Registration No. 333-231218_________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1 /A
(Amendment No. 1)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GB SCIENCES, INC.
(Exact name of registrant as specified in its charter)
NEVADANevada
(State or other jurisdiction of incorporation or organization)
13112834
(Primary Standard Industrial Classification Code)Code Number)
59-3733133
(I.R.S. Employer Identification Number)
3550 W. Teco Avenue, Las Vegas NV 89118
Phone: (866) 721-0297
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Colonial Stock Transfer Company, Inc.Jennings & Fulton, Ltd.
66 Exchange Place2580 Sorrel St., Las Vegas, NV 89146
Salt Lake City, UT 84111
Telephone: (801) 355-5740Tel: (702) 979-3565
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of Communications to:
Gary R. Henrie, Esq.
P.O. Box 107619 South 1040 East
315 Kimball's Garden Circle
Nauvoo, IL 62354American Fork, UT 84003
Tel: (309) 313-5092(307) 200-9415
Email: grhlaw@hotmail.com
Approximate date of commencement of proposed sale to public:
From time to time after the effective date of this registration statement.
(Approximate date of commencement of proposed sale to public)
If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [X]☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)7(a)(2)(B) of the ExchangeSecurities Act. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities To Be Registered |
| Amount to be Registered |
| Proposed Maximum Offering Price Per Share |
| Proposed Maximum Aggregate Offering Price |
| Amount of Registration Fee |
Common stock, par value $.001 per share |
| 22,000,000 shares(1) |
| $0.16(2) |
| $3,520,000 |
| $426.63 |
(1) The 22,000,000 common shares are being registered for resale by the Selling Stockholder.
(2) The closing price of the common shares on May 1, 2019.☐
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities To Be Registered |
| Amount to be Registered (1) |
| Proposed Maximum Offering Price Per Share (2) |
| Proposed Maximum Aggregate Offering Price (2) |
| Amount of Registration Fee |
Common stock, par value $.0001 per share |
| 119,899,091 shares (3) |
| $0.04 |
| $4,795,964 |
| $523.24 |
(1) This registration statement also includes an indeterminate number of securities that may become offered, issuable or sold to prevent dilution resulting from stock splits, stock dividends and similar transactions, which are included pursuant to Rule 416 under the Securities Act of 1933, as amended.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as amended, based upon the average of the bid and asked prices of the common stock as reported on the OTC Markets on September 14, 2021.
(3) Consists of shares of common stock issuable upon the conversion of convertible debt issued in private placements and issuable upon the exercise of warrants and options issued in private placements and to employees and consultants in exchange for services rendered to the Company.
The information in this preliminary prospectus is not complete and may be changed. The selling stockholderSelling Security Holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and the selling stockholder iswe are not soliciting offersan offer to buy these securities in any state or jurisdiction where such offers arethe offer or sale is not permitted.
Subject to completion,PRELIMINARY PROSPECTUS
May _____, 2019 (Subject to Completion, Dated September 17, 2021)
[Explanatory Note: This Amendment No. 1 is filed for the purpose of attaching Exhibit 23.3. The remainder of the filing is the same as the Form S-1, Filing Number 333-231218, filed on May 3, 2019.]
PROSPECTUS
22,000,000 Shares
GB SCIENCES, INC.
119,899,091Shares of Common Stock
We are registeringThis prospectus relates to the resale, of 22,000,000 shares of common stock of GB Sciences, Inc., a Nevada corporation (the "Company"), by the Selling Stockholder who may acquire suchSecurity Holders identified in this prospectus, of up to an aggregate of 119,899,091 shares of our common stock, par value $0.0001 per share (“Common Stock”), issuable upon the conversion of a Note (the "Note Shares"). convertible debt issued in private placements and issuable upon the exercise of warrants and options issued in private placements and to employees and consultants in exchange for services rendered to the Company.
The Selling StockholderSecurity Holders are identified in the table on page 19 of this prospectus. We will not receive all of theany proceeds from the sale of the Note Shares. We will pay all expenses incident toshares of Common Stock by the registrationSelling Security Holders. All net proceeds from the sale of the shares underof Common Stock covered by this prospectus will go to the Securities ActSelling Security Holders. However, we may receive the proceeds from any exercise of 1933, as amended.Warrants or Options if the holders do not exercise the Warrants on a cashless basis. See “Use of Proceeds.”
AtThe Selling Security Holders may sell all or a portion of the presentshares of Common Stock from time to time in market transactions through any market on which our common stockshares of Common Stock are then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. See “Plan of Distribution.”
Our Common Stock is listed on the OTCQBThe OTC Markets under the symbol GBLX. The Selling Stockholder will sell“GBLX.” On September 7, 2021, the shares at prevailing market prices or at privately negotiated prices.last reported sale price of our Common Stock was $0.037 per share.
Investing in our common stocksecurities involves a high degree of risk. The risks which are described in the "Risk Factors"“Risk Factors” section beginning on page 108 of this prospectus. You should also consider the risk factors described or referred to in any documents incorporated by reference in this prospectus, and in any applicable prospectus supplement, before investing in these securities.
Neither the Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of these securities or determined ifpassed upon the accuracy or adequacy of this prospectus is truthful or complete.supplement. Any representation to the contrary is a criminal offense.
The date of this prospectus is May _____, 2019.___, 2021.
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with any information or represent anything not contained in this prospectus, and, if given or made, any such other information or representation should not be relied upon as having been authorized by us. The selling stockholder is not offering to sell, or seeking offers to buy, our common stock in any jurisdiction where the offer or sale is not permitted. You should not assume that the information provided in this prospectus is accurate as of any date other than the date on the front cover of this prospectus.
5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
19 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
19 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
22 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
35 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 35 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
46 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
49 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
52 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE | 53 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 53 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
53 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
54 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
55 |
This prospectus is part of a registration statement that we filed with the SEC. As permitted by the rules and regulations of the SEC, the registration statement filed by us includes additional information not contained in this prospectus. You may read the registration statement and the other reports we file with the SEC at the SEC’s website described below under the heading “Where You Can Find More Information.”
You should rely only on the information that is contained in this prospectus or that is incorporated by reference into this prospectus. We have not authorized anyone to provide you with information that is in addition to or different from that contained in, or incorporated by reference into, this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. The information contained in this prospectus is accurate as of the date on the front of this prospectus only, regardless of the time of delivery of this prospectus or of any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
Neither we, nor the selling stockholder, are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted. We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities as to distribution of the prospectus outside of the United States.
Unless the context indicates otherwise, all references to "GB" and "GB Sciences" refers solely to GB Sciences, Inc., a Nevada corporation, and all references to "the Company," "we", "us" or "our" in this Prospectus refers to GB Sciences and its consolidated subsidiaries.
The following summary highlights information contained elsewhere in this prospectus. It is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors" and our consolidated financial statements and accompanying notes.
Our Business
We were incorporated in the State of Delaware on April 4, 2001, under the name "Flagstick Venture, Inc." On March 28, 2008, we changed our name to "Signature Exploration and Production Corp." as our business model had changed. On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc. Effective December 12, 2016, the Company changed its name from Growblox Sciences, Inc. to GB Sciences, Inc. Effective April 8, 2018, we changed our corporate domicile from the State of Delaware to the State of Nevada.
GB Sciences is a phytomedical research and biopharmaceutical drug development company whose goal is to create patented formulations of plant-inspired, complex therapeutic mixtures for the prescription drug market that target a variety of medical conditions. The Company is engaged in the research and development of plant-based medicines and plans to produce plant-inspired, complex therapeutic mixtures based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and development of plant-based medicines, primarily cannabinoid medicines, with virtual operations in North America and Europe. GBSGB’s assets include a portfolio of intellectual property containing both proprietary cannabinoid-containing formulations and our AI-enabled drug discovery platform, as well as critical research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of medical conditions and several programs are in the pre-clinical animal stage of development including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes five USPTO issued patents, nine USPTO nonprovisional patent applications pending in the US, and one provisional patent application in the US. In addition to the USPTO patents and patent applications, the company has filed 35 patent applications internationally to protect its proprietary technology. We recently filed a provisional USPTO patent application to further protect aspects of our proprietary drug discovery engine, “Phytomedical Analytics for Research Optimization at Scale," or PhAROS™.
Our Offices
Our principal executive offices are located at 3550 W. Teco Avenue, Las Vegas, NV 89118. Our telephone number is (866) 721-0297.
Our Website
Our Internet address is http://gbsciences.com/. Information contained on our website is not part of this prospectus.
The Offering
We are registering for resale by the Selling Security Holders, 119,899,091 shares of common stock of the Company to be issued upon the conversion of convertible debt issued in private placements and to be issued upon the exercise of warrants and options issued in private placements and to employees and consultants in exchange for services rendered to the Company. At the present time our common stock is listed on the OTCQB under the symbol GBLX. The Selling Shareholders will sell their shares at prevailing market prices or at privately negotiated prices.
Risk factors:
The purchase of our common stock involves a high degree of risk. You should carefully review and consider "Risk Factors" beginning on page 8.
We will pay all expenses incident to the registration of the shares under the Securities Act.
Summary Financial Information
The tables and information below are derived from the Company's unaudited consolidated financial statements as of June 30, 2021, and for the three months ended June 30, 2021, and 2020 and also as of March 31, 2021.
Balance Sheet Summary | June 30, 2021 | March 31, 2021 | ||||||
Cash and cash equivalents | $ | 582,971 | $ | 793,040 | ||||
Total assets | 10,330,629 | 10,806,054 | ||||||
Current liabilities | 8,707,840 | 8,598,448 | ||||||
Total stockholders’ deficit | $ | (2,030,451 | ) | $ | (1,473,928 | ) |
Statement of Operations Summary | June 30, 2021 | June 30, 2020 | ||||||
Revenue | $ | - | $ | - | ||||
General and administrative expenses | (493,405 | ) | (515,253 | ) | ||||
Other expense | (65,254 | ) | (959,611 | ) | ||||
Loss from discontinued operations | (73,758 | ) | (371,836 | ) | ||||
Net loss | $ | (632,417 | ) | $ | (1,846,700 | ) | ||
Net loss per share – basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) |
The tables and information below are derived from the Company's audited consolidated financial statements for the years ended March 31, 2021 and 2020.
Balance Sheet Summary | March 31, 2021 | March 31, 2020 | ||||||
Cash and cash equivalents | $ | 793,040 | $ | 2,406 | ||||
Total assets | 10,806,054 | 14,352,868 | ||||||
Current liabilities | 8,598,448 | 10,885,757 | ||||||
Total stockholders’ deficit | $ | (1,473,928 | ) | $ | (88,494 | ) |
Statement of Operations Summary | March 31, 2021 | March 31, 2020 | ||||||
Revenue | $ | - | $ | - | ||||
General and administrative expenses | (2,001,617 | ) | (5,741,514 | ) | ||||
Other income/(expense) | (1,331,233 | ) | 992,455 | |||||
Loss from discontinued operations | (392,177 | ) | (8,362,626 | ) | ||||
Net loss | (3,725,027 | ) | (13,111,685 | ) | ||||
Net loss attributable to non-controlling interest | - | (738,106 | ) | |||||
Net loss attributable to GB Sciences, Inc. | (3,725,027 | ) | (12,373,579 | ) | ||||
Net loss per share – basic and diluted | $ | (0.01 | ) | $ | (0.05 | ) |
This offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information contained in this prospectus before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In that case, the trading price of our common stock could decline and you may lose part or all of your investment. In the opinion of management, the risks discussed below represent the material risks known to the Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations and adversely affect the market price of our common stock.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
We have a limited operating history, which may make it difficult for investors to predict future performance based on current operations.
We have a limited operating history upon which investors may base an evaluation of our potential future performance. In particular, we have not proven that we can supply growing equipment in a manner that enables us to be profitable and meet customer requirements, develop intellectual property to enhance our product lines, obtain the necessary permits to develop medical grade cannabis, develop and maintain relationships with key manufacturers and strategic partners to extract value from our intellectual property, raise sufficient capital in the public and/or private markets, or respond effectively to competitive pressures. As a result, there can be no assurance that we will be able to develop or maintain consistent revenue sources, or that our operations will be profitable and/or generate positive cash flows.
Any forecasts we make about our operations may prove to be inaccurate. We must, among other things, determine appropriate risks, rewards, and level of investment in our product lines, respond to economic and market variables outside of our control, respond to competitive developments and continue to attract, retain and motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on our business, results of operations and financial condition. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in the early stage of development. As a result of these risks, challenges and uncertainties, the value of your investment could be significantly reduced or completely lost.
Our independent auditors'auditors’ report for the fiscal years ended March 31, 20182021 and 20172020 have expressed doubts about our ability to continue as a going concern;
Due to the uncertainty of our ability to meet our current operating and capital expenses, in our audited annual financial statements as of and for the yearyears ended March 31, 20182021 and 20172020 our independent auditors included a note to our financial statements regarding concerns about our ability to continue as a going concern. The Company has incurred recurring losses and has generated limited revenue and has had negative operating cash flows since inception of the exploration activities.inception. These factors and the need for additional financing in order for the Company to meet its business plan, raise substantial doubt about the ability to continue as a going concern. The presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.
We have incurred significant losses in prior periods, and losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our cash flows.
We have incurred significant losses in prior periods. For the years ended March 31, 20182021 and 2017,2020, we incurred net losses of approximately $23 million$3,725,027 and $10 million$12,373,579 respectively, and we had an accumulated deficit of $58.2
million$103,886,232 and $35.3 million$97,387,205 respectively. Any losses in the future could cause the quoted price of our common stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due, and on our cash flows.
We will need additional capital to sustain our operations and will need to seek further financing, which we may not be able to obtain on acceptable terms or at all. If we fail to raise additional capital, as needed, our ability to implement our business plan could be compromised.
We have limited capital resources and operations. To date, our operations have been funded primarily from the proceeds of debt and equity financings. We expect to require substantial additional capital in the near future to implement our strategies, develop our intellectual property base, and establish our targeted levels of commercial production. There is no assurance that itwe will be able to raise the amount of capital needed for future growth plans.
Even if financing is available, it may not be on terms that are acceptable. If unable to raise the necessary capital at the times required, the Company may have to materially change the business plan, including delaying implementation of aspects of the business plan or curtailing or abandoning the business plan. Even if we obtain financing for our near-term operations, we expect that we will require additional capital thereafter, especially if we are to develop our Science division and start to conduct, individually or with joint venture partners, pre-clinical and clinical trials for potential pharmaceutical, or nutraceutical products derived from cannabis. Our capital needs will depend on numerous factors including: (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment requirements for research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing stockholders will be reduced and our stockholders may experience significant dilution. In addition, new securities may contain rights, preferences or privileges that are senior to those of our common stock. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of common stock could limit our ability to obtain equity financing.
We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
Drug research and development programs typically involves huge expenditures, long periods to obtain FDA approvals and the potential that such prospective pharmaceutical products will not prove to be safe and effective.
The production of FDA-approved pharmaceutical products and related drug is typically a highly expensive a long and drawn out process, typically involving hundreds of millions of dollars and a decade or more to achieve. Although we believe that some, if not all, of our planned cannabinoid based pharmaceutical protocols can qualify for "orphan drug"“orphan drug” status and be accelerated through the FDA approval process, there can be no assurance that this will be the case.
In addition, we do not now have, and do not expect in the foreseeable future to have, the capital resources to fund our drug discovery programs, nor do we have the infrastructure to conduct such program alone. For that reason, we intend to engage in joint ventures with third parties, including hospitals, clinics, foundations and other qualified sources. Although we are in preliminary discussions with various potential partners, to date, we have not entered into any definitive drug development joint venture or partnership agreement. Our failure or inability to enter into one or more drug development agreements will materially and adversely affect our ability to develop our Science division. Even if we are able to obtain such joint drug development agreements there can be no assurance that it will be on terms and conditions that will be favorable to us.
Although we believe that we can significantly reduce the costs of engaging in FDA certified pre-clinical and clinical trials, including traditional Phase IV human trials, by obtaining data from existing users of our medical cannabis
protocols, there can be no assurance that such data will be available, or if it is, that the FDA will accept our data. There is the further risk that the anticipated costs of producing an FDA approved drug will not escalate to the point that will cause us and any of our prospective development partners to abandon such efforts.
Even if we do develop an FDA-approved pharmaceutical product, there is the risk that it will not be saleable to a major pharmaceutical company (either before or after completion of the FDA approval process), or that other competing drugs will not be produced providing the same medical benefits.
Accordingly, there is a significant risk that we will never be able to generate a return on our investment, and we could lose our entire investment in our Science division.GBS Global Biopharma, Inc. Either of such events, would have a material adverse effect on our business prospects and equity value.
There has been limited study on the effects of cannabinoids and future clinical research studies may lead to conclusions that dispute or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabinoid-based active ingredients.
Research regarding the medical benefits, viability, safety, efficacy and dosing of cannabinoids (such as CBD) remains in relatively early stages. There have been few clinical trials on the benefits of cannabinoids conducted by us or by others, but the number of trials is growing.
Future research and clinical trials may draw opposing conclusions to statements contained in the articles, reports and studies we have relied on or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabinoid-containing prescription medicines. However, our proprietary formulations will have been through the rigorous premarket approval process of the US FDA prior to marketing.
Federal law prohibits the use of cannabis for the purposes in which the Company expects to engage.
Under the federal Controlled Substances Act ("CSA"(“CSA”), cannabis is deemed to be a StageSchedule One narcotic that has no medical benefit. Therefore, a range of activities including cultivation and the personal use of cannabis is prohibited and is a criminal offense. Unless and until Congress amends the CSA with respect to medical cannabis, as to the timing or scope of any which amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain.
The current policy and regulations of the Federal government and its agencies, including the U.S. Drug Enforcement Agency and the FDA, are that cannabis has no medical benefit and a range of activities including cultivation and use of cannabis for personal use is prohibited on the basis of Federal law. Although 29thirty-three states and District of Columbia have passed legislation permitting the cultivation and dispensing of medical cannabis, these laws are, in many jurisdictions, subject to strict regulation and limitations and are still being developed. Active enforcement of the current federal regulatory position on cannabis on a regional or national basis may directly and adversely affect the ability of the Company to develop its business plan even though it is allowed by state regulation in the various states in which the Company intends to operate. Although research and development in the growing and processing of cannabis products for medicinal purposes and in seeking to obtain state permits for the cultivation and sale of cannabis products are not in violation of Federal law, our business plan to conduct our Solutions and Products divisions, even if conducted within the parameters of any state licenses or permits we are able to obtain, will violate federal laws, as currently in effect. Accordingly, although the Company was successful in obtaining a cultivation and production license in Nevada or other states and operates pursuant to such licenses, if federal law does not change, we believe the Company will at that time be in violation of federal law. If existing federal laws are enforced by the United States Department of Justice or the FDA, it is likely that our proposed business will be significantly and materially adversely affected.
Because the Company's sales are subject to IRC 280E, we may owe federal income taxes even though we are incurring losses.
Under the federal Controlled Substances Act (“CSA”), cannabis is deemed to be a Schedule One narcotic that has no medical benefit. The production and distribution of Schedule One narcotics is subject to Internal Revenue Code Section 280E, which prohibits the Company from deducting any ordinary and necessary business expenses from taxable gross profit related to the sale of cannabis products. Without the deduction of business expenses, it is possible that the Company will owe income taxes while generating losses. If we are unable to pay those taxes we may be subject to penalties and IRS enforcement action.
FDA regulation of marijuana and the possible registration of facilities where medical marijuana is grown could negatively affect the cannabis industry which would directly affect our financial condition.
Should the federal government legalize marijuana for medical use, it is possible that the U.S. Food and Drug Administration (FDA) would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations including cGMPs (current good manufacturing practices) related to the growth, cultivation, harvesting and processing of medical marijuana. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where medical marijuana is grown be registered with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the medical marijuana industry, what costs, requirements and possible prohibitions may be enforced.
If no additional states allow the medicinal use of cannabis, or if one or more states that currently allow it reverse their position, we may not be able to continue our growth, or the market for our products and services may decline.
Currently, twenty-ninethirty-three states and the District of Columbia allow the use of medicinal cannabis. While we believe that the number of states that allow the use of medicinal cannabis will grow, there can be no assurance that it will, and if it does not, there can be no assurance that the twenty-ninethirty-three existing states and/or the District of Columbia
won't won’t reverse their position and disallow it. If either of these things happens, then not only will the growth of our business be materially impacted, we may experience declining revenue as the market for our products and services declines.
Because the business activities of some of our customers are illegal under Federal law, we may be deemed to be aiding and abetting illegal activities through the services that we provide to those customers. As a result, we may be subject to actions by law enforcement authorities which would materially and adversely affect our business.
We provide services to customers that are engaged in businesses involving the possession, use, cultivation, and transfer of cannabis. As a result, law enforcement authorities may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another'sanother’s criminal activities. Such an action would have a material effect on our business and operations.
In the states where medicinal cannabis is permitted, local laws and regulations could adversely affect our clients, including causing some of them to close, which would materially and adversely affect our business.
Even in areas where the medicinal use of cannabis is legal under state law, there are also local laws and regulations that affect our clients. These local laws and regulations may cause some of our customers to close and having a material effect on our business and operations. In addition, the enforcement of identical rules or regulations as it pertains to medicinal cannabis may vary from municipality to municipality, or city to city.
Variations in state and local regulation and enforcement in states that have legalized medical cannabis that may restrict cannabis-related activities, including activities related to medical cannabis may negatively impact our revenues and profits.
Individual state laws do not always conform to the federal standard or to other states laws. A number of states have decriminalized cannabis to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalization and medical laws. Variations exist among states that have legalized, decriminalized, or created medical cannabis exemptions. For example, Colorado has limits on the number of cannabis plants that can be homegrown. In most states, the cultivation of cannabis for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of medical cannabis needing care or that person'sperson’s caregiver. Active enforcement of state laws that prohibit personal cultivation of cannabis may indirectly and adversely affect our business and our revenue and profits.
It is possible that federal or state legislation could be enacted in the future that would prohibit us from selling our products or any resulting cannabis products, and if such legislation were enacted, it could prevent us from generating revenue, leading to a loss in your investment.
We are not aware of any federal or state regulation that regulates the sale of indoor cultivation equipment to medical or recreational cannabis growers. The extent to which the regulation of drug paraphernalia under the CSA is applicable to our business and the sale of our products is found in the definition of "drug“drug paraphernalia."” Drug paraphernalia means any equipment, product, or material of any kind that is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful.
If federal and/or state legislation is enacted which prohibits the sale of our growing equipment to medical cannabis growers, our revenues would decline, leading to a loss of a material portion of your investment.
Prospective customers may bedeterred from doing business with acompany with asignificant nationwide online presence because of fears of federal orstate enforcement oflaws prohibiting possession and sale of medical or recreational cannabis.
Internet websites are visible by people everywhere, not just in jurisdictions where the medical or recreational use of cannabis is considered legal. Our website is visible in jurisdictions where medicinal and/or recreational use of cannabis is not permitted and, as a result, we may be found to be violating the laws of those jurisdictions. We could
lose potential customers as they could fear federal prosecution. In most states in which the production and sale of cannabis have been legalized, there are additional laws or licenses required and some states altogether prohibit home cultivation, all of which could make the loss of potential customers more likely.
We may not obtain the necessary permits and authorizations to operate the medical cannabis business.
We may not be able to obtain or maintain the necessary licenses, permits, authorizations, or accreditations, or may only be able to do so at great cost, to operate its medical cannabis business. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the medical cannabis industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations, or accreditations could result in restrictions on our ability to operate the medical cannabis business, which could have a material adverse effect on our business.
Any failure on our part to comply with applicable regulations could prevent us from being able to carry on our business.
Nevada Department of Taxation inspectors routinely assess the Teco Facility for compliance with applicable regulatory requirements. Any failure by us to comply with the applicable regulatory requirements could require extensive changes to our operations; result in regulatory or agency proceedings or investigations, increased compliance costs, damage awards, civil or criminal fines or penalties or restrictions on our operations; and harm our reputation or give rise to material liabilities or a revocation of our licenses and other permits. There can be no assurance that any pending or future regulatory or agency proceedings, investigations or audits will not result in substantial costs, a diversion of management’s attention and resources or other adverse consequences to us and our business.
If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.
Our participation in the medical cannabis industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against these subsidiaries. Litigation, complaints, and enforcement actions involving these subsidiaries could consume considerable amounts of financial and other corporate resources, which could have a negative impact on our sales, revenue, profitability, and growth prospects.
We are subject to risks inherent in an agricultural business, including the risk of crop failure.
We grow cannabis, which is an agricultural process. As such, our business is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, insects, plant diseases and similar agricultural risks.
We have difficulty accessing the service of banks, which may make it difficult for us to operate.
Since the use of cannabis is illegal under Federal law, there is an argument that banks should not accept for deposit funds from businesses involved with the cannabis industry. Consequently, such businesses often have difficulty finding a bank willing to accept their business.
On February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state licensed marijuana businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and "may not"“may not” be prosecuted. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that "it“it is possible to provide financial services" to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. To date we are unaware if any banks have relied on the guidance and taken on legal marijuana companies as clients.
Notwithstanding the above federal guidelines and in addition to potential federal sanctions, regulators in the states in which we are able to conduct business may make it difficult for local banks to do business with companies considered to be engaged in cultivating and dispensing cannabis. Failure to establish a permanent banking relationship could have a material and adverse effect on our future business operations.
We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.
The industry in which we operate is subject to intense and increasing competition. Some of our competitors have greater capital resources, facilities and diversity of product lines, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing and marketing products that will directly compete with our product lines. Due to this competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. There are no assurances that competition in our respective industries will not lead to reduced prices for our products. If we are unable to successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and financial condition.
If we fail to protect or develop our intellectual property, our business could be adversely affected.
Our viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our technology to distinguish our products from our competitors'competitors’ products. We will rely on patents, copyrights, trademarks, trade
secrets, and confidentiality provisions to establish and protect our intellectual property.
Any infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation costs and require a significant amount of our time. In addition, our ability to enforce and protect our intellectual property rights may be limited in certain countries outside the United States, which could make it easier for competitors to capture market position in such countries by utilizing technologies that are similar to those developed or licensed by us.
Competitors may also harm our sales by designing products that mirror the capabilities of our products or technology without infringing on our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.
We may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute and there can be no assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights or prevent other parties from developing similar technology or designing around our intellectual property.
Although we believe that our intellectual property does not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business.
We are not aware of any infringement by us of any person'sperson’s or entity'sentity’s intellectual property rights. In the event that products we sell are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify our products or obtain a license for the manufacture and/or sale of such products or cease selling such products. In such event, there can be no assurance that we would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business.
There can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. If our products or proposed products are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect on our business and our financial condition.
Our trade secrets may be difficult to protect.
Our success depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. Because we operate in several highly competitive industries, we rely in part on trade secrets to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally require that the receiving party keep confidential and not disclose confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving party'sparty’s relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.
These confidentiality, inventions and assignment agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive position.
Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
Our future success largely depends upon the continued services of our executive officers and management team. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive officers joins a competitor or forms a competing company, we may lose some of our potential customers. Finally, we do not maintain "key person"“key person” life insurance on any of our executive officers. Because of these factors, the loss of the services of any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an investment in our stock.
Our continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need to hire and retain additional personnel as our business grows. There can be no assurance that we will be able to attract or retain highly qualified personnel. We face significant competition for skilled personnel in our industry. This competition may make it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may not be able to effectively manage or grow our business, which could adversely affect our financial condition or business. As a result, the value of your investment could be significantly reduced or completely lost.
We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations.
In the near term, we intend to expand the scope of our operations activities significantly. If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, finances, management and other resources. The factors that may place strain on our resources include, but are not limited to, the following:
·The need for continued development of our financial and information management systems;
● | The need for continued development of our financial and information management systems; |
·The need to manage strategic relationships and agreements with manufacturers, customers and partners; and
● | The need to manage strategic relationships and agreements with manufacturers, customers and partners; and |
·Difficulties in hiring and retaining skilled management, technical, and other personnel necessary to support and manage our business.
● | Difficulties in hiring and retaining skilled management, technical, and other personnel necessary to support and manage our business. |
Additionally, our strategy could produce a period of rapid growth that may impose a significant burden on our administrative and operational resources. Our ability to effectively manage growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage, and retain qualified management and other personnel. There can be no assurance that we will be successful in recruiting and retaining new employees or retaining existing employees.
We cannot provide assurances that our management will be able to manage this growth effectively. Our failure to successfully manage growth could result in our sales not increasing commensurately with capital investments or otherwise materially adversely affecting our business, financial condition, or results of operations.
If we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected.
In the area of innovation, we must be able to develop new technologies and products that appeal to our customers. This depends, in part, on the technological and creative skills of our personnel and on our ability to protect our intellectual property rights. We may not be successful in the development, introduction, marketing, and sourcing of new technologies or innovations, that satisfy customer needs, achieve market acceptance, or generate satisfactory financial returns.
Litigation may adversely affect our business, financial condition, and results of operations.
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.
If we fail to implement and maintain proper and effective internal controls and disclosure controls and procedures pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our ability to produce accurate and
timely financial statements and public reports could be impaired, which could adversely affect our operating results, our ability to operate our business, and investors'investors’ views of us.
As of March 31, 2018,2021, management assessed the effectiveness of our internal controls over financial reporting. Management concluded, as of the fiscal year ended March 31, 2018,2021, that our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Management concluded that our internal controls were adversely affected by deficiencies in the design or operation of our internal controls, which management considered to be material weakness; specifically, no member of our board of directors qualifies as an "audit“audit committee financial expert"expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
The failure to implement and maintain proper and effective internal controls and disclosure controls could result in material weaknesses in our financial reporting such as errors in our financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.
We do not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system'ssystem’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our insurance coverage may be inadequate to cover all significant risk exposures; because we are in the cannabis industry, we have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liabilities.
We will be exposed to liabilities that are unique to the products we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations. We do not have any business interruption insurance. Any business disruption or natural disaster could result in substantial costs and diversion of resources. We do not have directors' and officers' liability insurance in place and could incur substantial costs to indemnify our directors and officers against any claims that may arise.
Currently we have insurance coverage in place for business personal propertyproperties located at 3550 W. Teco Avenue, Las Vegas, Nevada 89118, as well as workers'workers’ compensation insurance, directors and officers' liability insurance, and general liability insurance.
Insurance that is otherwise readily available is more difficult for us to find, and more expensive, because we
engaged in the medicinal cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
We expect to experience volatility in the price of our common stock, which could negatively affect stockholders'stockholders’ investments.
The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad market and industry factors may seriously affect the market price of companies'companies’ stock, including ours, regardless of actual operating performance. All of these factors could adversely affect your ability to sell your shares of common stock or, if you are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.
Our common stock is categorized as "penny“penny stock,"” which may make it more difficult for investors to sell their shares of common stock due to suitability requirements.
Our common stock is categorized as "penny stock"“penny stock”. The Securities and Exchange Commission (the "SEC"“SEC”) has adopted Rule 15g-9 which generally defines "penny stock"“penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The price of our common stock is significantly less than $5.00 per share and is therefore considered "penny“penny stock."” This designation imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer buying our securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities given the increased risks generally inherent in penny stocks. These rules may restrict the ability and/or willingness of brokers or dealers to buy or sell our common stock, either directly or on behalf of their clients, may discourage potential stockholders from purchasing our common stock, or may adversely affect the ability of stockholders to sell their shares.
Financial Industry Regulatory Authority ("FINRA"(“FINRA”) sales practice requirements may also limit a stockholder'sstockholder’s ability to buy and sell our common stock, which could depress the price of our common stock.
In addition to the "penny stock"“penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer'scustomer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares of common stock, have an adverse effect on the market for our shares of common stock, and thereby depress our price per share of common stock.
The elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification rights for or obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees.
Our Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders. We do not have directors' and officers' liability insurance in place and could incur substantial costs to indemnify our directors and officers against any claims that may arise.
We may issue additional shares of common stock in the future, which could cause significant dilution to all stockholders.
Our CertificateArticles of of Incorporation authorizesauthorize the issuance of up to 400,000,000600,000,000 shares with a par value of $0.001$0.0001 per share. As of May 3, 2019,August 13, 2021, we had approximately 242 million317,429,078 shares of common stock outstanding. However, we require additional capital and will likely issue additional shares of Common Stock in the future in connection with one or more financings or an acquisition. Such issuances may not require the approval of our stockholders. In addition, certain of our outstanding rights to purchase additional shares of common stock or securities convertible into our common stock are subject to full-ratchet anti-dilution protection, which could result in the right to purchase significantly more shares of common stock being issued or a reduction in the purchase price for any such shares or both. Any issuance of additional shares of our common stock, or equity securities convertible into our common stock, including but not limited to, warrants, and options, will dilute the percentage ownership interest of all stockholders, may dilute the book value per share of our common stock, and may negatively impact the market price of our common stock.
The conversion of the Note may depress our stock price and dilute your ownership of the company.
We are registering 22,000,000 common shares to be issued upon the conversion of a Note for resale by the Selling Stockholder. The conversion price of the principal of the Note is $0.17 per share of common stock.
To the extent that the Note is converted, dilution to our stockholders will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holder of the Note can be expected to convert it at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the conversion terms provided by the Note. Further, in the event the conversion price of the Note is lower than the actual trading price on the day of conversion, the holder could immediately convert the Note, which would have a dilutive effect on the value of the outstanding common shares. Furthermore, the significant downward pressure on the trading price of our common stock when the Note holder converts the Note and sells the common shares received on conversion could encourage short sales by the holders of the Note or other stockholders. This would place further downward pressure on the trading price of our common stock. Even the mere perception of eventual sales of common shares issued on the conversion of the Note could lead to a decline in the trading price of our common stock.
Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Declaring and paying future dividends, if any, will be determined by our Board, based upon earnings, financial condition, capital resources, capital requirements, restrictions in our Articles of Incorporation, contractual restrictions, and such other factors as our Board deems relevant. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus, including the documents that are incorporated by reference, contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Any statements in this prospectus about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “would” or the negative of these words and similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.
Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed in this prospectus, in our Annual Report on Form 10-K or any of our other filings with the SEC that is incorporated by reference herein. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to:
● | the availability and adequacy of cash flow to meet our requirements; | |
● | economic, competitive, demographic, business and other conditions; | |
● | changes in our business and growth strategy; | |
● | changes or developments in laws, regulations or taxes in the biopharma, cannabis industry; | |
● | actions taken or not taken by third-parties, including our contractors and competitors; | |
● | the availability of additional capital; and | |
● | other factors discussed under the section entitled “Risk Factors” or elsewhere in the Annual Report on Form 10-K. |
The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. You should read this prospectus and the documents that we reference herein and have filed as exhibits to the Annual Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date hereof. Because the risk factors referred to in this prospectus, in our Annual Report on Form 10-K or any of our other filings with the SEC, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus, and particularly our forward-looking statements, by these cautionary statements.
The 22,000,000 shares offered by this prospectus are being offered solely for the account of the selling stockholder. We will not receive any proceeds from the sale of the shares of Common Stock by the selling stockholder. Selling Security Holders. All net proceeds from the sale of the shares of Commons Stock covered by this prospectus will go to the Selling Security Holders. We expect that the Selling Security Holders will sell their shares of Common Stock as described under “Plan of Distribution.”
We may receive proceeds from the exercise of the Warrants and the Options. Certain Warrants, however, are exercisable on a cashless basis. When Warrants are exercised on a cashless basis, we will not receive proceeds upon the exercise. We intend to use the net proceeds from the exercise of the Warrants and Options, if any, for general corporate purposes and working capital.
DETERMINATION OF OFFERING PRICE
The Selling Security Holders will determine at what price they may sell the securities offered by this prospectus, and such sales may be made at fixed prices, prevailing market prices at the time of the sale, varying prices determined at the time of sale, or negotiated prices.
This prospectus relates to our registering the resale of 119,899,091 shares of common stock of the Company by the Selling Security Holders who may acquire such shares upon the conversion or exercise of derivative securities. There can be no assurance that the Selling Security Holders will sell any or all of their common stock offered by this prospectus. We do not know if, when, or in what amounts, the Selling Security Holders may offer the common stock for sale.
The following table sets forth:
● | the names of the Selling Security Holders; |
● | the number of shares of common stock owned by the Selling Security Holders prior to the offering; |
● | the number of shares of common stock offered for the Selling Security Holders account; |
● | the number of shares of common stock owned by the Selling Security Holders after the offering assuming all shares are sold; and |
● | the percentage of the Company’s common stock owned by the Selling Security Holders after completion of the offering. |
Name of Securities Holder | Shares Owned | Shares | Shares Owned | Percentage Owned |
Before Offering | Offered | After Offering | After Offering | |
Abraham, David & Joann | 1,600,000 | *1,600,000 | 0 | +++ |
Agar, Charlie | 100,000 | ***100,000 | 0 | +++ |
Alia Clair Sperling 2000 Irr Trust u/a/d 7/24/01 (1) | 251,500 | *251,500 | 0 | +++ |
Apfelbaum, Alan (Estate) (2) | 200,000 | *200,000 | 0 | +++ |
Asticher-Winzenried, Tarsilla | 533,335 | *533,335 | 0 | +++ |
Axtmayer, Jose | 100,000 | **100,000 | 0 | +++ |
Barney, Jerry | 200,000 | *200,000 | 0 | +++ |
Bates, James & Beverly | 833,000 | *833,000 | 0 | +++ |
Bell, Bryan | 200,000 | ***200,000 | 0 | +++ |
Beutz, Marvin | 496,000 | *496,000 | 0 | +++ |
Name of Securities Holder | Shares Owned | Shares | Shares Owned | Percentage Owned |
Before Offering | Offered | After Offering | After Offering | |
Bilcik, Anton & Maria | 4,471,000 | *4,471,000 | 0 | +++ |
Bocskor, Leslie (14) | 900,000 | ***900,000 | 0 | +++ |
Bottom Line, Inc (25) | 1,000,000 | **1,000,000 | 0 | +++ |
Burnett, Joe & Tegrotenhuis, Jeff | 25,000 | *25,000 | 0 | +++ |
Cheun, Daniel | 25,000 | **25,000 | 0 | +++ |
Davis, John | 1,000,000 | ***1,000,000 | 0 | +++ |
DeFrank, Ed (15) | 1,000,000 | ***1,000,000 | 0 | +++ |
Devito, John | 1,140,000 | *1,140,000 | 0 | +++ |
Dickinson Hughes LLC (3) | 6,360,000 | +6,360,000 | 0 | +++ |
Eddins, Patty | 50,000 | ***50,000 | 0 | +++ |
Elbaum, Oscar | 100,000 | *100,000 | 0 | +++ |
ELGJO LLC (4) | 2,000,000 | *2,000,000 | 0 | +++ |
Farley, Michael | 1,000,000 | ***1,000,000 | 0 | +++ |
Forni, Cameron | 50,000 | **50,000 | 0 | +++ |
Gismondi, John | 2,500 | *2,500 | 0 | +++ |
Goodwin, Pete | 100,000 | ***100,000 | 0 | +++ |
Griswold, Ksenia (16) | 1,000,000 | ***1,000,000 | 0 | +++ |
Hairston, Tashia | 50,000 | ***50,000 | 0 | +++ |
Heming, William | 657,000 | *657,000 | 0 | +++ |
Henrie, Gary (17) | 1,000,000 | ***1,000,000 | 0 | +++ |
Herskowitz, Julian | 453,334 | *453,334 | 0 | +++ |
Hunt, Richard | 32,500 | *32,500 | 0 | +++ |
Hunt, William | 32,500 | *32,500 | 0 | +++ |
James Pershing Trust (5) | 240,000 | *240,000 | 0 | +++ |
Kaminski, Norbert Ph.D. | 50,000 | **50,000 | 0 | +++ |
Karma Consulting (23) | 400,000 | **400,000 | 0 | +++ |
Katz, Stanley | 1,532,500 | *1,532,500 | 0 | +++ |
Khanna, Nitin | 50,000 | **50,000 | 0 | +++ |
King, Christopher & Michele | 2,531,000 | *2,531,000 | 0 | +++ |
Latragna, Michael | 92,000 | *92,000 | 0 | +++ |
Lawrence B Ordower Marital Trust (6) | 6,036,000 | *6,036,000 | 0 | +++ |
Lizada Capital (22) | 333,000 | **333,000 | 0 | +++ |
Love, Wayne | 300,000 | ***300,000 | 0 | +++ |
Mari, Zoltan | 50,000 | **50,000 | 0 | +++ |
Martha B. Olson 1999 Trust (7) | 646,767 | *646,767 | 0 | +++ |
Maryam A Alpetkin Separate Property Tr. DTD 4/14/15 (8) | 195,750 | *195,750 | 0 | +++ |
McNamee, Timothy | 953,334 | *953,334 | 0 | +++ |
Mentor Capital, Inc. (9) | 100,000 | *100,000 | 0 | +++ |
Monaco, Dominick | 100,000 | ***100,000 | 0 | +++ |
Moody, Robert Jr. | 10,762,500 | *3,000,000 | 7,762,500 | 2.46% |
Moore, Brian | 33,334 | ***33,334 | 0 | +++ |
Network 1 Financial Securities, Inc. (10) | 1,686,000 | *1,686,000 | 0 | +++ |
Noah Karam Sperling 2006 Irr Trust u/a/d 4/17/07 (11) | 194,375 | *194,375 | 0 | +++ |
Ordower, Lawrence | 23,308,560 | *10,158,000 | 13,150,560 | 4.17% |
Orser, Cindy | 25,000 | **25,000 | 0 | +++ |
Ortiz, Tony | 25,000 | **25,000 | 0 | +++ |
Pasholk, Adam | 10,000 | *10,000 | 0 | +++ |
Passas, James J. | 846,666 | *846,666 | 0 | +++ |
Pershing, Edward | 16,932,978 | *6,487,600 | 10,445,378 | 3.31% |
Pershing, James | 670,000 | *670,000 | 0 | +++ |
Poss, John (18) | 3,625,000 | ***3,400,000 | 225,000 | +++ |
Poss, Monica | 950,000 | ***950,000 | 0 | +++ |
Name of Securities Holder | Shares Owned | Shares | Shares Owned | Percentage Owned |
Before Offering | Offered | After Offering | After Offering | |
Regina, Michael | 15,000 | *15,000 | 0 | +++ |
Reimann-Phillip, Ulrich | 300,000 | ***300,000 | 0 | +++ |
Resgonia, Reyna | 50,000 | ***50,000 | 0 | +++ |
Rios-Bedoya, Carlos F. | 50,000 | **50,000 | 0 | +++ |
Roschwalb, Arthur & Meryl | 539,333 | *539,333 | 0 | +++ |
Rosenbaum, Maj-Brit | 1,865,000 | *1,865,000 | 0 | +++ |
Ruggieri, Dr. Dave | 30,830,673 | ++20,527,173 | 10,303,500 | 3.27% |
Ruggieri, Victoria | 8,391,000 | *8,391,000 | 0 | +++ |
Schmitt, Michael | 2,764,667 | *2,764,667 | 0 | +++ |
Settoon, William | 200,000 | ***200,000 | 0 | +++ |
Sharkey, Kenneth | 160,500 | *160,500 | 0 | +++ |
Simpson, Anne | 100,000 | *100,000 | 0 | +++ |
Sivaslian, Peter & Lillian | 1,028,250 | *1,028,250 | 0 | +++ |
Small-Howard, Andrea (19) | 3,816,000 | ***3,700,000 | 116,000 | +++ |
Smith, Rye | 50,000 | ***50,000 | 0 | +++ |
Sperling, William | 224,200 | *224,200 | 0 | +++ |
Swarts, Zach (20) | 1,150,000 | ***1,150,000 | 0 | +++ |
Tadross, Michael & Michelle | 528,110 | +528,110 | 0 | +++ |
Telos Consulting Group (24) | 50,000 | **50,000 | 0 | +++ |
Terner, Helen | 125,000 | **125,000 | 0 | +++ |
Terry, Shane (21) | 450,000 | ***450,000 | 0 | +++ |
Testaverde, Damon | 2,557,613 | *2,557,613 | 0 | +++ |
Testaverde, Keith | 180,000 | *180,000 | 0 | +++ |
The Adam Sperling 2000 Trust u/a/d 3/22/2001 (12) | 250,500 | *250,500 | 0 | +++ |
The Hana Rose Sperling Trust u/a/d 4/7/09 (13) | 215,000 | *215,000 | 0 | +++ |
Tovar, Sonia | 56,250 | *56,250 | 0 | +++ |
Two Fox Concepts, LLC (26) | 3,550,000 | **3,550,000 | 0 | +++ |
Voorhees, Garrett | 50,000 | ***50,000 | 0 | +++ |
Yaron, Lior | 2,412,500 | *2,412,500 | 0 | +++ |
* Common shares issuable upon the exercise of warrants purchased in connection with the sale of units and convertible notes.
