares     621,600  
         
Services, authorized but not issued     762,335  
Share Exchange and Ancillary Rights Agreement     11,666,998  
Total     13,050,933  

 

During the quarter ended March 31, 2019, consultants received 414,478 shares of common stock for legal, professional, consulting and advisory services provided to the Company with a fair market value of $1,724,733.

 

During the quarter ended March 31, 2019, the Company authorized the issuance of 15,000 shares of common stock to Dorado Consulting, LLC (Note 6) for services rendered to the Company with a fair market value of $16,500.

 

During the quarter ended March 31, 2019, the Company authorized the issuance of 315,000 shares of common stock to Thomas Gingerich, Chief Financial Officer (Note 6), for services rendered to the Company with a fair market value of $394,500.

 

Series A Preferred Stock

 

The holder of Series A Preferred Stock shall have full voting rights and shall vote together as a single class with the holders of the Company’s common stock. The holder of Series A Preferred Stock is entitled to fifty-one percent (51%) of the total votes on all matters brought before shareholders of the Company, regardless of the actual number of shares of Series A Preferred Stock then outstanding. In addition, the Company is prohibited from issuing any other class of preferred stock without first obtaining the prior approval of the holders of Series A Preferred Stock. All Series A Preferred stock issued and outstanding is held by Peach Management, LLC, a related party.

 

Blank Check Preferred Stock

 

The board of directors will be authorized, subject to any limitations prescribed by law, without further vote or action by the common stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

Warrants

 

As of March 31, 2019, the Company had outstanding warrants to purchase 6,995,796 shares of common stock (the “Warrants”). Each Warrant represents the right to purchase one share of common stock at various exercise prices per share for a period of two (2) or three (3) years from the date of issuance.

 

    Warrants Issued     Exercise Price     Expiration Date  
May 11, 2017     6,038,462     $ .50       May 11, 2020  
February 23, 2018     232,334     $ 6.00       February 23, 2021  
October 5, 2018     517,800     $ 2.50       October 5, 2020  
March 8, 2019     207,200     $ 1.75       March 7, 2021  
Total     6,995,796                  

 

The Company may issue warrants to non-employees in capital raising transactions or for services. In accordance with guidance in ASC Topic 718, the cost of warrants issued to non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. No warrants were issued for compensation during the period ended March 31, 2019.

 

All of the outstanding warrants granted were fully vested on the grant date.

 

January 2019 Stock Offering

 

In January and February 2019, the Company entered into a subscription agreement (the “January Agreement”) with selected accredited investors. Pursuant to the terms of the January Agreement, the Company offered up to $1,500,000 in units (each, a “Unit” and collectively, the “Units”) at a purchase price of $1.25 per Unit (the “January Offering”). Each Unit consisted of (i) one (1) share of the Company’s common stock, par value $0.001 per share (the “Shares”); and (ii) warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Warrants”). The number of shares underlying each Warrant was equal to 33% of the number of Shares subscribed for by such Investor. The Warrants are exercisable at any time on or after the date of issuance for a period of two (2) years at an exercise price per share equal to $1.75. In the January Offering, the Company sold an aggregate of 621,600 Units, resulting in total gross proceeds of $777,000. As a result, the Company issued to the investors a total of 621,600 Shares and 207,200 Warrants. The January Offering closed on March 6, 2019.

 

Sale of Equity in Subsidiaries

 

On March 29, 2019 the Company sold partial interests in its wholly owned subsidiaries to an investor as follows:

 

Subsidiary   % Sold     Amount Received  
Point Arena Manufacturing, LLC     1.5 %   $ 125,001  
Point Arena Distribution, LLC     1.0 %     50,000  
Green Room Palm Springs, LLC     1.5 %     158,571  
Total           $ 333,572  

 

As a result of the transaction, the Company reported $328,819 as additional paid in capital and $4,753 as included in non-controlling interest.

 

On February 19, 2019 the Company sold partial interests in its wholly owned subsidiaries to an investor as follows:

 

Subsidiary   % Sold     Amount Received  
Pure and Natural-Lakeway, LLC     49 %   $ 120,000  
Pure and Natural TN One, LLC     49 %     80,000  
                 
Total           $ 200,000  

 

As a result of the transaction, the Company reported $102,000 as additional paid in capital and $98,000 as included in non-controlling interest.

 

Share Exchange and Ancillary Rights Agreements – Chemesis International Inc.

 

On March 30, 2019, the Company entered into a Share Exchange Agreement (the “Share Agreement”) and an Ancillary Rights Agreement (the “Ancillary Agreement”) with Chemesis International Inc., a British Columbian Corporation (“CADMF”). In the Share Agreement, the Company received 7,291,874 restricted shares of common stock of CADMF and CADMF received 11,666,998 restricted shares of the Company’s common stock. The closing date of the transaction was March 30, 2019. The exchange allows a mutual leak out. Beginning six months after the closing date, the Company shall be able to sell up to 1,215,313 of the CADMF shares and CADMF shall be able to sell 1,944,500 of the Company’s shares every six months, subject to compliance with any applicable securities laws and stock exchange rules.

 

The Ancillary Rights Agreement (“Agreement”) contains the following representations:

 

  1) CADMF will be entitled to nominate and have one member to the Company’s Board of Directors, as long as CADMF holds 10% or more of the Company’s issued and outstanding common shares. Likewise, the Company will be entitled to nominate and have one member on the CADMF Board of Directors, as long as the Company holds 5% or more of the issued and outstanding common shares.
  2) If the Company proposes to issue shares to raise capital, CADMF has a participation right to subscribe for and purchase such number of shares to maintain its equity ownership percentage of the Company.
  3) The Company will provide CADMF with the first right of refusal to produce any requested cannabis or hemp-based CBD products if CADMF has production facilities in the jurisdiction the Company has the request (i.e. California or Puerto Rico). CADMF has ten days to respond to the request of product. After that, the Company can request product from a third party.
  4) The Agreement may be terminated by written agreement of the Company and CADMF or if CADMF ownership percentage decreases below 5% of the issued and outstanding shares of the Company.

 

Non-Controlling Interest

 

The following schedule discloses the effects of changes in the Company’s ownership interest in its subsidiaries on the Company’s equity:

 

    For the Quarter Ended  
    March 31, 2019  
Net loss attributable to GSRX Industries Inc.   $ (3,087,201 )
Net Loss Attributable to Non-Controlling Interests     (125,367 )
Change from net loss attributable to GSRX Industries Inc. and transfers to Non-Controlling Interest   $ (3,212,568 )