** Common shares issuable upon the exercise of options originally issued to independent contractors in exchange for services rendered to the Company.
*** Common shares issuable upon the exercise of incentive options issued to officers, directors and employees.
+Common shares issuable upon the conversion of debentures sold in a private placement.
++Of these common shares, 6,719,673 are issuable upon the conversion of debentures sold in a private placement, and 13,807,500 are issuable upon the exercise of warrants purchased in connection with the sale of units and convertible notes.
+++Less than 1%
(1) | This trust is controlled by William Sperling. |
(2) | This estate is controlled by Larry Apfelbaum. |
(3) | This limited liability company is controlled by Robert Moody Jr. |
(4) | This limited liability company is controlled by Lawrence Ordower. |
(5) | This trust is controlled by James Pershing. |
(6) | This trust is controlled by Lawrence Ordower. |
(7) | This trust is controlled by Martha B. Olson. |
(8) | This trust is controlled by William Sperling. |
(9) | This corporation is controlled by Chet Billingsley. |
(10) | This corporation is controlled by William R. Hunt, Jr. |
(11) | This trust is controlled by William Sperling. |
(12) | This trust is controlled by William Sperling. |
(13) | This trust is controlled by William Sperling. |
(14) | Mr. Bocskor was a former director of the Company. |
(15) | Mr. DeFrank is a director of the Company. |
(16) | Ms. Griswold is a former CFO of the Company. |
(17) | Mr. Henrie is the secretary of the Company. |
(18) | Mr. Poss is the CEO and chairman of the Company. |
(19) | Ms. Small-Howard is the president and a director of the Company. |
(20) | Mr. Swarts is the CFO and the chief accounting officer of the Company. |
(21) | Mr. Terry is a former director of the Company. |
(22) | Lizada Capital is controlled by Steven L. Trenk. |
(23) | This company is controlled by Adam Orenstein. |
(24) | Telos Consulting Group is controlled by Barley Bowler. |
(25) | This company is controlled by Tom Arcuragi. |
(26) | This company is controlled by Helen Turner and Alexander Stokes. |
We are registering the shares of Common Stock issuable upon the conversion of the Convertible Notes, upon the exercise of the Warrants and the exercise of the Options to permit the resale of these shares of Common Stock by the Selling Security Holders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the Selling Security Holders of the shares of Common Stock other than proceeds from the cash exercise of the Warrants if exercised in cash and the cash exercise of the Options. We will bear all fees and expenses incident in registering the shares of Common Stock.
The Selling Security Holders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our Common Stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Security Holders may use any one or more of the following methods when disposing of shares:
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
● | purchases by a broker-dealer as principal and resales by the broker-dealer for its account; |
● | privately negotiated transactions; |
● | to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the SEC; |
● | broker-dealers may agree with the Selling Security Holders to sell a specified number of such shares at a stipulated price per share; |
● | a combination of any of these methods of sale; and |
● | any other method permitted pursuant to applicable law. |
The shares may also be sold under Rule 144 under the Securities Act, if available, rather than under this prospectus. The Selling Security Holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.
The Selling Security Holders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling security holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the Selling Security Holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Security Holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.
The Selling Security Holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of and limit the timing of purchases and sales of any of the shares by, the Selling Security Holders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.
If any of the shares of Common Stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether any of the Selling Security Holders will sell all or any portion of the shares offered under this prospectus.
We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur.
DESCRIPTION OF SECURITIES TO BE REGISTERED
We are registering 119,899,091 common shares issuable upon the conversion of convertible debt and upon the exercise of warrants and options more particularly described as follows:
● | 13,607,783 common shares issuable upon the conversion of debentures sold in a private placement commenced on December 1, 2020. The debentures convert into shares of common stock at the conversion rate of $0.05 per share. |
● | 83,274,974 common shares issuable upon the exercise of warrants sold in connection with the sale of units and convertible notes, sold between December 2018, and February 2021. These warrants have exercise prices ranging from $0.01 per share to $0.90 per share. |
● | 5,883,000 common shares issuable upon the exercise of options originally issued to 16 independent contractors in exchange for services rendered to the Company. These options have exercise prices ranging from $0.05 per share to $0.56 per share. These options were issued between October 1, 2015, and December 15, 2020. |
● | 17,133,336 common shares issuable upon the exercise of incentive options issued to 24 officers, directors and employees. These options have exercise prices ranging from $0.04 per share to $0.60 per share. These options were issued between March 27, 2015, and December 15, 2020. |
Common Stock
The holders of common stock are entitled to one vote per share on all matters to be voted on by stockholders and are entitled to receive such dividends, if any, as may be declared from time to time by our board of directors from funds legally available therefore, subject to the dividend preferences of the preferred stock, if any. Upon our liquidation or dissolution, the holders of common stock are entitled to share ratably in all assets available for distribution after payment of liabilities and liquidation preferences of the preferred stock, if any. Holders of common stock have no preemptive rights, no cumulative voting rights and no rights to convert their common stock into any other securities. Any action taken by holders of common stock must be taken at an annual or special meeting or by written consent of the holders of over 33% of our capital stock entitled to vote on such action.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the shares of common stock offered hereby will be passed upon for us by Gary R. Henrie, Esq., American Fork, Utah. Mr. Henrie serves as the secretary of the Company.
The consolidated financial statements of GB Sciences, Inc. as of March 31, 2021 and 2020 and for each of the two years in the period ended March 31, 2021, included in this prospectus have been so included in reliance on the report of Assurance Dimensions of Margate, Florida, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
Overview
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) is a phytomedical research and biopharmaceutical drug development company whose goal is to create patented formulations of plant-inspired, complex therapeutic mixtures for the prescription drug market that target a variety of medical conditions. The Company is engaged in the research and development of plant-based medicines and plans to produce plant-inspired, complex therapeutic mixtures based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and development of plant-based medicines, primarily cannabinoid medicines, with virtual operations in North America and Europe. GBSGB’s assets include a portfolio of intellectual property containing both proprietary cannabinoid-containing formulations and our AI-enabled drug discovery platform, as well as critical research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of medical conditions and several programs are in the pre-clinical animal stage of development including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes five USPTO issued patents, nine USPTO nonprovisional patent applications pending in the US, and one provisional patent application in the US. In addition to the USPTO patents and patent applications, the company has filed 35 patent applications internationally to protect its proprietary technology. We recently filed a provisional USPTO patent application to further protect aspects of our proprietary drug discovery engine, “Phytomedical Analytics for Research Optimization at Scale," or PhAROS™.
We were incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name “Signature Exploration and Production Corp.” as our business model had changed.
On April 4, 2014, we changed our name from Signature Exploration and Production Corporation to Growblox Sciences, Inc. Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval, and the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000. Effective August 15, 2019, Shareholders of the Company approved an increase in authorized capital shares from 400,000,000 to 600,000,000.
Business Strategy
Drug Discovery and Development of Novel Cannabis-Based Therapies
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. ("GBSGB"), the Company has conducted ground-breaking research embracing the rational design of plant-based medicines led by Dr. Andrea Small-Howard, the Company’s Chief Science Officer and Director, and Dr. Helen Turner, Vice President of Innovation and Dean of the Natural Sciences and Mathematics Department at Chaminade University. Small-Howard and Turner posited that complex mixtures of plant-based ingredients would provide more targeted and effective treatments for specific disease conditions than either single ingredient or whole plant formulations. They developed a rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes in vitro against cell-based models of disease. This process identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery engine involves both high throughput screening of cell models of disease and a data analytics/machine learning tool to expedite drug discovery. Initially, GBSGB explored the potential medical uses of specific mixtures derived from cannabis-based raw materials, but these tools are also effective for investigating the medical applications of complex therapeutic mixtures from any plant-derived starting material. In 2014, GBSGB developed its first rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes against cell-based models of diseases. This process has been refined over the years and now has identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain. GBSGB has filed for patent protection on these plant-inspired, complex therapeutic mixtures, and they are testing them in disease-specific animal models in preparation for human trials.
GBSGB’s drug discovery process combines: 1) HTS: high throughput screening of tens of thousands of combinations of compounds derived from plants in well-established cellular models of diseases, and 2) PhAROS™: Phytomedical Analytics for Research Optimization at Scale for the prediction of complex therapeutic mixtures from plant-based materials. This combined approach to drug discovery increases research efficiency and accuracy reducing the time from ideation to patenting from 7 years to 1.5 years. Screening of plant-based mixtures for drug discovery involves the testing of specific combinations of plant chemicals from many naturally occurring plants and the use of live models for these diseases that have been well established by other researchers. First, the Company finds plant materials that show some therapeutic activity, and then refines these natural mixtures to optimize their effectiveness in cellular assays by removing compounds that do not act synergistically with the others in the mixtures. The Company also use its PhAROS™ Platform to prioritize and eliminate some potential combinations, which reduces the time in the discovery period. PhAROS™ can also be used to identify and predict the efficacy of plant-derived, complex therapeutic mixtures for specific diseases in silico, which are then tested in the cell models.
The U.S. Patent and Trademark Office allows complex mixtures to be claimed as Active Pharmaceutical Ingredients ("APIs"). GBSGB has three issued patents and a series of pending patents containing cannabis-derived complex mixtures that act as therapeutic agents for specific disease categories, as described below. GBSGB’s pending patents are protected whether the individual compounds are derived from the cannabis plant, another plant, synthetically produced, or derived from a combination of sources for the individual chemical compounds in these mixtures.
Drug Development Progress
GBS Global Biopharma, Inc. has made significant strides in the past year with respect to both its drug discovery research and product development programs. Our lead pharmaceutical programs in both Parkinson’s disease and chronic neuropathic pain are now in preclinical animal studies with Dr. Lee Ellis of the National Research Council ("NRC") Canada in Halifax, Nova Scotia. Our complex therapeutic mixtures for the treatment of Cytokine Release Syndrome in COVID-19 and other severe hyperinflammatory conditions are now being tested in preclinical studies with Dr. Norbert Kaminski at Michigan State University. In addition, the two patents which protect GBSGB’s formulations in our lead development programs have been issued by the US Patent and Trademark Office ("USPTO"). On December 8, 2020, our third US patent was issued on complex therapeutic mixtures for the treatment of the hyper inflammatory condition, Mast Cell Activation Syndrome ("MCAS"). Achieving these significant milestones is driving interest in these novel therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it has obtained the statistically significant reduction of Parkinson’s-disease like symptoms using its proprietary complex mixtures in an animal model of Parkinson’s disease ("PD"). Several of GBSGB’s PD formulations significantly reduced the symptoms, while the most effective formula reduced the symptoms back to the baseline activity of normal animals. In addition, the toxicity studies for these PD formulas came back without any significant negative findings. These important preclinical results will be included in GBS’ Investigational New Drug ("IND") application with the US FDA to enter human clinical trials as soon as possible. New therapies to address Parkinson’s disease symptoms are needed to help those afflicted with this debilitating disease. The combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s Cannabinoid-Containing Complex Mixtures ("CCCM™") are being formulated by Catalent Pharma using Catalent’s Zydis® Orally Disintegrating Tablet ("ODT") technology. This ODT format was selected for the PD formulas because it dissolves on the tongues of patients without the need to swallow for ease of use in patients with PD, who often have difficulties with swallowing. GBSGB selected Catalent as its development partner for the PD therapies due to Catalent’s prior experience in working on US FDA-approved, cannabinoid-containing drugs, their Schedule I drug manufacturing facilities, their familiarity with US FDA and international regulatory and manufacturing requirements, their expertise in tackling formulation challenges, and their ability to achieve the stability and dosing necessary for these novel complex mixtures. In addition to its Zydis® technology, Catalent has early drug development services and additional oral drug delivery solutions available for the efficient delivery of GBSGB's proprietary APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its Cannabinoid-Containing Complex Mixtures and Myrcene-Containing Complex Mixtures ("MCCM") both as encapsulated, time-released nanoparticles, as well as in non-encapsulated forms of these therapeutic mixtures in an animal model at the NRC in Halifax, Nova Scotia. In preparation for human clinical trials, our standard MCCM and the time-released MCCM are currently being compared in an animal model that demonstrates their potential effectiveness at treating chronic pain. The early results from this preclinical research project look very promising.
The three patents which protect formulations in the Company’s lead therapeutic programs have been issued by the USPTO. The issuance of U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases" on May 19, 2020 protects methods of using GBSGB’s proprietary cannabinoid-containing complex mixtures (CCCM™) for treating Parkinson’s Disease. This was an important milestone in the development of these vitally-important therapies and validates GBSGB’s drug discovery platform. In the US alone, the combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion, and new therapies to address Parkinson’s disease symptoms are greatly needed. This was also the first time that a US patent has been awarded for a cannabis-based complex mixture defined using this type of drug discovery method. The first US patent for PD therapies validated our drug discovery platform and strengthened our intellectual property portfolio of unique CCCM’s™, each targeting one of up to 60 specific clinical applications.
The issuance of GBSGB’s second US patent for active pharmaceutical ingredients that are complex mixtures identified by our biotech platform further confirms that GBSGB’s pharmaceutical compositions can be patent-protected for use as biopharmaceutical and nutraceutical products. The US Patent entitled “Myrcene-Containing Complex Mixtures Targeting TRPV1” protects methods of using GBSGB’s proprietary Myrcene-Containing Complex Mixtures for the treatment of pain disorders related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. In the US alone, chronic pain represents an estimated health burden of between $560 and $650 billion dollars, and an estimated 20.4% of U.S. adults suffer from chronic pain that significantly decreases their quality of life. Despite the widespread rates of addiction and death, opioids remain the standard of care treatment for most people with chronic pain. The Company believes that it is important to create safer, less addictive alternatives to opioids for the treatment of chronic pain disorders, like GBSGB’s myrcene-containing complex mixtures.
Favorable Research Updates from our university collaborators reveal the promise in our discovery programs with Michigan State University (HIV-Associated Neurodegenerative Disorder and COVID-19 therapies), Chaminade University (Chronic Neuropathic Pain, Metabolic Syndrome, Cannabis Metabolomics with the University of Athens), the University of Athens, Greece (Cannabis Metabolomics), the University of Seville, Spain (Time-Released Nanoparticles), and the National Research Council of Canada (Parkinson’s Disease, Chronic Neuropathic Pain).
Intellectual Property
GBSGB retained Fenwick & West, a Silicon Valley based law firm focusing on life sciences and high technology companies with a nationally top-ranked intellectual property practice, to develop strategies for the protection of the Company's intellectual property. The status of the intellectual property portfolio is as follows. Unless otherwise indicated, all patents listed below are assigned to the Company's wholly-owned subsidiary, GBS Global Biopharma, Inc.
Issued Patents
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES | ||||||||
U.S. Patent Number: | 10,653,640 | Expiration date: | October 23, 2038 | |||||
Issued: | May 19, 2020 | Inventors: | Andrea Small-Howard et al. | |||||
U.S. Patent protection was granted for GBSGB’s Cannabinoid-Containing Complex Mixtures for the treatment of Parkinson’s disease. |
Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1 | ||||||||
U.S. Patent Number: | 10,709,670 | Expiration date: | May 22, 2038 | |||||
Issued: | July 14, 2020 | Inventors: | Andrea Small-Howard, et al. | |||||
GBSGB’s MCCMs are protected in the U.S. for use in the treatment of pain related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. |
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS | ||||||||
U.S. Patent Number: | 10,857,107 | Expiration date: | January 31, 2038 | |||||
Issued: | December 8, 2020 | Inventors: | Andrea Small-Howard et al. | |||||
U.S. Patent protection was granted for GBSGB’s Cannabinoid-Containing Complex Mixtures for the treatment of Mast Cell Activation Syndrome (MCAS). |
Title: METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY | ||||||||
Inventor: | Alexander Stokes | Assignee: | University of Hawai'i | |||||
U.S. Patent Number: | 9,084,786 | Issued: | July 21, 2015 | |||||
U.S. Patent Number: | 10,137,123 | Issued: | November 27, 2018 | |||||
E.U. Patent Number: | 2,635,281 | Issued: | March 14, 2018 | |||||
Hong Kong Patent Number: | 14102182.8 | Issued: | March 14, 2018 | |||||
GBSGB has sublicensed from Makai Biotechnology, LLC these two issued USPTO patents and two issued international patents for the prevention and treatment of heart failure due to cardiac hypertrophy through therapeutic regulation of TRPV1. |
Title: METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION | |||||
Spain Patent Number: | ES2582287 | Inventors: | Lucia Martin Banderas, Mercedes Fernandez Arevalo, Esther Berrocoso Dominguez, Juan Antonio Mico Segura | ||
Issued: | September 29, 2017 | Assignees: | Universidad de Sevilla, Universidad de Cadiz, Centro de Investigacion Biomedica En Red | ||
Exclusive worldwide license held by GBS Global Biopharma, Inc. Claims benefit of Spanish Patent Application No. P201500129 (Pub. No. ES 2582287). GBSGB holds the exclusive rights to commercialize these cannabinoid-containing, time-released, oral nanoparticles for the treatment of neuropathic pain. |
In addition to the issued patents listed above, GBSGB's intellectual property portfolio includes a total of ten USPTO and thirty-five international patents pending:
Title | Jurisdiction | Application Number | Other International Applications Filed |
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES | US | USPTO 16/844,713 PCT/US2017/055989 | AU, CA, CN, EP, HK, IL, JP |
MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1 | US | USPTO 16/878,295 PCT/US2018/033956 | AU, CA, CN, EP, HK, IL, JP |
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS | US | USPTO 17/065,400 PCT/US2018/016296 | AU, CA, CN, EP, HK, IL, JP |
TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR TERPENES | US | USPTO 16/420,004 PCT/US2019/033618 | AU, CA, CN, EP, HK, IL, JP |
THERAPEUTIC NANOPARTICLES ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS | US | USPTO 16/686,069 PCT/ES2019/070765 | |
TREATMENT OF PAIN USING ALLOSTERIC MODULATOR OF TRPV1 | US | USPTO 16/914,205 PCT/US2020/039989 | |
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF CHRONIC INFLAMMATORY DISORDERS | US | USPTO 63/067,269 (provisional) | |
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF CYTOKINE RELEASE SYNDROME WHILE PRESERVING KEY ANTI-VIRAL IMMUNE REACTIONS | US | USPTO 63/067,269 (provisional) | |
IN SILICO META-PHARMACOPEIA ASSEMBLY FROM NON-WESTERN MEDICAL SYSTEMS USING ADVANCED DATA ANALYTIC TECHNIQUES TO IDENTIFY AND DESIGN PHYTOTHERAPEUTIC STRATEGIES | US | USPTO 63/091,816 (provisional) |
METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY | EU | EPO 3,348,267 | IN, CN |
METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION | WIPO/PCT | WIPO 2016/128591 PCT/ES2016/000016 | EU, CA |
Partnering Strategy
GBSGB runs a lean drug development program and minimizes expenses, including personnel, overhead, and fixed capital expenses (such as lab and diagnostic equipment), through strategic partnerships with Universities and Contract Research Organizations (“CROs”). Through these research and development agreements, GBSGB has created a virtual pipeline for the further development of novel medicines extracted from the cannabis plant. The partners bring both expertise and infrastructure at a reasonable cost to the life sciences program. In most instances, GBSGB has also negotiated with these partners to keep 100% of the ownership of the IP within GBSGB for original patent filings.
GBSGB currently has on-going research agreements with the following institutions covering the indicated areas of research:
Chaminade University: Broad-based research program to support the drug discovery platform that has yielded many of GBSGB’s original patents to date in the areas of neurodegenerative diseases, heart disease, inflammatory diseases, neuropathic and chronic pain. They have also performed the bioassay portion of the Cannabis Metabolomics study performed with the University of Athens, Greece and GBSGB.
University of Athens: Broad-based metabolomics analysis of over 100 cannabis genotypes including both hemp and THC-producing cannabis varieties, in combination with GBSGB’s bioassay data linking genotypes and potential disease-remediations. This project has the potential to define active ingredients from plant-derived mixtures beyond the standard cannabinoids and terpenoids. The discovery potential is huge, and novel agents have recently been discovered.
Michigan State University: Discovery work using a cutting-edge, multi-cellular model of the human immune system and a multi-cell model of the brain to explore CCCM™s for use in the prevention of HIV-Associated Neurocognitive Disorders (HAND). Although combination antiretroviral therapy keeps symptoms for most HIV-patients well controlled, between 40% and 70% of these well-controlled HIV patients end up with HAND symptoms that range from movement disorders to dementia-like symptoms. The results from this work were included in a new patent application that will be filed in Q3 of 2020. In addition, MSU has performed experiments using their novel model of the human-immune system that have allowed GBSGB to prepare cannabis-based formulas for the potential treatment of virally-induced hyperinflammation/cytokine storm syndrome that has led to the majority of COVID-19 deaths. The new patent application for our novel, cannabinoid-containing complex mixtures (CCCM™) for the treatment of hyperinflammation and cytokine release syndrome in COVID-19 patients was filed August 18, 2020.
The University of Seville: Bringing their novel expertise to the development and functional testing of time-released and disease-targeted nanoparticles of cannabis-based complex mixtures for oral administration. These specialized nanoparticles are being used for the precise and time-released delivery of several of our therapies, including GBSGB’s MCCM™ and CCCM™’s used in the preclinical animal testing performed at the NRC Canada. The University of Seville has completed functional testing on nanoparticles containing myrcene, nerolidol, and beta-caryophyllene for our Myrcene-Containing Complex Mixtures. In these cell-based assays, the effectiveness and kinetics of the nanoparticle-forms of these terpenes were compared with the “naked” terpenes both individually and in mixtures. In all cases, the effectiveness of the nanoparticles were superior to the naked terpenes, however, the mixtures were dramatically more effective than the individuals. These results from Seville are very promising as these nanoparticles have entered the animal testing phase at the NRC in Halifax.
The National Research Center (NRC) of Canada, Halifax, Nova Scotia: Two animal-phase studies are being performed by Dr. Lee Ellis’ group at the NRC. An animal safety and efficacy study was initiated in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the NRC has demonstrated that the company’s PD formulations were able to reduce behavioral changes associated with the loss of dopamine-producing neurons, which underlies the pathology of Parkinson’s disease in the animal model. Based on achieving the statistically significant reduction in Parkinson’s disease symptomology, GBSGB has signed an amendment to include a final phase of testing, which will study the mechanism of action for these promising formulations. In Q1 of 2019, GBSGB started a safety and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain (CNP) formulas. The midterm results for these preclinical pain studies are promising.
The University of Cadiz: Testing the safety and efficacy of the above-mentioned time-released nanoparticles in rodent models of chronic pain. Proof of concept complete for one formulation.
University of Hawaii: Validating the efficacy of a complex cannabis-based mixture for the treatment of cardiac hypertrophy and cardiac disease in a rodent model. Proof of concept work is complete.
Path to Market: Drug Development Stages and Proposed Clinical Trials
GBSGB has plant-based therapeutic products in the following stages of drug development: Discovery, Pre-Clinical, and entering the Clinical Phase. It has also licensed therapeutic products that the Company intends to develop through partners, labeled Partner Programs.
The completion of pre-clinical studies, clinical trials, and obtaining FDA-approvals for pharmaceutical products is traditionally a long and expensive process. However, GBSGB asserts that its plant-based drug discovery engine, lean development program, novel regulatory strategy, experienced development partners, and aggressive licensing of these products at early clinical stages can mitigate some of the risks. The Company uses a combination of in silico discovery methods and automated screening of cellular models of disease to decrease the time in Discovery prior to filing novel patent applications for disease-specific therapeutics. GBSGB’s original patent applications cover new chemical entities (“NCE”) based on complex combinations of plant-derived compounds. Its Exploratory IND/Phase 0 Program gets the Company to First-in-Man sooner than traditional programs, which reduces translational risks, and includes preliminary efficacy measures for responsible development decisions. In contrast, a traditional phased-development path would not provide any efficacy measures until Phase II. After the completion of our Phase 0 study, which compares the efficacies of multiple related cannabis-based formulations, the Company plans to advance the lead drug candidate using an adaptive trial design that is more efficient than the traditional phased-development pathway. GBSGB has entered into research contracts, partnerships, and/or joint ventures with several respected, independent contract research organizations, medical schools, universities, and other scientific researchers to increase developmental efficiencies. If and when one or more of GBSGB’s drugs, therapies or treatments are approved by the FDA, GBSGB will seek to market them under licensing arrangements with major biotechnology or pharmaceutical companies.
There can be no assurance that we will ever be able to enter into any joint ventures or other arrangements with third parties to finance our drug development program or that if we are able to do so, that any of our projected therapies will ever be approved by the FDA. It also may be anticipated that even if we enter into a joint venture development with a financially stable pharmaceutical or institutional partner, we will still be required to raise significant additional capital in the future to achieve the strategic goals of GBSGB. There can be no assurance that we will be able to obtain such additional capital on reasonable terms, if at all. If GBSGB fails to achieve its goal of producing one or more plant-based pharmaceuticals or therapies, it would have a material adverse effect on our future financial condition and business prospects.
Other Operations
In addition to our biopharmaceutical research and development activities described in detail above, the Company has operated in the medical and adult-use cannabis markets under State-issued cultivation and production licenses. Our wholly owned subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada (the "Teco Facility") and operates a cannabis cultivation facility under Nevada licenses for the medical and adult-use markets. Our wholly owned subsidiary GB Sciences Las Vegas, LLC ("GBLV") holds Nevada certificates for medical and adult-use cannabis production and produces extracts and concentrates for the wholesale market.
On November 15, 2019, we entered into a Binding Letter of Intent (the "LOI") to sell the Company's membership interest interests in GBSN and GBLV (together, the "Teco Subsidiaries"). In connection with the LOI, we entered into a Management Agreement with the purchaser whereby the facilities will be managed by an affiliate of the purchaser until the close of the sale. On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") which formalized the sale of the Teco Subsidiaries and modified the terms of the sale. Pursuant to the Teco MIPA, the Company will sell 100% of its membership interests in GBSN and GBLV for $4,000,000 cash upon close and $4,000,000 in the form of an 8% promissory note.
On November 27, 2019, we entered into a Binding Letter of Intent to sell the Company's 100% interest in GB Sciences Nopah, LLC. On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") and Promissory Note Modification Agreement with the purchaser of GB Sciences Nopah, LLC. The Company will receive $300,000 upon closing, and the purchaser will pay all expenses related to the upkeep and maintenance of the Nopah License from the date of the agreement. The $300,000 purchase price will be paid as a reduction to the balance of the 0% Note payable dated October 23, 2017, which is held by an affiliate of the purchaser of the Nopah license.
The sales of the Teco and Nopah Subsidiaries are expected to close upon the successful transfer of the Nevada cannabis cultivation and production licenses held by those subsidiaries. The transfer of cannabis licenses in the State of Nevada has been subject to an indefinite moratorium since October 2019. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there were initially 90 requests pending, and it will take up to several months to process the entire backlog of pending license transfers. Based on this information, we cannot provide any assurances as to the timing of the close of the sale. In addition, the lifting of the moratorium and processing of cannabis license transfers have been delayed by the COVID-19 pandemic and could be further delayed if the pandemic continues.
Sale of Membership Interest in GB Sciences Louisiana, LLC
On November 15, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with Wellcana Plus, LLC, a Louisiana limited liability company ("Wellcana"), whereby Wellcana would acquire the Company’s 50.01% membership interest (the “Membership Interest”) in GB Sciences Louisiana LLC, a Louisiana limited liability company. Since entering into the agreement, certain modifications of the Agreement were made. It was ultimately agreed that Wellcana would pay the Company $4,900,000 in cash for the Membership Interest. On December 16, 2020, Wellcana made the final payment totaling $4,900,000 which completed the disposition of the Membership Interest.
Competition
The biotech industry is subject to intense and increasing competition. We face potential competition from many different sources, including large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, and medical technology companies. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Some of our competitors may have substantially greater capital resources, facilities and infrastructure then we have, which may enable them to compete more effectively in this market. These competitors include Cara Therapeutics Inc., Corbus Pharmaceuticals Holdings Inc., Zynerba Pharmaceuticals Inc., Tetra Bio-Pharma, Inc., Revive Therapeutics, Inc., Axim Biotechnologies, Inc., and Emerald BioScience, Inc., among others.
There are several organizations that may be developing or marketing therapies for the indications that we are pursuing. Many of our competitors, including many of the organizations named above, have substantially greater financial, technical and human resources than we do and significantly greater experience in the development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of competitors.
We believe the key competitive factors that will affect the development and commercial success of our product candidates, if approved for marketing, are likely to be their safety, efficacy and tolerability profile, reliability, convenience of dosing, price and reimbursement from government and third-party payers. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payers seeking to encourage the use of generic products. Generic products that broadly address these indications are currently on the market for the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium over competitive generic products.
Government Regulation and Federal Policy
Government authorities in the U.S. (including federal, state and local authorities) and in other countries extensively regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, export and import of pharmaceutical products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.
FDA Regulation
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process required by the FDA before product candidates may be marketed in the U.S. generally involves the following:
● | completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice (“GLP”) regulations. Preclinical testing generally includes evaluation of our product candidates in the laboratory or in animals to characterize the product and determine safety and efficacy; |
● | submission to the FDA of an Investigational New Drug application ("IND"), which must become effective before human clinical trials may begin and must be updated annually; |
● | performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication; |
● | submission to the FDA of a New Drug Application ("NDA") after completion of all pivotal clinical trials; |
● | a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review; |
● | satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient (“API”) and finished drug product are produced and tested to assess compliance with cGMP regulations; |
● | satisfactory completion of an FDA pre-approval inspection of one or more of the clinical sites at which the clinical trials were conducted; |
● | at the discretion of the FDA, a public Advisory Committee Meeting where the data is reviewed by experts who discuss the data and give their opinion (which the FDA is not obliged to follow) of the adequacy of the data to support an approval; and |
● | FDA review and approval of an NDA prior to any commercial marketing or sale of the drug in the U.S. |
We rely, and expect to continue to rely on third parties for the production, distribution, shipping and storage of clinical and commercial quantities of our product candidates. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our product candidates under development.
In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application (“CTA”) must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the NDA in the U.S. is similar to that required in Europe, with the exception of, among other things, country-specific document requirements. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Cannabis Regulation
Although the Company intends to completely divest of its cannabis cultivation and production facilities, which will be complete upon the close of the sale of its Teco and Nopah facilities located in Las Vegas, Nevada, the Company has owned and operated and continues to own subsidiaries that are involved in the manufacturing and distribution of cannabis products under State law. These facilities have been and continue to be subject to prohibition under United States federal law.
Under the Controlled Substances Act (“CSA”), the policies and regulations of the Federal government and its agencies are that cannabis (marijuana) is a Schedule 1 narcotic that is addictive and has no medical benefit. Accordingly, and a range of activities including cultivation and the personal use of cannabis is prohibited and subject to prosecution and criminal penalties. Unless and until Congress amends the CSA with respect to medical cannabis, there is a risk that the federal authorities may enforce current federal law, and we may be deemed to be engaged in producing, cultivating, or dispensing cannabis in violation of federal law, or we may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of federal law with respect to our Company’s business operations. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our strategic goals, revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. The U.S. Supreme Court declined to hear a case brought by San Diego County, California that sought to establish federal preemption over state medical cannabis laws. The preemption claim was rejected by every court that reviewed the case. The California 4th District Court of Appeals wrote in its unanimous ruling, “Congress does not have the authority to compel the states to direct their law enforcement personnel to enforce federal laws.” However, in another case, the U.S. Supreme Court held that, as long as the CSA contains prohibitions against cannabis, under the Commerce Clause of the United States Constitution, the United States may criminalize the production and use of cannabis even where states approve its use for medical purposes.
In an effort to provide guidance to federal law enforcement, the Department of Justice (“DOJ”) has issued Guidance Regarding Cannabis Enforcement to all United States attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way.
The August 29, 2013 memorandum provides updated guidance to federal prosecutors concerning cannabis enforcement in light of state laws legalizing medical and recreational cannabis possession in small amounts.
The memorandum sets forth certain enforcement priorities that are important to the federal government:
• | Distribution of cannabis to children; |
• | Revenue from the sale of cannabis going to criminals; |
• | Diversion of medical cannabis from states where it is legal to states where it is not; |
• | Using state authorized cannabis activity as a pretext of another illegal drug activity; |
• | Preventing violence in the cultivation and distribution of cannabis; |
• | Preventing drugged driving; |
• | Growing cannabis on federal property; and |
• | Preventing possession or use of cannabis on federal property. |
On January 4, 2018, Attorney General Jeff Sessions revoked the Ogden Memo and the Cole Memos.
The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of cannabis for use on private property but has relied on state and local law enforcement to address cannabis activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical cannabis and recreational cannabis in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical cannabis.
In contrast to federal policy, the majority of U.S. states, four U.S. territories, and the District of Columbia have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and adult recreational use of cannabis. Many other states are considering similar legislation.
Employees
As of September 10, 2021, we had 30 employees, including 16 full-time employees.
Description of Property
Our executive offices, Science and Cultivation divisions are located at 3550 W. Teco Avenue, Las Vegas, NV 89118 under a lease with ten-year initial term and one option to extend for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement were $45,020 as of March 31, 2021. Rent charges increase by 3% on January 1 of each year through the expiration of the lease.
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
GB Sciences, Inc.'s common stock is quoted on the OTCQB under the symbol "GBLX".
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. The information source is Yahoo Finance.
Fiscal Year 2019 |
| High ($) |
| Low ($) |
Third Quarter |
| 0.44 |
| 0.14 |
Second Quarter |
| 0.45 |
| 0.24 |
First Quarter |
| 0.82 |
| 0.41 |
|
|
|
|
|
Fiscal Year 2018 |
|
|
|
|
Fourth Quarter |
| 1.56 |
| 0.46 |
Third Quarter |
| 0.90 |
| 0.21 |
Second Quarter |
| 0.30 |
| 0.21 |
First Quarter |
| 0.37 |
| 0.21 |
|
|
|
|
|
Fiscal Year 2017 |
|
|
|
|
Fourth Quarter |
| 0.56 |
| 0.3 |
Third Quarter |
| 0.65 |
| 0.28 |
Second Quarter |
| 0.4 |
| 0.24 |
First Quarter |
| 0.45 |
| 0.15 |
Fiscal Year Ending March 31, 2022 |
| High ($) |
| Low ($) |
First Quarter |
| 0.07 |
| 0.03 |
|
|
|
|
|
Fiscal Year Ending March 31, 2021 |
|
|
|
|
Fourth Quarter |
| 0.13 |
| 0.04 |
Third Quarter |
| 0.07 |
| 0.02 |
Second Quarter |
| 0.04 |
| 0.03 |
First Quarter |
| 0.04 |
| 0.03 |
|
|
|
|
|
Fiscal Year Ending March 31, 2020 |
|
|
|
|
Fourth Quarter |
| 0.05 |
| 0.2 |
Third Quarter |
| 0.10 |
| 0.03 |
Second Quarter |
| 0.15 |
| 0.08 |
First Quarter |
| 0.19 |
| 0.12 |
Dividends and Dividend Policy
Cash dividends have never been declared or paid on common stock dividends are not anticipated on common stock in the foreseeable future. Future earnings, if any, will be retained to finance the expansion business and for general corporate purposes. There is no assurance we will pay dividends in the future. Future dividend policy is within the discretion of the Board of Directors and will depend upon various factors, including results of operations, financial condition, capital requirements and investment opportunities.
Share-Based Employee CompensationAs of September 10, 2021, there were 183 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of beneficial holders.
On February 6, 2008, the Board of Directors adopted the GB Sciences, Inc. 2007 Amended Stock Option Plan ("2007 Plan"). Under the 2007 Plan, 8,000,000 shares of the Company's restricted common stock may be issuable upon the exercise of options issued to employees, advisors and consultants. The Company revised the plan and the Board of Directors adopted the new 2014 Equity Compensation Plan. On June 30, 2015, GB Sciences filed a Form S-8 Registration Statement with the SEC to register 8,500,000 shares of common stock issuable under stock options to grant to employees and consultants. At the Company's special meeting of the shareholders held on April 6, 2018, the adoption by the Board of Directors of the 2014 Equity Compensation Plan was ratified by a majority of shareholders present at the meeting, either in person or by proxy.
DESCRIPTION OF NOTE RELATED TO SHARES BEING REGISTERED
We are registering 22,000,000 common shares to be issued upon the conversion of a Note and are for resale by the Selling Stockholder. The material terms of the Note overlying the Note Shares being registered, as well as the material terms of the transaction in which we issued the Note is summarized below.
Description | Number of shares issuable on conversion | Conversion price ($) | Material Terms |
Note in the principal face amount of $2.765 million | 22,000,000 | 0.17 | See below (1) |
(1)On April 23, 2019, the Company issued a Note in the face amount of $2,765,000 which accrues interest at the rate of 8% per annum. The Note and any interest thereon is convertible at the rate of $0.17 per share of common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CertainThe following discussion highlights the Company’s results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis is based on the Company’s financial statements contained in this prospectus, constitute "forward-looking statements." Such forward-lookingwhich we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words "believe," "expect," "anticipate," "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.related notes thereto.
Executive Overview
The Company seeksGB Sciences, Inc. is a phytomedical research and biopharmaceutical drug development company whose goal is to be an innovative technology and solution companycreate patented formulations of plant-inspired, complex therapeutic mixtures for the prescription drug market that converts the cannabis plant into medicines, therapies and treatments fortarget a variety of ailments.medical conditions. The Company is developingengaged in the research and utilizing statedevelopment of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology,plant-based medicines and plans to produce consistentplant-inspired, complex therapeutic mixtures based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and measurable medical-grade cannabis, cannabis concentratesdevelopment of plant-based medicines, primarily cannabinoid medicines, with virtual operations in North America and cannabinoid therapies.Europe. GBSGB’s assets include a portfolio of intellectual property containing both proprietary cannabinoid-containing formulations and our AI-enabled drug discovery platform, as well as critical research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of medical conditions and several programs are in the pre-clinical animal stage of development including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes five USPTO issued patents, nine USPTO nonprovisional patent applications pending in the US, and one provisional patent application in the US. In addition to the USPTO patents and patent applications, the company has filed 35 patent applications internationally to protect its proprietary technology. We recently filed a provisional USPTO patent application to further protect aspects of our proprietary drug discovery engine, “Phytomedical Analytics for Research Optimization at Scale," or PhAROS™.
We seek to becomePlan of Operation
Drug Discovery and Development of Novel Cannabis-Based Therapies
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. ("GBSGB"), the Company has conducted ground-breaking research embracing the rational design of plant-based medicines led by Dr. Andrea Small-Howard, the Company’s Chief Science Officer and Director, and Dr. Helen Turner, Vice President of Innovation and Dean of the Natural Sciences and Mathematics Department at Chaminade University. Small-Howard and Turner posited that complex mixtures of plant-based ingredients would provide more targeted and effective treatments for specific disease conditions than either single ingredient or whole plant formulations. They developed a trusted producerrapid screening and assaying system which tested thousands of consistent and efficacious medicinal strains and products, combining bothcombinations of cannabinoids and terpenes in vitro against cell-based models of disease. This process identified precise mixtures of cannabinoids and terpenes, many of which we intendcontained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery engine involves both high throughput screening of cell models of disease and a data analytics/machine learning tool to expedite drug discovery. Initially, GBSGB explored the potential medical uses of specific mixtures derived from cannabis-based raw materials, but these tools are also effective for investigating the medical applications of complex therapeutic mixtures from any plant-derived starting material. In 2014, GBSGB developed its first rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes against cell-based models of diseases. This process has been refined over the years and now has identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain. GBSGB has filed for patent protection on these plant-inspired, complex therapeutic mixtures, and they are testing them in disease-specific animal models in preparation for human trials.
GBSGB’s drug discovery process combines: 1) HTS: high throughput screening of tens of thousands of combinations of compounds derived from plants in well-established cellular models of diseases, and 2) PhAROS™: Phytomedical Analytics for Research Optimization at Scale for the prediction of complex therapeutic mixtures from plant-based materials. This combined approach to drug discovery increases research efficiency and accuracy reducing the time from ideation to patenting from 7 years to 1.5 years. Screening of plant-based mixtures for drug discovery involves the testing of specific combinations of plant chemicals from many naturally occurring plants and the use of live models for these diseases that have been well established by other researchers. First, the Company finds plant materials that show some therapeutic activity, and then refines these natural mixtures to optimize their effectiveness in cellular assays by removing compounds that do not act synergistically with the others in the mixtures. The Company also use its PhAROS™ Platform to prioritize and eliminate some potential combinations, which reduces the time in the discovery period. PhAROS™ can also be used to identify and predict the efficacy of plant-derived, complex therapeutic mixtures for specific diseases in silico, which are then tested in the cell models.
The U.S. Patent and Trademark Office allows complex mixtures to be claimed as Active Pharmaceutical Ingredients ("APIs"). GBSGB has three issued patents and a series of pending patents containing cannabis-derived complex mixtures that act as therapeutic agents for specific disease categories, as described below. GBSGB’s pending patents are protected whether the individual compounds are derived from the cannabis plant, another plant, synthetically produced, or derived from a combination of sources for the individual chemical compounds in these mixtures.
Drug Development Progress
GBS Global Biopharma, Inc. has made significant strides in the past year with respect to both its drug discovery research and product development programs. Our lead pharmaceutical programs in both Parkinson’s disease and chronic neuropathic pain are now in preclinical animal studies with Dr. Lee Ellis of the National Research Council ("NRC") Canada in Halifax, Nova Scotia. Our complex therapeutic mixtures for the treatment of Cytokine Release Syndrome in COVID-19 and other severe hyperinflammatory conditions are now being tested in preclinical studies with Dr. Norbert Kaminski at Michigan State University. In addition, the two patents which protect GBSGB’s formulations in our lead development programs have been issued by the US Patent and Trademark Office ("USPTO"). On December 8, 2020, our third US patent was issued on complex therapeutic mixtures for the treatment of the hyper inflammatory condition, Mast Cell Activation Syndrome ("MCAS"). Achieving these significant milestones is driving interest in these novel therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it has obtained the statistically significant reduction of Parkinson’s-disease like symptoms using its proprietary complex mixtures in an animal model of Parkinson’s disease ("PD"). Several of GBSGB’s PD formulations significantly reduced the symptoms, while the most effective formula reduced the symptoms back to the baseline activity of normal animals. In addition, the toxicity studies for these PD formulas came back without any significant negative findings. These important preclinical results will be included in GBS’ Investigational New Drug ("IND") application with the US FDA to enter human clinical trials as soon as possible. New therapies to address Parkinson’s disease symptoms are needed to help those afflicted with this debilitating disease. The combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s Cannabinoid-Containing Complex Mixtures ("CCCM™") are being formulated by Catalent Pharma using Catalent’s Zydis® Orally Disintegrating Tablet ("ODT") technology. This ODT format was selected for the PD formulas because it dissolves on the tongues of patients without the need to swallow for ease of use in patients with PD, who often have difficulties with swallowing. GBSGB selected Catalent as its development partner for the PD therapies due to Catalent’s prior experience in working on US FDA-approved, cannabinoid-containing drugs, their Schedule I drug manufacturing facilities, their familiarity with US FDA and international regulatory and manufacturing requirements, their expertise in tackling formulation challenges, and their ability to achieve the stability and dosing necessary for these novel complex mixtures. In addition to its Zydis® technology, Catalent has early drug development services and additional oral drug delivery solutions available for the efficient delivery of GBSGB's proprietary APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its Cannabinoid-Containing Complex Mixtures and Myrcene-Containing Complex Mixtures ("MCCM") both as encapsulated, time-released nanoparticles, as well as in non-encapsulated forms of these therapeutic mixtures in an animal model at the NRC in Halifax, Nova Scotia. In preparation for human clinical trials, our standard MCCM and the time-released MCCM are currently being compared in an animal model that demonstrates their potential effectiveness at treating chronic pain. The early results from this preclinical research project look very promising.
The three patents which protect formulations in the Company’s lead therapeutic programs have been issued by the USPTO. The issuance of U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases" on May 19, 2020 protects methods of using GBSGB’s proprietary cannabinoid-containing complex mixtures (CCCM™) for treating Parkinson’s Disease. This was an important milestone in the development of these vitally-important therapies and validates GBSGB’s drug discovery platform. In the US alone, the combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion, and new therapies to address Parkinson’s disease symptoms are greatly needed. This was also the first time that a US patent has been awarded for a cannabis-based complex mixture defined using this type of drug discovery method. The first US patent for PD therapies validated our drug discovery platform and strengthened our intellectual property portfolio of unique CCCM’s™, each targeting one of up to 60 specific clinical applications.
The issuance of GBSGB’s second US patent for active pharmaceutical ingredients that are complex mixtures identified by our biotech platform further confirms that GBSGB’s pharmaceutical compositions can be patent-protected for use as biopharmaceutical and nutraceutical products. The US Patent entitled “Myrcene-Containing Complex Mixtures Targeting TRPV1” protects methods of using GBSGB’s proprietary Myrcene-Containing Complex Mixtures for the treatment of pain disorders related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. In the US alone, chronic pain represents an estimated health burden of between $560 and $650 billion dollars, and an estimated 20.4% of U.S. adults suffer from chronic pain that significantly decreases their quality of life. Despite the widespread rates of addiction and death, opioids remain the standard of care treatment for most people with chronic pain. The Company believes that it is important to create safer, less addictive alternatives to opioids for the treatment of chronic pain disorders, like GBSGB’s myrcene-containing complex mixtures.
Favorable Research Updates from our university collaborators reveal the promise in our discovery programs with Michigan State University (HIV-Associated Neurodegenerative Disorder and COVID-19 therapies), Chaminade University (Chronic Neuropathic Pain, Metabolic Syndrome, Cannabis Metabolomics with the University of Athens), the University of Athens, Greece (Cannabis Metabolomics), the University of Seville, Spain (Time-Released Nanoparticles), and the National Research Council of Canada (Parkinson’s Disease, Chronic Neuropathic Pain).
Partnering Strategy
GBSGB runs a lean drug development program and minimizes expenses, including personnel, overhead, and fixed capital expenses (such as lab and diagnostic equipment), through strategic partnerships with Universities and Contract Research Organizations (“CROs”). Through these research and development agreements, GBSGB has created a virtual pipeline for the further development of novel medicines extracted from the cannabis plant. The partners bring both expertise and infrastructure at a reasonable cost to the life sciences program. In most instances, GBSGB has also negotiated with these partners to keep 100% of the ownership of the IP within GBSGB for original patent filings.
GBSGB currently has on-going research agreements with the following institutions covering the indicated areas of research:
Chaminade University: Broad-based research program to support the drug discovery platform that has yielded many of GBSGB’s original patents to date in the areas of neurodegenerative diseases, heart disease, inflammatory diseases, neuropathic and chronic pain. They have also performed the bioassay portion of the Cannabis Metabolomics study performed with the University of Athens, Greece and GBSGB.
University of Athens: Broad-based metabolomics analysis of over 100 cannabis genotypes including both hemp and THC-producing cannabis varieties, in combination with GBSGB’s bioassay data linking genotypes and potential disease-remediations. This project has the potential to define active ingredients from plant-derived mixtures beyond the standard cannabinoids and terpenoids. The discovery potential is huge, and novel agents have recently been discovered.
Michigan State University: Discovery work using a cutting-edge, multi-cellular model of the human immune system and a multi-cell model of the brain to explore CCCM™s for use in the prevention of HIV-Associated Neurocognitive Disorders (HAND). Although combination antiretroviral therapy keeps symptoms for most HIV-patients well controlled, between 40% and 70% of these well-controlled HIV patients end up with HAND symptoms that range from movement disorders to dementia-like symptoms. The results from this work were included in a new patent application that will be filed in Q3 of 2021. In addition, MSU has performed experiments using their novel model of the human-immune system that have allowed GBSGB to prepare cannabis-based formulas for the potential treatment of virally-induced hyperinflammation/cytokine storm syndrome that has led to the majority of COVID-19 deaths. The new patent application for our novel, cannabinoid-containing complex mixtures (CCCM™) for the treatment of hyperinflammation and cytokine release syndrome in COVID-19 patients was filed August 18, 2020.
The University of Seville: Bringing their novel expertise to the development and functional testing of time-released and disease-targeted nanoparticles of cannabis-based complex mixtures for oral administration. These specialized nanoparticles are being used for the precise and time-released delivery of several of our therapies, including GBSGB’s MCCM™ and CCCM™’s used in the preclinical animal testing performed at the NRC Canada. The University of Seville has completed functional testing on nanoparticles containing myrcene, nerolidol, and beta-caryophyllene for our Myrcene-Containing Complex Mixtures. In these cell-based assays, the effectiveness and kinetics of the nanoparticle-forms of these terpenes were compared with the “naked” terpenes both individually and in mixtures. In all cases, the effectiveness of the nanoparticles were superior to the naked terpenes, however, the mixtures were dramatically more effective than the individuals. These results from Seville are very promising as these nanoparticles have entered the animal testing phase at the NRC in Halifax.
The National Research Center (NRC) of Canada, Halifax, Nova Scotia: Two animal-phase studies are being performed by Dr. Lee Ellis’ group at the NRC. An animal safety and efficacy study was initiated in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the NRC has demonstrated that the company’s PD formulations were able to reduce behavioral changes associated with the loss of dopamine-producing neurons, which underlies the pathology of Parkinson’s disease in the animal model. Based on achieving the statistically significant reduction in Parkinson’s disease symptomology, GBSGB has signed an amendment to include a final phase of testing, which will study the mechanism of action for these promising formulations. In Q1 of 2019, GBSGB started a safety and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain (CNP) formulas. The midterm results for these preclinical pain studies are promising.
The University of Cadiz: Testing the safety and efficacy of the above-mentioned time-released nanoparticles in rodent models of chronic pain. Proof of concept complete for one formulation.
University of Hawaii: Validating the efficacy of a complex cannabis-based mixture for the treatment of cardiac hypertrophy and cardiac disease in a rodent model. Proof of concept work is complete.
Path to Market: Drug Development Stages and Proposed Clinical Trials
GBSGB has cannabis-based therapeutic products in the following stages of drug development: Discovery, Pre-Clinical, and entering the Clinical Phase. It has also licensed therapeutic products that the Company intends to develop through partners, labeled Partner Programs.
The completion of pre-clinical studies, clinical trials, and obtaining FDA-approvals for pharmaceutical products is traditionally a long and expensive process. However, GBSGB asserts that its cannabis-based drug discovery engine, lean development program, novel regulatory strategy, experienced development partners, and aggressive licensing of these products at early clinical stages can mitigate some of the risks. The Company uses a combination of in silico discovery methods and automated screening of cellular models of disease to decrease the time in Discovery prior to filing novel patent applications for disease-specific therapeutics. GBSGB’s original patent applications cover new chemical entities (“NCE”) based on complex combinations of plant-derived compounds. Its Exploratory IND/Phase 0 Program gets the Company to First-in-Man sooner than traditional programs, which reduces translational risks, and includes preliminary efficacy measures for responsible development decisions. In contrast, a traditional phased-development path would not provide any efficacy measures until Phase II. After the completion of our Phase 0 study, which compares the efficacies of multiple related cannabis-based formulations, the Company plans to advance the lead drug candidate using an adaptive trial design that is more efficient than the traditional phased-development pathway. GBSGB has entered into research contracts, partnerships, and/or joint ventures with several respected, independent contract research organizations, medical schools, universities, and other scientific researchers to increase developmental efficiencies. If and when one or more of GBSGB’s drugs, therapies or treatments are approved by the FDA, GBSGB will seek to market in those states within the United States and in other countries where the sale of medical cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid-based drug discoveries on a world-wide basis.them under licensing arrangements with major biotechnology or pharmaceutical companies.
We were incorporatedThere can be no assurance that we will ever be able to enter into any joint ventures or other arrangements with third parties to finance our drug development program or that if we are able to do so, that any of our projected therapies will ever be approved by the FDA. Even if we obtain FDA approval for a therapy, there can be no assurance that it could be successfully marketed or would not be superseded by another cannabis-based therapy produced by one or more of our competitors. It also may be anticipated that even if we enter into a joint venture development with a financially stable pharmaceutical or institutional partner, we will still be required to raise significant additional capital in the Statefuture to achieve the strategic goals of DelawareGBSGB. There can be no assurance that we will be able to obtain such additional capital on April 4, 2001, under the name "Flagstick Venture, Inc." On March 28, 2008, stockholders owningreasonable terms, if at all. If GBSGB fails to achieve its goal of producing one or more cannabis-based pharmaceuticals or therapies, it would have a majoritymaterial adverse effect on our future financial condition and business prospects.
Other Operations
On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resultedIn addition to our key biopharmaceutical research and development activities described in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016,detail above, the Company amended its Certificate of Corporation pursuant to shareholder approval as reportedhas operated in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company's name was
changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevadamedical and increase in the number of authorized capital shares from 250,000,000 to 400,000,000.
adult-use cannabis markets under State-issued cultivation and production licenses. Our wholly-ownedwholly owned subsidiary GB Sciences Nevada, LLC ("GBSN"(“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. On January 4, 2017, GBSN receivedNevada (the "Teco Facility") and operates a State Registration Certificate ("Certificate") for its 28,000-sq. ft. cannabis cultivation facility located in Las Vegas, NV. The receipt ofunder Nevada licenses for the Certificate allows the Company to cultivate medical cannabis. Phase 1 of the GBSN cultivation facility opened with 200 grow lights. When all phases of construction are completed, the facility is expected to generate revenues of $10 million. Completion of all Phases of this facility is dependent upon the availability of capital to complete construction. The Company has made completion of all Phases of this facility its number one priority.
On October 4, 2016, we acquired a 60% interest in a Nevada Medical Marijuana Production License with an option of up to 80%. A production license enables us to convert cannabis plants into to oils and extracts that are suitable for creating medical compounds as well as consumer products. This license is critical and essential to our plan of producing cannabis-based medicines and must be integrated into our cultivation facility to ensure quality control standards and efficiency in our production of cannabis medicines. On October 23, 2017, the Company amended the existing Nevada Medical Marijuana Production License Agreement ("Amended Production License Agreement"). Per the terms of the Amended Production License Agreement, GB Sciences purchased the remaining percentage of the production license resulting in the 100% ownership of the license. GB Sciences also received 100% ownership of the cultivation license included in the original Nevada Medical Marijuana Production License Agreement. In exchange, GB Sciences made one-time payment of $500,000 and issued a Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018.
On March 31, 2017, we entered into an agreement with Arizona-based company, Kush Cups, to produce cannabis-infused products in the state of Nevada. Cannabis for production will be grown in our Cultivation Labs facility in Las Vegas, NV. We will distribute cannabis-infused Keurig-compatible K-Cups, hot and cold brew coffees as well as infused teas.
We expect our products to compete well in the marketplace because of the considerable efforts we have made in the plant genetics and tissue culturing of our proprietary strains of cannabis. And, we are the exclusive Nevada grower of Kyle Kushman's proprietary marijuana strains which have been highly rated top sellers in California.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the "EPA") with The Happy Confections, L.L.C. ("THCLLC") through the Company's wholly-ownedadult-use markets. Our wholly owned subsidiary GB Sciences Las Vegas, LLC ("GBSLV"GBLV"). Dr. Andrea Small-Howard, a member holds Nevada certificates for medical and adult-use cannabis production and produces extracts and concentrates for the wholesale market.
On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") which formalized the sale of GB Science's Boardthe Teco Subsidiaries. Pursuant to the Teco MIPA, the Company will sell 100% of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC is to produce cannabis-infused baked goodsits membership interests in GBSN and other edibles in GBSLV's production facilityGBLV for $4.0 million cash upon approval of GBSLV's Nevada Medical Marijuana Production License. The Companyclose and will receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.$4.0 million 8% promissory note to be paid in monthly installments over 36 months.
Contemporaneously withThe Company also holds a Nevada license for cultivation of medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The license is owned by the EPA,Company’s wholly owned subsidiary, GB Sciences Nopah, LLC ("Nopah"). Operations have not begun under the Nopah License. On August 10, 2020, the Company entered into a Non-Revolving Credit Linethe Membership Interest Purchase Agreement ("Nopah MIPA") and Non-Revolving Credit Line Promissory Note (together,Modification Agreement with the "THC Note" or "Note") to advance up to $300,000 to THCLLCpurchaser of GB Sciences Nopah, LLC. As consideration for the purpose of expanding THCLLC's operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 daystransfer of the sale of any product.
Under the EPA, the Company is to provide accountinglicense and bookkeeping services to THCLLC. In connection with the EPA and THC note, the Company entered into a Reimbursement Agreement for facility expenses and accounting services. Under the Reimbursement Agreement,membership interest in GB Sciences Nopah, LLC, the Company will be reimbursed $4,500 per month for facilityreceive $300,000 and the purchaser will pay all expenses related to the upkeep and $2,000 per month for accounting and bookkeeping services. In lightmaintenance of the fact thatNopah License. The Company will be providingtransfer of the accountingNopah License is subject to the same restrictions on license transfers currently in effect in the State of Nevada.
The sales of the Teco Facility and bookkeeping servicesNopah are expected to THCLLC,close upon the Company may deduct royalties, facility expenses, and accounting expenses directly fromsuccessful transfer of the accounts of THCLLC.
The Company has terminated all of its agreements with THCLLC effective October 19, 2018 and took possession of all tangible assets owned by THCLLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchenNevada cultivation and production machinery and equipment, leasehold improvements, and inventory that will be usedlicenses. The transfer of cannabis licenses in the Company’s production operations atState of Nevada was subject to an indefinite moratorium from October 2019 through August of 2020, and the Teco Facility. The Company assessedprocessing of license transfers has been further delayed by the Fair ValueCOVID-19 pandemic. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there were over 90 requests pending and it will take up to several months to process the entire backlog of pending license transfers. Based on this information, we cannot provide any assurances as to the timing of the machinery and equipment received at$139,411 and has capitalized that amount in fixed assets during the quarter ended December 31, 2018. Allclose of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility during December 2018. The Company also recorded $113,623 as other expense in its Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2018, which represents the remaining balance of the outstanding note receivable from THC LLC.sale.
On January 31, 2018 the Company entered into a Contract Farming Agreement with Colorado Hemp Project Limited ("CHP") for the development and cultivation of boutique hemp genetics and new strains of hemp which will provide the key ingredient in proprietary CBD formulations. Per the terms of the agreement, the Company leased 8 acres of land on which CHP planted 2000 seeds per acre. CHP is responsible for providing genetics, land, water, planting, cultivation, any soil amendments needed, harvest, drying and stripping into whole plant composite for extraction, if desired. In return, GB Sciences is obligated to pay for all production expenses and delivery or shipping for the total of $16,750 per acre of land farmed. On March 15, 2018, the Company leased additional 5 acres of land from CHP under the same terms as those included in the original agreement.
Results of Operations
The following table sets forth certain of our Statements of Operations data:data from continuing operations for the Company's most recently completed fiscal quarter:
|
| For the Nine Months Ended December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 2,728,277 |
|
| $ | 1,635,136 |
|
Cost of goods sold |
|
| (1,185,878 | ) |
|
| (557,649 | ) |
Gross profit |
|
| 1,542,399 |
|
|
| 1,077,487 |
|
General and administrative expenses |
|
| (12,015,533 | ) |
|
| (12,776,975 | ) |
Other expense |
|
| (8,222,193 | ) |
|
| (1,563,956 | ) |
Net loss attributable to non-controlling interest |
|
| (762,966 | ) |
|
| (68,025 | ) |
Net Loss |
| $ | (19,433,195 | ) |
| $ | (13,263,444 | ) |
For the Three Months Ended | ||||||||
June 30, | ||||||||
2021 | 2020 | |||||||
General and administrative expenses | $ | 493,405 | $ | 515,253 | ||||
LOSS FROM OPERATIONS | (493,405 | ) | (515,253 | ) | ||||
OTHER EXPENSE | ||||||||
Interest expense | (65,254 | ) | (662,370 | ) | ||||
Debt default penalty | - | (286,059 | ) | |||||
Other expense | - | (11,182 | ) | |||||
LOSS BEFORE INCOME TAXES | (558,659 | ) | (1,474,864 | ) | ||||
Income tax expense | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | $ | (558,659 | ) | $ | (1,474,864 | ) |
Comparison of the NineThree Months Ended December 31, 2018June 30, 2021 and 2017
Gross profit
The Company recorded gross profit of approximately $1.5 million for the nine months ended December 31, 2018, as compared to $1.1 million for the same period in the prior year. The increase in gross profit is due to the Company’s Teco cultivation facility located in Las Vegas, NV harvesting its first cannabis in May 2017 and having seven months of sales in the prior year period compared to nine months of sales in the current period.
General and administrative expenses
General and administrative expenses decreased $0.8 million to $12.0 million for the nine months ended December 31, 2018, compared to $12.8 million for the nine months ended December 31, 2017. The decrease is largely attributable to lower costs of equity compensation for consultants and employees during the current year.
Interest expense
Total interest expense increased by $3.0 million to $4.9 million compared to $1.9 million in the same period in the prior year. The increase is primarily due to $3.5 million of unamortized discount recognized as interest expense upon the conversion of convertible notes during the current year.
Other expense
Total other expense increased by $3.7 million compared to the same period in the prior year. The increase is primarily due to $1.0 million paid to Pacific Leaf in connection with the July 2018 Amendment and Termination Agreement and $2.1 million in noncash expense related to that agreement.
The following table sets forth selected data of our Statement of Operations:
|
| For the Twelve Months Ended March 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 2,510,364 |
|
| $ | - |
|
Cost of goods sold |
|
| (782,727 | ) |
|
| - |
|
Gross Profit |
|
| 1,727,637 |
|
|
| - |
|
General and administrative expenses |
|
| (19,552,288 | ) |
|
| (8,933,111 | ) |
Other Expense |
|
| (5,334,574 | ) |
|
| (1,149,992 | ) |
Net loss attributable to non-controlling interest |
|
| (185,035 | ) |
|
| (173,273 | ) |
Net Loss |
| $ | (22,974,190 | ) |
| $ | (9,909,830 | ) |
Comparison of the Years Ended March 31, 2018 and 2017
Gross profit.
The Company recorded gross profit of approximately $1.7 million for the twelve months ended March 31, 2018 as compared to no gross profit for the same period in prior year. The increase in gross profit is due to the Company's cultivation facility located in Las Vegas, NV harvesting its first cannabis in May 2017 and subsequent harvests.2020
General and Administrative Expenses.
General and Administrative Expenses decreased by $(21,848) to $493,405 for the three months ended June 30, 2021, compared to $515,253 for the three months ended June 30, 2020. The Company is continuing its efforts to maintain administrative costs at a minimum and to make the best use of its limited resources in advancing research & development of the Company's intellectual property portfolio.
Interest Expense
Interest expense decreased by $(597,116) to $65,254 for the three months ended June 30, 2021, compared to $662,370 in the prior year quarter. The decrease is primarily attributable to less interest-bearing debt outstanding during the current quarter as the result of the payoff of the note payable to Iliad Research and Trading, L.P. in December 2020. In addition, notes with balances totaling $2.1 million at June 30, 2021 are no longer accruing interest beginning December 1, 2020, as the result of the Omnibus Amendment to the agreements surrounding the sale of the Company's Nevada Subsidiaries.
Debt Default Penalty
The Company recorded a default penalty of $286,059 in the prior year quarter, related to the Company's failure to timely repay the principal and interest owed under the note payable to Iliad Research and Trading, L.P. on April 1, 2020. The penalty was 10% of the principal and accrued interest balances outstanding at the time of default.
The following table sets forth certain of our Statement of Operations data from continuing operations for the Company's most recently completed fiscal year:
For the Years Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
SALES REVENUE | $ | - | $ | - | ||||
COST OF GOODS SOLD | - | - | ||||||
GROSS PROFIT (LOSS) | - | - | ||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,001,617 | 5,741,514 | ||||||
LOSS FROM OPERATIONS | (2,001,617 | ) | (5,741,514 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Gain/(loss) on extinguishment | 467,872 | (216,954 | ) | |||||
Gain on settlement of accounts payable | 422,414 | - | ||||||
Gain on deconsolidation | - | 4,393,242 | ||||||
Interest expense | (1,285,460 | ) | (1,109,031 | ) | ||||
Loss on modification of line of credit | (650,000 | ) | - | |||||
Loss on modification of note receivable | - | (1,895,434 | ) | |||||
Debt default penalty | (286,059 | ) | - | |||||
Other expense | - | (179,368 | ) | |||||
Total other income/(expense) | (1,331,233 | ) | 992,455 | |||||
NET LOSS BEFORE INCOME TAX EXPENSE | (3,332,850 | ) | (4,749,059 | ) | ||||
INCOME TAX EXPENSE | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | (3,332,850 | ) | (4,749,059 | ) | ||||
LOSS FROM DISCONTINUED OPERATIONS | (392,177 | ) | (8,362,626 | ) | ||||
NET LOSS | (3,725,027 | ) | (13,111,685 | ) | ||||
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | (738,106 | ) | |||||
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. | $ | (3,725,027 | ) | $ | (12,373,579 | ) |
General and Administrative Expenses. General and administrative expense increased $10.6 milliondecreased $(3,739,897) to $19.6 million$2,001,617 for the twelve monthsyear ended March 31, 20182021 as compared to $8.9 million$5,741,514 for the same period last year. The increasedecrease is attributable to a company-wide initiative to reduce general and administrative costs, including a substantial reduction in part,the number of employees involved in administrative functions and related salaries & wages expense.
Gain/(Loss) on extinguishment. The gain on extinguishment of $467,872 for the year ended March 31, 2021 relates to the issuanceJudgment Settlement Agreement with Iliad Research & Trading, L.P. In order to settle the lawsuit brought by Iliad, the Company paid $3,006,015 in full satisfaction of $4.1 millionthe principal and accrued interest balance of $3,473,886. Prior year losses on extinguishment of $216,954 relate to modifications of the note payable to CSW Ventures, LP, which were accounted for as extinguishments.
Gain on settlement of accounts payable. During the year ended March 31, 2021, the Company settled accounts payable at a discount in compensation warrants pursuant to the termsexchange for immediate lump sum payments and recorded income from cancellation of a private placement agreementaccounts payable totaling $422,414, compared to $1.4 million in compensation warrants during the same period last year and the exercise of compensation warrants resulting in $0.6 million expense, compared to no expense$0 in the prior year. Total payroll and
Gain on deconsolidation. The Company recorded a gain on deconsolidation of $4,393,242 related expense increased $1.9 million to $4.6 millionthe sale of its 50% membership interest in GB Sciences Louisiana, LLC during the twelve monthsyear ended March 31, 20182020, compared to $2.6 million during$0 in the same period in priorcurrent year.
Interest Expense. Interest for the year ended March 31, 2021 was $1,285,460, compared to $1,109,031 for the year ended March 31, 2020. The increase in payroll expense and related is primarily due to an increase in full time employees. Licenses, taxes, and permits expenses increased by $0.8 millioninterest income of $509,265 related to $0.9 million, compared to $0.1 millionthe Wellcana note receivable included in the prior year. The increaseyear amount as a net reduction, and offset by a decrease in these expenses is largely due to an increase of approximately $0.3 million in state and local taxes on cultivation and $0.1 million ofinterest expense resulting from the amortization of prepaid license fees related tonote discounts. Primarily as the LSU Agreement. Commissions paid pursuant to our private placement agreements increased by $1.9 million to $2 million, compared to $0.1 millionresult of the Company's largest outstanding notes payable becoming fully amortized during the year, interest expense from amortization of debt discounts decreased from $1,150,995 in the prior year. Expenses for stock issuedyear to consultants increased by $0.2 million to $0.6 million compared to $0.4 million$776,122 in the prior year. Lastly, share-based compensation expense increased $0.2 million to $1.8 million for the twelve months ended March 31, 2018 compared to $1.6 million for the same period last year and expense related to stock issued for services increased by $0.2 million to $0.7 million for the twelve months ended March 31, 2018 compared to $0.5 million lastcurrent year.
Other Income/(Expense)Loss on modification of line of credit.
Other expenses increased by $4.2 million duringAs a result of the period comparedOmnibus Amendment dated December 29, 2020, the Company accrued a modification expense of $650,000. The amount represents an increase to the twelve months ended March 31, 2017. The increase is primarily duenote balance to amortizationa total of $1,025,000, which will reduce the note receivable issued to the Company at the closing of the debt discount related tosale of the beneficial conversion features discount recorded on the convertible debt.
Liquidity and Capital ResourcesTeco Facility.
Loss on modification of note receivable. As the result of the Company's August 24, 2020 letter agreement with Wellcana, the Company determined that the amount of the note receivable from Wellcana that was collectible as of March 31, 2020 was $5,224,423 and recorded a loss on modification of note receivable in the amount of $1,895,434.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
The Company will need additional capital to implement its strategies. There is no assurance that it will be able to raise the amount of capital needed for future growth plans. Even if financing is available, it may not be on terms that are acceptable. If unable to raise the necessary capital at the times required, the Company may have to materially change the business plan, including delaying implementation of aspects of the business plan or curtailing or abandoning the business plan. The Company represents a speculative investment and investors may lose all of their investment. In order to be able to achieve the strategic goals, the Company needs to further expand its business and financing activities. Based uponon the Company's cash position, it is necessary to raise additional capital by the end of the next quarter in order to continue to fund current operations. These factors raise substantial doubt about the ability to continue as a going concern. The Company is pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings.financing. In order to finance existing operations and pay current liabilities over the next twelve months, the Company will need to raise additional capital. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future.
The principal sources of liquidity to date have been cash generated from sales of debt and equity securities and loans.
At December 31, 2018,In continuing operations at June 30, 2021, cash was $0.3 million,$582,971, other current assets excluding cash were $4.3 million,$296,081, and our working capital deficit was $(0.4) million. At the same time, current$5,841,001. Current liabilities in continuing operations were approximately $5.0 million$6,720,053 and consisted principally of $2.3 million$1,463,806 in accounts payable, $0.5 million$1,552,148 in accrued liabilities, $1.5 million$3,619,186 in notes and convertible notes payable, netand $84,913 in indebtedness to related parties. At June 30, 2021, current assets from discontinued operations were $2,248,757, current liabilities from discontinued operations were $1,987,787, and working capital from discontinued operations was $260,970.
At March 31, 2018, the Company had2021, continuing operations included a cash balance of $3.6 million,$793,040, other current assets excluding cash were $3.7 million$256,251, and our working capital deficit was $5.3 million.$5,494,572. Current liabilities in continuing operations were approximately $1.9 million,$6,543,863, which consisted principally of and $0.4 million$1,412,459 in accounts payable, $0.5 million$1,451,687 in accrued liabilities, and $1.1 million$3,594,804 in notes and convertible notes payable, netand $84,913 of $5.0 million in discounts.indebtedness to related parties. At March 31, 2021, current assets from discontinued operations were $2,494,564, current liabilities from discontinued operations were $2,054,585, and working capital from discontinued operations was $439,979.
On May 3, 2019, we had cash on hand totalling approximately $950,000. On February 28, 2019, we borrowed $1,500,000 and on April 23, 2019, we borrowed an additional $2,765,000. Proceeds from these borrowings was used to bring current certain payables and to provide working capital for the Company.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $7.5 million$636,583, including $2,954 used by discontinued operations for the ninethree months ended December 31, 2018, asJune 30, 2021, compared to $323,845 net cash used of $8.0 million$235,779 provided by operating activities of discontinued operations for the ninethree months ended December 31, 2017.June 30, 2020. We anticipate that cash flows from
operations maywill be insufficient to fund business operations for the next twelve-month period. Accordingly, we will have to generate additional liquidity or cash flow to fund our current and anticipated operations. This will likely require the sale of additional common stock or other securities. There is no assurance that we will be able to realize any significant proceeds from such sales, if at all.
Investing Activities
During the nine months ended December 31, 2018 and 2017, the Company used $10.5 million and $1.5 million, respectively, of cash in investing activities. The cash used in investing activities during the nine months ended December 31, 2018 and 2017 was primarily for the purchase of property and equipment.
Financing Activities
During the nine months ended December 31, 2018 and 2017, cash flows from financing activities totaled $14.8 million and $8.3 million, respectively. Cash flows from financing activities for the nine months ended December 31, 2018, related primarily to $4.8 million in proceeds from the issuance of common stock in private placements, $3.9 million in proceeds from warrant exercises, and $6.9 million in proceeds from non-controlling interests. Cash flows from financing activities for the nine months ended December 31, 2017 related primarily to $8.2 million in proceeds from the issuance of convertible notes.
Installment Loan Financing – Convertible Debenture
The Company 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 the Company in the aggregate amount of $1.75 million. The purpose of the financing is to provide for the acquisition and installation of an operating facility, equipment and other tangible assets by GB Sciences Nevada, LLC ("GBSN"). Such facility and equipment were 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. The note is convertible at the option of the holder into common shares at a conversion price of $0.50, subject to anti-dilution adjustments.
To evidence the Loans, the Company 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 were due and payable on May 12, 2020. The Company was 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 GBSN attributable to our percentage interest in GBSN no later than the earlier to occur of (a) the fifth (5th) business day following receipt of a distribution of the Company's Share of GBSN's EBITDA for the calendar quarter in question, or (b) thirty (30) days following the end of the calendar quarter in question, with the first such prepayment to be made not later than July 31, 2015 with respect to the quarter ending June 30, 2015. In order to induce the Pacific Leaf to extend the loan to the Company and to secure the payment and performance of all of the Secured Obligations, the Company agreed to grant Pacific Leaf a security interest in certain of its assets and enter into the lending agreement.
On February 8, 2016, the Company entered into the Amended and Restated 6% Senior Convertible Promissory Note ("Amended Note") with Pacific Leaf. The amended agreement modifies the 6% Senior Secure Convertible Promissory Note dated May 12, 2015 and effective as of June 8, 2015, in the principal amount of $1.75 million.
Per the terms of the amended agreement, Pacific Leaf may make up to $1.0 million in additional advances to the Company under the Amended Note bringing the total in the aggregate to $2.75 million. The note is convertible at the option of the holder into common shares at a conversion price of $0.25, subject to anti-dilution adjustments. The Company has an option to prepay the Amended Note, without premium or penalty, in whole or in part, with accrued interest to the date of such prepayment.
Until the payment in full of the Amended Note, Pacific Leaf or its designee have the option (the "Option") to purchase up to a 20% membership interest in GBSN for a purchase price equal to $100,000 for each 2% of membership interest purchased (i.e., $1,000,000 if the Option is exercised in full), provided that the Option may not be exercised for less than a 1% membership interest in GBSN.
In connection with the Amended Note, the Company also entered into the Amended and Restated Royalty Agreement with Pacific Leaf dated and effective as of February 8, 2016. Per the terms of the Amended Royalty Agreement, the royalty rate at any time shall equal to the sum of (i) 9.1%, and (ii) the percentage calculated by dividing the amount advanced in excess of $1.75 million by $1.0 million, multiplied by the gross revenues of GBSN. On the earlier of (i) the seventh anniversary of the royalty payment date, or (ii) the date that all amounts outstanding under the Amended Note have been paid in full, the royalty rate shall be reduced by 50%.
On June 13, 2016, the Company received notice from the Pacific Leaf that it had elected to convert $500,000 of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory. Accordingly, the Company has issued 2,000,000 shares of its common stock ($500,000 converted at a price of $0.25 per share) to Pacific Leaf and the Company's indebtedness pursuant to the Note was reduced by $500,000.
On August 4, 2016, the Company entered into the Second Omnibus Amendment ("Second Amendment") of its existing agreements with Pacific Leaf. The Second Amendment eliminates Pacific Leaf's option to purchase up to a 20% membership interest in GBSN and reduces Pacific Leaf's existing royalty rate to 16.4% of the gross sales revenue of GBSN. It also caps maximum aggregate royalty payments to be made to Pacific Leaf at $2,420,000 with respect to any calendar year. In consideration of the amended terms, Pacific Leaf and its designees received 1,000,000 shares of the Company's common stock and a five-year warrant to purchase 1,500,000 shares of the Company's common stock at $0.36 per share resulting in related expense of approximately $0.9 million.
On October 4, October 20, November 1, and November 10, 2016, the Company received notices the Pacific Leaf that it had elected to convert total of $1,776,750 of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory. Accordingly, the Company has issued 7,107,000 shares of its common stock ($1,776,750 converted at a price of $0.25 per share) to Pacific Leaf and the Company's indebtedness pursuant to the Note was reduced by $1,776,750.
On January 24, and February 22, 2017, the Company received additional notices from Pacific Leaf Ventures, LP ("Pacific Leaf") that it had elected to convert $413,085 ($317,938 in principal and $95,145 in accrued interest) of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory. Accordingly, the Company has issued 1,652,332 shares of its common stock ($413,083 converted at a price of $0.25 per share). As of March 31, 2017, the Company indebtedness pursuant to the Note was $0.2 million.
On May 12, 2017, the Company received notice from Pacific Leaf Ventures, LP ("Pacific Leaf") that it had elected to convert $184,805 ($154,805 principal and $30,000 accrued interest) of the Company's indebtedness to Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory. Accordingly, the Note was reduced by $184,805.
On February 23, 2018, the Company and Pacific Leaf entered into an Agreement whereby all rights and obligations between the parties pursuant to all prior agreements would terminate. Under the terms of the agreement, the Company paid Pacific Leaf $1,269,818.05 upon the signing of the agreement and will pay Pacific Leaf an additional $1,500,000 on or before July 31, 2018. The Company will also issue Pacific Leaf 1,600,000 shares of restricted common stock on or before July 31, 2018. Thereafter, no business relationship will exist between the parties.
In the event that the Company is unable to make the $1.5 million payment to Pacific Leaf on or before July 31, 2018, the Royalty Agreement will continue to be in full force and effect, any and all other agreements that would have been terminated under the terms of the February 2018 Agreement will continue to be in full force and effect, and 75% of all payments made under the February 2018 Agreement will be credited toward royalties owed under the Royalty Agreement.
In connection with the February 2018 Agreement, the Company recorded royalty expense of $269,818 for accrued royalties paid, $250,000 in other expense which represents 25% of the $1 million payment made on February 26, 2018, and $750,000 in prepaid expenses which represents the 75% portion of the $1 million payment which will be credited toward future royalties in the event the $1.5 million payment is not made on or before July 31, 2018.
The market value of the 1.6 million shares issued relating to the February 2018 Agreement was $1,040,000, valued as of the date of the agreement. The Company recorded $260,000 in other expense related to the issuance of those shares, which represents 25% of the market value of those shares. We recorded $780,000 in prepaid expenses, representing the 75% portion of the fair market value of those shares which will be credited toward future royalties in the event that the final $1.5 million payment is not made on or before July 31, 2018.
Convertible Notes and Warrants
In February 2016, the Company issued a short-term Promissory Note ("Note") with a face value of $192,500 resulting in aggregate proceeds of $175,000 reflecting a 9.1% original discount and a nominal rate of 10%. The Note is payable within one year of issuance and is convertible into 962,500 shares of the Company's common stock and 962,500 common stock purchase warrants at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.50 per share for a period of three years. The beneficial conversion feature resulting from the
discounted conversion price compared to the market price was calculated based on the date of issuance to be $94,037 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $66,912 was recorded based on the fair value of the 962,500 warrants attached to the note. This value was derived using the Black-Scholes valuation model.
In February 2017, the Company received a notice from the Holder of the Short-Term Promissory Note ("Note") issued in February 2016 with face value of $192,500. The Holder had elected to convert all of the Company's indebtedness into common stock of the Company pursuant to the Convertible Note Agreement. Accordingly, the Company had issued 965,500 shares of its common stock ($192,500 converted at a price of $0.20 per share).
In March 2016, the Company issued a short-term Promissory Note ("Note") with a face value of $300,000 resulting in aggregate proceeds of $250,000 reflecting a 16.67% original discount and a nominal rate of 20%. The Note is payable within one year of issuance and is convertible into 1,500,000 shares of the Company's common stock and 1,500,000 common stock to purchase warrants at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.50 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $143,750 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $93,750 was recorded based on the fair value of the 1,500,000 warrants attached to the note.
In November 2016, the Company received a notice that the Noteholder had elected to convert its $300,000 Note into common stock of the Company pursuant to the Short-Term Convertible Note Agreement. Accordingly, the Company issued 1,500,000 shares of its common stock ($300,000 converted at a price of $0.20 per share) and a warrant to purchase 1,500,000 shares of the Company's common stock at the price of $0.50 per share for the period of three years. As a result of the conversion, the Company recorded a loss of $0.1 million.
In July 2016, the Company issued a short-term Promissory Note ("Note") resulting in aggregate proceeds of $500,000. The Note is payable within one year of issuance and is convertible into 2,500,000 shares of the Company's common stock at any time and from time to time before maturity at the option of the holder. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $350,000 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the Note.
In January 2017, the Company received a notice from the Holder of the Short-Term Promissory Note ("Note") issued in July 2016 with face value of $500,000. The Holder had elected to convert $500,000 of the Company's indebtedness into common stock of the Company pursuant to the Convertible Note Agreement. Accordingly, the Company had issued 2,538,333 shares of its common stock ($500,000 principal and $38,333 accrued interest converted at a price of $0.20 per share). As a result of the conversion, the Company recorded a loss of $0.2 million.
In March 2017, the Company issued short-term Promissory Notes ("Notes") to various holders with combined face value of $965,500. The Notes are payable within three years of issuance and are convertible into 3,862,000 shares of the Company's common stock and 3,862,000 common stock purchase warrants at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $416,733 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $548,767 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended June 30, 2017,2021, $157,435 was provided by investing activities, including $7,435 provided by discontinued operations. Cash provided by investing activities of continuing operations consisted of $200,000 received by the Company issued short-term Promissory Notes ("Notes") to various holders with combined face value of $1,034,500. The Notes are payable within three years of issuance and are convertible into 4,138,000 sharesas an advancement of the Company's common stock. The Company also issued 4,138,000
common stock warrants to the Note holders. The warrants are exercisable at any time and from time to time before maturity at the optionpurchase price of the holder. Each warrant givesTeco facility, and was offset by $50,000 paid to acquire intangible assets. During the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market pricemonths ended June 30, 2020, no cash was calculated based on the date of issuance to be $487,957 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $480,236 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.used or provided by investing activities.
In July 2017, the Company entered into a Placement Agent's Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company's common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company's' common stock at an exercise price of $0.65 per share for the period of three years.Financing Activities
During the three months ended SeptemberJune 30, 2017, the Company issued short-term Promissory Notes ("Notes") to various holders with combined face value2021, cash flows provided by financing activities totaled $29,182, net of $3,085,000. The Notes are payable within three years$33,478 used in discontinued operations. Cash flows provided by financing activities of issuance and are convertible into 12,340,000 shares of the Company's common stock. The Company also issued 12,340,000 common stock warrants to the Note holders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,541,797 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discountcontinuing operations related to the beneficial conversion feature, an additional discount of $1,532,335 recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During$62,660 in gross proceeds from warrant exercises. Cash provided by financing activities for the three months ended December 31, 2017,June 30, 2020 was $273,309, net of $12,772 used in discontinued operations. Cash provided by financing activities for the three months ended June 30, 2020 related primarily to $151,202 in proceeds from warrant exercises and $150,000 in proceeds from the sale of a note payable, offset by $15,121 of brokerage fees for warrant exercises.
Going Concern
The Company’s financial statements have been prepared assuming the Company issued short-term Promissory Notes ("Notes")will continue as a going concern. The Company has sustained net losses since inception, which have caused an accumulated deficit of $104,681,665 at June 30, 2021. The Company had a working capital deficit of $5,580,031 at June 30, 2021, net of working capital of $260,970 classified as discontinued operations, compared to various holders with combined face value$5,054,593 at March 31, 2021, net of $4,116,000.working capital of $439,979 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $636,583 for the three months ended June 30, 2021, including $2,954 used by discontinued operations, compared to $323,845 used in operating activities, net of $235,779 provided by discontinued operations for the three months ended June 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The NotesCompany is continuing to seek sources of financing. There are payable within three yearsno assurances that the Company will be successful in achieving its goals.
Furthermore, Management believes the COVID-19 pandemic may have a significant impact on the Company's common stock.business. The Company also issued 16,464,000 common stock warrantspandemic presents a risk to the Note holders. The warrants are exercisable at any timeglobal economy, and from time to time before maturity atit is possible that it could have an impact on the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stockoperations of the Company atin the near term that could materially impact the Company’s financials and ability to continue as a going concern. Management has not been able to measure the potential financial impact on the Company and continues to monitor the impact of the pandemic closely, although the extent to which the COVID-19 outbreak will impact our operations, financing ability or future financial results is uncertain.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an exercise price of $0.65 per share foropportunity to continue as a period of three years.going concern. The beneficial conversion feature resulting from the discounted conversion price comparedaccompanying financial statements do not include any adjustments relating to the market price was calculated based onrecoverability and classification of recorded assets, or the dateamounts and classification of issuanceliabilities that may be necessary in the event the Company is unable to be $1,600,808 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $2,417,856 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.continue as a going concern.
The Notes and Warrants were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the "Securities Act") and/or Rule 506 of Regulation D under the Securities Act, as amended.
VariablesGovernment Regulation and TrendsFederal Policy
We have limited operating history with respect toGovernment authorities in the current business plan. In the event we are able to obtain the necessary financing to move forward with the business plan, we expect business expenses to increase significantly as we go operational. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of future performanceU.S. (including federal, state and must be considered in light these circumstances.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Company Background
The Company seeks to be an innovative technology and solution company that converts the cannabis plant into medicines, therapies and treatments for a variety of ailments. The Company is developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology, and plans to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies.
We seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and terpenes, which we intend to market in those states within the United Stateslocal authorities) and in other countries extensively regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, export and import of pharmaceutical products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.
FDA Regulation
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process required by the FDA before product candidates may be marketed in the U.S. generally involves the following:
● | completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice (“GLP”) regulations. Preclinical testing generally includes evaluation of our product candidates in the laboratory or in animals to characterize the product and determine safety and efficacy; |
● | submission to the FDA of an Investigational New Drug application ("IND"), which must become effective before human clinical trials may begin and must be updated annually; |
● | performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication; |
● | submission to the FDA of a New Drug Application ("NDA") after completion of all pivotal clinical trials; |
● | a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review; |
● | satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient (“API”) and finished drug product are produced and tested to assess compliance with cGMP regulations; |
● | satisfactory completion of an FDA pre-approval inspection of one or more of the clinical sites at which the clinical trials were conducted; |
● | at the discretion of the FDA, a public Advisory Committee Meeting where the data is reviewed by experts who discuss the data and give their opinion (which the FDA is not obliged to follow) of the adequacy of the data to support an approval; and |
● | FDA review and approval of an NDA prior to any commercial marketing or sale of the drug in the U.S. |
We rely, and expect to continue to rely on third parties for the production, distribution, shipping and storage of clinical and commercial quantities of our product candidates. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our product candidates under development.
In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application (“CTA”) must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the NDA in the U.S. is similar to that required in Europe, with the exception of, among other things, country-specific document requirements. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Cannabis Regulation
Although the Company intends to completely divest of its cannabis cultivation and production facilities, which will be complete upon the close of the sale of medicalits Teco and Nopah facilities located in Las Vegas, Nevada, the Company has owned and operated and continues to own subsidiaries that are involved in the manufacturing and distribution of cannabis products are permitted. In addition,under State law. These facilities have been and continue to be subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid-based drug discoveries on a world-wide basis.prohibition under United States federal law.
We were incorporatedUnder the Controlled Substances Act (“CSA”), the policies and regulations of the Federal government and its agencies are that cannabis (marijuana) is a Schedule 1 narcotic that is addictive and has no medical benefit. Accordingly, and a range of activities including cultivation and the personal use of cannabis is prohibited and subject to prosecution and criminal penalties. Unless and until Congress amends the CSA with respect to medical cannabis, there is a risk that the federal authorities may enforce current federal law, and we may be deemed to be engaged in producing, cultivating, or dispensing cannabis in violation of federal law, or we may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of federal law with respect to our Company’s business operations. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our strategic goals, revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. The U.S. Supreme Court declined to hear a case brought by San Diego County, California that sought to establish federal preemption over state medical cannabis laws. The preemption claim was rejected by every court that reviewed the case. The California 4th District Court of Appeals wrote in its unanimous ruling, “Congress does not have the authority to compel the states to direct their law enforcement personnel to enforce federal laws.” However, in another case, the U.S. Supreme Court held that, as long as the CSA contains prohibitions against cannabis, under the Commerce Clause of the United States Constitution, the United States may criminalize the production and use of cannabis even where states approve its use for medical purposes.
In an effort to provide guidance to federal law enforcement, the Department of Justice (“DOJ”) has issued Guidance Regarding Cannabis Enforcement to all United States attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the Statemost effective, consistent and rational way.
The August 29, 2013 memorandum provides updated guidance to federal prosecutors concerning cannabis enforcement in light of Delaware on April 4, 2001, understate laws legalizing medical and recreational cannabis possession in small amounts.
The memorandum sets forth certain enforcement priorities that are important to the name "Flagstick Venture, Inc." On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name "Signature Exploration and Production Corp." as our business model had changed.federal government:
• | Distribution of cannabis to children; |
• | Revenue from the sale of cannabis going to criminals; |
• | Diversion of medical cannabis from states where it is legal to states where it is not; |
• | Using state authorized cannabis activity as a pretext of another illegal drug activity; |
• | Preventing violence in the cultivation and distribution of cannabis; |
• | Preventing drugged driving; |
• | Growing cannabis on federal property; and |
• | Preventing possession or use of cannabis on federal property. |
On March 13, 2014, we entered into a definitive assets purchase agreement forJanuary 4, 2018, Attorney General Jeff Sessions revoked the acquisition of assets, includingOgden Memo and the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.Cole Memos.
EffectiveThe DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of cannabis for use on private property but has relied on state and local law enforcement to address cannabis activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical cannabis and recreational cannabis in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 12, 2016,16, 2014, provides that none of the Company amended its Certificate of Corporationfunds made available to the DOJ pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the amendment the Company's name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.use, distribution, possession, or cultivation of medical cannabis.
Effective April 8, 2018, ShareholdersIn contrast to federal policy, the majority of U.S. states, four U.S. territories, and the Company approved the changeDistrict of Columbia have laws and/or regulations that recognize, in corporate domicile from the Stateone form or another, legitimate medical uses for cannabis and adult recreational use of Delaware to the Statecannabis. Many other states are considering similar legislation.
Employees
As of Nevada and increase in the numberSeptember 10, 2021, we had 30 employees, including 16 full-time employees.
Description of Property
Our common stock is quoted for trading on the OTCQB Market under the symbol GBLX.
Our principal executive offices, Science and Cultivation divisions are located at 3550 W. Teco Avenue, Las Vegas, NV 89118. Our telephone number is (866) 721-0297.89118 under a lease with ten-year initial term and one option to extend for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement were $45,020 as of March 31, 2021. Rent charges increase by 3% on January 1 of each year through the expiration of the lease.
Business StrategyMARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
GB Sciences, intendsInc.'s common stock is quoted on the OTCQB under the symbol "GBLX".
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. The information source is Yahoo Finance.
Fiscal Year Ending March 31, 2022 |
| High ($) |
| Low ($) |
First Quarter |
| 0.07 |
| 0.03 |
|
|
|
|
|
Fiscal Year Ending March 31, 2021 |
|
|
|
|
Fourth Quarter |
| 0.13 |
| 0.04 |
Third Quarter |
| 0.07 |
| 0.02 |
Second Quarter |
| 0.04 |
| 0.03 |
First Quarter |
| 0.04 |
| 0.03 |
|
|
|
|
|
Fiscal Year Ending March 31, 2020 |
|
|
|
|
Fourth Quarter |
| 0.05 |
| 0.2 |
Third Quarter |
| 0.10 |
| 0.03 |
Second Quarter |
| 0.15 |
| 0.08 |
First Quarter |
| 0.19 |
| 0.12 |
Dividends and Dividend Policy
Cash dividends have never been declared or paid on common stock dividends are not anticipated on common stock in the foreseeable future. Future earnings, if any, will be retained to operate as an intellectual property company thatfinance the expansion business and for general corporate purposes. There is no assurance we will conduct its business through its subsidiaries. GB Sciences intends to own all patents and related technologies developed by it and its subsidiaries. In addition,pay dividends in the Company ownsfuture. Future dividend policy is within the discretion of the Board of Directors and will seek to own majority interests in eachdepend upon various factors, including results of its existingoperations, financial condition, capital requirements and future operating subsidiaries.investment opportunities.
AlthoughAs of September 10, 2021, there were 183 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of shareholders, we believe that maximum shareholder value will ultimately be achieved throughare unable to estimate the development, production and marketingtotal number of certified cannabinoid medicines, therapies and treatments, in order to generate cash flow and near-term profitability, we cultivate and dispense cannabis for medical and recreational purposes in Nevada. Additionally, we intend to cultivate and dispense cannabis in other states which permit such sales and in which we and our operating partners are able to obtain cultivation and dispensing licenses.beneficial holders.
March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name "Signature Exploration and Production Corp." as our business model had changed.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 13, 2014, we entered into a definitive assets purchase agreement forThe following discussion highlights the acquisitionCompany’s results of assets, includingoperations and the Growblox™ cultivation technology which resulted in a change inprincipal factors that have affected our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company's name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000.
Our wholly-owned subsidiary GB Sciences Nevada, LLC ("GBSN") leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. On January 4, 2017, GBSN received a State Registration Certificate ("Certificate") for its 28,000-sq. ft. cannabis cultivation facility located in Las Vegas, NV. The receipt of the Certificate allows the Company to cultivate medical cannabis. Phase 1 of the GBSN cultivation facility opened with 200 grow lights. When all phases of construction are completed, the facility is expected to generate revenues of $10 million. Completion of all Phases of this facility is dependent upon the availability of capital to complete construction. The Company has made completion of all Phases of this facility its number one priority.
On October 4, 2016, we acquired a 60% interest in a Nevada Medical Marijuana Production License with an option of up to 80%. A production license enables us to convert cannabis plants into to oils and extracts that are suitable for creating medical compoundsfinancial condition, as well as consumer products. This licenseour liquidity and capital resources for the periods described and provides information that management believes is criticalrelevant for an assessment and essentialunderstanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis is based on the Company’s financial statements contained in this prospectus, which we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.
Overview
GB Sciences, Inc. is a phytomedical research and biopharmaceutical drug development company whose goal is to our plancreate patented formulations of producing cannabis-basedplant-inspired, complex therapeutic mixtures for the prescription drug market that target a variety of medical conditions. The Company is engaged in the research and development of plant-based medicines and must be integrated into our cultivation facilityplans to ensure quality control standards and efficiency in our productionproduce plant-inspired, complex therapeutic mixtures based on its portfolio of cannabis medicines. On October 23, 2017,intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company amended the existing Nevada Medical Marijuana Production License Agreement ("Amended Production License Agreement"). Per the terms of the Amended Production License Agreement, GB Sciences purchased the remaining percentage of the production license resultingis engaged in the 100% ownershipresearch and development of the license. GB Sciences also received 100% ownershipplant-based medicines, primarily cannabinoid medicines, with virtual operations in North America and Europe. GBSGB’s assets include a portfolio of the cultivation license included in the original Nevada Medical Marijuana Production License Agreement. In exchange, GB Sciences made one-time payment of $500,000intellectual property containing both proprietary cannabinoid-containing formulations and issued a Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018.
On March 31, 2017, we entered into an agreement with Arizona-based company, Kush Cups, to produce cannabis-infused products in the state of Nevada. Cannabis for production will be grown in our Cultivation Labs facility in Las Vegas, NV. We will distribute cannabis-infused Keurig-compatible K-Cups, hot and cold brew coffeesAI-enabled drug discovery platform, as well as infused teas.
We expect our products to compete wellcritical research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of medical conditions and several programs are in the marketplace becausepre-clinical animal stage of the considerable efforts we have madedevelopment including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes five USPTO issued patents, nine USPTO nonprovisional patent applications pending in the plant geneticsUS, and tissue culturingone provisional patent application in the US. In addition to the USPTO patents and patent applications, the company has filed 35 patent applications internationally to protect its proprietary technology. We recently filed a provisional USPTO patent application to further protect aspects of our proprietary strains of cannabis. And, we are the exclusive Nevada grower of Kyle Kushman's proprietary marijuana strains which have been highly rated top sellers in California.drug discovery engine, “Phytomedical Analytics for Research Optimization at Scale," or PhAROS™.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the "EPA") with The Happy Confections, L.L.C. ("THCLLC") through the Company's wholly-owned subsidiary, GB Sciences Las Vegas, LLC ("GBSLV"). Dr. Andrea Small-Howard, a memberPlan of GB Science's Board of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC is to produce cannabis-infused baked goods and other edibles in GBSLV's production facility upon approval of GBSLV's Nevada Medical Marijuana Production License. The Company will receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.
Contemporaneously with the EPA, the Company entered into a Non-Revolving Credit Line Agreement and Non-Revolving Credit Line Promissory Note (together, the "THC Note" or "Note") to advance up to $300,000 to THCLLC for the purpose of expanding THCLLC's operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 days of the sale of any product.
Under the EPA, the Company is to provide accounting and bookkeeping services to THCLLC. In connection with the EPA and THC note, the Company entered into a Reimbursement Agreement for facility expenses and accounting services. Under the Reimbursement Agreement, the Company will be reimbursed $4,500 per month for facility expenses and $2,000 per month for accounting and bookkeeping services. In light of the fact that The Company will be providing the accounting and bookkeeping services to THCLLC, the Company may deduct royalties, facility
expenses, and accounting expenses directly from the accounts of THCLLC.
The Company has terminated all of its agreements with THCLLC effective October 19, 2018 and took possession of all tangible assets owned by THCLLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory that will be used in the Company’s production operations at the Teco Facility. The Company assessed the Fair Value of the machinery and equipment received at $139,411 and has capitalized that amount in fixed assets during the quarter ended December 31, 2018. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility during December 2018. The Company also recorded $113,623 as other expense in its Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2018, which represents the remaining balance of the outstanding note receivable from THC LLC.
On January 31, 2018 the Company entered into a Contract Farming Agreement with Colorado Hemp Project Limited ("CHP") for the development and cultivation of boutique help genetics and new strains of hemp which will provide the key ingredient in proprietary CBD formulations. Per the terms of the agreement, the Company leased 8 acres of land on which CHP planted 2000 seeds per acre. CHP is responsible for providing genetics, land, water, planting, cultivation, any soil amendments needed, harvest, drying and stripping into whole plant composite for extraction, if desired. In return, GB Sciences is obligated to pay for all production expenses and delivery or shipping for the total of $16,750 per acre of land farmed. On March 15, 2018, the Company leased additional 5 acres of land from CHP under the same terms as those included in the original agreement.Operation
Drug Discovery and Development of Novel Cannabis-Based Therapies
Through its wholly owned Canadian subsidiary, Growblox Life Sciences (GBLS"GBS Global Biopharma, Inc. ("GBSGB"), the Company has conducted ground-breaking research embracing the complexityrational design of the whole plantplant-based medicines led by Dr. Andrea Small-Howard, the Company'sCompany’s Chief Science Officer and Director, and Dr. Helen Turner, Vice President of Innovation and Dean of the ScienceNatural Sciences and TechnologyMathematics Department at Chaminade University. Small-Howard and Turner posited that complex mixtures of cannabinoids and terpenes that are derived from native mixtures in the cannabis plant, but with precise optimizations,plant-based ingredients would provide more targeted and effective treatments for specific disease conditions than either single cannabinoidsingredient or whole plant formulations. They developed a rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenesin vitro against cell-based models of disease. This process identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain and chronic pain.
GB Sciences'GBSGB’s drug discovery engine involves both high throughput screening of cell models of disease and a data analytics/machine learning tool to expedite drug discovery. Initially, GBSGB explored the potential medical uses of specific mixtures derived from cannabis-based raw materials, but these tools are also effective for investigating the medical applications of complex therapeutic mixtures from any plant-derived starting material. In 2014, GBSGB developed its first rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes against cell-based models of diseases. This process has been refined over the years and now has identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain. GBSGB has filed for patent protection on these plant-inspired, complex therapeutic mixtures, and they are testing them in disease-specific animal models in preparation for human trials.
GBSGB’s drug discovery process combinescombines: 1) HTS: high throughput screening of tens of thousands of combinations of compounds derived from specific chemovars of the cannabis plantplants in well-established cellular models of diseases, and a proprietary network pharmacology algorithm2) PhAROS™: Phytomedical Analytics for Research Optimization at Scale for the prediction of complex therapeutic mixtures that the Company spent two-and-a-half-years training and testing against cell assay data.from plant-based materials. This combined approach to drug discovery increases research efficiency and accuracy.accuracy reducing the time from ideation to patenting from 7 years to 1.5 years. Screening of cannabis-basedplant-based mixtures for drug discovery involves the testing of specific combinations of plant chemicals from many naturally occurring cannabis chemovarsplants and the use of live models for these diseases that have been well established by other researchers. First, the Company finds chemovarsplant materials that show some therapeutic activity, and then refines these natural mixtures to optimize their effectiveness in cellular assays by removing compounds that do not act synergistically with the others in the mixtures. The Company also use its internally-validated GBSci Network PharmacologyPhAROS™ Platform to prioritize and eliminate some potential combinations.combinations, which reduces the time in the discovery period. PhAROS™ can also be used to identify and predict the efficacy of plant-derived, complex therapeutic mixtures for specific diseases in silico, which are then tested in the cell models.
The U.S. Patent and Trademark Office allows complex mixtures to be claimed as Active Pharmaceutical Ingredients ("APIs"). GBSGB has three issued patents and GB Sciences has a series of pending patents containing cannabis-derived complex mixtures that act as therapeutic agents for specific disease categories, as described below. The Company'sGBSGB’s pending patents are protected whether the individual compounds are derived from the cannabis plant, another plant, synthetically produced, or derived from a combination of sources for the individual chemical compounds in these mixtures.
Intellectual Property PortfolioDrug Development Progress
GBLS retained Fenwick & West,GBS Global Biopharma, Inc. has made significant strides in the past year with respect to both its drug discovery research and product development programs. Our lead pharmaceutical programs in both Parkinson’s disease and chronic neuropathic pain are now in preclinical animal studies with Dr. Lee Ellis of the National Research Council ("NRC") Canada in Halifax, Nova Scotia. Our complex therapeutic mixtures for the treatment of Cytokine Release Syndrome in COVID-19 and other severe hyperinflammatory conditions are now being tested in preclinical studies with Dr. Norbert Kaminski at Michigan State University. In addition, the two patents which protect GBSGB’s formulations in our lead development programs have been issued by the US Patent and Trademark Office ("USPTO"). On December 8, 2020, our third US patent was issued on complex therapeutic mixtures for the treatment of the hyper inflammatory condition, Mast Cell Activation Syndrome ("MCAS"). Achieving these significant milestones is driving interest in these novel therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it has obtained the statistically significant reduction of Parkinson’s-disease like symptoms using its proprietary complex mixtures in an animal model of Parkinson’s disease ("PD"). Several of GBSGB’s PD formulations significantly reduced the symptoms, while the most effective formula reduced the symptoms back to the baseline activity of normal animals. In addition, the toxicity studies for these PD formulas came back without any significant negative findings. These important preclinical results will be included in GBS’ Investigational New Drug ("IND") application with the US FDA to enter human clinical trials as soon as possible. New therapies to address Parkinson’s disease symptoms are needed to help those afflicted with this debilitating disease. The combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s Cannabinoid-Containing Complex Mixtures ("CCCM™") are being formulated by Catalent Pharma using Catalent’s Zydis® Orally Disintegrating Tablet ("ODT") technology. This ODT format was selected for the PD formulas because it dissolves on the tongues of patients without the need to swallow for ease of use in patients with PD, who often have difficulties with swallowing. GBSGB selected Catalent as its development partner for the PD therapies due to Catalent’s prior experience in working on US FDA-approved, cannabinoid-containing drugs, their Schedule I drug manufacturing facilities, their familiarity with US FDA and international regulatory and manufacturing requirements, their expertise in tackling formulation challenges, and their ability to achieve the stability and dosing necessary for these novel complex mixtures. In addition to its Zydis® technology, Catalent has early drug development services and additional oral drug delivery solutions available for the efficient delivery of GBSGB's proprietary APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its Cannabinoid-Containing Complex Mixtures and Myrcene-Containing Complex Mixtures ("MCCM") both as encapsulated, time-released nanoparticles, as well as in non-encapsulated forms of these therapeutic mixtures in an animal model at the NRC in Halifax, Nova Scotia. In preparation for human clinical trials, our standard MCCM and the time-released MCCM are currently being compared in an animal model that demonstrates their potential effectiveness at treating chronic pain. The early results from this preclinical research project look very promising.
The three patents which protect formulations in the Company’s lead therapeutic programs have been issued by the USPTO. The issuance of U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases" on May 19, 2020 protects methods of using GBSGB’s proprietary cannabinoid-containing complex mixtures (CCCM™) for treating Parkinson’s Disease. This was an important milestone in the development of these vitally-important therapies and validates GBSGB’s drug discovery platform. In the US alone, the combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion, and new therapies to address Parkinson’s disease symptoms are greatly needed. This was also the first time that a Silicon Valley based law firm focusing on life sciencesUS patent has been awarded for a cannabis-based complex mixture defined using this type of drug discovery method. The first US patent for PD therapies validated our drug discovery platform and high technology
companies with a nationally top-rankedstrengthened our intellectual property practice,portfolio of unique CCCM’s™, each targeting one of up to develop strategies60 specific clinical applications.
The issuance of GBSGB’s second US patent for active pharmaceutical ingredients that are complex mixtures identified by our biotech platform further confirms that GBSGB’s pharmaceutical compositions can be patent-protected for use as biopharmaceutical and nutraceutical products. The US Patent entitled “Myrcene-Containing Complex Mixtures Targeting TRPV1” protects methods of using GBSGB’s proprietary Myrcene-Containing Complex Mixtures for the protectiontreatment of pain disorders related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. In the Company's intellectual property.US alone, chronic pain represents an estimated health burden of between $560 and $650 billion dollars, and an estimated 20.4% of U.S. adults suffer from chronic pain that significantly decreases their quality of life. Despite the widespread rates of addiction and death, opioids remain the standard of care treatment for most people with chronic pain. The following patents have been filedCompany believes that it is important to date:
Three patent applications (USPTO & PCT)
10/2017_Cannabis-based Formulascreate safer, less addictive alternatives to treat Neurodegenerative Disorders (PD, AD, dementia)
02/2018_Cannabis-based Formulas to treat Anti-Inflammatory Disorders (asthma, IBD, etc.)
05/2018_Myrcene-based Formulas to treat Heart Disorders & Painopioids for the treatment of chronic pain disorders, like GBSGB’s myrcene-containing complex mixtures.
Four provisional patent applications (USPTO)
10/2016_Cannabis-based Formulas to treatFavorable Research Updates from our university collaborators reveal the promise in our discovery programs with Michigan State University (HIV-Associated Neurodegenerative Disorders (PD, AD, dementia)
02/2017_Cannabis-based Formulas to treat Anti-Inflammatory Disorders (asthma, IBD, etc.)
05/2017_Myrcene-based Formulas to treat Heart Disorders &Disorder and COVID-19 therapies), Chaminade University (Chronic Neuropathic Pain,
05/2018_Cannabis-based Formula to Modulate Pain
Two licensed patents complete Metabolic Syndrome, Cannabis Metabolomics with the GBLS portfolio:
Two licensed patents (USPTO & PCT)
03/2017_Licensed Cannabinoid Receptor-based HeartUniversity of Athens), the University of Athens, Greece (Cannabis Metabolomics), the University of Seville, Spain (Time-Released Nanoparticles), and the National Research Council of Canada (Parkinson’s Disease, Patent (approved)
10/2017_Exclusive Worldwide License on Time-Released Cannabinoid Nanoparticles (approved in Spain, applied in the US, Canada, and Europe)
GBLS is collecting research data and intends to file future patents on:
Future Patents in Discovery Phase
Triple-negative breast cancer therapies
Wound healing
HIV/AIDS adjunctive therapy without THC
HAND: HIV Associated Neurocognitive DisorderChronic Neuropathic Pain).
Partnering Strategy
The CompanyGBSGB runs a lean drug development program and minimizes expenses, including personnel, overhead, and fixed capital expenses (such as lab and diagnostic equipment), through strategic partnerships with Universities and Contract Research Organizations ("CROs"(“CROs”). Through these research and development agreements, the CompanyGBSGB has created a virtual pipeline for the further development of novel medicines extracted from the cannabis plant. The partners bring both expertise and infrastructure at a reasonable cost to the life sciences program. GB SciencesIn most instances, GBSGB has also negotiated with these partners to keep 100% of the ownership of the IP within GBLSGBSGB for original patent filings.
The Company
GBSGB currently has active and on-going research agreements with the following institutions covering the indicated areas of research:
·Chaminade University: Broad-based research program to support the drug discovery platform that has yielded allmany of GBLS'sGBSGB’s original patents to date in the areas of neurodegenerative diseases, heart disease, inflammatory diseases, neuropathic pain and chronic pain. They have also performed the bioassay portion of the Cannabis Metabolomics study performed with the University of Athens, Greece and GBSGB.
·University of Athens: Broad-based metabolomics analysis of over 100 cannabis genotypes including both hemp and THC-producing cannabis varieties, in combination with GBSGB’s bioassay data linking genotypes and potential disease-remediations. This project has the potential to define active ingredients from plant-derived mixtures beyond the standard cannabinoids and terpenoids. The discovery potential is huge, and novel agents have recently been discovered.
Michigan State University: EvaluationDiscovery work using a cutting-edge, multi-cellular model of the Company's Neuroprotectivehuman immune system and Anti-inflammatory Panela multi-cell model of Compoundsthe brain to explore CCCM™s for Immunomodulatory Activity Employing Human Primary Leukocytes. use in the prevention of HIV-Associated Neurocognitive Disorders (HAND). Although combination antiretroviral therapy keeps symptoms for most HIV-patients well controlled, between 40% and 70% of these well-controlled HIV patients end up with HAND symptoms that range from movement disorders to dementia-like symptoms. The results from this work were included in a new patent application that will be filed in Q3 of 2021. In addition, MSU has performed experiments using their novel model of the human-immune system that have allowed GBSGB to prepare cannabis-based formulas for the potential treatment of virally-induced hyperinflammation/cytokine storm syndrome that has led to the majority of COVID-19 deaths. The new patent application for our novel, cannabinoid-containing complex mixtures (CCCM™) for the treatment of hyperinflammation and cytokine release syndrome in COVID-19 patients was filed August 18, 2020.
·
The University of Seville: DevelopmentBringing their novel expertise to the development and functional testing of polymerictime-released and disease-targeted nanoparticles of cannabis-based terpene-mixturescomplex mixtures for oral administrationadministration. These specialized nanoparticles are being used for the precise and time-released delivery of several of our therapies, including GBSGB’s MCCM™ and CCCM™’s used in pain treatments. the preclinical animal testing performed at the NRC Canada. The University of Seville has completed functional testing on nanoparticles containing myrcene, nerolidol, and beta-caryophyllene for our Myrcene-Containing Complex Mixtures. In these cell-based assays, the effectiveness and kinetics of the nanoparticle-forms of these terpenes were compared with the “naked” terpenes both individually and in mixtures. In all cases, the effectiveness of the nanoparticles were superior to the naked terpenes, however, the mixtures were dramatically more effective than the individuals. These results from Seville are very promising as these nanoparticles have entered the animal testing phase at the NRC in Halifax.
·The National Research Center (NRC) of Canada, Halifax, Nova Scotia: Two animal-phase studies are being performed by Dr. Lee Ellis’ group at the NRC. An animal safety and efficacy study was initiated in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the NRC has demonstrated that the company’s PD formulations were able to reduce behavioral changes associated with the loss of dopamine-producing neurons, which underlies the pathology of Parkinson’s disease in the animal model. Based on achieving the statistically significant reduction in Parkinson’s disease symptomology, GBSGB has signed an amendment to include a final phase of testing, which will study the mechanism of action for these promising formulations. In Q1 of 2019, GBSGB started a safety and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain (CNP) formulas. The midterm results for these preclinical pain studies are promising.
The University of Cadiz: Testing the safety and efficacy of the above mentioned polymericabove-mentioned time-released nanoparticles in a rodent model. models of chronic pain. Proof of concept complete for one formulation.
·University of Hawaii: Validating the efficacy of a complex cannabis-based mixture for the treatment of cardiac hypertrophy and cardiac disease in a rodent model. Proof of concept work is complete.
The Company also has consulting agreements with the following subject matter experts:
·Dr. Zoltan Mari, Section Head, Nevada Movement Disorders Program & Lee Pascal Parkinson's Disease Scholar at Cleveland Clinic.
·Dr. Ziva Cooper, Columbia University, Associate Professor of Clinical Neurobiology, will design GBLS's human neuropathic and chronic pain trials and provide strategic guidance on clinical development of these products. For nearly a decade, Dr. Cooper has been building on her training in preclinical models of drug dependence and developing an expertise in human laboratory studies on cannabis, cannabinoids, opioids, and cocaine while maintaining research projects in animal models of substance use. Her current research investigates the direct neurobiological effects of emerging drugs of abuse, including synthetic cannabinoids in laboratory animals and the direct physiological and behavioral effects of cannabinoids as they pertain to both their abuse potential and potential therapeutic effects in double-blind, placebo controlled human laboratory studies. Dr. Cooper's research is funded by the National Institute on Drug Abuse.
Path to Market: Drug Development Stages and Proposed Clinical Trials
The CompanyGBSGB has cannabis-based therapeutic products in the following stages of drug development: Discovery, Pre-Clinical, and entering the Clinical Phase. It has also licensed therapeutic products that the Company intends to develop through partners, labeled Partner Programs.
The completion of pre-clinical studies, clinical trials, and obtaining FDA-approvals for pharmaceutical products is traditionally a long and expensive process. However, GB Sciences believeGBSGB asserts that its cannabis-based drug discovery engine, lean development program, novel regulatory strategy, experienced development partners, and aggressive licensing of these products at early clinical stages can mitigate some of the risks. The Company uses a combination ofin silico discovery methods and automated screening of cellular models of disease to decrease the time in Discovery prior to filing novel patent applications for disease-specific therapeutics. GB Sciences'GBSGB’s original patent applications cover new chemical entities ("NCE"(“NCE”) based on complex combinations of plant-derived compounds. Its Exploratory IND/Phase 0 Program gets the Company to First-in-Man sooner than traditional programs, which reduces translational risks, and includes preliminary efficacy measures for responsible development decisions. In contrast, a traditional phased-development path would not provide any efficacy measures until Phase II. After the completion of our Phase 0 study, which compares the efficacies of multiple related cannabis-based formulations, the Company plans to advance the lead drug candidate using an adaptive trial design that is more efficient than the traditional phased-development pathway. GB SciencesGBSGB has entered into research contracts, partnerships, and/or joint ventures with several respected, independent contract research organizations, medical schools, universities, and other scientific researchers to increase developmental efficiencies. If and when one or more of the Company'sGBSGB’s drugs, therapies or treatments are approved by the FDA, the CompanyGBSGB will seek to market them under licensing arrangements with major biotechnology or pharmaceutical companies.
The Company plans to use a combination of FDA-registered human clinical trials, as described in detail above, and pilot human studies in the development of its therapeutic product portfolio. Early in product development, human pilot studies that are fully-compliant with state medical cannabis programs will be used to gather early data on safety and efficacy that can later be referenced in the next phase of product development. The Company may be able to produce and sell the early products that prove efficacious, through licensing agreements with cannabis companies in other US states and countries that have legalized cannabis programs. GB Sciences believes that these pilot studies will provide significant value by reducing the cost of commercialization, more rapidly putting effective drugs in the hands of patients and accelerating by years the monetization of research. The Company's goal is to be the perfect partner to those companies with greater resources and experience in the marketing and distribution of medications worldwide.
There can be no assurance that we will ever be able to enter into any joint ventures or other arrangements with third parties to finance our drug development program or that if we are able to do so, that any of our projected therapies will ever be approved by the FDA. Even if we obtain FDA approval for a therapy, there can be no assurance that it could be successfully marketed or would not be superseded by another cannabis-based therapy produced by one or more of our competitors. It also may be anticipated that even if we enter into a joint venture development with a financially stable pharmaceutical or institutional partner, we will still be required to raise significant additional capital in the future to achieve the strategic goals of our Science Division.GBSGB. There can be no assurance that we will be
able to obtain such additional capital on reasonable terms, if at all. If our Science DivisionGBSGB fails to achieve its goal of producing one or more cannabis-based pharmaceuticals or therapies, it would have a material adverse effect on our future financial condition and business prospects.
Agreement with Growblox Sciences Puerto RicoOther Operations
In addition to our key biopharmaceutical research and development activities described in detail above, the Company has operated in the medical and adult-use cannabis markets under State-issued cultivation and production licenses. Our wholly owned subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada (the "Teco Facility") and operates a cannabis cultivation facility under Nevada licenses for the medical and adult-use markets. Our wholly owned subsidiary GB Sciences Las Vegas, LLC ("GBLV") holds Nevada certificates for medical and adult-use cannabis production and produces extracts and concentrates for the wholesale market.
On May 7, 2015,March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") which formalized the sale of the Teco Subsidiaries. Pursuant to the Teco MIPA, the Company will sell 100% of its membership interests in GBSN and GBLV for $4.0 million cash upon close and will receive a $4.0 million 8% promissory note to be paid in monthly installments over 36 months.
The Company also holds a Nevada license for cultivation of medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The license is owned by the Company’s wholly owned subsidiary, GB Sciences Nopah, LLC ("Nopah"). Operations have not begun under the Nopah License. On August 10, 2020, the Company entered into certain agreementsthe Membership Interest Purchase Agreement ("Nopah MIPA") and Promissory Note Modification Agreement with Growbloxthe purchaser of GB Sciences Puerto Rico, LLC, a limited liability company organized underNopah, LLC. As consideration for the lawstransfer of the Commonwealth of Puerto Rico ("GBSPR"). GBSPR was formedlicense 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. GBSPR failed to obtain the funds by September 30, 2015 required pursuant to the commercialization agreement.
During the three-month period ended December 31, 2017, the Company agreed to transfer approximately 17% of its membership interest in GB Sciences Puerto Rico,Nopah, LLC, (GBSPR)the Company will receive $300,000 and the purchaser will pay all expenses related to Cesar Cordero-Kruger, whothe upkeep and maintenance of the Nopah License. The transfer of the Nopah License is subject to the same restrictions on license transfers currently in effect in the State of Nevada.
The sales of the Teco Facility and Nopah are expected to close upon the successful transfer of the Nevada cultivation and production licenses. The transfer of cannabis licenses in the State of Nevada was subject to an indefinite moratorium from October 2019 through August of 2020, and the processing of license transfers has been further delayed by the COVID-19 pandemic. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there were over 90 requests pending and it will take up to several months to process the entire backlog of pending license transfers. Based on this information, we cannot provide any assurances as to the timing of the close of the sale.
Results of Operations
The following table sets forth certain of our Statements of Operations data from continuing operations for the Company's most recently completed fiscal quarter:
For the Three Months Ended | ||||||||
June 30, | ||||||||
2021 | 2020 | |||||||
General and administrative expenses | $ | 493,405 | $ | 515,253 | ||||
LOSS FROM OPERATIONS | (493,405 | ) | (515,253 | ) | ||||
OTHER EXPENSE | ||||||||
Interest expense | (65,254 | ) | (662,370 | ) | ||||
Debt default penalty | - | (286,059 | ) | |||||
Other expense | - | (11,182 | ) | |||||
LOSS BEFORE INCOME TAXES | (558,659 | ) | (1,474,864 | ) | ||||
Income tax expense | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | $ | (558,659 | ) | $ | (1,474,864 | ) |
Comparison of the Three Months Ended June 30, 2021 and 2020
General and Administrative Expenses
General and Administrative Expenses decreased by $(21,848) to $493,405 for the three months ended June 30, 2021, compared to $515,253 for the three months ended June 30, 2020. The Company is continuing its efforts to maintain administrative costs at a minimum and to make the best use of its limited resources in advancing research & development of the Company's intellectual property portfolio.
Interest Expense
Interest expense decreased by $(597,116) to $65,254 for the three months ended June 30, 2021, compared to $662,370 in the prior year quarter. The decrease is primarily attributable to less interest-bearing debt outstanding during the current quarter as the result of the payoff of the note payable to Iliad Research and Trading, L.P. in December 2020. In addition, notes with balances totaling $2.1 million at June 30, 2021 are no longer accruing interest beginning December 1, 2020, as the result of the Omnibus Amendment to the agreements surrounding the sale of the Company's Nevada Subsidiaries.
Debt Default Penalty
The Company recorded a default penalty of $286,059 in the prior year quarter, related to the Company's failure to timely repay the principal and interest owed under the note payable to Iliad Research and Trading, L.P. on April 1, 2020. The penalty was 10% of the principal and accrued interest balances outstanding at the time of the agreement owned approximately 34% of GBSPR. The Company did not receive any consideration in the transaction but was relieved of any obligation to fund the losses of GBSPR going forward.default.
The following table sets forth certain of our Statement of Operations data from continuing operations for the Company's most recently completed fiscal year:
For the Years Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
SALES REVENUE | $ | - | $ | - | ||||
COST OF GOODS SOLD | - | - | ||||||
GROSS PROFIT (LOSS) | - | - | ||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,001,617 | 5,741,514 | ||||||
LOSS FROM OPERATIONS | (2,001,617 | ) | (5,741,514 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Gain/(loss) on extinguishment | 467,872 | (216,954 | ) | |||||
Gain on settlement of accounts payable | 422,414 | - | ||||||
Gain on deconsolidation | - | 4,393,242 | ||||||
Interest expense | (1,285,460 | ) | (1,109,031 | ) | ||||
Loss on modification of line of credit | (650,000 | ) | - | |||||
Loss on modification of note receivable | - | (1,895,434 | ) | |||||
Debt default penalty | (286,059 | ) | - | |||||
Other expense | - | (179,368 | ) | |||||
Total other income/(expense) | (1,331,233 | ) | 992,455 | |||||
NET LOSS BEFORE INCOME TAX EXPENSE | (3,332,850 | ) | (4,749,059 | ) | ||||
INCOME TAX EXPENSE | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | (3,332,850 | ) | (4,749,059 | ) | ||||
LOSS FROM DISCONTINUED OPERATIONS | (392,177 | ) | (8,362,626 | ) | ||||
NET LOSS | (3,725,027 | ) | (13,111,685 | ) | ||||
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | (738,106 | ) | |||||
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. | $ | (3,725,027 | ) | $ | (12,373,579 | ) |
General and Administrative Expenses. General and administrative expense decreased $(3,739,897) to $2,001,617 for the year ended March 31, 2021 as compared to $5,741,514 for the same period last year. The decrease is attributable to a company-wide initiative to reduce general and administrative costs, including a substantial reduction in the number of employees involved in administrative functions and related salaries & wages expense.
Gain/(Loss) on extinguishment. The gain on extinguishment of $467,872 for the year ended March 31, 2021 relates to the Judgment Settlement Agreement with Iliad Research & Trading, L.P. In order to settle the lawsuit brought by Iliad, the Company paid $3,006,015 in full satisfaction of the principal and accrued interest balance of $3,473,886. Prior year losses on extinguishment of $216,954 relate to modifications of the note payable to CSW Ventures, LP, which were accounted for as extinguishments.
Gain on settlement of accounts payable. During the year ended March 31, 2021, the Company settled accounts payable at a discount in exchange for immediate lump sum payments and recorded income from cancellation of accounts payable totaling $422,414, compared to $0 in the prior year.
Gain on deconsolidation. The Company recorded a gain on deconsolidation of $4,393,242 related to the sale of its 50% membership interest in GB Sciences Louisiana, LLC during the year ended March 31, 2020, compared to $0 in the current year.
Interest Expense. Interest for the year ended March 31, 2021 was $1,285,460, compared to $1,109,031 for the year ended March 31, 2020. The increase is primarily due to interest income of $509,265 related to the Wellcana note receivable included in the prior year amount as a net reduction, and offset by a decrease in interest expense resulting from the amortization of note discounts. Primarily as the result of the Company's largest outstanding notes payable becoming fully amortized during the year, interest expense from amortization of debt discounts decreased from $1,150,995 in the prior year to $776,122 in the current year.
Loss on modification of line of credit. As a result of the Omnibus Amendment dated December 29, 2020, the Company accrued a modification expense of $650,000. The amount represents an increase to the note balance to a total of $1,025,000, which will reduce the note receivable issued to the Company at the closing of the sale of the Teco Facility.
Loss on modification of note receivable. As the result of the transaction, the Company deconsolidated the assets, liabilities and noncontrolling interests of GBSPR since its ownership interest was reduced to a non-controlling level.
Total net liabilities deconsolidated were $228,572, which consisted of the following:
|
| October 1, 2017 |
Cash and cash equivalents | $ | 19,417 |
Long term deposits |
| 112,134 |
Property and equipment |
| 45,752 |
Less: |
|
|
Accrued liabilities |
| 405,000 |
Other liabilities |
| 875 |
Net liabilities deconsolidated | $ | (228,572) |
GBSPR has a history of recorded losses and no revenue or sales contracts to date. Its liabilities exceed its assets and management does not have any reason to believe that GBSPR will ever generate positive cash flows to the Company. The Company is not obligated to fund GBSPR's future losses. Based on these facts,Company's August 24, 2020 letter agreement with Wellcana, the Company determined that the fair valueamount of its remaining interest in GBSPR is zerothe note receivable from Wellcana that was collectible as of March 31, 2020 was $5,224,423 and recorded a gainloss on modification of note receivable in the deconsolidationamount of GBSPR, calculated as follows:$1,895,434.
|
| October 1, 2017 |
Consideration received | $ | - |
Fair value of retained noncontrolling interest |
| - |
Carrying value of noncontrolling interest |
| 129,396 |
Net liabilities deconsolidated |
| 228,572 |
Gain on sale of membership interest in GB Sciences Puerto Rico, LLC | $ | 357,968 |
LIQUIDITY AND CAPITAL RESOURCES
The gain on deconsolidation of GBSPRLLC is classified under the other income/(expense) caption in the Company's Condensed Consolidated Statement of Operations for the twelve months ended March 31, 2018.Current Liquidity
The investment in GBSPRCompany will need additional capital to implement its strategies. There is no assurance that it will be accountedable to raise the amount of capital needed for underfuture growth plans. Even if financing is available, it may not be on terms that are acceptable. If unable to raise the equity method asnecessary capital at the times required, the Company maintainsmay have to materially change the business plan, including delaying implementation of aspects of the business plan or curtailing or abandoning the business plan. The Company represents a speculative investment and investors may lose all of their investment. In order to be able to achieve the strategic goals, the Company needs to further expand its business and financing activities. Based on the Company's cash position, it is necessary to raise additional capital by the end of the next quarter in order to continue to fund current operations. These factors raise substantial doubt about the ability to continue as a going concern. The Company is pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financing. In order to finance existing operations and pay current liabilities over the next twelve months, the Company will need to raise additional capital. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future.
The principal sources of liquidity to date have been cash generated from sales of debt and equity securities and loans.
In continuing operations at June 30, 2021, cash was $582,971, other current assets excluding cash were $296,081, and our working capital deficit was $5,841,001. Current liabilities in continuing operations were $6,720,053 and consisted principally of $1,463,806 in accounts payable, $1,552,148 in accrued liabilities, $3,619,186 in notes and convertible notes payable, and $84,913 in indebtedness to related parties. At June 30, 2021, current assets from discontinued operations were $2,248,757, current liabilities from discontinued operations were $1,987,787, and working capital from discontinued operations was $260,970.
At March 31, 2021, continuing operations included a cash balance of $793,040, other current assets excluding cash were $256,251, and our working capital deficit was $5,494,572. Current liabilities in continuing operations were $6,543,863, which consisted principally of $1,412,459 in accounts payable, $1,451,687 in accrued liabilities, $3,594,804 in notes and convertible notes payable, and $84,913 of indebtedness to related parties. At March 31, 2021, current assets from discontinued operations were $2,494,564, current liabilities from discontinued operations were $2,054,585, and working capital from discontinued operations was $439,979.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $636,583, including $2,954 used by discontinued operations for the three months ended June 30, 2021, compared to $323,845 net of $235,779 provided by operating activities of discontinued operations for the three months ended June 30, 2020. We anticipate that cash flows from operations will be insufficient to fund business operations for the next twelve-month period. Accordingly, we will have to generate additional liquidity or cash flow to fund our current and anticipated operations. This will likely require the sale of additional common stock or other securities. There is no assurance that we will be able to realize any significant influence but lacks control over GBSPR. Becauseproceeds from such sales, if at all.
Investing Activities
During the three months ended June 30, 2021, $157,435 was provided by investing activities, including $7,435 provided by discontinued operations. Cash provided by investing activities of continuing operations consisted of $200,000 received by the Company as an advancement of the purchase price of the Teco facility, and was offset by $50,000 paid to acquire intangible assets. During the three months ended June 30, 2020, no cash was used or provided by investing activities.
Financing Activities
During the three months ended June 30, 2021, cash flows provided by financing activities totaled $29,182, net of $33,478 used in discontinued operations. Cash flows provided by financing activities of continuing operations related to $62,660 in gross proceeds from warrant exercises. Cash provided by financing activities for the three months ended June 30, 2020 was $273,309, net of $12,772 used in discontinued operations. Cash provided by financing activities for the three months ended June 30, 2020 related primarily to $151,202 in proceeds from warrant exercises and $150,000 in proceeds from the sale of a note payable, offset by $15,121 of brokerage fees for warrant exercises.
Going Concern
The Company’s financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained net losses since inception, which have caused an accumulated deficit of $104,681,665 at June 30, 2021. The Company had a working capital deficit of $5,580,031 at June 30, 2021, net of working capital of $260,970 classified as discontinued operations, compared to $5,054,593 at March 31, 2021, net of working capital of $439,979 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $636,583 for the three months ended June 30, 2021, including $2,954 used by discontinued operations, compared to $323,845 used in operating activities, net of $235,779 provided by discontinued operations for the three months ended June 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
Furthermore, Management believes the COVID-19 pandemic may have a significant impact on the Company's business. The pandemic presents a risk to the global economy, and it is possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials and ability to continue as a going concern. Management has not been able to measure the potential financial impact on the Company and continues to monitor the impact of the pandemic closely, although the extent to which the COVID-19 outbreak will impact our operations, financing ability or future financial results is uncertain.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is not obligatedunable to and does not intend to fund future losses, the Company's share of GBSPR's net losses will be suspended until GBSPR achieves cumulative net profitability.continue as a going concern.
Competition
The medical cannabis industry is subject to intense and increasing competition. Some of our competitors may have substantially greater capital resources, facilities and infrastructure then we have, which may enable them to compete more effectively in this market. These competitors include TerraTech Corp., Cannabis Science, Inc., Peak Pharmaceuticals, Inc., Cannabis-Rx, Inc. and Nemus Biosciences, Inc. In addition, the development of therapies and pharmaceutical products based on extracts from the cannabis plant is being undertaken by a number of medical and educational institutions, including the University of Mississippi, which is the only U.S. based entity authorized by the Federal government to cultivate cannabis for research. Such institutions have significantly greater financial resources and facilities than we have
Government Regulation and Federal Policy
Government authorities in the U.S. (including federal, state and local authorities) and in other countries extensively regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, export and import of pharmaceutical products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.
FDA Regulation
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process required by the FDA before product candidates may be marketed in the U.S. generally involves the following:
● | completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice (“GLP”) regulations. Preclinical testing generally includes evaluation of our product candidates in the laboratory or in animals to characterize the product and determine safety and efficacy; |
● | submission to the FDA of an Investigational New Drug application ("IND"), which must become effective before human clinical trials may begin and must be updated annually; |
● | performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication; |
● | submission to the FDA of a New Drug Application ("NDA") after completion of all pivotal clinical trials; |
● | a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review; |
● | satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient (“API”) and finished drug product are produced and tested to assess compliance with cGMP regulations; |
● | satisfactory completion of an FDA pre-approval inspection of one or more of the clinical sites at which the clinical trials were conducted; |
● | at the discretion of the FDA, a public Advisory Committee Meeting where the data is reviewed by experts who discuss the data and give their opinion (which the FDA is not obliged to follow) of the adequacy of the data to support an approval; and |
● | FDA review and approval of an NDA prior to any commercial marketing or sale of the drug in the U.S. |
We rely, and expect to continue to rely on third parties for the production, distribution, shipping and storage of clinical and commercial quantities of our product candidates. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our product candidates under development.
In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application (“CTA”) must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the NDA in the U.S. is similar to that required in Europe, with the exception of, among other things, country-specific document requirements. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Cannabis Regulation
Although the Company intends to completely divest of its cannabis cultivation and production facilities, which will be complete upon the close of the sale of its Teco and Nopah facilities located in Las Vegas, Nevada, the Company has owned and operated and continues to own subsidiaries that are involved in the manufacturing and distribution of cannabis products under State law. These facilities have been and continue to be subject to prohibition under United States federal law.
Under the Controlled Substances Act ("CSA"(“CSA”), the policies and regulations of the Federal government and its agencies are that cannabis (marijuana) is a stageSchedule 1 narcotic that is addictive and has no medical benefit. Accordingly, and a range of activities including cultivation and the personal use of cannabis is prohibited and subject to prosecution and criminal penalties. Unless and until Congress amends the CSA with respect to medical cannabis, there is a risk that the federal authorities may enforce current federal law, and we may be deemed to be engaged in producing, cultivating, or dispensing cannabis in violation of federal law, or we may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of federal law with respect to our Company'sCompany’s business operations. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our strategic goals, revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. See "Risk Factors" below.
The U.S. Supreme Court declined to hear a case brought by San Diego County, California that sought to establish federal preemption over state medical cannabis laws. The preemption claim was rejected by every court that reviewed the case. The California 4th District Court of Appeals wrote in its unanimous ruling, "Congress“Congress does not have the authority to compel the states to direct their law enforcement personnel to enforce federal laws."” However, in another case, the U.S. Supreme Court held that, as long as the CSA contains prohibitions against cannabis, under the Commerce Clause of the United States Constitution, the United States may criminalize the production and use of cannabis even where states approve its use for medical purposes.
In an effort to provide guidance to federal law enforcement, the Department of Justice ("DOJ"(“DOJ”) has issued Guidance Regarding Cannabis Enforcement to all United States attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way.
The August 29, 2013 memorandum provides updated guidance to federal prosecutors concerning cannabis enforcement in light of state laws legalizing medical and recreational cannabis possession in small amounts.
The memorandum sets forth certain enforcement priorities that are important to the federal government:
• | Distribution of cannabis to children; |
• | Revenue from the sale of cannabis going to criminals; |
• | Diversion of medical cannabis from states where it is legal to states where it is not; |
• | Using state authorized cannabis activity as a pretext of another illegal drug activity; |
• | Preventing violence in the cultivation and distribution of cannabis; |
• | Preventing drugged driving; |
• | Growing cannabis on federal property; and |
• |
|
On January 4, 2018, Attorney General Jeff Sessions revoked the Ogden Memo and the Cole Memos.
The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of cannabis for use on private property but has relied on state and local law enforcement to address cannabis activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical cannabis and recreational cannabis in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical cannabis.
In contrast to federal policy, there are currently 29the majority of U.S. states, four U.S. territories, and the District of Columbia that have laws and/or
regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumeradult recreational use of cannabis in connection with medical treatment.cannabis. Many other states are considering similar legislation.
Employees
As of May 3, 2019,September 10, 2021, we employed sixtyhad 30 employees, consisting of management and support staff.including 16 full-time employees.
Facilities
Description of Property
Our executive offices, Science and Cultivation divisions are located at 3550 W. Teco Avenue, Las Vegas, NV 89118 under a ten-year lease with ten-year initial term and one option to extend the lease for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement was $40,000 through Decemberwere $45,020 as of March 31, 2017. Commencing2021. Rent charges increase by 3% on January 1 2018, the monthly rent payments increased by 3% per annumof each year through the expiration of the lease.
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
GB Sciences, Inc.'s common stock is quoted on the OTCQB under the symbol "GBLX".
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. The information source is Yahoo Finance.
Fiscal Year Ending March 31, 2022 |
| High ($) |
| Low ($) |
First Quarter |
| 0.07 |
| 0.03 |
|
|
|
|
|
Fiscal Year Ending March 31, 2021 |
|
|
|
|
Fourth Quarter |
| 0.13 |
| 0.04 |
Third Quarter |
| 0.07 |
| 0.02 |
Second Quarter |
| 0.04 |
| 0.03 |
First Quarter |
| 0.04 |
| 0.03 |
|
|
|
|
|
Fiscal Year Ending March 31, 2020 |
|
|
|
|
Fourth Quarter |
| 0.05 |
| 0.2 |
Third Quarter |
| 0.10 |
| 0.03 |
Second Quarter |
| 0.15 |
| 0.08 |
First Quarter |
| 0.19 |
| 0.12 |
Dividends and Dividend Policy
Cash dividends have never been declared or paid on common stock dividends are not anticipated on common stock in the foreseeable future. Future earnings, if any, will be retained to finance the expansion business and for general corporate purposes. There is no assurance we will pay dividends in the future. Future dividend policy is within the discretion of the Board of Directors and will depend upon various factors, including results of operations, financial condition, capital requirements and investment opportunities.
As of September 10, 2021, there were 183 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of beneficial holders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the Company’s results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis is based on the Company’s financial statements contained in this prospectus, which we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.
Overview
GB Sciences, Inc. is a phytomedical research and biopharmaceutical drug development company whose goal is to create patented formulations of plant-inspired, complex therapeutic mixtures for the prescription drug market that target a variety of medical conditions. The Company is engaged in the research and development of plant-based medicines and plans to produce plant-inspired, complex therapeutic mixtures based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and development of plant-based medicines, primarily cannabinoid medicines, with virtual operations in North America and Europe. GBSGB’s assets include a portfolio of intellectual property containing both proprietary cannabinoid-containing formulations and our AI-enabled drug discovery platform, as well as critical research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of medical conditions and several programs are in the pre-clinical animal stage of development including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes five USPTO issued patents, nine USPTO nonprovisional patent applications pending in the US, and one provisional patent application in the US. In addition to the USPTO patents and patent applications, the company has filed 35 patent applications internationally to protect its proprietary technology. We recently filed a provisional USPTO patent application to further protect aspects of our proprietary drug discovery engine, “Phytomedical Analytics for Research Optimization at Scale," or PhAROS™.
Plan of Operation
Drug Discovery and Development of Novel Cannabis-Based Therapies
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. ("GBSGB"), the Company has conducted ground-breaking research embracing the rational design of plant-based medicines led by Dr. Andrea Small-Howard, the Company’s Chief Science Officer and Director, and Dr. Helen Turner, Vice President of Innovation and Dean of the Natural Sciences and Mathematics Department at Chaminade University. Small-Howard and Turner posited that complex mixtures of plant-based ingredients would provide more targeted and effective treatments for specific disease conditions than either single ingredient or whole plant formulations. They developed a rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes in vitro against cell-based models of disease. This process identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery engine involves both high throughput screening of cell models of disease and a data analytics/machine learning tool to expedite drug discovery. Initially, GBSGB explored the potential medical uses of specific mixtures derived from cannabis-based raw materials, but these tools are also effective for investigating the medical applications of complex therapeutic mixtures from any plant-derived starting material. In 2014, GBSGB developed its first rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes against cell-based models of diseases. This process has been refined over the years and now has identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain. GBSGB has filed for patent protection on these plant-inspired, complex therapeutic mixtures, and they are testing them in disease-specific animal models in preparation for human trials.
GBSGB’s drug discovery process combines: 1) HTS: high throughput screening of tens of thousands of combinations of compounds derived from plants in well-established cellular models of diseases, and 2) PhAROS™: Phytomedical Analytics for Research Optimization at Scale for the prediction of complex therapeutic mixtures from plant-based materials. This combined approach to drug discovery increases research efficiency and accuracy reducing the time from ideation to patenting from 7 years to 1.5 years. Screening of plant-based mixtures for drug discovery involves the testing of specific combinations of plant chemicals from many naturally occurring plants and the use of live models for these diseases that have been well established by other researchers. First, the Company finds plant materials that show some therapeutic activity, and then refines these natural mixtures to optimize their effectiveness in cellular assays by removing compounds that do not act synergistically with the others in the mixtures. The Company also use its PhAROS™ Platform to prioritize and eliminate some potential combinations, which reduces the time in the discovery period. PhAROS™ can also be used to identify and predict the efficacy of plant-derived, complex therapeutic mixtures for specific diseases in silico, which are then tested in the cell models.
The U.S. Patent and Trademark Office allows complex mixtures to be claimed as Active Pharmaceutical Ingredients ("APIs"). GBSGB has three issued patents and a series of pending patents containing cannabis-derived complex mixtures that act as therapeutic agents for specific disease categories, as described below. GBSGB’s pending patents are protected whether the individual compounds are derived from the cannabis plant, another plant, synthetically produced, or derived from a combination of sources for the individual chemical compounds in these mixtures.
Drug Development Progress
GBS Global Biopharma, Inc. has made significant strides in the past year with respect to both its drug discovery research and product development programs. Our lead pharmaceutical programs in both Parkinson’s disease and chronic neuropathic pain are now in preclinical animal studies with Dr. Lee Ellis of the National Research Council ("NRC") Canada in Halifax, Nova Scotia. Our complex therapeutic mixtures for the treatment of Cytokine Release Syndrome in COVID-19 and other severe hyperinflammatory conditions are now being tested in preclinical studies with Dr. Norbert Kaminski at Michigan State University. In addition, the two patents which protect GBSGB’s formulations in our lead development programs have been issued by the US Patent and Trademark Office ("USPTO"). On December 8, 2020, our third US patent was issued on complex therapeutic mixtures for the treatment of the hyper inflammatory condition, Mast Cell Activation Syndrome ("MCAS"). Achieving these significant milestones is driving interest in these novel therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it has obtained the statistically significant reduction of Parkinson’s-disease like symptoms using its proprietary complex mixtures in an animal model of Parkinson’s disease ("PD"). Several of GBSGB’s PD formulations significantly reduced the symptoms, while the most effective formula reduced the symptoms back to the baseline activity of normal animals. In addition, the toxicity studies for these PD formulas came back without any significant negative findings. These important preclinical results will be included in GBS’ Investigational New Drug ("IND") application with the US FDA to enter human clinical trials as soon as possible. New therapies to address Parkinson’s disease symptoms are needed to help those afflicted with this debilitating disease. The combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s Cannabinoid-Containing Complex Mixtures ("CCCM™") are being formulated by Catalent Pharma using Catalent’s Zydis® Orally Disintegrating Tablet ("ODT") technology. This ODT format was selected for the PD formulas because it dissolves on the tongues of patients without the need to swallow for ease of use in patients with PD, who often have difficulties with swallowing. GBSGB selected Catalent as its development partner for the PD therapies due to Catalent’s prior experience in working on US FDA-approved, cannabinoid-containing drugs, their Schedule I drug manufacturing facilities, their familiarity with US FDA and international regulatory and manufacturing requirements, their expertise in tackling formulation challenges, and their ability to achieve the stability and dosing necessary for these novel complex mixtures. In addition to its Zydis® technology, Catalent has early drug development services and additional oral drug delivery solutions available for the efficient delivery of GBSGB's proprietary APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its Cannabinoid-Containing Complex Mixtures and Myrcene-Containing Complex Mixtures ("MCCM") both as encapsulated, time-released nanoparticles, as well as in non-encapsulated forms of these therapeutic mixtures in an animal model at the NRC in Halifax, Nova Scotia. In preparation for human clinical trials, our standard MCCM and the time-released MCCM are currently being compared in an animal model that demonstrates their potential effectiveness at treating chronic pain. The early results from this preclinical research project look very promising.
The three patents which protect formulations in the Company’s lead therapeutic programs have been issued by the USPTO. The issuance of U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases" on May 19, 2020 protects methods of using GBSGB’s proprietary cannabinoid-containing complex mixtures (CCCM™) for treating Parkinson’s Disease. This was an important milestone in the development of these vitally-important therapies and validates GBSGB’s drug discovery platform. In the US alone, the combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion, and new therapies to address Parkinson’s disease symptoms are greatly needed. This was also the first time that a US patent has been awarded for a cannabis-based complex mixture defined using this type of drug discovery method. The first US patent for PD therapies validated our drug discovery platform and strengthened our intellectual property portfolio of unique CCCM’s™, each targeting one of up to 60 specific clinical applications.
The issuance of GBSGB’s second US patent for active pharmaceutical ingredients that are complex mixtures identified by our biotech platform further confirms that GBSGB’s pharmaceutical compositions can be patent-protected for use as biopharmaceutical and nutraceutical products. The US Patent entitled “Myrcene-Containing Complex Mixtures Targeting TRPV1” protects methods of using GBSGB’s proprietary Myrcene-Containing Complex Mixtures for the treatment of pain disorders related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. In the US alone, chronic pain represents an estimated health burden of between $560 and $650 billion dollars, and an estimated 20.4% of U.S. adults suffer from chronic pain that significantly decreases their quality of life. Despite the widespread rates of addiction and death, opioids remain the standard of care treatment for most people with chronic pain. The Company believes that it is important to create safer, less addictive alternatives to opioids for the treatment of chronic pain disorders, like GBSGB’s myrcene-containing complex mixtures.
Favorable Research Updates from our university collaborators reveal the promise in our discovery programs with Michigan State University (HIV-Associated Neurodegenerative Disorder and COVID-19 therapies), Chaminade University (Chronic Neuropathic Pain, Metabolic Syndrome, Cannabis Metabolomics with the University of Athens), the University of Athens, Greece (Cannabis Metabolomics), the University of Seville, Spain (Time-Released Nanoparticles), and the National Research Council of Canada (Parkinson’s Disease, Chronic Neuropathic Pain).
Partnering Strategy
GBSGB runs a lean drug development program and minimizes expenses, including personnel, overhead, and fixed capital expenses (such as lab and diagnostic equipment), through strategic partnerships with Universities and Contract Research Organizations (“CROs”). Through these research and development agreements, GBSGB has created a virtual pipeline for the further development of novel medicines extracted from the cannabis plant. The partners bring both expertise and infrastructure at a reasonable cost to the life sciences program. In most instances, GBSGB has also negotiated with these partners to keep 100% of the ownership of the IP within GBSGB for original patent filings.
GBSGB currently has on-going research agreements with the following institutions covering the indicated areas of research:
Chaminade University: Broad-based research program to support the drug discovery platform that has yielded many of GBSGB’s original patents to date in the areas of neurodegenerative diseases, heart disease, inflammatory diseases, neuropathic and chronic pain. They have also performed the bioassay portion of the Cannabis Metabolomics study performed with the University of Athens, Greece and GBSGB.
University of Athens: Broad-based metabolomics analysis of over 100 cannabis genotypes including both hemp and THC-producing cannabis varieties, in combination with GBSGB’s bioassay data linking genotypes and potential disease-remediations. This project has the potential to define active ingredients from plant-derived mixtures beyond the standard cannabinoids and terpenoids. The discovery potential is huge, and novel agents have recently been discovered.
Michigan State University: Discovery work using a cutting-edge, multi-cellular model of the human immune system and a multi-cell model of the brain to explore CCCM™s for use in the prevention of HIV-Associated Neurocognitive Disorders (HAND). Although combination antiretroviral therapy keeps symptoms for most HIV-patients well controlled, between 40% and 70% of these well-controlled HIV patients end up with HAND symptoms that range from movement disorders to dementia-like symptoms. The results from this work were included in a new patent application that will be filed in Q3 of 2021. In addition, MSU has performed experiments using their novel model of the human-immune system that have allowed GBSGB to prepare cannabis-based formulas for the potential treatment of virally-induced hyperinflammation/cytokine storm syndrome that has led to the majority of COVID-19 deaths. The new patent application for our novel, cannabinoid-containing complex mixtures (CCCM™) for the treatment of hyperinflammation and cytokine release syndrome in COVID-19 patients was filed August 18, 2020.
The University of Seville: Bringing their novel expertise to the development and functional testing of time-released and disease-targeted nanoparticles of cannabis-based complex mixtures for oral administration. These specialized nanoparticles are being used for the precise and time-released delivery of several of our therapies, including GBSGB’s MCCM™ and CCCM™’s used in the preclinical animal testing performed at the NRC Canada. The University of Seville has completed functional testing on nanoparticles containing myrcene, nerolidol, and beta-caryophyllene for our Myrcene-Containing Complex Mixtures. In these cell-based assays, the effectiveness and kinetics of the nanoparticle-forms of these terpenes were compared with the “naked” terpenes both individually and in mixtures. In all cases, the effectiveness of the nanoparticles were superior to the naked terpenes, however, the mixtures were dramatically more effective than the individuals. These results from Seville are very promising as these nanoparticles have entered the animal testing phase at the NRC in Halifax.
The National Research Center (NRC) of Canada, Halifax, Nova Scotia: Two animal-phase studies are being performed by Dr. Lee Ellis’ group at the NRC. An animal safety and efficacy study was initiated in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the NRC has demonstrated that the company’s PD formulations were able to reduce behavioral changes associated with the loss of dopamine-producing neurons, which underlies the pathology of Parkinson’s disease in the animal model. Based on achieving the statistically significant reduction in Parkinson’s disease symptomology, GBSGB has signed an amendment to include a final phase of testing, which will study the mechanism of action for these promising formulations. In Q1 of 2019, GBSGB started a safety and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain (CNP) formulas. The midterm results for these preclinical pain studies are promising.
The University of Cadiz: Testing the safety and efficacy of the above-mentioned time-released nanoparticles in rodent models of chronic pain. Proof of concept complete for one formulation.
University of Hawaii: Validating the efficacy of a complex cannabis-based mixture for the treatment of cardiac hypertrophy and cardiac disease in a rodent model. Proof of concept work is complete.
Path to Market: Drug Development Stages and Proposed Clinical Trials
GBSGB has cannabis-based therapeutic products in the following stages of drug development: Discovery, Pre-Clinical, and entering the Clinical Phase. It has also licensed therapeutic products that the Company intends to develop through partners, labeled Partner Programs.
The completion of pre-clinical studies, clinical trials, and obtaining FDA-approvals for pharmaceutical products is traditionally a long and expensive process. However, GBSGB asserts that its cannabis-based drug discovery engine, lean development program, novel regulatory strategy, experienced development partners, and aggressive licensing of these products at early clinical stages can mitigate some of the risks. The Company uses a combination of in silico discovery methods and automated screening of cellular models of disease to decrease the time in Discovery prior to filing novel patent applications for disease-specific therapeutics. GBSGB’s original patent applications cover new chemical entities (“NCE”) based on complex combinations of plant-derived compounds. Its Exploratory IND/Phase 0 Program gets the Company to First-in-Man sooner than traditional programs, which reduces translational risks, and includes preliminary efficacy measures for responsible development decisions. In contrast, a traditional phased-development path would not provide any efficacy measures until Phase II. After the completion of our Phase 0 study, which compares the efficacies of multiple related cannabis-based formulations, the Company plans to advance the lead drug candidate using an adaptive trial design that is more efficient than the traditional phased-development pathway. GBSGB has entered into research contracts, partnerships, and/or joint ventures with several respected, independent contract research organizations, medical schools, universities, and other scientific researchers to increase developmental efficiencies. If and when one or more of GBSGB’s drugs, therapies or treatments are approved by the FDA, GBSGB will seek to market them under licensing arrangements with major biotechnology or pharmaceutical companies.
There can be no assurance that we will ever be able to enter into any joint ventures or other arrangements with third parties to finance our drug development program or that if we are able to do so, that any of our projected therapies will ever be approved by the FDA. Even if we obtain FDA approval for a therapy, there can be no assurance that it could be successfully marketed or would not be superseded by another cannabis-based therapy produced by one or more of our competitors. It also may be anticipated that even if we enter into a joint venture development with a financially stable pharmaceutical or institutional partner, we will still be required to raise significant additional capital in the future to achieve the strategic goals of GBSGB. There can be no assurance that we will be able to obtain such additional capital on reasonable terms, if at all. If GBSGB fails to achieve its goal of producing one or more cannabis-based pharmaceuticals or therapies, it would have a material adverse effect on our future financial condition and business prospects.
Other Operations
In addition to our key biopharmaceutical research and development activities described in detail above, the Company has operated in the medical and adult-use cannabis markets under State-issued cultivation and production licenses. Our wholly owned subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada (the "Teco Facility") and operates a cannabis cultivation facility under Nevada licenses for the medical and adult-use markets. Our wholly owned subsidiary GB Sciences Las Vegas, LLC ("GBLV") holds Nevada certificates for medical and adult-use cannabis production and produces extracts and concentrates for the wholesale market.
On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") which formalized the sale of the Teco Subsidiaries. Pursuant to the Teco MIPA, the Company will sell 100% of its membership interests in GBSN and GBLV for $4.0 million cash upon close and will receive a $4.0 million 8% promissory note to be paid in monthly installments over 36 months.
The Company also holds a Nevada license for cultivation of medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The license is owned by the Company’s wholly owned subsidiary, GB Sciences Nopah, LLC ("Nopah"). Operations have not begun under the Nopah License. On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") and Promissory Note Modification Agreement with the purchaser of GB Sciences Nopah, LLC. As consideration for the transfer of the license and membership interest in GB Sciences Nopah, LLC, the Company will receive $300,000 and the purchaser will pay all expenses related to the upkeep and maintenance of the Nopah License. The transfer of the Nopah License is subject to the same restrictions on license transfers currently in effect in the State of Nevada.
The sales of the Teco Facility and Nopah are expected to close upon the successful transfer of the Nevada cultivation and production licenses. The transfer of cannabis licenses in the State of Nevada was subject to an indefinite moratorium from October 2019 through August of 2020, and the processing of license transfers has been further delayed by the COVID-19 pandemic. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there were over 90 requests pending and it will take up to several months to process the entire backlog of pending license transfers. Based on this information, we cannot provide any assurances as to the timing of the close of the sale.
Results of Operations
The following table sets forth certain of our Statements of Operations data from continuing operations for the Company's most recently completed fiscal quarter:
For the Three Months Ended | ||||||||
June 30, | ||||||||
2021 | 2020 | |||||||
General and administrative expenses | $ | 493,405 | $ | 515,253 | ||||
LOSS FROM OPERATIONS | (493,405 | ) | (515,253 | ) | ||||
OTHER EXPENSE | ||||||||
Interest expense | (65,254 | ) | (662,370 | ) | ||||
Debt default penalty | - | (286,059 | ) | |||||
Other expense | - | (11,182 | ) | |||||
LOSS BEFORE INCOME TAXES | (558,659 | ) | (1,474,864 | ) | ||||
Income tax expense | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | $ | (558,659 | ) | $ | (1,474,864 | ) |
Comparison of the Three Months Ended June 30, 2021 and 2020
General and Administrative Expenses
General and Administrative Expenses decreased by $(21,848) to $493,405 for the three months ended June 30, 2021, compared to $515,253 for the three months ended June 30, 2020. The Company is continuing its efforts to maintain administrative costs at a minimum and to make the best use of its limited resources in advancing research & development of the Company's intellectual property portfolio.
Interest Expense
Interest expense decreased by $(597,116) to $65,254 for the three months ended June 30, 2021, compared to $662,370 in the prior year quarter. The decrease is primarily attributable to less interest-bearing debt outstanding during the current quarter as the result of the payoff of the note payable to Iliad Research and Trading, L.P. in December 2020. In addition, notes with balances totaling $2.1 million at June 30, 2021 are no longer accruing interest beginning December 1, 2020, as the result of the Omnibus Amendment to the agreements surrounding the sale of the Company's Nevada Subsidiaries.
Debt Default Penalty
The Company recorded a default penalty of $286,059 in the prior year quarter, related to the Company's failure to timely repay the principal and interest owed under the note payable to Iliad Research and Trading, L.P. on April 1, 2020. The penalty was 10% of the principal and accrued interest balances outstanding at the time of default.
The following table sets forth certain of our Statement of Operations data from continuing operations for the Company's most recently completed fiscal year:
For the Years Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
SALES REVENUE | $ | - | $ | - | ||||
COST OF GOODS SOLD | - | - | ||||||
GROSS PROFIT (LOSS) | - | - | ||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 2,001,617 | 5,741,514 | ||||||
LOSS FROM OPERATIONS | (2,001,617 | ) | (5,741,514 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Gain/(loss) on extinguishment | 467,872 | (216,954 | ) | |||||
Gain on settlement of accounts payable | 422,414 | - | ||||||
Gain on deconsolidation | - | 4,393,242 | ||||||
Interest expense | (1,285,460 | ) | (1,109,031 | ) | ||||
Loss on modification of line of credit | (650,000 | ) | - | |||||
Loss on modification of note receivable | - | (1,895,434 | ) | |||||
Debt default penalty | (286,059 | ) | - | |||||
Other expense | - | (179,368 | ) | |||||
Total other income/(expense) | (1,331,233 | ) | 992,455 | |||||
NET LOSS BEFORE INCOME TAX EXPENSE | (3,332,850 | ) | (4,749,059 | ) | ||||
INCOME TAX EXPENSE | - | - | ||||||
LOSS FROM CONTINUING OPERATIONS | (3,332,850 | ) | (4,749,059 | ) | ||||
LOSS FROM DISCONTINUED OPERATIONS | (392,177 | ) | (8,362,626 | ) | ||||
NET LOSS | (3,725,027 | ) | (13,111,685 | ) | ||||
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | - | (738,106 | ) | |||||
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. | $ | (3,725,027 | ) | $ | (12,373,579 | ) |
General and Administrative Expenses. General and administrative expense decreased $(3,739,897) to $2,001,617 for the year ended March 31, 2021 as compared to $5,741,514 for the same period last year. The decrease is attributable to a company-wide initiative to reduce general and administrative costs, including a substantial reduction in the number of employees involved in administrative functions and related salaries & wages expense.
Gain/(Loss) on extinguishment. The gain on extinguishment of $467,872 for the year ended March 31, 2021 relates to the Judgment Settlement Agreement with Iliad Research & Trading, L.P. In order to settle the lawsuit brought by Iliad, the Company paid $3,006,015 in full satisfaction of the principal and accrued interest balance of $3,473,886. Prior year losses on extinguishment of $216,954 relate to modifications of the note payable to CSW Ventures, LP, which were accounted for as extinguishments.
Gain on settlement of accounts payable. During the year ended March 31, 2021, the Company settled accounts payable at a discount in exchange for immediate lump sum payments and recorded income from cancellation of accounts payable totaling $422,414, compared to $0 in the prior year.
Gain on deconsolidation. The Company recorded a gain on deconsolidation of $4,393,242 related to the sale of its 50% membership interest in GB Sciences Louisiana, LLC during the year ended March 31, 2020, compared to $0 in the current year.
Interest Expense. Interest for the year ended March 31, 2021 was $1,285,460, compared to $1,109,031 for the year ended March 31, 2020. The increase is primarily due to interest income of $509,265 related to the Wellcana note receivable included in the prior year amount as a net reduction, and offset by a decrease in interest expense resulting from the amortization of note discounts. Primarily as the result of the Company's largest outstanding notes payable becoming fully amortized during the year, interest expense from amortization of debt discounts decreased from $1,150,995 in the prior year to $776,122 in the current year.
Loss on modification of line of credit. As a result of the Omnibus Amendment dated December 29, 2020, the Company accrued a modification expense of $650,000. The amount represents an increase to the note balance to a total of $1,025,000, which will reduce the note receivable issued to the Company at the closing of the sale of the Teco Facility.
Loss on modification of note receivable. As the result of the Company's August 24, 2020 letter agreement with Wellcana, the Company determined that the amount of the note receivable from Wellcana that was collectible as of March 31, 2020 was $5,224,423 and recorded a loss on modification of note receivable in the amount of $1,895,434.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
The Company will need additional capital to implement its strategies. There is no assurance that it will be able to raise the amount of capital needed for future growth plans. Even if financing is available, it may not be on terms that are acceptable. If unable to raise the necessary capital at the times required, the Company may have to materially change the business plan, including delaying implementation of aspects of the business plan or curtailing or abandoning the business plan. The Company represents a speculative investment and investors may lose all of their investment. In order to be able to achieve the strategic goals, the Company needs to further expand its business and financing activities. Based on the Company's cash position, it is necessary to raise additional capital by the end of the next quarter in order to continue to fund current operations. These factors raise substantial doubt about the ability to continue as a going concern. The Company is pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financing. In order to finance existing operations and pay current liabilities over the next twelve months, the Company will need to raise additional capital. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future.
The principal sources of liquidity to date have been cash generated from sales of debt and equity securities and loans.
In continuing operations at June 30, 2021, cash was $582,971, other current assets excluding cash were $296,081, and our working capital deficit was $5,841,001. Current liabilities in continuing operations were $6,720,053 and consisted principally of $1,463,806 in accounts payable, $1,552,148 in accrued liabilities, $3,619,186 in notes and convertible notes payable, and $84,913 in indebtedness to related parties. At June 30, 2021, current assets from discontinued operations were $2,248,757, current liabilities from discontinued operations were $1,987,787, and working capital from discontinued operations was $260,970.
At March 31, 2021, continuing operations included a cash balance of $793,040, other current assets excluding cash were $256,251, and our working capital deficit was $5,494,572. Current liabilities in continuing operations were $6,543,863, which consisted principally of $1,412,459 in accounts payable, $1,451,687 in accrued liabilities, $3,594,804 in notes and convertible notes payable, and $84,913 of indebtedness to related parties. At March 31, 2021, current assets from discontinued operations were $2,494,564, current liabilities from discontinued operations were $2,054,585, and working capital from discontinued operations was $439,979.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $636,583, including $2,954 used by discontinued operations for the three months ended June 30, 2021, compared to $323,845 net of $235,779 provided by operating activities of discontinued operations for the three months ended June 30, 2020. We anticipate that cash flows from operations will be insufficient to fund business operations for the next twelve-month period. Accordingly, we will have to generate additional liquidity or cash flow to fund our current and anticipated operations. This will likely require the sale of additional common stock or other securities. There is no assurance that we will be able to realize any significant proceeds from such sales, if at all.
Investing Activities
During the three months ended June 30, 2021, $157,435 was provided by investing activities, including $7,435 provided by discontinued operations. Cash provided by investing activities of continuing operations consisted of $200,000 received by the Company as an advancement of the purchase price of the Teco facility, and was offset by $50,000 paid to acquire intangible assets. During the three months ended June 30, 2020, no cash was used or provided by investing activities.
Financing Activities
During the three months ended June 30, 2021, cash flows provided by financing activities totaled $29,182, net of $33,478 used in discontinued operations. Cash flows provided by financing activities of continuing operations related to $62,660 in gross proceeds from warrant exercises. Cash provided by financing activities for the three months ended June 30, 2020 was $273,309, net of $12,772 used in discontinued operations. Cash provided by financing activities for the three months ended June 30, 2020 related primarily to $151,202 in proceeds from warrant exercises and $150,000 in proceeds from the sale of a note payable, offset by $15,121 of brokerage fees for warrant exercises.
Going Concern
The Company’s financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained net losses since inception, which have caused an accumulated deficit of $104,681,665 at June 30, 2021. The Company had a working capital deficit of $5,580,031 at June 30, 2021, net of working capital of $260,970 classified as discontinued operations, compared to $5,054,593 at March 31, 2021, net of working capital of $439,979 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $636,583 for the three months ended June 30, 2021, including $2,954 used by discontinued operations, compared to $323,845 used in operating activities, net of $235,779 provided by discontinued operations for the three months ended June 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
Furthermore, Management believes the COVID-19 pandemic may have a significant impact on the Company's business. The pandemic presents a risk to the global economy, and it is possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials and ability to continue as a going concern. Management has not been able to measure the potential financial impact on the Company and continues to monitor the impact of the pandemic closely, although the extent to which the COVID-19 outbreak will impact our operations, financing ability or future financial results is uncertain.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is unable to continue as a going concern.
Variables and Trends
We have limited operating history with respect to the current business plan. In the event we are able to obtain the necessary financing to move forward with the business plan, we expect business expenses to increase significantly as we go operational. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of future performance and must be considered in light these circumstances.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, inventory valuation, valuation of initial right-of-use assets and corresponding lease liabilities, valuation of beneficial conversion features in convertible debt, valuation of the assets and liabilities of discontinued operations, stock-based compensation expense, purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates.
Discontinued Operations
Discontinued operations comprise those activities that were disposed of during the period or which were classified as held for sale at the end of the period and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. The Company has included its subsidiaries GB Sciences Louisiana, LLC, GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC in discontinued operations due to the sale of the Company's Louisiana cultivation and extraction facility and the pending sale of the Company's Nevada cultivation and extraction facilities.
Inventory
We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out method, or its current estimated market value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete inventory is based on expected future use. Indirect costs, which primarily relate to the lease and operation costs of the Teco Facility, are allocated based on square footage of the facility used in the production of inventory.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the value of our patents pending and includes the costs paid to draft and file patent applications. Upon issuance of the patents, the indefinite-lived intangible assets will have finite lives. Intangible assets also include the acquisition cost of a cannabis production license with an indefinite life. We amortize our finite-lived intangible assets over their estimated useful lives using the straight-line method, and we periodically evaluate the remaining useful lives of our finite-lived intangible assets to determine whether events or circumstances warrant a revision to the remaining period of amortization. During the year ended March 31, 2020, the Company entered into the Membership Interest Purchase Agreement ("Teco MIPA") to sell 100% of the membership interests in the Teco Facility. As a result of this agreement, the Company determined that the long-lived assets of the Teco Facility including a production license acquired through purchase might be impaired due to the current expectation that the asset group will more likely than not be disposed of by sale significantly before the end of its previously estimated useful life. The Company recorded an impairment loss of $449,801 related to the license for the year ended March 31, 2020, and reduced the carrying value of the related intangible asset from $1,021,067 to $571,264. The license asset and the impairment loss are included in discontinued operations in the accompanying financial statements.
Long-Lived Assets
Property and equipment comprise a significant portion of our total assets. We evaluate the carrying value of property and equipment if impairment indicators are present or if other circumstances indicate that impairment may exist under authoritative guidance. The annual testing date is March 31. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of property and equipment are prepared. If the projections indicate that the carrying value of the property and equipment are not recoverable, we reduce the carrying values to fair value. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available.
During the year ended March 31, 2020, the Company entered into the Membership Interest Purchase Agreement ("Teco MIPA") to sell 100% of the membership interests in the Teco Facility. As a result of this agreement, the Company determined that the long-lived assets of the Teco Facility might be impaired due to the current expectation that the asset group will more likely than not be disposed of by sale significantly before the end of its previously estimated useful life. The Company estimated future undiscounted cash flows related to the Teco Facility to be $8.0 million, which was less than the carrying amount of the Teco Facility asset group of $11.9 million. Using a discounted cash flow approach, the Company estimated the fair value of the asset group to be approximately $7.3 million, resulting in a write-down of $4,645,054 related to the Teco Facility asset group. Fair value was based on expected future cash flows using level 3 inputs under ASC 820. The cash flows are the proceeds expected to be generated from the sale of the assets under the Teco MIPA, discounted to present value at a rate of 17%. The impairment loss and the related long-lived assets are included in discontinued operations in the accompanying financial statements.
Beneficial Conversion Feature of Convertible Notes Payable
The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options and Emerging Issues Task Force (“EITF”) 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”. A beneficial conversion feature (“BCF”) exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the BCF of a convertible note is measured by allocating a portion of the note's proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The Company calculates the fair value of warrants issued with the convertible notes using the Black-Scholes valuation model and uses the same assumptions for valuing any employee options in accordance with ASC Topic 718 Compensation – Stock Compensation. The only difference is that the contractual life of the warrants is used.
The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on a relative fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
Equity-Based Compensation
The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). The computation of the expense associated with stock-based compensation requires the use of a valuation model. The FASB-issued accounting guidance requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of our stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets.
Executive Officers and Directors
The names of the executive officers and directors of Growblox,GB Sciences, their ages as of May 3, 2019,July 31, 2021, and the positions currently held by each are as follows:
Name | Age | Position | |||
John Poss | 73 |
| President, Chief Executive Officer, and Chairman of the Board of Directors | ||
Dr. Andrea Small-Howard | 52 |
| Chief Science Officer and Director | ||
| 54 |
| |||
Zach Swarts | 33 | Chief Financial Officer | |||
| 67 |
|
| ||
|
|
|
Biographies
Set forth below are brief accounts of the business experience of each director an executive officer of the Company.
John Poss, Chief Executive Officer and Chairman of the Board
Effective April 29, 2016, The Boardboard of Directorsdirectors elected John Poss to serve as Chief Executive Officer. Mr. Poss served as the CFO of the Company beginning in August 2015, and its COO since December 31, 2015. He resigned his position as CFO on August 4, 2016 and his position as COO on November 10, 2017.
Effective May 8, 2017, following the retirement of Craig Ellins, our Chief Innovation Officer and Chairman of the Board, Mr. Poss, replaced Mr. Ellins as Chairman of the Board.
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 prior to joining Growblox, 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.
Dr. Andrea Small-Howard, PhD, MBA, President, Chief Science Officer, and Director
Effective June 16, 2021, the board of directors appointed Dr. Andrea Small-Howard to the office of president. Dr. Small-Howard was appointed as ourthe Chief Science Officer and as a member of our board of directors on June 10, 2014, and she has served continuously in both positions since that time. As the Chief Science Officer, herDr. Small-Howard’s goal ishas been to
create and maintain a novel cannabinoidplant-inspired therapy pipeline based on the Company's proprietary in silico technology suite, direct research & development efforts, facilitate clinical research and development partnerships, guide product commercialization strategies, develop corporate cannabis education programming, and create corporate messaging around our novel drug discovery process.process, and make public presentations promoting the Company’s drug development programs and unique corporate strategy.
From January, 2012Dr. Andrea Small-Howard has more than 20 years of research experience; as well as executive experience in the biopharmaceutical industry supervising research and development, manufacturing, and quality control divisions in both the US and China. In her biotechnology career, Dr. Small-Howard has taken novel biological products from ideation through commercialization. Dr. Small-Howard has been named an inventor on more than sixty patent applications and taken the lead in obtaining regulatory approvals from the U.S. Food and Drug Administration ("US FDA") and numerous international regulatory agencies. Dr. Small-Howard also created commercialization strategies, advised on distribution relationships, led branding committees, and supervised marketing materials. In one instance, Dr. Small-Howard designed a commercialization strategy for an in-licensed cervical cancer test. To that end, she developed technical product files in Korea with the original manufacturer, sourced US raw materials, hired contract manufacturers, created the US prototypes, and prepared regulatory filings. As VP of Scientific Oversight at Radient Pharmaceuticals Corp., she provided strategic product development and regulatory oversight across multiple international business divisions.
Dr. Small-Howard has directed research efforts on cannabinoids for over 20 years, leading a project group dedicated to present,the study of cannabinoids in the immune system as an NIH-funded post-doctoral fellow. In this work, she published one of the earliest studies of cannabinoid impacts on pro-inflammatory immunocytes. More recently she has servedcontributed to published studies on consumer protection issues surrounding ‘medicinal’ Cannabis chemovars in Nevada, co-authored scholarly reviews on cannabinoids in heart disease and Parkinson’s disease, co-authored mechanistic studies on cannabinoid and terpene regulation of ion channels, and co-authored an innovative study demonstrating the utility of nanoparticles as delivery vehicles for Cannabis-derived therapeutic compounds.
For a Directorfour-year term (2012-2016), Dr. Small-Howard served on the Board of Directors at Theof the Center for Healthcare Innovation, "CHI". CHI is a non-profit,nonprofit, non-partisan, and independent organization based in Chicago that is committed to serving as a catalyst for stimulating ideas, people, companies, and institutions to collaborate and achieve excellence in healthcare innovation, particularly in the biotechnology, medical device, nanotechnology, and pharmaceutical sectors.innovation. Her board level responsibilities at CHI have included shaping and supporting the evolving mission of this dynamic group. She has also beenserved on the planning committee for their annual "Emerging Markets in the Life Sciences" seminar series, which is now in its 5th consecutive year.ran for 5 years.
From July 2011 to June 2014, Dr. Small-Howard was the Founder and President of International Biotechnology Solutions, a management consulting firm that created customized, cost-effective commercialization solutions for viable yet abandoned biopharmaceutical products. International Biotechnology Solutions provided management consulting with a focus on assisting US biotech companies with products that could be commercialized within the Asia-Pacific region. Dr. Small-Howard she successfully completed projects within the areas of business development, corporate alliance building, product commercialization, due diligence reporting on medical marijuana companies, corporate restructuring, and management of successful fund-raising campaigns.
From June 2011 to March 2013, she served as a Director on the Board of Directors (President for part of that time), for the Ceremax Investment Corporation. The Ceremax Investment Group was established by members of the USC EMBA Class XXV to pool its financial and intellectual resources to identify investment opportunities. During her tenure at Ceremax, Dr. Small Howard reviewed and approved capital and resource investments in promising start-up or scale-up phase private companies.
From November 2008 to July, 2011, sheDr. Small-Howard served as the Vice President of Scientific Oversight for the Radient Pharmaceutical Corporation, a vertically-integrated biopharmaceutical research, development, and manufacturing corporation with operations in both the US and China. Dr. Small-Howard provided oversight for global product development in multiple international business divisions. She authored and/or attained 12 patents & 3 trademarks on proprietary cancer tests, cancer (gene) therapies, cosmeceuticals, and novel animal models. She achieved numerous regulatory approvals for cancer tests, cancer therapies, pharmaceuticals, and cosmeceutical products with the United States FDA, Health Canada, and other foreign ministries of health. She initiated and/or nurtured five international, collaborative, cancer research trial programs with universities and that yielded 7 publications supporting cancer products and supervised the Quality Management Systems for an ISO 13485/cGMP compliant medical device manufacturing facility in the US; as well as the regulated manufacturing facilities in China. She also led and participated in internal and US FDA, CDPH, CE Mark/ISO 13485, and CMDR audits of Radient'sRadient’s Quality Management System.
Ksenia Griswold, Vice President andZach Swarts, Chief Financial Officer, Treasurer
Ms. Griswold has beenMr. Swarts was appointed as the Company's CFO on April 16, 2021, and as treasurer on June 9, 2021, after serving as the controllerInterim CFO since September 5, 2019. He began employment with GB Sciences in October 2017 and served as Director of Finance and Accounting prior to his appointment as Interim CFO. Prior to joining GB Sciences, Mr. Swarts worked for a local public accounting firm as Manager of the Company since November 2015litigation support department from April 2016 to October 2017. He has provided forensic accounting, expert witness, business valuation, and was appointed Chief Financial Officer on August 4, 2016. For the five years priorconsulting services to November 2015, beginningclients in October 2010, shea wide variety of industries. From January 2013 to April 2016, he worked as an auditor in the Las Vegas Nevada office of Ernst & Young LLP. AtHis clients consisted primarily of SEC filers in the timehighly regulated gaming industry. He is a Certified Public Accountant licensed in the State of her departure from Ernst & Young, she was audit manager.Nevada.
Leslie Bocskor, Vice Chairman of the Board and Chairman of the Audit and Compensation CommitteesGary Henrie, Secretary
Effective MayThe board of directors ratified the appointment of Gary Henrie to the office of Secretary on June 8, 2017,2021. Mr. BocskorHenrie is an attorney licensed to practice law in the State of Utah since 1987 and in the State of Nevada since 2003. Mr. Henrie was appointed as Vice Chairmanan officer of the Board.
InUnited State Supreme Court by the burgeoning cannabis economy, Leslie BocskorUnited States Supreme Court in June, 2014. Mr. Henrie has emergedserved as one oflegal counsel to public companies for the most influentialpast 32 years and respected global advisorshas been securities counsel for business, policy and social reform, using his unique lens and understanding of what is, what will be, and what is needed -- based on decades of success in the trenches of investment banking and entrepreneurship in disruptive industries. With his rare combination of financial market experience and business sensibilities, he is beloved by policy makers and growers, technologists and scientists, doctors and patients alike, curating the
unrivaled network necessary to shepherd them all into achieving goals and prosperity.
The advisory firm he founded, Electrum Partners, works with leading companies around the globe in the hemp, legal medical cannabis, recreational cannabis, cannabis-based pharmaceuticals, cannabis-based nutraceuticals and supplements, technology, retails sales, processing, cultivation, ecommerce, unique brands, edibles manufacturing, intellectual property, finance and banking. The firm is sought after to deliver high-level strategies for profitability and shareholder value, and to bring together critical partnerships and solutions that contribute positively to further develop the cannabis business ecosystem. The company maintains relationships with key industry groups including MPP, DPA, NCIA, The ArcView Group, Red Estatal de Mujeres Antiprohibicionistas and Women Grow.
In position to provide perspective and guidance as to how the dots will be connected as the industry takes shape, Mr. Bocskor's contributions have already had substantial impact. He was bestowed with the 2015 ArcView Group Outstanding Member Award and was named 2015 CEO of the Year by The Weed Blog, one of the industry's most-trafficked media sites. Bocskor is the founding chairman of the Nevada Cannabis Industry Association and in November 2014, Mr. Bocskor was ranked 58th of 100 Most Influential People in the Cannabis industry by Cannabis Business Executive Magazine and was soon after the subject of a Newsweek's Special Edition Weed 2.0. Magazine feature article, "A Future Gold Mine," and featured on CNBC's special coverage of the Marijuana business economy among hundreds of news features and commentaries.Company since 2014.
Share Terry,Edmond DeFrank, Director and Member of Audit and Compensation Committees
Mr. TerryDeFrank was elected to the GB Sciences, Inc. Board of Directors on October 23, 2019. He is an independent consultant provides advisorya registered U.S. Patent Attorney and intellectual property specialist since 1993 with over 25 years’ experience as a computer engineer and a patent and trademark attorney in the high technology sector. He has written and prosecuted over one thousand trademarks and patent applications and patents for large high technology companies, educational institutions, and government entities. Mr. DeFrank is one of the first patent attorneys in U.S. history to successfully write and prosecute software, e-commerce, and IT business model patents for the World Wide Web in the early 1990s. Mr. DeFrank has protected his clients’ IP by working with state, federal, and foreign governments to combat the importation and sale of counterfeit products violating his clients’ patents and trademarks. In addition, Mr. DeFrank has worked with small start-up companies and “Fortune 100” companies on strategic patent counseling, including managing and exploiting patent portfolios worth from six figures to billions of dollars through audit, analysis, valuation and licensing; performing due diligence for intellectual property acquisition, licensing, prosecution and litigation; managing, structuring and negotiating relationships between high tech companies, including forming licensing opportunities to generate revenue from intellectual property; negotiating and creating complex licensing, outsourcing, software development, manufacturing, marketing and distribution agreements; and performing due diligence and managing all intellectual property aspects of multi-million-dollar mergers and acquisitions. Over his career, Mr. DeFrank has founded and sold several software companies. He is the named inventor on 5 issued patents and over 30 pending patents.
For the past five years prior to joining the board of directors, Mr. DeFrank has provided legal services in the field of patent and trademark law as the owner of the Law Office of Edmond DeFrank from January 2001 to Medical Marijuana Establishments (MME's) in Nevadapresent. He is the founder of Ergo Sum Healthcare, Inc., a software development company which helps physicians produce better patient outcomes using personalized healthcare software solutions and other states. He served as a CEOits Chief Financial Officer from September 2013 to August of NuVeda NMS, LLC, a company that operates marijuana dispensaries in Nevada, from 2013 until 2016. He is2018. Mr. DeFrank also a former Presidentserves on the Board of the Nevada Dispensary Association Mr. Terry is a decorated veteranDirectors of the United States Air Force, whose 15-year career as an OfficerDigipath, Inc. Since January 29, 2020.
Compensation Committee Interlocks and F-16 fighter pilot included earning two Air Medals for combat action over Iraq and Afghanistan while leading his team to three Air Force Outstanding Unit awards from 2006-2009.Insider Participation
During the past five years nonefiscal year ended March 31, 2021, John Poss, our CEO served as a member of our directors, executive officers, promoters or control persons was:the compensation committee of the board of directors.
1) the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2) convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3) subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4) found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
Family Relationships
None.
Audit Committee
On July 6, 2016, the Board established the Audit Committee and approved and adopted a charter (the "Audit Committee Charter") to govern the Audit Committee. The audit committee is comprised of Leslie Bocskor and Shane Terry, each of whom is independent under the rules governing OTC Market. Leslie Bocskor is designated the chairperson of the committee. In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee Charter, the primary function of the Audit Committee is to assist the Board in its general oversight of our accounting and financial reporting processes, audits of our financial statements, and internal control and audit functions. The Audit Committee Charter is filed herewith as Exhibit 10.25.
Audit Committee Financial Expert
As of the date of filling of this registration statement, no member of our board of directors qualifies as an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
Compensation Committee
On July 6, 2016, the Board established the Compensation Committee and approved and adopted a charter (the "Compensation Committee Charter"). The compensation committee is comprised of Leslie Bocskor and Shane Terry, each of whom is independent under the rules of the Securities and Exchange Commission standards. Leslie Bocskor is designated the chairperson of the committee. In addition to the enumerated responsibilities of the Compensation Committee in the Compensation Committee Charter, the primary function of the Compensation Committee is to oversee the compensation of our executives, produce an annual report on executive compensation for inclusion in our proxy statement, if and when required by applicable laws or regulations, and advise the Board on the adoption of policies that govern our compensation programs. The Compensation Committee Charter is filed herewith as Exhibit 10.26.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who directly or indirectly beneficially own more than 10% of our equity securities to file reports of ownerships on Forms 3, 4 and 5 with the SEC. Executive officers, directors and 10% stockholders are required by the SEC to furnish us with copies of all Forms 3, 4 and 5 they file. Based solely on our review of the copies of such forms we have received, we believe that each of our officers and directors is under a current obligation to file a Form 3.
Code of Ethics
We adopted the Growblox Sciences, Inc. Code of Ethics for the CEO and Senior Financial Officers (the "finance code of ethics"), a code of ethics that applies to Chief Executive Officer, Chief Financial Officer, Chief Science Officer and other finance organization employees. A copy of the finance code of ethics may be obtained from the Company, free of charge, upon written request delivered to Growblox Sciences, Inc. 3550 W. Teco Avenue, Las Vegas, NV 89118. If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to the Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment or waiver in a report on Form 8-K.
The following summary compensation table reflects all compensation awarded to, earned by, or paid to the Chief Executive Officer, Chief Science Officer, Chief Financial Officer, and Chief OperatingFinancial Officer for all services rendered to us in all capacities during each of the years ended March 31, 20182021 and 2017.2020.
Summary Compensation Table
Name and Position |
| Year |
| Salary |
| Bonus |
| Stock Awards (1) |
| Option Awards (2) |
| Total |
John Poss, CEO and Chairman of the Board |
| 2018 |
| $ 120,000 |
| $ 221,028 |
| $ - |
| $ 351,217 |
| $ 692,245 |
|
| 2017 |
| 147,692 |
| 32,000 |
| 41,250 |
| 399,866 |
| 620,808 |
Dr. Andrea Small-Howard, CSO and Director |
| 2018 |
| 125,385 |
| 10,000 |
| - |
| 117,072 |
| 252,457 |
|
| 2017 |
| 84,659 |
| 5,500 |
| 23,200 |
| 342,693 |
| 456,052 |
Ksenia Griswold, CFO |
| 2018 |
| 156,154 |
| 70,000 |
| - |
| 105,365 |
| 331,519 |
|
| 2017 |
| 103,574 |
| 5,500 |
| 5,000 |
| 139,576 |
| 253,650 |
Kevin Kuethe, COO |
| 2018 |
| 144,923 |
| 101,190 |
| - |
| 234,144 |
| 480,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock | Option | ||||||||||||||||||||
Awards | Awards | ||||||||||||||||||||
Name and Position | Year | Salary | Bonus | (1) | (2) | Total | |||||||||||||||
John Poss, President, CEO and Chairman of the Board | 2021 | $ | 74,500 | $ | - | $ | - | $ | 19,000 | $ | 93,500 | ||||||||||
2020 | 120,000 | 37,500 | - | - | 157,500 | ||||||||||||||||
Dr. Andrea Small-Howard, CSO and Director | 2021 | 99,000 | - | - | 67,000 | 166,000 | |||||||||||||||
2020 | 160,000 | - | - | - | 160,000 | ||||||||||||||||
Zach Swarts, CFO | 2021 | 127,500 | - | - | 43,000 | 170,500 | |||||||||||||||
2020 | 130,000 | 30,000 | - | - | 160,000 |
(1) Represents the grant date fair value of restricted stock awards granted, as calculated in accordance with stock-
basedstock-based compensation accounting standards. The fair value of each of these awards is based on the closing share price of our stock on the grant date. Although the table above indicates the full grant date value of the awards in the year which the compensation is considered, the restricted stock granted vests over a three-year period.
(2) Represents the grant date fair value of option awards granted, as calculated in accordance with stock-based compensation accounting standards. The fair value of these awards is determined under the Black-Scholes option pricing model. For the assumptions used for purposes of determining the value of the awards included in each year's compensation, please refer to Note 10. Although the table above indicates the full grant date value of the awards in the year which the compensation is considered, the options granted vest over a three-year period.
Employment Agreements
John Poss, Chief Executive Officer, President, and Chairman of the Board of Directors
On August 10, 2015, Mr. Poss, entered into an employment agreement with the Company. The term of employment is one-year subject to automatic extensions for additional one-year periods unless either party chooses to terminate such employment. The Company may terminate the Employment Agreement at any time with or without cause. If the Company terminates the Employment Agreement without cause, Mr. Poss is entitled to three months' severance 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.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. Mr. Poss receives a monthly salary of $10,000 per month.month per the agreement. In addition, in August 2015, the Company 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. AsThe options issue pursuant to the agreement have all vested.
Pursuant to the appointment of Mr. Poss as the Company's President, Chief Executive Officer and Board Member, the Company entered into an Amended and Restated Employment Agreement, effective June 1, 2016. The agreement will end on May 1, 2017, which end date can be extended upon the mutual agreement of the date of this prospectusparties. Under the options are fully vested. The number of options issuable to Mr. Poss is subject to increase at the discretion of our Board of Directors. At each annual renewal date of the contract, Mr. Poss’ salary shall be renegotiated in good faith by the parties. As currently amended,agreement Mr. Poss will receive an annual salary of not less than $120,000 and quarterly bonuses equal to the value of 125,000 shares of Companythe Company’s common stock. Bonuses are payable in S-8 stock or cash in the discretion of the Company. Under the agreement, Mr. Poss will also receive options to acquire 1.4 million shares of the Company's common stock subject to certain vesting requirements. The option strike price is the market value of the stock on the date the options were granted. All of the related options are granted.fully vested.
Effective May 8, 2017, following the retirement of Craig Ellins, our Chief Innovation Officer and Chairman of the Board, Mr. Poss, replaced Mr. Ellins as Chairman of the Board.
Effective July 1, 2020, all employees agreed to temporary voluntary pay reductions and Mr. Poss' salary was decreased to $3,000 per month with no quarterly bonuses. On November 12, 2020, the Company and Mr. Poss entered into an Indemnification Agreement. Beginning February 1, 2021, the board of directors approved an increase of Mr. Poss' monthly salary to $5,000. The board of directors granted Mr. Poss a discretionary award of 500,000 warrants to purchase one share of the Company's common stock at $0.04 per share for a period of ten years, with immediate vesting, on December 7, 2020. On December 15, 2020, 3,500,000 existing options held by Mr. Poss were re-priced to $0.05 per share.
Dr. Andrea Small-Howard, PhD, MBA, Chief Science Officer and Director
On June 19, 2014, Dr. Andrea Small-Howard, Chief Science Officer, entered into a three-year employment agreement with Growblox.the Company. Dr. Small-Howard received a salary at the annual rate of $78,000 and 450,000 shares of restricted common stock that vests over the three-year term of employment. The stock is restricted as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended. The Company may terminate the Employment Agreement at any time with or without cause. If the Company terminates the Employment Agreement without cause, Dr. Small-Howard is entitled any unpaid base salary accrued through the effective date of termination notice and pay in a lump sum of an amount equal to the product of the sum of the executive's-basedexecutive’s-based salary plus the amount of the highest annual bonus or other incentive compensation payment therefore made by the Company to the executive, multiplied by one. In the event of a Change of Control, as such term is defined in the 2014 Equity Incentive Plan, all of the restricted stock granted to Dr. Small-Howard shall vest immediately. Dr. Small-Howard also received 500,000 of stock options not in connection with her employment agreement, of which 100,000 vested immediately and the remainder vest over three years.
Effective on June 1, 2016, the Company amended its employment agreement with Dr. Small-Howard. Pursuant to the amendment, Ms. Small-Howard surrendered a stock award for 450,000 shares of common stock in exchange for warrants to purchase 1.2 million common shares at the strike price of $0.30 per share.
Ksenia Griswold, Chief Financial Officer
Effective July 1, 2020, all employees agreed to temporary voluntary pay reductions and Dr. Small-Howard's salary was decreased to $5,000 per month. On August 5, 2016, the Company's Board of Directors accepted the resignation of John Poss as Chief Financial Officer ofNovember 12, 2020, the Company and appointed Ksenia Griswold as the Company's Vice President and Chief Financial
Officer. Pursuant to the appointment of Ms. Griswold as the Company's Vice President and Chief Financial Officer, the CompanyDr. Small-Howard entered into an Amended and Restated Employment Agreement, effective October 7, 2016.Indemnification Agreement. Beginning February 1, 2021, the bBoard of directors approved an increase of Dr. Small-Howard's monthly salary to $12,000. The agreement will end on November 1, 2017, which end date can be extended upon the mutual agreementboard of the parties. Under the agreement Ms. Griswold will receive an annual salarydirectors granted Dr. Small-Howard a discretionary award of not less than $110,000 and options500,000 warrants to acquire 350,000 sharespurchase one share of the Company's common stock subject to certainat $0.04 per share for a period of ten years, with immediate vesting, requirements. The option strike price is the market valueon December 7, 2020. On December 15, 2020, Director Small-Howard was granted a discretionary award of the stock on the date the options were granted.
Effective April 24, 2017, the Company amended its employment agreement with Ms. Griswold. Pursuant to the amendment, Ms. Griswold will receive a base salary at the annual rate no less than $160,000 and a quarterly bonus equivalent to $15,000.
Leslie Bocskor, Director
Effective June 1, 2016, the Board of Directors established compensation for Mr. Bocskor to be $25,000 annually with an additional $1,000 for each meeting attended. The compensation is payable in cash or stock at the election of the Company. Mr. Bocskor also received1,000,000 options to purchase 450,000 shares of stock which vest over 24 months. The strike price of the options is $0.16 perone share the market value of the Company's common stock on the date the Mr. Bocskor was electedat $0.05 per share for a period of ten years, vesting over a two-year period, and 1,000,000 existing options and 1,200,000 existing warrants held by Dr. Small-Howard were re-priced to the Board.$0.05 per share.
Effective May 8, 2017, Mr. Bocskor was appointed as Vice Chairman of the Board.Zach Swarts, Chief Financial Officer and Treasurer
Effective on December 1, 2017,The Company and Mr. Swarts have not entered into a written employment agreement. On November 12, 2020, the Company amendedand Mr. Bocskor's compensation. PursuantSwarts entered into an Indemnification Agreement. Beginning with his appointment as Interim CFO in September 2019, Mr. Swarts was paid a salary of $160,000 per year. Effective July 1, 2020, all employees agreed to temporary voluntary pay reductions and Mr. Swarts' salary was decreased to $5,000 per month. Beginning October 1, 2021, the amendment, Ms. Bocskor will receive $75,000 annually withboard of directors approved an additional $1,000 for each meeting attended.increase of Mr. Bocskor also received additional optionsSwarts' monthly salary to $10,000. The board of directors granted Mr. Swarts a discretionary award of 500,000 warrants to purchase 450,000 shares of stock which vest over 24 months. The strike price of the options is $0.24 perone share the market value of the Company's common stock at $0.04 per share for a period of ten years, with immediate vesting, on the date theDecember 7, 2020. On December 15, 2020, Mr. BocskorSwarts was elected to the Board.
Share Terry, Director
Effective June 1, 2016, the Boardgranted a discretionary award of Directors established compensation for Mr. Terry to be $25,000 annually with an additional $1,000 for each meeting attended. The compensation is payable in cash or stock at the election of the Company. Mr. Terry also received500,000 options to purchase 450,000 shares of stock which vest over 24 months. The strike price of the options is $0.16 perone share the market value of the Company's common stock on the date theat $0.05 per share for a period of ten years, vesting over a two-year period, and 150,000 existing options held by Mr. Terry was electedSwarts were re-priced to the Board.
$0.05 per share.
Outstanding Equity Awards
The following table summarizes the number of shares underlying outstanding equity incentive plan awards for each named executive officer as of March 31, 2018:2021:
Name |
| Number of shares underlying exercisable options/warrants (2) |
| Number of shares underlying unexercised options/warrants |
| Option exercise price ($) |
| Option expiration date |
| Market value of shares not vested ($) (1) |
Andrea Small-Howard |
| 477,083 |
| 22,917 |
| 0.17 |
| 3/27/2025 |
| 11,000 |
|
| 1,100,000 | (3) | 100,000 |
| 0.30 |
| 6/1/2026 |
| 48,000 |
|
| 270,834 |
| 229,166 |
| 0.24 |
| 11/26/2027 |
| 110,000 |
John Poss |
| 520,000 |
| 80,000 |
| 0.30 |
| 8/10/2025 |
| 38,400 |
|
| 1,322,222 |
| 77,778 |
| 0.30 |
| 6/1/2023 |
| 37,333 |
|
| 812,500 |
| 687,500 |
| 0.24 |
| 11/26/2027 |
| 330,000 |
Ksenia Griswold |
| 76,667 |
| 23,333 |
| 0.29 |
| 11/4/2025 |
| 11,200 |
|
| 61,111 |
| 38,889 |
| 0.30 |
| 6/1/2023 |
| 18,667 |
|
| 291,667 |
| 58,333 |
| 0.32 |
| 10/7/2026 |
| 28,000 |
|
| 243,750 |
| 206,250 |
| 0.24 |
| 11/26/2027 |
| 99,000 |
Kevin Kuethe |
| 416,667 |
| 83,333 |
| 0.32 |
| 10/7/2026 |
| 40,000 |
|
| 541,667 |
| 458,333 |
| 0.24 |
| 11/26/2027 |
| 220,000 |
Leslie Bocskor |
| 425,000 |
| 25,000 |
| 0.16 |
| 6/1/2023 |
| 12,000 |
|
| 243,750 |
| 206,250 |
| 0.24 |
| 11/26/2027 |
| 99,000 |
Shane Terry |
| 425,000 |
| 25,000 |
| 0.16 |
| 6/1/2023 |
| 12,000 |
Name | Number of shares underlying exercisable options/warrants (2) | Number of shares underlying unexercisable options/warrants | Option exercise price ($) | Option expiration date | Market value of shares not vested (1) | ||||||||||||||
John Poss | 600,000 | - | $ | 0.05 | 8/10/2025 | - | |||||||||||||
1,400,000 | - | $ | 0.05 | 6/1/2023 | - | ||||||||||||||
1,500,000 | - | $ | 0.05 | 11/26/2027 | - | ||||||||||||||
500,000 | (4 | ) | - | $ | 0.04 | 12/7/2030 | - | ||||||||||||
Andrea Small-Howard | 500,000 | - | $ | 0.05 | 3/27/2025 | - | |||||||||||||
1,200,000 | (3 | ) | - | $ | 0.05 | 6/1/2026 | - | ||||||||||||
500,000 | - | $ | 0.05 | 11/26/2027 | - | ||||||||||||||
333,333 | 666,667 | $ | 0.05 | 12/15/2030 | $ | 32,000 | |||||||||||||
500,000 | (4 | ) | - | $ | 0.04 | 12/7/2030 | - | ||||||||||||
Zach Swarts | 150,000 | - | $ | 0.05 | 10/1/2027 | - | |||||||||||||
166,667 | 333,333 | $ | 0.05 | 12/15/2030 | $ | 16,000 | |||||||||||||
500,000 | (4 | ) | - | $ | 0.04 | 12/7/2030 | - | ||||||||||||
Gary Henrie | 166,667 | 333,333 | $ | 0.05 | 12/15/2030 | $ | 16,000 | ||||||||||||
500,000 | (4 | ) | $ | 0.04 | 12/7/2030 | - | |||||||||||||
Ed DeFrank | 166,667 | 333,333 | $ | 0.05 | 12/15/2030 | $ | 16,000 | ||||||||||||
500,000 | (4 | ) | - | $ | 0.04 | 12/7/2030 | - |
(1) Based on our closing stock priceRepresents the Black-Scholes fair value of $0.48 on March 31, 2018.unvested awards as of the grant date.
(2) These options and warrants were vested at March 31, 2016.2021.
(3) Represents a warrant to purchase 1,200,000 shares of common stock at an exercise price of $0.30$0.05 per share.
(4) Represents warrants to purchase 500,000 shares of common stock at an exercise price of $0.04 per share.
Directors'
Directors’ Compensation
All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. Officers are appointed annually by the Boardboard of Directorsdirectors and each executive officer serves at the discretion of the Boardboard of Directors.directors. Directors are entitled to be reimbursed for reasonable and necessary expenses incurred on behalf of the Company. Outside directors are paid compensation fee annually$2,000 monthly with an additional $1,000 for each meeting attended.attended in person. The compensation is payable in cash or stock at the election of the Company.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table presents information known to us, as of May 3, 2019,September 10, 2021, relating to the beneficial ownership of common stock by:
· each person who is known by us to be the beneficial holder of more than 5% of outstanding common stock;
· each of named executive officers and directors; and
· directors and executive officers as a group.
● | each person who is known by us to be the beneficial holder of more than 5% of outstanding common stock; |
● | each of named executive officers and directors; and |
● | directors and executive officers as a group. |
We believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, except as noted.
Percentage ownership in the following table is based on 241,878,652315,340,411 shares of common stock outstanding as of May 3, 2019.June 30, 2020. A person is deemed to be the beneficial owner of securities that can be acquired by that person within 60 days from the date of thethis Annual Report for the period ended March 31, 2018 upon the exercise of options, warrants
or convertible securities. Each beneficial owner'sowner’s percentage ownership is determined by dividing the number of shares beneficially owned by that person by the base number of outstanding shares, increased to reflect the shares underlying options, warrants or other convertible securities included in that person'sperson’s holdings, but not those underlying shares held by any other person.
Name of Beneficial Owner (1) |
| No. of Shares Owned |
| Percentage of Total Shares Owned |
Officers and Directors |
|
|
|
|
John Poss |
| 3,022,500 | (2) | 1.26% |
Dr. Andrea Small-Howard |
| 2,109,750 | (3) | * (12) |
Ksenia Griswold |
| 767,361 | (4) | * (12) |
Kevin Kuethe |
| 1,069,445 | (5) | * (12) |
Leslie Bocskor |
| 731,250 | (6) | * (12) |
Shane Terry |
| 450,000 | (7) | * (12) |
Directors and officers as a group (six) persons |
| 8,150,306 |
| 3.34% |
5% Holders: |
|
|
|
|
Lawrence D. Ordower |
| 16,915,484 | (8) | 6.69% |
Dave Ruggieri |
| 12,956,335 | (9) | 5.20% |
Robert Moody, Jr. |
| 14,005,000 | (10) | 5.60% |
Edward Pershing |
| 11,443,490 | (11) | 4.62% |
No. of Shares | Percentage of Total Shares | |||||||||
Name of Beneficial Owner (1) | Owned | Owned | ||||||||
Officers and Directors | ||||||||||
John Poss | 4,225,000 | (2 | ) | 1.32 | % | |||||
Dr. Andrea Small-Howard | 3,149,333 | (3 | ) | *(10) | ||||||
Zach Swarts | 816,667 | (4 | ) | *(10) | ||||||
Gary Henrie | 666,667 | (5 | ) | *(10) | ||||||
Ed DeFrank | 666,667 | (6 | ) | *(10) | ||||||
Directors and officers as a group (four) persons | 9,524,334 | 2.92 | % | |||||||
5% Holders: | ||||||||||
Robert Moody, Jr. | 26,005,000 | (7 | ) | 7.90 | % | |||||
Lawrence B. Ordower | 25,888,560 | (8 | ) | 7.85 | % | |||||
David Ruggieri | 20,333,000 | (9 | ) | 6.24 | % |
(1) Unless otherwise noted, the address of each person listed is GB Sciences, Inc. 3550 W. Teco Avenue, Las Vegas, NV 89118.
(2) Includes (a) 125,000225,000 shares of common stock currently owned of record by Mr. Poss, (b) options to purchase 1,960,0003,500,000 shares of common stock at $0.30$0.05 per share exercisable as of the Record Date or within 60 days thereafter, and (c) optionswarrants to purchase 937,500500,000 shares of common stock at $0.24$0.04 per share exercisable as of the Record Date or within 60 days thereafter.
(3) Includes (a) 116,000 shares of common stock currently owned of record by Dr. Small-Howard, (b) options to purchase 481,2501,333,333 shares of common stock and warrants to purchase 1,200,000 shares of common stock at $0.17 per share exercisable as of the Record Date or within 60 days thereafter, (c) 1,200,000 additional shares of common stock issuable upon exercise of stock warrant at an exercise price of $0.30 per share, and (d) 312,500 shares of common stock issuable upon exercise of stock options at an exercise price of $0.24 per share exercisable as of the Record Date or within 60 days thereafter.
(4) Includes (a) 25,000 shares of common stock currently owned of record by Ms. Griswold, (b) options to purchase 83,333 shares of common stock at $0.29 per share exercisable as of the Record Date or within 60 days thereafter, (c) options to purchase 66,667 shares of common stock at $0.30 per share exercisable as of the Record Date or within 60 days thereafter, (d) options to purchase 311,111 shares of common stock at $0.32$0.05 per share exercisable as of the Record Date or within 60 days thereafter, and (e) options(c) warrants to purchase 281,250500,000 shares of common stock at $0.24$0.04 per share exercisable as of the Record Date or within 60 days thereafter.
(5)
(4) Includes 444,444(a) options to purchase 316,667 shares of common stock at $0.32$0.05 per share exercisable as of the Record Date or within 60 days thereafter and options(b) warrants to purchase 625,000500,000 shares of common stock at $0.24$0.04 per share exercisable as of the Record Date or within 60 days thereafter.
(6)
(5) Includes 450,000(a) 166,667 options to purchase shares of common stock at $0.16$0.05 per share exercisable as of the Record Date or within 60 days thereafter and options(b) warrants to purchase 281,250500,000 shares of common stock at $0.24$0.04 per share exercisable as of the Record Date or within 60 days thereafter.
(7)
(6) Includes 450,000(a) 166,667 options to purchase shares of common stock at $0.16$0.05 per share exercisable as of the Record Date or within 60 days thereafter and (b) warrants to purchase 500,000 shares of common stock at $0.04 per share exercisable as of the Record Date or within 60 days thereafter.
(7) Address is Robert Moody Jr, 2302 Post Office Street, Suite 601, Galveston, TX 77550. The total consists of 18,002,500 common shares held by Mr. Moody and 8,002,500 shares that may be acquired upon the exercise of warrants.
(8) Address is Lawrence B. Ordower, 25 East Washington Street, Suite 1400, Chicago, IL 60602. Of theThe total amountconsists of 16,915,484 the amount of 2,928,000 are common shares that may be acquired by Mr. Ordower upon the conversion of notes, 3,828,000 of the shares may be acquired by Mr. Ordower upon the exercise of warrants, 944,532 are13,150,560 common shares held by Mr. Ordower 3,090,952 areand 12,738,000 shares of common shares held by ELGJO LLC, a limited liability company controlled by Mr. Ordower, 1,324,000 of the shares may be acquired by ELGJO LLCstock issuable upon the exercise of warrants, 2,400,000 are common shares that may be acquired by a trust over which Mr. Ordower has depository control upon the conversion of a note, and 2,400,000 of the shares may be acquired by the same trust upon the exercise of warrants.
(9) Address is David Ruggieri, 1107 West Marion Ave, Unit 116, Punta Gorda, FL 33950. The total consists of
3,968,835 11,303,500 common shares held by Mr. Ruggieri and 5,847,5009,029,500 shares of common stock issuable upon exercise of warrants and conversion of Notes, and 3,140,000 that may be acquired by Mr. Ruggieri upon the conversion of notes.warrants.
(10) Address is Robert Moody Jr, 2302 Post Office Street, Suite 601, Galveston, TX 77550. The total consists of 4,762,500 common shares held by Mr. Moody, 5,002,500 shares that may be acquired upon the exercise of warrants, and 4,240,000 may be acquired upon the conversion of notes.
(11) Address is Edward Pershing,2220 Southerland Ave, Knoxville TN 37919.The total consists of 5,821,990 common shares held by Mr. Pershing, 4,437,500 shares that may be acquired upon the exercise of warrants, and 1,184,000 may be acquired upon the conversion of notes.
(12) Less than 1%.
SELLING STOCKHOLDERCERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
This prospectus relates in part to our registering the resale of 22,000,000 shares of common stock of the Company by the Selling Stockholder who may acquire such shares upon the conversion of the Note. There can be no assurance that the Selling Stockholder will sell any or all of their common stock offered by this prospectus. We do not know if, when, or in what amounts, the selling stockholder may offer the common stock for sale.
Selling Stockholders
The following table sets forth:
·the names of the Selling Stockholder;
·the number of shares of common stock that can be acquired by the Selling Stockholder through the conversion of the Note;
·the number of shares of common stock being registered with respect to the Selling Stockholder;
·the number of shares of common stock owned by the Selling Stockholders after the offering assuming all shares acquired by the Selling Shareholder are sold; and
·the person with voting or investment control if the stockholder is not a natural person.
As of May 3, 2019, there were241,878,652 shares of common stock outstanding. To the extent that any successor(s) to the named selling Stockholder wish to sell under this prospectus, we will file a prospectus supplement identifying such successors as selling stockholders.
Selling Stockholder | Shares Acquirable upon Conversion of Note | Shares Being Registered | Shares Owned After the Offering Assuming all Note Principal, Interest and Fees are Converted and all Shares Sold | Person with Voting or Investment Control |
Iliad Research & Trading, L.P. | 22,000,000 | 22,000,000 | 0 | John M. Fife |
Sales by Selling Stockholder
The Selling Stockholder (the "Selling Stockholder") of the common stock ("Common Stock") of the Company and any of their pledges, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private
transactions. The common shares are currently listed on the OTCQB under the symbol GBLX. The Selling Stockholder may use any one or more of the following methods when selling shares:
·ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
·purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·an exchange distribution in accordance with the rules of the applicable exchange;
·privately negotiated transactions;
·settlement of short sales entered into after the date of this prospectus;
·broker-dealers may agree with the Selling Stockholder to sell a specified number of such shares at a stipulated price per share;
·a combination of any such methods of sale;
·through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or
·any other method permitted pursuant to applicable law.
The Selling Stockholder may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the Common Stock or interests therein, the Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions they assume. "Short sale" is the name given to a transaction that takes place when a person believes a company's stock price is about to go down. The person borrows from his broker or other individual shares of the company's stock and sells the borrowed shares at the current price. After the price goes down, the person buys in the market, shares of the company's stock at the reduced price and uses the purchased shares to replace the shares that were borrowed. As a result of the short sale, the person succeeds in buying low and selling high. The buying and selling are simply reversed in order. Short sales can have the effect of driving down the trading price of a company's stock. If a stock price is falling and stockholders are selling short, stock purchases for the purpose of replacing borrowed shares further depress the market and encourages additional short selling. The net effect can be a downward spiral of the stock price of the company.
The Selling Stockholder may also sell shares of the Common Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn may sell these securities. The Selling Stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholder and any broker dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because the Selling Stockholder may be deemed to be an "underwriter" within the meaning of the Securities Act, he will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. It is our understanding that the Selling Stockholder has not entered into any written or oral agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale or the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholder.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholder without registration and without regard to any volume limitations by reason of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the Common Stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholder and have informed him of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.
Our authorized capital stock consists of 400,000,000 shares of common stock, $0.001 par value.As of May 3, 2019, there were 241,878,652 shares of common stock were issued and outstanding. The outstanding shares of stock have been duly authorized and are fully paid and non-assessable.
Common Stock
The holders of common stock are entitled to one vote per share on all matters to be voted on by stockholders and are entitled to receive such dividends, if any, as may be declared from time to time by our board of directors from funds legally available therefore, subject to the dividend preferences of the preferred stock, if any. Upon our liquidation or dissolution, the holders of common stock are entitled to share ratably in all assets available for distribution after payment of liabilities and liquidation preferences of the preferred stock, if any. Holders of common stock have no preemptive rights, no cumulative voting rights and no rights to convert their common stock into any other securities. Any action taken by holders of common stock must be taken at an annual or special meeting or by written consent of the holders of over 33% of our capital stock entitled to vote on such action.
Warrants
As of May 3, 2019,At September 10, 2021, the Company had warrants issued and outstanding forone independent director serving on the purchaseboard of approximately sixty-five million shares of its common stock.
LEGAL MATTERSdirectors. The definition the Company uses to determine whether a director is independent are the rules governing the OTC market.
Certain legal matters in connection with this offering will be passed upon for us by Gary R. Henrie, Attorney at Law, Nauvoo, Illinois. These legal matters include that shares of common stock to be sold by the Selling Shareholders are validly issued, fully paid and non-assessable. Mr. Henrie's address is P.O. Box 107, 315 Kimball's Garden Circle, Nauvoo, IL 62354. Mr. Henrie is licensed to practice law in the State of Nevada, the state in which the Company is incorporated and in which its business operations are headquartered.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
The audited consolidated financial statements as of March 31, 2018 and 2017, included in this prospectus have been audited by Soles, Heyn & Company, LLP., an independent registered public accounting firm, as stated in their report appearing elsewhere herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the Securities and Exchange Commission with respect to the sale or resale of an aggregate of 22,000,000119,899,091 shares of common stock. This prospectus was filed as a part of that registration statement but does not contain all of the information contained in the registration statement and exhibits. Reference is thus made to the omitted information. Statements made in this prospectus are summaries of the material terms of contracts, agreements and documents and are not necessarily complete; however, all information we considered material has been disclosed. Reference is made to each exhibit for a more complete description of the matters involved and these statements are qualified in their entirety by the reference. You may inspect the registration statement, exhibits and schedules filed with the Securities and Exchange Commission at the Securities and Exchange Commission's principle office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Securities and Exchange Commission, 100 F. Street, N.E., Washington, D.C. 20549. The Securities and Exchange Commission also maintains a web site (http://www.sec.gov) that contains this filed registration statement, reports, proxy statements and information regarding us that we have filed electronically with the Commission. For more information pertaining to our company and the sale or resale of an aggregate of 22,000,000119,899,091 shares of common stock, reference is made to the registration statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information into this prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information that we incorporate by reference is considered to be part of this prospectus. Because we are incorporating by reference our future filings with the SEC, this prospectus is continually updated and those future filings may modify or supersede some or all of the information included or incorporated in this prospectus. This means that you must look at all of the SEC filings that we incorporate by reference to determine if any of the statements in this prospectus or in any document previously incorporated by reference have been modified or superseded.
This prospectus incorporates by reference the documents listed below that have been previously filed with the SEC:
● |
● |
● |
We also incorporate by reference all future documents (except as to any portion of any report or document that is not deemed filed under such provisions) we file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this prospectus and prior to the termination of the offering.
You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. Any statement contained in a document incorporated by reference into this prospectus will be deemed to be modified or superseded for the purposes of this prospectus to the extent that a later statement contained in this prospectus or in any other document incorporated by reference into this prospectus modifies or supersedes the earlier statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus or the date of the documents incorporated by reference in this prospectus.
We will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request, a copy of any or all documents that are incorporated by reference into this prospectus, but not delivered with the prospectus, other than exhibits to such documents unless such exhibits are specifically incorporated by reference into the documents that this prospectus incorporates. You should direct oral or written requests by one of the following methods. Attention: Investor Relations, GB Sciences, Inc., 3550 W. Teco Avenue, Las Vegas, NV 89118. You may also access these documents, free of charge on the SEC’s website at www.sec.gov or on the “Finance” page of our website at https://gbsciences.com. The information found on our website, or that may be accessed by links on our website, is not part of this prospectus. We have included our website address solely as an inactive textual reference. Investors should not rely on any such information in deciding whether to purchase our securities.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GB SCIENCES, INC. AND SUBSIDIARIES
GB SCIENCES, INC. AND SUBSIDIARIES | |||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||
(unaudited) | |||
| |||
| 31-Dec-18 |
| 31-Mar-18 |
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents | $ 324,055 |
| $ 3,579,700 |
Accounts receivable, net of allowance for doubtful | 429,806 |
| 667,073 |
Inventory | 2,832,666 |
| 1,049,372 |
Prepaid expenses | 1,055,427 |
| 1,956,734 |
TOTAL CURRENT ASSETS | 4,641,954 |
| 7,252,879 |
Property and equipment, Net | 23,119,337 |
| 13,759,157 |
Intangible assets, net of accumulated amortization of $5,355 and $4,140 at December 31, 2018 and March 31, 2018, respectively | 1,651,267 |
| 1,404,366 |
Deposits and prepayments | 1,204,265 |
| 1,464,457 |
Other assets | 17,824 |
| 168,895 |
TOTAL ASSETS | $ 30,634,647 |
| $ 24,049,754 |
CURRENT LIABILITIES: |
|
|
|
Accounts payable | $ 2,269,696 |
| $ 371,925 |
Accrued interest | 110,300 |
| 175,878 |
Accrued liabilities | 413,385 |
| 316,090 |
Notes payable, net of unamortized discount of $730,465 and $5.0 million at December 31, 2018 and March 31, 2018, respectively | 1,472,032 |
| 1,056,301 |
Income tax payable | 737,568 |
| - |
TOTAL CURRENT LIABILITIES | 5,002,981 |
| 1,920,194 |
Note payable, net of unamortized discount of $27,563 and $0 at December 31, 2018 and March 31, 2018, respectively | 225,215 |
| 355,233 |
Capital lease obligations | 6,035,581 |
| 6,142,606 |
TOTAL LIABILITIES | 11,263,777 |
| 8,418,033 |
Commitments and contingencies (Note 7) |
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
Common Stock, $0.0001 par value, 400,000,000 and 250,000,000 shares authorized, 228,071,805 and 168,616,855 shares issued and outstanding at December 31, 2018 and March 31, 2018, respectively | 22,807 |
| 16,862 |
Additional paid-in capital | 90,068,083 |
| 70,961,104 |
Accumulated deficit | (79,760,900) |
| (58,229,235) |
TOTAL GB SCIENCES, INC. STOCKHOLDERS' EQUITY | 10,329,990 |
| 12,748,731 |
Non-controlling interest | 9,040,880 |
| 2,882,990 |
TOTAL STOCKHOLDERS’ EQUITY | 19,370,870 |
| 15,631,721 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 30,634,647 |
| $ 24,049,754 |
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, | As of March 31, | |||||||
2021 | 2021 | |||||||
CURRENT ASSETS: | (unaudited) | |||||||
Cash and cash equivalents | $ | 582,971 | $ | 793,040 | ||||
Prepaid expenses and other current assets | 296,081 | 256,251 | ||||||
Current assets from discontinued operations | 2,248,757 | 2,494,564 | ||||||
TOTAL CURRENT ASSETS | 3,127,809 | 3,543,855 | ||||||
Property and equipment, net | 21,895 | 25,022 | ||||||
Intangible assets, net of accumulated amortization of $57,322 and $43,096 at June 30, 2021 and March 31, 2021, respectively | 1,797,920 | 1,706,762 | ||||||
Long term assets from discontinued operations | 5,383,005 | 5,530,415 | ||||||
TOTAL ASSETS | $ | 10,330,629 | $ | 10,806,054 | ||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 1,463,806 | $ | 1,412,459 | ||||
Accrued interest | 521,145 | 493,741 | ||||||
Accrued liabilities | 1,031,003 | 957,946 | ||||||
Notes and convertible notes payable and line of credit, net of unamortized discount of $272,122 and $296,504 at June 30, 2021 and March 31, 2021, respectively | 3,619,186 | 3,594,804 | ||||||
Indebtedness to related parties | 84,913 | 84,913 | ||||||
Current liabilities from discontinued operations | 1,987,787 | 2,054,585 | ||||||
TOTAL CURRENT LIABILITIES | 8,707,840 | 8,598,448 | ||||||
Convertible notes payable, net of unamortized discount of $141,123 and $154,590 at June 30, 2021 and March 31, 2021, respectively | 305,877 | 292,410 | ||||||
Long term liabilities from discontinued operations | 3,347,363 | 3,389,124 | ||||||
TOTAL LIABILITIES | 12,361,080 | 12,279,982 | ||||||
Commitments and contingencies (Note 7) | ||||||||
STOCKHOLDERS' DEFICIT: | ||||||||
Common Stock, $0.0001 par value, 600,000,000 shares authorized, 317,429,078 and 315,340,411 outstanding at June 30, 2021 and March 31, 2021, respectively | 31,743 | 31,534 | ||||||
Additional paid-in capital | 102,619,471 | 102,380,770 | ||||||
Accumulated deficit | (104,681,665 | ) | (103,886,232 | ) | ||||
TOTAL STOCKHOLDERS' DEFICIT | (2,030,451 | ) | (1,473,928 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 10,330,629 | $ | 10,806,054 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
| |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||
(unaudited) | |||||||||
|
|
|
|
|
|
|
|
| |
|
| For the Three Months Ended |
| For the Nine Months Ended | |||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | |
|
|
|
|
|
|
|
|
| |
SALES REVENUE |
| $ 695,764 |
| $ 1,275,000 |
| $ 2,728,277 |
| $ 1,635,136 | |
COST OF GOODS SOLD |
| (302,569) |
| (388,259) |
| (1,185,878) |
| (557,649) | |
GROSS PROFIT |
| 393,195 |
| 886,741 |
| 1,542,399 |
| 1,077,487 | |
GENERAL AND ADMINISTRATIVE EXPENSES |
| 2,982,621 |
| 7,106,605 |
| 12,015,533 |
| 12,776,975 | |
LOSS FROM OPERATIONS |
| (2,589,426) |
| (6,219,864) |
| (10,473,134) |
| (11,699,488) | |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
| |
Interest expense |
| (321,149) |
| (1,131,466) |
| (4,870,182) |
| (1,918,264) | |
Other income/(expense) |
| (402,504) |
| 389,151 |
| (3,352,311) |
| 354,308 | |
Total other expense |
| (723,653) |
| (742,315) |
| (8,222,493) |
| (1,563,956) | |
NET LOSS BEFORE INCOME TAX EXPENSE |
| (3,313,079) |
| (6,962,179) |
| (18,695,627) |
| (13,263,444) | |
Income tax expense |
| (737,568) |
| - |
| (737,568) |
| - | |
NET LOSS |
| (4,050,647) |
| (6,962,179) |
| (19,433,195) |
| (13,263,444) | |
Net loss attributable to non-controlling interest |
| (287,406) |
| - |
| (762,966) |
| (68,025) | |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. |
| $ (3,763,241) |
| $ (6,962,179) |
| $ (18,670,229) |
| $ (13,195,419) | |
Net loss per share - basic and diluted |
| $ (0.02) |
| $ (0.05) |
| $ (0.09) |
| $ (0.10) | |
Weighted average common shares outstanding - basic and diluted |
| 222,856,453 |
| 128,301,565 |
| 200,971,724 |
| 127,389,398 | |
|
|
|
|
|
|
|
|
| |
The accompanying notes are an integral part of these condensed consolidated financial statements |
GB SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Sales revenue | $ | 0 | $ | 0 | ||||
Cost of goods sold | 0 | 0 | ||||||
Gross profit | 0 | 0 | ||||||
General and administrative expenses | 493,405 | 515,253 | ||||||
LOSS FROM OPERATIONS | (493,405 | ) | (515,253 | ) | ||||
OTHER EXPENSE | ||||||||
Interest expense | (65,254 | ) | (662,370 | ) | ||||
Debt default penalty | 0 | (286,059 | ) | |||||
Other expense | 0 | (11,182 | ) | |||||
Total other expense | (65,254 | ) | (959,611 | ) | ||||
LOSS BEFORE INCOME TAXES | (558,659 | ) | (1,474,864 | ) | ||||
Income tax expense | 0 | 0 | ||||||
LOSS FROM CONTINUING OPERATIONS | (558,659 | ) | (1,474,864 | ) | ||||
Loss from discontinued operations | (73,758 | ) | (371,836 | ) | ||||
NET LOSS | $ | (632,417 | ) | $ | (1,846,700 | ) | ||
Net loss attributable to common stockholders of GB Sciences, Inc. | ||||||||
Continuing operations | $ | (558,659 | ) | $ | (1,474,864 | ) | ||
Discontinued operations | (73,758 | ) | (371,836 | ) | ||||
Net loss | $ | (632,417 | ) | $ | (1,846,700 | ) | ||
Net loss per common share – basic and diluted | ||||||||
Continuing operations | $ | (0.00 | ) | $ | (0.01 | ) | ||
Discontinued operations | $ | (0.00 | ) | $ | (0.00 | ) | ||
Net loss | $ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average common shares outstanding - basic and diluted | 315,675,539 | 277,968,516 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
(unaudited) | |||
| Nine Months Ended December 31, | ||
| 2018 |
| 2017 |
OPERATING ACTIVITIES: |
|
|
|
Net loss | $ (19,433,195) |
| $ (13,263,444) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
Depreciation and amortization | 487,924 |
| 600,725 |
Stock-based compensation | 2,322,630 |
| 4,623,657 |
Bad debt expense recovery | (18,175) |
| - |
Amortization of debt discount and beneficial conversion feature | 685,766 |
| 1,328,908 |
Interest expense on conversion of notes payable | 3,464,187 |
| - |
Stock issued for settlement of Pacific Leaf royalty agreement | 2,140,925 |
| - |
Loss on disposition of THC LLC Note | 113,623 |
| - |
Gain on sale of assets | - |
| (357,968) |
Changes in operating assets and liabilities: |
|
|
|
Accounts Receivable | 255,442 |
| (552,501) |
Prepaid expenses and other assets | 704,640 |
| (300,878) |
Inventory | (1,647,252) |
| (518,371) |
Accounts payable | 1,897,771 |
| (64,467) |
Accrued expenses | 756,390 |
| 481,830 |
Income taxes payable | 737,568 |
| - |
Net cash used in operating activities | (7,531,756) |
| (8,022,509) |
INVESTING ACTIVITIES: |
|
|
|
Cash deconsolidated - GB Sciences Puerto Rico, LLC | - |
| (19,417) |
Payments on capital lease obligations | (559,892) |
| - |
Purchase of property and equipment | (9,843,521) |
| (1,210,481) |
Change in deposits and other assets | (89,887) |
| (246,793) |
Net cash used in investing activities | (10,493,300) |
| (1,476,691) |
FINANCING ACTIVITIES: |
|
|
|
Proceeds from issuance of common stock and warrants | 8,823,555 |
| - |
Proceeds from issuance of debt | 300,000 |
| - |
Proceeds from non-controlling interest | 6,920,856 |
| 120,000 |
Proceeds from convertible notes payable | - |
| 8,235,500 |
Payments under long-term obligations | (275,000) |
| (66,465) |
Payments made to settle Pacific Leaf Royalty Agreement | (1,000,000) |
| - |
Other financing activities | - |
| 4,619 |
Net cash provided by financing activities | 14,769,411 |
| 8,293,654 |
Net change in cash and cash equivalents | (3,255,645) |
| (1,205,546) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 3,579,700 |
| 2,692,953 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ 324,055 |
| $ 1,487,407 |
Non-cash transactions: |
|
|
|
Stock issued upon conversion of long-term note payable | $ 4,640,971 |
| $ 656,886 |
Stock issued to settle Pacific Leaf Royalty Agreement | $ 131,000 |
| $ - |
Capital lease obligation | $ - |
| $ 2,525,000 |
Induced dividend from warrant exercises | $ 2,861,436 |
| $ - |
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements |
GB SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (632,417 | ) | $ | (1,846,700 | ) | ||
Loss from discontinued operations | (73,758 | ) | (371,836 | ) | ||||
Net loss from continuing operations | (558,659 | ) | (1,474,864 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 17,354 | 5,562 | ||||||
Stock-based compensation | 19,500 | 0 | ||||||
Amortization of debt discount and beneficial conversion feature | 37,849 | 510,885 | ||||||
Debt default penalty | 0 | 286,059 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (39,830 | ) | 0 | |||||
Accounts payable | (10,304 | ) | 34,739 | |||||
Accrued expenses | (126,943 | ) | (141,102 | ) | ||||
Accrued interest | 27,404 | 158,806 | ||||||
Indebtedness to related parties | 0 | 60,291 | ||||||
Net cash used in operating activities of continuing operations | (633,629 | ) | (559,624 | ) | ||||
Net cash provided by/(used in) operating activities of discontinued operations | (2,954 | ) | 235,779 | |||||
Net cash used in operating activities | (636,583 | ) | (323,845 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Advancement of proceeds from sale of Nevada subsidiaries | 200,000 | 0 | ||||||
Acquisition of intangible assets | (50,000 | ) | 0 | |||||
Net cash provided by investing activities of continuing operations | 150,000 | 0 | ||||||
Net cash provided by investing activities of discontinued operations | 7,435 | 0 | ||||||
Net cash provided by investing activities | 157,435 | 0 | ||||||
FINANCING ACTIVITIES: | ||||||||
Gross proceeds from warrant exercises | 62,660 | 151,202 | ||||||
Proceeds of note payable | 0 | 150,000 | ||||||
Brokerage fees for warrant exercises | 0 | (15,121 | ) | |||||
Net cash provided by financing activities of continuing operations | 62,660 | 286,081 | ||||||
Net cash used in financing activities of discontinued operations | (33,478 | ) | (12,772 | ) | ||||
Net cash provided by financing activities | 29,182 | 273,309 | ||||||
Net change in cash and cash equivalents | (449,966 | ) | (50,536 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,145,633 | 151,766 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 695,667 | 101,230 | ||||||
Less: cash and cash equivalents classified as discontinued operations | (112,696 | ) | (50,135 | ) | ||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD FROM CONTINUING OPERATIONS | $ | 582,971 | $ | 51,095 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.
GB SCIENCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Three Months Ended June 30, 2021 and 2020
(unaudited)
Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash paid for interest | $ | 0 | $ | 0 | ||||
Cash paid for income tax | $ | 0 | $ | 0 | ||||
Non-cash investing and financing transactions: | ||||||||
Depreciation capitalized in inventory (discontinued operations) | $ | 134,511 | $ | 164,654 | ||||
Patent drafting and filing costs capitalized in intangible assets | $ | 55,385 | $ | 78,226 | ||||
Brokerage fees from warrant exercises in accounts payable | $ | 6,266 | $ | 0 | ||||
Induced dividend from warrant exercises | $ | 163,016 | $ | 17,236 | ||||
Discount on note payable attributable to warrant modification | $ | 0 | $ | 150,000 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.
GB SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Three Months Ended June 30, 2021 and 2020
(unaudited)
Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
Balance at March 31, 2021 | 315,340,411 | $ | 31,534 | $ | 102,380,770 | $ | (103,886,232 | ) | $ | (1,473,928 | ) | |||||||||
Exercise of warrants for stock, net of issuance costs | 2,088,667 | 209 | 56,185 | 0 | 56,394 | |||||||||||||||
Share based compensation expense | - | 0 | 19,500 | 0 | 19,500 | |||||||||||||||
Inducement dividend from warrant exercises | - | 0 | 163,016 | (163,016 | ) | 0 | ||||||||||||||
Net loss | - | 0 | 0 | (632,417 | ) | (632,417 | ) | |||||||||||||
Balance at June 30, 2021 | 317,429,078 | $ | 31,743 | $ | 102,619,471 | $ | (104,681,665 | ) | $ | (2,030,451 | ) |
Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
Balance at March 31, 2020 | 275,541,602 | $ | 27,554 | $ | 97,271,157 | $ | (97,387,205 | ) | $ | (88,494 | ) | |||||||||
Exercise of warrants for stock, net of issuance costs | 4,991,084 | 500 | 135,581 | 0 | 136,081 | |||||||||||||||
Discount on convertible note payable from warrant modification | - | 0 | 150,000 | 0 | 150,000 | |||||||||||||||
Inducement dividend from warrant exercises | - | 0 | 17,263 | (17,263 | ) | 0 | ||||||||||||||
Net loss | - | 0 | 0 | (1,846,700 | ) | (1,846,700 | ) | |||||||||||||
Balance at June 30, 2020 | 280,532,686 | $ | 28,054 | $ | 97,574,001 | $ | (99,251,168 | ) | $ | (1,649,113 | ) |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)JUNE 30, 2021
(unaudited)
Note 1– Basis of PresentationBackground and Significant Accounting Policies
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) is a phytomedical research and biopharmaceutical drug development company whose goal is to create patented formulations of plant-inspired, complex therapeutic mixtures for the prescription drug market that target a variety of medical conditions. The Company is engaged in the research and development of plant-based medicines and plans to produce plant-inspired, complex therapeutic mixtures based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and development of plant-based medicines, primarily cannabinoid medicines, with virtual operations in North America and Europe. GBSGB’s assets include a portfolio of intellectual property containing both proprietary cannabinoid-containing formulations and our AI-enabled drug discovery platform, as well as critical research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of medical conditions and several programs are in the pre-clinical animal stage of development including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes five USPTO issued patents, nine USPTO nonprovisional patent applications pending in the US, and one provisional patent application in the US. In addition to the USPTO patents and patent applications, the company has filed 35 patent applications internationally to protect its proprietary technology. We recently filed a provisional USPTO patent application to further protect aspects of our proprietary drug discovery engine, “Phytomedical Analytics for Research Optimization at Scale," or PhAROS™.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of GB Sciences, Inc. (the “Company,” “We” or “Us”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q10-Q and Article 8 of Regulations S-X.S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending March 31, 2019. 2022. The balance sheet at March 31, 2018 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer toThe unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K10-K for the year ended March 31, 2018.2021.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Principles of Consolidation
The condensedWe prepare our consolidated financial statements in accordance with generally accepted accounting principles (GAAP) for the United States of America. Our consolidated financial statements include all operating divisions and majority ownedmajority-owned subsidiaries, reported as a single operating segment, for which we maintain controlling interests. Intercompany accounts and transactions have been eliminated in consolidation. All subsidiaries were wholly owned by the Company for the periods presented.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. ActualThe Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, inventory valuation and standard cost allocations, valuation of initial right-of-use assets and corresponding lease liabilities, valuation of beneficial conversion features in convertible debt, valuation of the assets and liabilities of discontinued operations, stock-based compensation expense, purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, litigation, other loss contingencies, and impairment of long lived assets. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results could of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from thosethese estimates.
Reclassifications
Certain reclassifications have been made to the comparative period amounts in order to conform to the current period presentation. TheseIn particular, the assets, liabilities, profit and loss, and cash flows of GB Sciences Nevada LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC, have been separated from the comparative period amounts to conform to the current period presentation as discontinued operations as the result of the pending sale of the Company's Nevada operations. The reclassifications had no effect on the reported financial position, results of operations or cash flows of the Company.
Significant Accounting Policies
A description
Discontinued Operations
See Note 3.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Long-Lived Assets
We evaluate the carrying value of property and equipment if impairment indicators are present or if other circumstances indicate that impairment may exist under authoritative guidance. The annual testing date is March 31. When management believes impairment indicators may exist, projections of the Company's significant accounting policies is included in Note 3undiscounted future cash flows associated with the use of its Annual Report on Form 10–K forand eventual disposition of property and equipment are prepared. If the fiscal year ended March 31, 2018.projections indicate that the carrying value of the property and equipment are not recoverable, we reduce the carrying values to fair value. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available. NaN indicators of impairment were identified by the Company as of June 30, 2021.
Inventory
We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-outfirst-in, first-out method, or its current estimated market value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete inventory is based on expected future use. Indirect costs, which primarily relate to the lease and operation costs of the Teco Facility, which are included in discontinued operations, are allocated based on square footage of the facility used in the production of inventory.
Beneficial Conversion Feature of Convertible Notes Payable
The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options and Emerging Issues Task Force (“EITF”) 00-27, “Application of Issue No.98-5 to Certain Convertible Instruments”. A beneficial conversion feature (“BCF”) exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the BCF of a convertible note is measured by allocating a portion of the note's proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The Company calculates the fair value of warrants issued with the convertible notes using the Black-Scholes valuation model and uses the same assumptions for valuing any employee options in accordance with ASC Topic 718 Compensation – Stock Compensation. The only difference is that the contractual life of the warrants is used.
The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on a relative fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
Revenue Recognition
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and
cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only currentmaterial revenue source is part of discontinued operations and derives from sales of cannabis aand cannabis products, distinct physical good.goods. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets.
Because the Company operates in the State-licensed cannabis industry through the Nevada Subsidiaries, it is subject to the limitations of Internal Revenue Code Section 280E (“280E”) for U.S. income tax purposes. Under 280E, the Company is allowed to deduct expenses that are directly related to the production of its products, i.e. cost of goods sold, but is allowed no further deductions for ordinary and necessary business expenses from its gross profit. The Company believes that the deductions disallowed include the deduction of NOLs. The unused NOLs will continue to carry forward and may be used by the Company to offset future taxable income that is not subject to the limitations of 280E.
Loss per Share
The Company’s basic loss per share has been calculated using the weighted average number of common shares outstanding during the period. The Company had 160,314,865 and 164,049,941 potentially dilutive common shares at June 30, 2021 and March 31, 2021, respectively. However, such common stock equivalents were not included in the computation of diluted net loss per share, as their inclusion would have been anti-dilutive.
Recent Accounting Pronouncements
Standards Not Yet Adopted
In February 2016, May 2021, the FinancialFASB issued ASU No.2021-04, Issuer's Accounting Standards Board (“FASB”) issued amended accountingfor Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance that changes theclarifies and reduces diversity in an issuer’s accounting for leases and requires expanded disclosures about leasing activities. Under the newmodifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.FASB Codification. The amended guidanceASU 2021-04 is effective for annual reporting periods (including interim periods within those periods)The Company's fiscal year beginning after December 15, 2018, and early applicationApril 1, 2022. Early adoption is permitted. The Company expects thatis evaluating the impact of adopting ASU 2021-04 and does not expect the adoption of this guidance will result in the recognition of right-of-use assets and related obligations.
In August 2016, the FASB issued ASU 2016-15, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistency on this topic. The standard is effective for annual and interim periods beginning after December 15, 2017. There were no significant classification modifications upon adoption at April 1, 2018.
Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanyingmaterially impact its consolidated financial statements.
On June 16, 2016, the FASB issued ASU No.2016-13, Measurement of Credit Losses on Financial Instruments. The standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The amendments in this ASU are effective for the Company's fiscal year beginning April 1, 2023. The Company is currently evaluating the impact of ASU 2016-13 on its financial statements.
In June 2020, the FASB issued ASU No.2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. This ASU will be effective for the Company's fiscal year beginning April 1, 2024. Early adoption is permitted. The amendments in this update must be applied on either full retrospective basis or modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related disclosures, as well as the timing of adoption.
All other newly issued accounting pronouncements have been deemed either immaterial or not applicable.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Note 2– Going Concern
The Company’s condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained net losses since inception, which have caused an accumulated deficit of approximately $79.8 million$104,681,665 at DecemberJune 30, 2021. The Company had a working capital deficit of $5,580,031 at June 30, 2021, net of working capital of $260,970 classified as discontinued operations, compared to $5,054,593 at March 31, 2018.2021, net of working capital of $439,979 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of approximately $7.5 million$636,583 for the ninethree months ended December 31, 2018,June 30, 2021, including $2,954 used by discontinued operations, compared to $8.0 million$323,845 used in operating activities, net of $235,779 provided by discontinued operations for the same period last year. three months ended June 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in securing capital necessaryachieving its goals.
Furthermore, Management believes the COVID-19 pandemic may have a significant impact on the Company's business. The pandemic presents a risk to achieve its goals.the global economy, and it is possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials and ability to continue as a going concern. As the result of the pandemic, gross revenue of the Company's discontinued operations was significantly reduced for the three months ended June 30, 2020, due to temporary closures of retail stores who purchase products from the Teco Facility. Management has not been able to measure the potential future impact on the Company's financial statements and continues to monitor the impact of the pandemic closely, although the extent to which the COVID-19 outbreak will impact our operations, financing ability or future financial results is uncertain.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is unable to continue as a going concern.
Note 3 – Convertible Notes
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Note 3– Discontinued Operations
Discontinued operations comprise those activities that were disposed of during the period or which were classified as held for sale at the end of the period and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. The Company has included its subsidiaries GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC in discontinued operations due to the pending sale of the Company's Nevada cultivation and extraction facilities(Note9).
The assets and liabilities associated with discontinued operations included in our condensed consolidated balance sheets as of June 30, 2021 and March 31, 2021 were as follows:
June 30, 2021 | March 31, 2021 | |||||||||||||||||||||||
Continuing | Discontinued | Total | Continuing | Discontinued | Total | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||||||
Cash | $ | 582,971 | $ | 112,696 | $ | 695,667 | $ | 793,040 | $ | 352,593 | $ | 1,145,633 | ||||||||||||
Accounts receivable, net | 0 | 643,594 | 643,594 | 0 | 400,175 | 400,175 | ||||||||||||||||||
Inventory, net | 0 | 1,462,009 | 1,462,009 | 0 | 1,689,304 | 1,689,304 | ||||||||||||||||||
Prepaid and other current assets | 296,081 | 30,458 | 326,539 | 256,251 | 52,492 | 308,743 | ||||||||||||||||||
TOTAL CURRENT ASSETS | 879,052 | 2,248,757 | 3,127,809 | 1,049,291 | 2,494,564 | 3,543,855 | ||||||||||||||||||
Property and equipment, net | 21,895 | 4,736,272 | 4,758,167 | 25,022 | 4,876,247 | 4,901,269 | ||||||||||||||||||
Intangible assets, net | 1,797,920 | 571,264 | 2,369,184 | 1,706,762 | 571,264 | 2,278,026 | ||||||||||||||||||
Deposits and other noncurrent assets | 0 | 75,469 | 75,469 | 0 | 82,904 | 82,904 | ||||||||||||||||||
TOTAL ASSETS | $ | 2,698,867 | $ | 7,631,762 | $ | 10,330,629 | $ | 2,781,075 | $ | 8,024,979 | $ | 10,806,054 | ||||||||||||
LIABILITIES | ||||||||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||||||||
Accounts payable | $ | 1,463,806 | $ | 385,320 | $ | 1,849,126 | $ | 1,412,459 | $ | 509,477 | $ | 1,921,936 | ||||||||||||
Accrued interest | 521,145 | 49,211 | 570,356 | 493,741 | 49,211 | 542,952 | ||||||||||||||||||
Accrued expenses | 1,031,003 | 122,714 | 1,153,717 | 957,946 | 105,421 | 1,063,367 | ||||||||||||||||||
Notes payable, net | 3,619,186 | 485,000 | 4,104,186 | 3,594,804 | 485,000 | 4,079,804 | ||||||||||||||||||
Indebtedness to related parties | 84,913 | 0 | 84,913 | 84,913 | 0 | 84,913 | ||||||||||||||||||
Income tax payable | 0 | 793,292 | 793,292 | 0 | 761,509 | 761,509 | ||||||||||||||||||
Finance lease obligations, current | 0 | 152,250 | 152,250 | 0 | 143,967 | 143,967 | ||||||||||||||||||
TOTAL CURRENT LIABILITIES | 6,720,053 | 1,987,787 | 8,707,840 | 6,543,863 | 2,054,585 | 8,598,448 | ||||||||||||||||||
Convertible notes payable | 305,877 | 0 | 305,877 | 292,410 | 0 | 292,410 | ||||||||||||||||||
Finance lease obligations, long term | 0 | 3,347,363 | 3,347,363 | 0 | 3,389,124 | 3,389,124 | ||||||||||||||||||
TOTAL LIABILITIES | $ | 7,025,930 | $ | 5,335,150 | $ | 12,361,080 | $ | 6,836,273 | $ | 5,443,709 | $ | 12,279,982 |
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Discontinued Operations - Revenues and Expenses
The revenues and expenses associated with discontinued operations included in our condensed consolidated statements of operations for the three months ended June 30, 2021 and 2020 were as follows:
For the Three Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Continuing | Discontinued | Total | Continuing | Discontinued | Total | |||||||||||||||||||
Sales revenue | $ | 0 | $ | 1,342,586 | $ | 1,342,586 | $ | 0 | $ | 551,197 | $ | 551,197 | ||||||||||||
Cost of goods sold | 0 | (1,219,041 | ) | (1,219,041 | ) | 0 | (491,795 | ) | (491,795 | ) | ||||||||||||||
Gross profit/(loss) | 0 | 123,545 | 123,545 | 0 | 59,402 | 59,402 | ||||||||||||||||||
General and administrative expenses | 493,405 | 84,078 | 577,483 | 515,253 | 289,455 | 804,708 | ||||||||||||||||||
INCOME/(LOSS) FROM OPERATIONS | (493,405 | ) | 39,467 | (453,938 | ) | (515,253 | ) | (230,053 | ) | (745,306 | ) | |||||||||||||
OTHER EXPENSE | ||||||||||||||||||||||||
Interest expense | (65,254 | ) | (102,331 | ) | (167,585 | ) | (662,370 | ) | (132,943 | ) | (795,313 | ) | ||||||||||||
Debt default penalty | 0 | 0 | 0 | (286,059 | ) | 0 | (286,059 | ) | ||||||||||||||||
Other income/(expense) | 0 | 20,889 | 20,889 | (11,182 | ) | 0 | (11,182 | ) | ||||||||||||||||
Total other expense | (65,254 | ) | (81,442 | ) | (146,696 | ) | (959,611 | ) | (132,943 | ) | (1,092,554 | ) | ||||||||||||
LOSS BEFORE INCOME TAXES | (558,659 | ) | (41,975 | ) | (600,634 | ) | (1,474,864 | ) | (362,996 | ) | (1,837,860 | ) | ||||||||||||
Income tax expense | 0 | (31,783 | ) | (31,783 | ) | 0 | (8,840 | ) | (8,840 | ) | ||||||||||||||
NET LOSS | $ | (558,659 | ) | $ | (73,758 | ) | $ | (632,417 | ) | $ | (1,474,864 | ) | $ | (371,836 | ) | $ | (1,846,700 | ) |
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Discontinued Operations - Inventory
Raw materials consist of supplies, materials, and consumables used in the cultivation and extraction processes. Work-in-progress includes live plants and cannabis in the drying, curing, and trimming processes. Finished goods includes completed cannabis flower, trim, and extracts in bulk and packaged forms. Inventory is included in current assets from discontinued operations in the Company's unaudited condensed consolidated balance sheets at June 30, 2021 and March 31, 2021.
June 30, 2021 | March 31, 2021 | |||||||
Raw materials | $ | 112,857 | $ | 86,076 | ||||
Work in progress | 814,166 | 743,844 | ||||||
Finished goods | 601,807 | 866,195 | ||||||
Subtotal | 1,528,830 | 1,696,115 | ||||||
Allowance to reduce inventory to net realizable value | (66,821 | ) | (6,811 | ) | ||||
Total inventory, net | $ | 1,462,009 | $ | 1,689,304 |
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Discontinued Operations - Leases
The Company evaluates all finance and operating leases, and they are measured on the balance sheet with a lease liability and right-of-use asset (“ROU”) at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the consolidated balance sheet. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
The Company's only remaining lease commitment is a finance lease for the Teco Facility, which is classified as discontinued operations in the Company's unaudited condensed consolidated financial statements. This lease has a remaining non-cancelable term that ends December 31, 2025 with an option to extend through December 31, 2030. The rate used to discount this lease was 11.5%.
Finance leases are included in property and equipment (long term assets from discontinued operations), finance lease obligations, short term (current liabilities from discontinued operations), and finance lease obligations, long term (long term liabilities from discontinued operations), on the unaudited condensed consolidated balance sheets.
During the three months ended June 30, 2021, finance lease costs included in discontinued operations were $140,258, of which $101,583 represents interest expense and $38,675 represents amortization of the right-of-use asset.
The future minimum lease payments of lease liabilities as of June 30, 2021, from discontinued operations are as follows:
Year Ending | ||||
March 31, | Finance Leases | |||
2022 (9 months) | $ | 409,235 | ||
2023 | 560,625 | |||
2024 | 577,444 | |||
2025 | 594,767 | |||
2026 | 612,610 | |||
Thereafter | 3,168,492 | |||
Total minimum lease payments | 5,923,173 | |||
Less: Amount representing interest | (2,423,560 | ) | ||
Present value of minimum lease payments | 3,499,613 | |||
Less: Current maturities of capital lease obligations | (152,250 | ) | ||
Long-term capital lease obligations | $ | 3,347,363 |
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Discontinued Operations - 8% Line of Credit dated November 27, 2019
In connection with the Binding Letter of Intent dated November 27, 2019 (Note 9), the Teco Subsidiaries entered into a promissory note and line of credit for up to $470,000 from the purchaser of the membership interests in the Teco Subsidiaries. The purpose of the line of credit was to supply working capital for the Teco Subsidiaries, and the note matures upon the close of the sale of the Teco Subsidiaries. The principal and accrued interest balances outstanding at the time of closing will be considered paid in full upon closing and will not reduce the purchase price received by GB Sciences. As of March 31, 2021, the Teco Subsidiaries have received $485,000 in advances under the line of credit, reflecting an informal agreement with the lender to increase the line of credit by $15,000. On December 29, 2020, the Company entered into the Omnibus Amendment with the purchaser of the Teco Facility, which provides that no further interest will be accrued on this note after November 30, 2020. The balance of the line of credit was $485,000 at June 30, 2021 and accrued interest was $49,211. The note and related interest expense are included in current liabilities from discontinued operations and loss from discontinued operations.
Note 4 – Notes Payable and Line of Credit
0% Note Payable dated October 23, 2017
On October 23, 2017, the Company amended the existing Nevada Medical Marijuana Production License Agreement (“Amended Production License Agreement”). Per the terms of the Amended Production License Agreement, GB Sciences purchased the remaining percentage of the production license resulting in the 100% ownership of the license. GB Sciences also received 100% ownership of the cultivation license included in the original Nevada Medical Marijuana Production License Agreement. In exchange, GB Sciences made one-time payment of $500,000 and issued a 0% Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. The present value of the note was $521,067 on the date of its issuance based on an imputed interest rate of 20.3% and the Company recorded a discount on notes payable of $178,933 related to the difference between the face value and present value of the note.
To date, the Company has made principal payments totaling $330,555 and the principal balance of the note was $369,445 at June 30, 2021. The remaining unamortized discount as of June 30, 2021, was $0.
On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") for the sale of its interest in GB Sciences Nopah, LLC (Note 9). The Nopah MIPA will close upon successful transfer of the Nevada Medical Marijuana Cultivation Facility Registration Certificate. Upon close, the principal balance of the note will be reduced to $190,272. The maturity date of the note was extended to July 31, 2021, with no payments of principal or interest due until maturity. In addition, the note will no longer bear interest at the penalty rate of 15% unless there is a new event of default. The Company is negotiating terms of an extension to the note with the note holder.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
8% Line of Credit dated July 24, 2020
On July 24, 2020, the Company entered into the Loan Agreement, 8% Secured Promissory Note, and Security Agreement (together, the "July 24 Note") with AJE Management, LLC, which established a revolving loan of up to $500,000 that the Company may draw on from time to time. The loan is collateralized by the Teco Facility, subject to the pre-existing lien held by CSW Ventures, L.P. in connection with the 8% Senior Secured Convertible Promissory Note dated February 28, 2019. Any advances will be made at the sole discretion of the lender following a written request made by the Company. Contemporaneously with the Loan Agreement, the Company and AJE Management entered into the Amendment to the Membership Interest Purchase Agreement with AJE Management. The amendment provides that any balances outstanding under the July 24 Note at the time of the close of the sale of the Teco Facility will be forgiven in exchange for a reduction to the $4,000,000 note receivable that the Company will receive as consideration for the sale of the Teco Facility. The reduction to the note receivable will be equal to 3 times the balance outstanding under the July 24 Note on the date of the close of the sale of the Teco Facility. The balance outstanding under the note plus accrued interest may be repaid at any time prior to the close of the sale of the Teco facility (Note 9).
On December 29, 2020, the Company entered into the Omnibus Amendment with the purchaser of the Teco Facility. The Omnibus Amendment reduces the amount of the note receivable that the Company will receive from the sale of the Teco Facility by $975,000 (three times $325,000 in advances made under the July 24 Note) to $3,025,000. Any advances made to the Company under the July 24 Note in excess of $325,000 will reduce the amount of cash received upon close of the sale of Teco one-for-one, i.e., such advances will be considered advance payments of the $4,000,000 cash purchase price. The note will not accrue any additional interest subsequent to November 30, 2020. The Company also agreed that it will not repay the balances outstanding under the July 24 Note prior to the closing of the Teco sale. As a result of the Omnibus Amendment, the Company accrued a modification expense of $650,000 during the year ended March 31, 2021 (two times $325,000 in addition to $325,000 in advances already recorded under the July 24 Note). As of June 30, 2021, the Company has received $50,000 in additional advances above $325,000 during the fiscal year ended March 31, 2021, bringing the total balance to $1,025,000 at June 30, 2021. Accrued interest was $58,495 at June 30, 2021.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Summary of Notes and Convertible Notes Payable
As of June 30, 2021, the following notes payable were recorded in the Company’s consolidated balance sheet:
As of June 30, 2021 | ||||||||||||
Short-Term Notes Payable | Face Value | Discount | Carrying Value | |||||||||
0% Note Payable dated October 23, 2017 (Note 4) | $ | 369,445 | $ | 0 | $ | 369,445 | ||||||
8% Line of Credit dated November 27, 2019 (Note 3) | 485,000 | 0 | 485,000 | |||||||||
8% Line of Credit dated July 24, 2020 (Note 4) | 1,025,000 | 0 | 1,025,000 | |||||||||
6% Convertible promissory notes payable (Note 5) | 1,060,000 | 0 | 1,060,000 | |||||||||
8% Convertible Secured Promissory Note dated February 28, 2019, as amended (Note 5) | 1,111,863 | 0 | 1,111,863 | |||||||||
6% Convertible notes payable due January 18, 2022 (Note 5) | 325,000 | (272,122 | ) | 52,878 | ||||||||
Total short-term notes and convertible notes payable | 4,376,308 | (272,122 | ) | 4,104,186 | ||||||||
Less: Notes payable classified as discontinued operations | (485,000 | ) | 0 | (485,000 | ) | |||||||
Total short-term notes payable classified as continuing operations | $ | 3,891,308 | $ | (272,122 | ) | $ | 3,619,186 | |||||
6% Convertible promissory notes payable due September 30, 2023 (Note 5) | 197,000 | (37,204 | ) | 159,796 | ||||||||
6% Convertible note payable due December 31, 2023 (Note 5) | 250,000 | (103,919 | ) | 146,081 | ||||||||
Total long-term notes payable classified as continuing operations | $ | 447,000 | $ | (141,123 | ) | $ | 305,877 |
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Note 5– Convertible Notes
March 2017 and July 2017 Convertible Note Offerings
In March 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.60 per share for the period of three years. Between March 2017 and May 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $965,500.$2,000,000. The Notes are payable within three years of issuance and are convertible into 3,862,0008,000,000 shares of the Company’s common stock. The Company also issued 3,862,0008,000,000 common stock warrants to the Note holders.Noteholders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one1 share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The Company recorded an aggregate discount on convertible notes of $1,933,693, which included $904,690 related to the relative fair value of beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $416,733 after adjusting the effective conversion pricefeatures and $1,029,003 for the relative fair value of the note proceeds compared to thewarrants issued with each note. The fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $548,767 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended June 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $1,034,500. The Notes are payable within three years of issuance and are convertible into 4,138,000 shares of the Company’s common stock. The Company also issued 4,138,000 common stock warrants to the Note holders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $487,957 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $480,236 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
In July 2017, the Company entered into a Placement Agent’s Agreement with a third-partythird-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.65 per share for the period of three years.
During the three months ended September 30, Between July 2017 and December 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $3,085,000.$7,201,000. The Notes are payable within three years of issuance and are convertible into 12,340,00028,804,000 shares of the Company’s common stock. The Company also issued 12,340,00028,804,000 common stock warrants to the Note holders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one1 share of common stock of the Company at an exercise price of $0.65$0.60 per share for a period of three years. The Company recorded an aggregate discount on convertible notes of $7,092,796, which included $3,142,605 related to the relative fair value of beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,541,797 after adjusting the effective conversion pricefeatures and $3,950,191 for the relative fair value of the note proceeds compared to thewarrants issued with each note. The fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $1,532,335 recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
All notes from the March and July 2017 offerings have passed their maturity dates. During the year ended March 31, 2021, the Company agreed to extensions with the holders of a total of $197,000 of the $1,257,000 that remains outstanding. For the $197,000 of extended notes, the Company agreed to reduce the conversion price to $0.10 per share and issued a total of 788,000 additional warrants to the holders of the notes with a term of three years and an exercise price of $0.10 per share. In exchange, the maturity date of the notes was extended to September 30, 2023. Using the Black-Scholes model, the Company valued the warrants at $13,396 and the change in the fair value of the conversion feature at $33,490. Because the change in the fair value of the conversion feature exceeded 10% of the carrying amount of the notes, the Company accounted for the modification of the notes as an extinguishment and recorded a discount on the new convertible notes of $46,886 related to the fair value of the new warrants and the change in the fair value of the conversion feature. The Company recorded interest expense of $6,303 on the new notes during the three months ended December 31, 2017, June 30, 2021, of which $3,356 represented amortization of the note discounts. Accrued interest on the $197,000 extended notes is $47,279 at June 30, 2021, which includes $38,438 accrued prior to the extinguishments.
Three convertible notes totaling $1,060,000 held by the same investor are past maturity and are currently in default. The Company is negotiating the terms of an extension with the note holder. The notes do not provide for a default penalty or penalty interest rate. Interest expense during the three months ended June 30, 2021, was $15,856 and there is no remaining unamortized discount. Accrued interest on the $1,060,000 notes was $244,129 at June 30, 2021.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
8% Senior SecuredConvertible Promissory Note dated February 28, 2019
On February 28, 2019, the Company issued short-terma $1,500,000 8% Senior Secured Convertible Promissory Notes (“Notes”) to various holdersNote and entered into the Note Purchase Agreement and Security Agreement with combined face value of $4,116,000.CSW Ventures, L.P. (together, “CSW Note”). The Notes are payable within three years of issuance note matured on August 28, 2020, and arewas convertible at any time until maturity into 16,464,0008,823,529 shares of the Company’s common stock. The Company also issued 16,464,000 common stock warrants toat $0.17 per share. Collateral pledged as security for the Note holders. The warrants are exercisable at any timenote includes all of the Company’s 100% membership interests in GB Sciences, Nevada, LLC and from time to time before maturityGB Sciences Las Vegas, LLC, which together represent substantially all of the Company’s cannabis cultivation and production operations and assets located at the optionTeco facility in Las Vegas, Nevada. The intrinsic value of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discountedmarket price of the Company’s common stock in excess of the conversion price compared to the market price was calculated based$176,471 on the date of issuance, to be $1,600,808 after adjustingand the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to thisCompany recorded a discount related to the beneficial conversion feature, an additional discount of $2,417,856 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
The Notes and Warrants were issuedCSW Note in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 of Regulation D under the Securities Act, as amended.
As of December 31, 2018, convertible notes of $591,352 remained outstanding, net of discount of $665,648. The net amount is reported in Notes Payable under the current liabilities section of the Company’s Condensed Consolidated Balance Sheet as of December 31, 2018.
Note 4– Notes Payable
6% Promissory Note due to Pacific Leaf Ventures, LP
The Company 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 the Company in the aggregate amount of $1.75 million. The purpose of the financing is to provide for the acquisition and installation of an operating facility, equipment and other tangible assets by GB Sciences Nevada, LLC (“GBSN”). Such facility and equipment were 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. The note is convertible at the option of the holder into common shares at a conversion price of $0.50, subject to anti-dilution adjustments.
To evidence the Loans, the Company 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 were due and payable on May 12, 2020. The Company was 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 GBSN attributable to our percentage interest in GBSN no later than the earlier to occur of (a) the fifth (5th) business day following receipt of a distribution of the Company's Share of GBSN’s EBITDA for the calendar quarter in question, or (b) thirty (30) days following the end of the calendar quarter in question, with the first such prepayment to be made not later than July 31, 2015 with respect to the quarter ending June 30, 2015. In order to induce the Pacific Leaf to extend the loan to the Company and to secure the payment and performance of all of the Secured Obligations, the Company agreed to grant Pacific Leaf a security interest in certain of its assets and enter into the lending agreement.that amount.
On February 8, 2016, the Company entered into the Amended and Restated 6% Senior Convertible Promissory Note (“Amended Note”) with Pacific Leaf. The amended agreement modifies the 6% Senior Secure Convertible Promissory Note dated May 12, 2015 and effective as of June 8, 2015, in the principal amount of $1.75 million.
Per the terms of the amended agreement, Pacific Leaf may make up to $1.0 million in additional advances to the Company under the Amended Note bringing the total in the aggregate to $2.75 million. The note is convertible at the option of the holder into common shares at a conversion price of $0.25, subject to anti-dilution adjustments. The Company has an option to prepay the Amended Note, without premium or penalty, in whole or in part, with accrued interest to the date of such prepayment.
Until the payment in full of the Amended Note, Pacific Leaf or its designee have the option (the “Option”) to purchase up to a 20% membership interest in GBSN for a purchase price equal to $100,000 for each 2% of membership interest purchased (i.e., $1,000,000 if the Option is exercised in full), provided that the Option may not be exercised for less than a 1% membership interest in GBSN.
In connection with the Amended Note, the Company also entered into the Amended and Restated Royalty Agreement (“Pacific Leaf Royalty Agreement”) with Pacific Leaf dated and effective as of February 8, 2016. Per the terms of the Pacific Leaf Royalty Agreement, the royalty rate at any time shall equal to the sum of (i) 9.1%, and (ii) the percentage calculated by dividing the amount advanced in excess of $1.75 million by $1.0 million, multiplied by the gross revenues of GBSN. On the earlier of (i) the seventh anniversary of the royalty payment date, or (ii) the date that all amounts outstanding under the Amended Note have been paid in full, the royalty rate shall be reduced by 50%.
On June 13, 2016, 28, 2019, the Company received notice from the Pacific Leaf that it had elected to convert $500,000CSW Ventures, L.P. of the Pacific Leaf Note into common stockconversion of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory. Accordingly, the Company has issued 2,000,000 shares of its common stock ($500,000 converted at a price of $0.25 per share) to Pacific Leaf and the Company’s indebtedness pursuant to the Note was reduced by $500,000.
On August 4, 2016, the Company entered into the Second Omnibus Amendment ("Second Amendment") of its existing agreements with Pacific Leaf. The Second Amendment eliminates Pacific Leaf's option to purchase up to a 20% membership interest in GBSN and reduces Pacific Leaf's existing royalty rate to 16.4% of the gross sales revenue of GBSN. It also caps maximum aggregate royalty payments to be made to Pacific Leaf at $2,420,000 with respect to any calendar year. In consideration of the amended terms, Pacific Leaf and its designees received 1,000,000 shares of the Company's common stock and a five-year warrant to purchase 1,500,000 shares of the Company's common stock at $0.36 per share resulting in related expense of approximately $0.9 million.
On October 4, October 20, November 1, and November 10, 2016, the Company received notices from Pacific Leaf that it had elected to convert total of $1,776,750$170,000 of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory Note. Accordingly, the Company has issued 7,107,000 shares of its common stock ($1,776,750 converted at a price of $0.25 per share) to Pacific Leaf and the Company’s indebtedness pursuant to the Note was reduced by $1,776,750.
On January 24, and February 22, 2017, the Company received additional notices from Pacific Leaf that it had elected to convert $413,085 ($317,938 in principal and $95,145 in accrued interest) of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory Note. Accordingly, the Company has issued 1,652,332 shares of its common stock ($413,083 converted at a price of $0.25 per share) to Pacific Leaf and the Company’s indebtedness pursuant to the Note was reduced to $200,000.
February 2018 Agreement
On February 23, 2018, the Company and Pacific Leaf entered into the Agreement (“February 2018 Agreement”) whereby all rights and obligations between the parties pursuant to all prior agreements would terminate. Under the terms of the February 2018 Agreement, the Company paid Pacific Leaf $1,269,818 upon the signing of the agreement and was to pay Pacific Leaf an additional $1,500,000 on or before July 31, 2018. The Company would also issue Pacific Leaf 1,600,000 shares of restricted common stock on or before July 31, 2018. Thereafter, no business relationship would exist between the parties and no royalties would be owed.
If the Company were unable to make the $1.5 million payment to Pacific Leaf on or before July 31, 2018, the Royalty Agreement and all other agreements that would have been terminated under the terms of the February 2018 Agreement would have continued in full force and effect, and 75% of all payments made under the February 2018 Agreement would have been credited toward royalties owed under the Royalty Agreement.
In connection with the February 2018 Agreement, the Company recorded royalty expense of $269,818 in fiscal year 2018 for accrued royalties paid, $250,000 in other expense which represents 25% of the $1 million payment made on February 26, 2018, and $750,000 in prepaid expenses which represents the 75% portion of the $1 million payment which would have been credited toward future royalties in the event the $1.5 million payment were not made on or before July 31, 2018.
The market value of the 1.6 million shares issued relating to the February 2018 Agreement was $1,040,000, valued as of the date of the agreement. The Company recorded $260,000 in other expense related to the issuance of those shares, which represents 25% of the market value of those shares. The Company recorded $780,000 in prepaid expenses, representing the 75% portion of the fair market value of those shares which would have been credited toward future royalties in the event that the final $1.5 million payment were not made on or before July 31, 2018.
All amounts related to the February 2018 Agreement recorded in the Company’s Condensed Consolidated Balance Sheet and Statement of Operations for the year ended March 31, 2018, are summarized below:
|
| |||||
|
|
|
|
| ||
|
|
|
|
| ||
|
|
|
|
| ||
|
|
|
|
|
July 2018 Amendment and Termination Agreement
On July 28, 2018, the Company entered into the Amendment and Termination Agreement (“Amendment and Termination Agreement”) with Pacific Leaf. Pursuant to that agreement, the Pacific Leaf Royalty Agreement and all other agreements with Pacific Leaf were terminated in their entirety, and the Company would make payments totaling $1 million of the $1.5 million balance due to Pacific Leaf by August 31, 2018.
Because the Amendment and Termination Agreement irrevocably terminated the Pacific Leaf Royalty Agreement, the Company recorded an expense of $1,530,000 in the quarter ended September 30, 2018 related to the prepaid royalties previously recorded on the Condensed Consolidated Balance Sheet in connection with the February 2018 Agreement. The expense is included in the Other Expense caption of the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2018.
Contemporaneously with the Amendment and Termination Agreement, the Company issued a Promissory Note (“Promissory Note”) for the remaining $0.5 million due to Pacific Leaf. The Promissory Note accrues interest at a rate of 6% per annum and matured on November 30, 2018.
In consideration for deferring the payment of the amounts due to Pacific Leaf, the Company issued 100,000 shares of its common stock to Pacific Leaf on July 31, 2018 having a fair market value of $36,000. The Company made cash payments totaling $1.0 million to Pacific Leaf in August 2018 related to the Amendment and Termination Agreement. Both the $36,000 fair value of shares issued to Pacific Leaf and the $1,000,000 in cash payments made to Pacific Leaf in August 2018 are recorded in the Company’s Condensed Consolidated Statement of Operations for the Three and Nine Months Ended December 31, 2018, under the other expense caption.
On December 21, 2018, the company made a $100,000 payment on the promissory note. The payment was applied to interest accrued to date of $12,164 and the remaining $87,836 was applied to the principal balance of the Note. As of December 31, 2018, the principal balance of the8% Senior Secured Promissory Note was $412,164 and is recorded in the short-term notes payable caption on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2018. Interest continues to accrue at 6% on the unpaid balance and as of December 31, 2018, $677.53 related to the Note was recorded in accrued interest on the Company’s Condensed Consolidated Balance Sheet.
On December 21, 2018, the Company also issued 500,000 shares of its common stock to Pacific Leaf in consideration for further deferral of repayment of the Note. The Company recognized $95,000 in expense related to the shares issued, which is recorded in the Company’s Condensed Consolidated Statement of Operations for the Three and Nine Months Ended December 31, 2018, under the other expense caption.
In total, the Company recorded $3.1 million related to the Amendment and Termination Agreement in Other Expense in its Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2018, as summarized in the table below:
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
|
Note due to BCM MED, LLC
On December 20, 2018, GB Sciences Louisiana, LLC (“GBSLA") entered into a $300,000 Loan Agreement with BCM MED, LLC (“BCM MED”). BCM MED is a related party to Wellcana Group, LLC, the minority member in GBSLA. The purpose of the financing is to fund operating expenses incurred by or on behalf of medical marijuana operations of GBSLA.
Pursuant to the Loan Agreement, GBSLA will make eight (8) monthly installment payments in the amount of $33,333 on or before the 10th business day of each month commencing in Aprildated February 28, 2019. GBSLA will make the 9th and final installment payment in the amount of $33,333 on or before the 10th business day of December 2019. The aggregate amount of the installment payments from GBSLA to BCM MED shall be equal to the loan amount. GBSLA has the option to defer one monthly installment payment to the first day of the following calendar month.
Summary of Notes Payable
As of December 31, 2018, the following notes payable were recorded in the Company’s Condensed Consolidated Balance Sheet:
| |||||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
| |||||
|
|
|
| ||
|
|
|
|
Note 5 – Capital Lease
In July 2016, an entity associated with Pacific Leaf Partners, LLC completed the purchase of the building housing the Company’s cultivation facility at 3550 W. Teco Ave., Las Vegas, NV. In connection with the purchase, the Company entered into the Amended Lease Agreement for an initial term of ten and a half years with one option to extend the lease for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement are $40,000 through December 31, 2017. Commencing January 1, 2018, the monthly rent payments will increase by 3% per annum through the expiration of the lease. The Company analyzed the transaction in accordance
with the applicable accounting guidance determining that the aggregate amount of $3.9 million met the requirements for capitalization. The building has been capitalized and is included in property and equipment, net balance with related obligations included as part of current and non-current liabilities. The obligation recorded is based upon the present value of the future minimum lease payments discounted at an 11.6% interest rate.
In August 2017, GB Sciences Louisiana, LLC entered into the Lease Agreement with Petroleum Drive Investment, LLC for 36,125 square feet of interior space on approximately 5.38 acres of land located at 18350 Petroleum Drive, Baton Rouge, LA 70809. The Lease Agreement is for an initial term of five years with two options to extend the lease for five years, or until June 30, 2032. The monthly rent payments per the Lease Agreement are $25,588 through June 30, 2022. If the Company exercises its first and second options to extend, monthly rent payments will increase to $28,147 beginning August 1, 2022, and to $30,966 beginning August 1, 2027. The Company analyzed the transaction in accordance with the applicable accounting guidance determining that the aggregate amount of $2.5 million met the requirements for capitalization. The building has been capitalized and is included in property and equipment, net balance with related obligations included as part of current and non-current liabilities. The obligation recorded is based upon the present value of the future minimum lease payments discounted at a 10.2% interest rate.
Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the net present value of the minimum lease payments as of December 31, 2018, are as follows:
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
Note 6 – Capital Transactions
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and an increase in authorized capital from 250,000,000 to 400,000,000 shares.
During the nine months ended December 31, 2018,Accordingly, the Company issued an aggregate of 59,454,950 shares of common stock, as follows:
On July 12, 2019, the Company entered into the Amendment to Note Documents and the Amended and Restated 8% Senior Secured Promissory Note (together, “Amended CSW Note”). The Amended CSW Note increased the note balance by $100,000 to reflect an additional $100,000 advanced to the Company on July 12, 2019, and by $41,863 to add accrued interest to date to the principal balance, and decreased the conversion price to $0.11 per share, with the remaining terms substantially unchanged from the original CSW Note.
The Company evaluated the modification under the guidance in ASC 470-50 and determined that the amendment represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the CSW Note on the related notesamendment date. The carrying value of the amended note on the date of extinguishment was recognized$1,338,057, net of a beneficial conversion feature discount of $133,806, and we recorded a loss on extinguishment of $124,158.
On August 1, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $110,000 of the principal balance of the Amended CSW Note at $0.11 per share. Accordingly, the Company issued 1,000,000 shares of its common stock. In connection with the conversions, $9,579 in unamortized discount was recorded as interest expense and the Company has reduced the carrying amount of convertible notes payable by $1,005,813. $100,421. After conversion, the remaining balance outstanding was $1,361,863.
·
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
On October 23, 2019, the Company entered into the Amendment to Promissory Note. The Company issued 3,885,412 sharesOctober 23, 2019 amendment decreased the conversion price to $0.08 per share, with the remaining terms substantially unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in exchange for pastASC 470-50 and future consulting servicesdetermined that the amendment represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the Amended CSW Note immediately prior to the 2nd Amended CSW Note. The carrying value of the Amended CSW Note on the date of extinguishment was $1,269,067, net of a beneficial conversion feature discount of $92,796, and we recorded a relatedloss on extinguishment of $92,796 during the year ended March 31, 2020.
On November 27, 2019, the Company entered into the Second Amendment to Note Documents and the Second Amended and Restated 8% Senior Secured Promissory Note (together, “2nd Amended CSW Note”). The 2nd Amended CSW Note decreased the conversion price to $0.04 per share and increased the note balance by $30,000 to reflect an advance received on that date, with the remaining terms substantially unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and determined that the 2nd Amended CSW Note represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the Amended CSW Note immediately prior to the 2nd Amended CSW Note; however, 0 loss on extinguishment was recorded because the net consideration paid for the 2nd Amended CSW Note was equal to the extinguished carrying value of the Amended CSW Note. The carrying value of the Amended CSW Note on the date of extinguishment was $1,361,863.
On December 16, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $120,000 of the principal balance of the Amended CSW Note at $0.04 per share and we issued 3,000,000 shares of common stock. In connection with the conversions, $57,551 in unamortized discount was recorded as interest expense, and the Company has reduced the carrying amount of $0.9 millionconvertible notes payable by $62,449. After conversion, the remaining balance outstanding was $1,271,863 and recorded $0.3 millionthe carrying amount of the note was $687,021, net of $584,842 in prepaid expenses.unamortized discount from the beneficial conversion feature.
On December 29, 2020, the Company entered into the Omnibus Amendment, and the note holder agreed to cease interest accrual on the CSW Note after November 30, 2020.
During the quarter ended March 31, 2021, the Company received notice of the conversion of $160,000 total principal balance at $0.04 per share and issued 4,000,000 shares of common stock to the note holder. After the conversions that occurred during the year ended March 31, 2021, the remaining principal balance and carrying amount of the note is $1,111,863 as of June 30, 2021. Accrued interest was $144,994. The sharestotal outstanding balance of principal and services were valued ataccrued interest totaling $1,256,857 will reduce the closing price$4,000,000 cash payment received by the Company upon the close of the sale of the Teco Facility, and no further interest expense will be accrued on the note.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
8% Convertible Promissory Note dated April 23, 2019
On April 23, 2019, the Company entered into the Note Purchase Agreement with Iliad Research and Trading, L.P. ("Iliad") and issued an 8% Convertible Promissory Note with a face value of $2,765,000. The Note was issued with original issue discount of $265,000 and is convertible into shares of the Company’s common stock at a price of $0.17 per share at the option of the note holder at any time until the Note is repaid. The Note matured on April 22, 2020. A total discount of $440,000 was recorded on the dates grantednote, which includes $265,000 of original issue discount and $175,000 in fees paid to brokers.
During the year ended March 31, 2020, the Company honored the conversion of a total of a total of $125,000 of accrued interest on the Iliad Note at reduced conversion rates. On October 30, 2019, the Company received notice of the conversion of $75,000 at $0.06 per share and issued 1,250,000 shares of its common stock. The fair value of the shares issued exceeded the fair value of the shares issuable under the related consulting agreements.
·In order to encourage the exerciseoriginal terms of the 8,000,000 warrantsNote by $64,706, and the Company recorded an induced conversion expense. On November 18, 2019, the Company received notice of the conversion of $50,000 of the note balance at $0.0375 per share and issued 1,333,333 shares of its common stock.
On April 22, 2020, the Company failed to investorsmake payment of the principal and accrued interest due under the Iliad Note, resulting in a default. Upon the occurrence of the default, the principal and accrued interest balances outstanding increased by 10%. As the result of the default, Company recorded an expense of $9,559 related to a 10% increase in the privateaccrued interest balance, which is recorded in interest expense, and $276,500 related to the 10% increase in the principal balance, which is recorded in debt default penalty and other expense.
On May 20, 2020, Iliad filed a lawsuit against the Company in the Third Judicial District Court of Salt Lake County in the State of Utah demanding repayment of the note. The lawsuit further sought to compel the Company to participate in arbitration pursuant to the arbitration provisions contained within the Note Purchase Agreement and to prohibit the Company to raise funds through the issuance of its common stock unless the note is paid in full simultaneously with such issuance. On July 14, 2020, the Court entered judgment in favor of Iliad in the amount of $3,264,594 plus reasonable attorney's fees and costs and accrued post-judgment interest at the default rate of 15% per annum.
On November 20, 2020, the Company, Iliad, and Wellcana Plus, LLC entered into the Judgment Settlement Agreement, whereby Iliad agreed to discharge all amounts owed to it by the Company upon receipt of payment totaling $3,006,015 directly from the proceeds of the Wellcana Note Receivable on or before December 8, 2020. On December 8, 2020, Wellcana failed to make payment to the Company. On December 9, 2020, the Company entered into a letter agreement with Iliad extending the Judgment Settlement agreement in exchange for payment of $25,000 plus $25,000 per week until the payment totaling $3,006,015 is received by Iliad, with such payments not reducing the amount owed under the Judgment Settlement Agreement. On December 16, 2020, Wellcana made payment of the full amount owed to the Company, of which $3,006,015 was paid directly to Iliad in full satisfaction of the Judgment Settlement Agreement. On December 18, 2020, Iliad filed a Satisfaction of Judgment in the Third Judicial District Court of Salt Lake County in the State of Utah, and the lawsuit was dismissed. The Company has no further obligations to Iliad.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
December 2020 $575,0006% Convertible Note Offering
On December 18, 2020, the Company began an offering of 6.0% convertible notes dated for the purpose of funding a pre-clinical study of the Company's patent-pending Cannabinoid-Containing Complex Mixtures for the treatment of Cytokine Release Syndromes, including Acute Respiratory Distress Syndrome, in COVID-19 patients. The Company pledged the related intellectual property as security for the notes. The notes are convertible at a rate of $0.05 per share at the lender's request. During the year ended March 201731, 2021, the Company issued $575,000 in convertible notes under the offering to three investors. $325,000 of the notes mature in December 2021, and $250,000 mature in December 2023. Payment of accrued interest and principal is due at maturity. The Company received cash of $500,250, net of issuance costs, and recorded a discount on convertible notes of $74,750. Notes totaling $425,000 were issued with in-the-money conversion features, and the 28,804,000 warrants issued to investorsCompany recorded beneficial conversion feature discounts totaling $347,000 on the related notes.
At June 30, 2021, notes with a carrying amount of $52,878 were included in the private offering ofshort term notes and convertible notes dated July 2017,payable, net of unamortized discounts of $272,122. Notes with a carrying amount of $146,081 were included in long term notes and convertible notes payable, net of unamortized discounts of $103,919. Interest expense related to the notes was $24,458 for the three months ended June 30, 2021, which includes $15,857 from amortization of the note discounts.
Note 6– Capital Transactions
Sale of Common Stock and Exercise of Warrants
On April 1, 2020, the Company entered into the Advisory Agreement with its brokers and effected a temporary decrease in the exercise price of the Company's outstanding warrants from $0.60 and $0.65, respectively, to $0.30 and $0.325$0.03-$.05 per share. On July 18, 2021, the Company entered into an amendment to the Advisory Agreement extending the temporary decrease through September 30, 2021 and agreed that each exercising warrant holder will receive an equal number of replacement warrants to purchase 1 share of the Company's common stock at $0.10 for three years. During the three months ended June 30, 2021,the Company received notice of the exercise of 2,088,667 warrants at $0.03 per share and received proceeds of $56,394, net of accrued brokerage fees of $6,266. As athe result of the price reduction, the Company issued 12,332,750 shares of its common stock and received net proceeds of approximately $3.9 million. In connection with the induced exercise of the warrants,exercises, the Company recorded an inducement dividend of approximately $2.9 million.
·The Company issued 325,125 shares$163,016, which includes $62,660 related to the intrinsic value of its common stock in connection with the exercise of compensationexercised warrants at $0.01 per share. the dates of exercise and $100,356 related to the Black-Scholes fair value of the 2,088,667 replacement warrants issued to the exercising investors.
·
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Note 7– Commitments and Contingencies
On August 10, 2018, April 22, 2020, the Company failed to repay any of the outstanding balance of the Convertible Promissory Note Payable to Iliad Research and Trading, L.P., resulting in a default. On May 20, 2020, Iliad filed a lawsuit against the Company in the Third Judicial District Court of Salt Lake County in the State of Utah demanding repayment of the note. On July 14, 2020, the Court entered judgment in favor of Iliad in the amount of $3,264,594. The Company's obligation to Iliad was satisfied in full on December 16, 2020 upon payment of $3,006,015 pursuant to the Judgment Settlement Agreement (Note 5).
On April 22, 2020, the Company was served notice of a lawsuit filed in the Eighth Judicial District Court in Clark County, Nevada, filed by a contractor who had been hired to perform architectural and design services. The lawsuit demanded payment of $73,050 for the services provided. On September 17, 2020, the Company entered into a Placement Agent’sMutual Compromise, Settlement, and Release Agreement to offer a totalwith the contractor and made payment of 10,000,000 units at the price of $0.25 per unit. Each unit consisted of one share$25,000 in full satisfaction of the Company’s common stockalleged debt and one warrant to purchase one sharereduced the cost of the Company’s common stock at the price of $0.60 for a period of three years. On August 23, 2018, the Placement Agent’s Agreement was amended to increase the number of units offeredrelated fixed asset by 10,000,000 to 20,000,000 in total, with no other changes to the agreement. Between August 10, 2018 and September 25, 2018, the Company received a total of $4.4 million in proceeds from the private placement, net of $0.6 million in brokerage fees and issued 20 million shares of its common stock and 20 million warrants to purchase one share of its common stock for a period of three years to the investors who participated in the private placement.
·On December 4, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 15,000,000 units at the price of $0.20 per unit up to a total of $3 million. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of five years. On January 15, 2019, the Placement Agent’s Agreement was amended to decrease the unit price from $0.20 per unit to $0.15 per unit and decrease the exercise price of the warrants included in each unit from $0.60 to $0.30, applied retroactively to funds raised prior to the date of the amendment, with no other changes to the agreement. Between December 4, 2018 and December 31, 2018, the Company received a total of $452,835 in proceeds from the private placement, net of $67,665 in brokerage fees and issued 3.5 million shares of its common stock and 3.5 million warrants to purchase one share of its common stock at the amended terms to the investors who participated in the private placement.
·During the nine months ended December 31, 2018, the Company issued 277,778 shares of its common stock to an investor for the cash purchase of shares at $0.36 per share.
·In connection with the Pacific Leaf Amendment and Termination Agreement (Note 4), the Company issued 600,000 shares of its common stock, 100,000 shares on July 31, 2018 at the time of the Amendment and 500,000 shares on December 21, 2018 upon deferment of payment on the $0.5 million promissory note. The company recorded $131,000 in other expense related to those shares.
Options and Warrants$48,050.
In connection with the Placement Agent’s Agreement dated August 10, 2018 and as amended August 23, 2018, the Company issued 2,000,000 compensation warrants to the brokers who participated in the offering and recorded a related expense of $0.6 million. Each compensation warrant is for the purchase of one share of the Company’s common stock at a price of $0.60 per share and expires on October 1, 2023.
During the nine months ended December 31, 2018, the Company issued 400,000 stock options under the 2014 Equity Incentive Plan to its employees. The options are exercisable upon vesting for a period of 10 years from issuance at an exercise price ranging from $0.37 to $0.60 per share. The Company has recognized total of $0.8 million in share-based compensation expense related to all outstanding options during the nine months ended December 31, 2018.
Note 7 – Commitments and Contingencies
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences.
The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter.
The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of December 31, 2018, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement.
On December 1, 2018, the Company entered into an agreement with EMLL Group, LLC. Upon commencement of future business advisory and consulting services, we will issue warrants to purchase 8 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $969,197 using the Black-Scholes valuation model and will recognize the expense at the time that EMLL Group provides the services. No services have been provided as of December 31, 2018.
On December 6, 2018, the Company entered into an agreement with SylvaCap Media. Upon commencement of future business advisory and consulting services, we will issue warrants to purchase 2 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $244,000 using the Black-Scholes valuation model and will recognize the expense at the time that SylvaCap Media provides the services. No services have been provided as of December 31, 2018. In connection with the agreement, the Company will also pay a $10,000 monthly fee for 12 months and issue 4 million restricted shares of the Company’s common stock. 2 million shares were due on the date of the contract and have been issued to the consultant. The remaining 2 million shares will be issued on June 6, 2018.
From time to time, the Company may become involved in certain legal proceedings and claims which arise in the ordinary course of business. In management’s opinion, based on consultations with outside counsel, the results of any of these ordinary course matters, individually and in the aggregate, are not expected to have a material effect on our results of operations, financial condition, or cash flows. As more information becomes available, if management should determine that an unfavorable outcome is probable on such a claim and that the amount of such probable loss that it will incur on that claim is reasonably estimable, the Company would record a reserve for the claim in question. If and when the Company records such a reserve, it could be material and could adversely impact its results of operations, financial condition, and cash flows.
Note 8– Income Taxes Related Party Transactions
The Company’s effective tax rateAs of June 30, 2021 the Company was -4.0% and 0%indebted to executive officers for the nine months ended December 31, 2018 and 2017, respectively.unpaid compensation totaling $84,913.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Note 9– Sale of Membership Interests in Nevada Subsidiaries
Income tax expense was $737,568 forOn November 15, 2019, we entered into a Binding Letter of Intent ("Teco LOI") to sell 75% of the nine months ended December 31, 2018. This amount includes $211,423 attributable to current year income taxes, $510,647 attributableCompany's membership interest interests in GB Sciences Nevada, LLC, and GB Sciences Las Vegas, LLC ("Teco Subsidiaries"). On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") with AJE Management, LLC, which formalized the sale of the Teco Subsidiaries and modified the terms of the sale. Pursuant to the tax year ended March 31, 2018,Teco MIPA, the Company will sell 100% of its membership interests in GBSN and $15,498GBLV for $4,000,000 cash upon close and will receive a $4,000,000 8% promissory note to be paid in tax penalties attributablemonthly installments over 36 months with payments beginning 30 months after the close of the sale.
On July 24, 2020, the Company entered into the Loan Agreement, 8% Secured Promissory Note, and Security Agreement (together, the "July 24 Note") with AJE Management, LLC. Contemporaneously with the Loan Agreement, the Company and AJE Management entered into the Amendment to the year ended March 31, 2018. Income tax expense was $0Membership Interest Purchase Agreement with AJE Management. The amendment provides that any balances outstanding under the July 24 Note at the time of the close of the sale of the Teco Facility will be forgiven in exchange for a reduction to the nine months ended December 31, 2017.
Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies. The Company continues to evaluate its deferred tax asset valuation allowance on a quarterly basis. The Company concluded that, as of December 31, 2018, it is more likely than not$4,000,000 note receivable that the Company will not have sufficient taxable income withinreceive as consideration for the applicable net operating loss carry-forward periodsale of the Teco Facility. The Company has received $375,000 in advances under the note (Note 4).
On December 29, 2020, the Company entered into the Omnibus Amendment with the purchaser of the Teco Facility. The Omnibus Amendment reduces the amount of the note receivable that the Company will receive from the sale of the Teco Facility by $975,000 to realize$3,025,000, and any portion of its deferred tax assets.
The Company’s income tax payable was $737,568 as of December 31, 2018, and $0 as of December 31, 2017. The increase in income taxes payable is based on current quarter projections of estimated taxable income and a tax liability attributableadvances made to the March 31, 2018 tax year.
Company above $325,000 will reduce the amount of cash received upon close of the sale of Teco one-for-one, rather than reducing the note receivable by three times the amount of the balance outstanding. The Company also agreed that it will not repay the balances outstanding under the July 24 Note prior to the closing of the Teco sale. As a result of December 31, 2018,the Omnibus Amendment, the Company had approximately $34.5 millionaccrued an expense of federal net operating loss carryforwards (“NOLs”)$650,000 to increase the balance outstanding under the July 24 Note to three times $325,000, to a total of $975,000 which will begin to expire in 2025. These NOLs havereduce the potential to be used to offset future ordinary taxable income and reduce future cash tax liabilities.
Note 9 – Loss per Share$4,000,000 cash purchase price paid at close.
The Company’s basic loss per shareOmnibus Amendment also amends the Management Services Agreement to provide that no further management fees will accrue after November 30, 2020. As of June 30, 2021, the Company has been calculated usingpaid $150,000 and accrued $700,000 in management fees, which will reduce the weighted average number$4,000,000 in cash proceeds received upon the close of common shares outstanding during the period.sale. The form of the note receivable that the Company had 108,999,521 and 84,116,413 shareswill receive on close was amended to accelerate payments such that the Company will receive payment in full within three years, rather than over 36 months with payments beginning 30 months after the close of potentially dilutive common shares at December 31, 2018, and December 31, 2017, respectively. However, such common stock equivalents were not included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive.sale.
Note 10 – Related Party Transactions
During the fiscal year ended March 31, 2017, On May 11, 2021, the Company entered into a consulting contract with Quantum Shop,Second Omnibus Amendment, which extends the Management Services Agreement through December 31, 2021, and received $200,000 from the purchaser as a Company owned by a relative of onepartial advancement of the Company’s executives. Per$4,000,000 cash purchase price. The advancement is recorded in accrued liabilities in the termsCompany's condensed consolidated balance sheet as of June 30, 2021.
The sale is expected to close upon the successful transfer of the agreement, Quantum Shop is to provide GB Sciences with research, design, development, fabrication, and production services. During the nine months ended December 31, 2018, the Company made payments totaling $1.1 million to Quantum Shop primarily related to the build-out of the Company’sNevada cultivation and production facilitylicenses. The transfer of cannabis licenses in Baton Rouge, Louisiana.the State of Nevada was subject to an indefinite moratorium beginning in October 2019. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there were over 90 requests pending, and it will take up to several months to process the entire backlog of pending license transfers. The lifting of the moratorium and processing of cannabis license transfers have been delayed by the COVID-19 pandemic and could be further delayed if the pandemic continues.
During the year ended March 31, 2017, theThe Company entered into an advisory agreement with Electrum Partners, LLC,also holds a company whose President resides on GB Sciences’ BoardNevada license for cultivation of Directors and serves as a Chair of the Audit Committee.medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The agreement has a term of one year and was renewed for a successive one-year period on March 31, 2018. During the nine months ended December 31, 2018, the Company made payments totaling $73,904 to Electrum Partners, LLC and issued 285,412 shares of its restricted stock at an expense of $99,596. Subsequent to December 31, 2018, the Company terminated its agreement with Electrum Partners, LLC, as described in Note 11 below.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the “EPA”) with The Happy Confections, L.L.C. (“THCLLC”) throughlicense is owned by the Company’s wholly-ownedwholly owned subsidiary, GB Sciences Las Vegas,Nopah, LLC (“GBSLV”("Nopah"). Dr. Andrea Small-Howard, a member of GB Science’s Board of Directors, is a Co-Managing Member of THCLLC. UnderOperations have not begun under the EPA, THCLLC is to produce cannabis-infused baked goods and other edibles in GBSLV’s production facility upon approval of GBSLV’s Nevada Medical Marijuana ProductionNopah License. The Company will receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.
Contemporaneously with the EPA, On November 27, 2019, the Company entered into a Non-Revolving Credit LineBinding Letter of Intent to sell its 100% interest in GB Sciences Nopah, LLC. On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") and Non-Revolving Credit Line Promissory Note (together,Modification Agreement with the “THC Note” or “Note”) to advance up to $300,000 to THCLLCpurchaser of GB Sciences Nopah, LLC. As consideration for the purpose of expanding THCLLC’s operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 daystransfer of the sale of any product.
As of December 31, 2018,license and membership interest in GB Sciences Nopah, LLC, the Company has advanced $253,034 underwill receive $300,000 and the THC Note. On October 15, 2018,purchaser will pay all expenses related to the Company gave notice toupkeep and maintenance of the Nopah License until closing. The Happy Confections, LLC (“THC LLC”) that Company would not provide any additional financing beyond the $300,000 Credit Line granted under the Non-Revolving Credit Line Agreement dated November 1, 2017. In this notice, the Company requested that THC LLC seek to find additional sources of financing to be able to fund the manufacture of edibles. The Company further notified THC LLC that the Company
would terminate the Edibles Production Agreement and all other related agreements with THC LLC if it was unable to acquire additional funding by October 22, 2018. On October 19, 2018, the Company received a response from THC LLC that it was unable to acquire additional funding. Accordingly, the Company has terminated all of its agreements with THCLLC effective October 19, 2018 and took possession of all tangible assets owned by THCLLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory thatpurchase price will be used inapplied as a reduction to the Company’s production operations at the Teco Facility.
The Company assessed the Fair Value of the machinery and equipment received at $139,411 and has capitalized that amount in fixed assets during the quarter ended December 31, 2018. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility during December 2018. The Company also recorded $113,623 as other expense in its Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2018, which represents the remaining balance of the outstanding note receivable from THC LLC.0% Note payable dated October 23, 2017 (Note 4), which is held by an affiliate of the purchaser of the Nopah license. The transfer of the Nopah License is subject to the same restrictions on license transfers discussed above.
Note 11 – FormationBecause the moratorium on license transfers has been lifted, the Company determined that the Teco Facility and Nopah Facility qualify for presentation as discontinued operations, and the income, assets, and cash flows of GBS Global Biopharmathe Teco Subsidiaries and GB Sciences Nopah, LLC have been reclassified as discontinued operations for all periods presented in the Company's consolidated financial statements.
The Company plans to license some
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(unaudited)
Note 12 10– Non-Controlling Interests
On February 12, 2018, the Company’s wholly-owned subsidiary, GB Sciences Louisiana, LLC (“GBSLA"), issued members’ equity interests equal to 15% in GBSLA to Wellcana Group, LLC (“Wellcana”) for $3 million. Under the GBSLA operating agreement, Wellcana has the option to make additional capital contributions for the purchase of up to an additional 35% membership interest in GBSLA, at the rate of 5% membership interest per $1 million contributed.
During the nine months ended December 31, 2018, Wellcana made additional capital contributions totaling $6.9 million, thereby increasing its membership interest in GBSLA to 49.6%. Subsequent to December 31, 2018, Wellcana contributed an additional $0.1 million, increasing its membership interest to 49.99%. The capital contributions have been used to fund the buildout of the Petroleum Drive facility and to pay for the operating costs of GBSLA.
The Company maintains a majority interest in GBSLA and continues to exercise control over the management and operations of GBSLA. Accordingly, the Company continues to consolidate GBSLA in its condensed consolidated financial statements for the three and nine months ended December 31, 2018.
Note 13 – Subsequent Events
Capital Transactions
Subsequent to December 31, 2018, On July 2, 2021, the Company issued 8,043,545 shares of its common stock as the result of the following transactions:
·The Company received $1.2 million in connection with the December 2018 Placement Agent’s Agreement$50,000 from an investor and issued 7,971,667 shares of its common stock and 7,971,667 warrants to purchase one share of common stocka 6% convertible promissory note due July 1, 2022 under the convertible note offering that began in December 2020. The note is convertible at $0.30$0.05 per share for a period of five years tointo the investors participating in the private placement.
·The Company issued 71,878 shares of itsCompany's common stock to Electrum Partners, LLC, a related party, in connection with its advisory agreement.
Termination of Agreement with Electrum Partners, LLCstock.
During the year ended March 31, 2017, the Company entered into an advisory agreement with Electrum Partners, LLC, a company whose President resides on GB Sciences’ Board
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the BoardAudit Committee of Directors andStockholders of
GB Sciences, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of GB Sciences, Inc. and Subsidiaries (the Company) as of March 31, 20182021 and 2017,2020, and the related consolidated statements of income, stockholders' equity,operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended March 31, 2018,2021 and the related notes (collectively referred to as the “consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph- Going Concern
The accompanying financialsconsolidated financial statements have been prepared assuming that the Company will continue as a going concern. As ofdiscussed in Note 3 to the financial statements, the Company has suffered recurring losses for the year ended March 31, 2018, the2021. The Company had a net loss of $3,725,027, accumulated lossesdeficit of approximately $58,230,000, has generated limited revenue,$103,886,232, net cash used in operating activities of $2,185,220 and may experiences losses in the near term.had negative working capital of $5,054,593. These factors and the need for additional financing in order for the Company to meet its business plan, raise substantial doubt about itsthe Company’s ability to continue as a going concern. Management's planManagement’s plans in regard to continue as a going concern isthese matters are also described in Note 2.3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.opinion.2
Critical Audit Matters
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Inventory Costs As summarized in Note 2 “Inventory” to the consolidated financial statements, the Company’s inventory consists of three categories, Raw materials, which consists of supplies, materials, and consumables used in the cultivation and extraction processes; work-in-progress which includes live plants and cannabis in the drying, curing, and trimming processes and finished goods includes completed cannabis flower, trim, and extracts in bulk and packaged forms. The inventory, net of reserve was $1,689,304 as of March 31, 2021. Management records the cost of inventory on the consolidated balance sheet based on the costs incurred throughout the year in each category less the amounts transferred to cost of goods sold for sales in the year. Labor costs and overhead costs comprise the majority of overall inventory cost. We identified the allocation of labor and overhead costs to inventory as a critical audit matter because of the significant estimates management used in the allocation of labor and overhead costs to inventory. Auditing management’s allocations of internal costs to the inventory was complex and involved a high degree of subjectivity. The primary procedures we performed to address this critical audit matter included (a) Obtained an understanding of management’s process for allocating labor and overhead costs, (b) Tested the accuracy and completeness of allocated labor, including testing, on a sample basis, total labor costs incurred, (c) Tested the accuracy and completeness of overhead costs allocated, including testing, on a sample basis, overhead costs incurred (d) Evaluated the reasonableness of management’s significant assumptions used in such allocation, (e) compared the Company’s inventory ratios and per unit production costs to industry data, and (f) Recomputed the unit cost and total inventory costs. /s/ Assurance Dimensions
GB SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements GB SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements GB SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
The accompanying notes are an integral part of these consolidated financial statements GB SCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements GB SCIENCES, INC. AND SUBSIDIARIES SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The accompanying notes are an integral part of these consolidated financial statements GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020
Note 1 - Background and
We were incorporated in the State of Delaware on April 4, 2001, under the name
On Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval,
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000. Effective August 15, 2019, Shareholders of the Company approved an increase in authorized capital shares from 400,000,000 to 600,000,000. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020
Recent Developments
On
Convertible Note Payable to Iliad Research and On April 23, 2019, the Company issued an 8% Convertible Promissory Note
Intellectual Property Portfolio On October 14th,2020, GB Sciences filed a provisional patent application to protect its machine learning algorithm for the prediction of novel active ingredients from traditional, plant-based medical preparations. The new provisional patent application is entitled “In Silico Meta-Pharmacopeia Assembly from Non-Western Medical Systems Using Advanced Data Analytic Techniques to On September 23rd, GB Sciences received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for claims protecting their Cannabinoid Containing Complex Mixtures (CCCMs) for the Treatment of Mast Cell Activation Syndrome (MCAS). The patent is owned by GBSGB. MCAS is a severe immunological condition in which mast cells inappropriately and excessively release inflammatory mediators, resulting in a range of severe chronic hyperinflammatory symptoms and life-threatening anaphylaxis attacks. There is no single recommended treatment for MCAS patients. Instead, patients, with their doctor’s guidance, attempt to manage MCAS symptoms primarily by avoiding ‘triggers’ and using rescue medicines for their severe hyperinflammatory attacks. Therefore, MCAS patients need new therapeutic options to control their mast cell related symptoms, and the Company’s CCCM™ were designed to simultaneously control multiple inflammatory pathways within mast cells as a comprehensive treatment option. The application, entitled “Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders” was originally filed on January 31, 2018 and describes CCCMs that can be used for the treatment of Crohn's disease, Inflammatory Bowel Disease (IBD), Irritable Bowel Syndrome (IBS), rheumatoid arthritis, osteoarthritis, allergic asthma, Chronic Obstructive Pulmonary Disease (COPD), psoriasis, eczema, urticarias, dermatitis, mastocytosis, or anaphylactic sting. Claims for these additional indications will be examined by the USPTO in the future. On December 8, 2020, the patent was issued as United States Patent 10,857,107. On April 7th,2020, GB Sciences received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for claims protecting Cannabinoid Containing Complex Mixtures ("CCCMs") for the Treatment of Parkinson’s disease (PD), which is owned by GBSGB. On May 19, 2020, the patent was issued as United States Patent 10,653,640. On May 12th,2020, GB Sciences received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) for claims protecting Myrcene Containing Complex Mixtures ("MCCMs") for the Treatment of Neuropathic Pain. Intellectual property rights to this application and the MCCM contained within it are owned by GBSGB. The Company's MCCMs are protected for use in the treatment of pain related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. The patent was issued on July 14, 2020, as United States Patent 10,709,670. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Planned Divestiture of Nevada Cannabis Operations On November 15, 2019, we entered into a Binding Letter of Intent (the "LOI") to sell the Company's membership interest interests in GBSN and GBLV (together, the "Teco Subsidiaries"). In connection with the On November 27, 2019, we entered into a Binding Letter of Intent to sell the Company's 100% interest in GB Sciences Nopah, LLC. On August 10, 2020, the Company entered into
The
Note 2 - Going Concern
The
Management has been able, thus far, to finance the losses through a public offering, private placements of debt and equity, and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
Furthermore, Management believes the COVID-19 pandemic may have a significant impact on the Company's business. The pandemic presents a risk to the global economy, and it is possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials and ability to continue as a going concern. Management has not been able to measure the potential financial impact on the Company and continues to monitor the impact of the pandemic closely, although the extent to which the COVID-19 outbreak will impact our operations, financing ability or future financial results is uncertain. In view of these conditions, the
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 3 - Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
We prepare our consolidated financial statements in accordance with generally accepted accounting principles (GAAP) for the United States of America. Our consolidated financial statements include all operating divisions and majority-owned subsidiaries, reported as a single operating segment, for which we maintain controlling interests. The subsidiaries of the Company are: Continuing Operations: GBS Global Biopharma, Inc. ECRX, Inc. The PhAROS Institute, LLC GB Sciences Texas, LLC Discontinued Operations: GB Sciences Nevada, LLC GB Sciences Las Vegas, LLC GB Sciences Nopah, LLC Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Reclassifications Certain reclassifications have been made to the comparative period amounts in order to conform to the current period presentation. In particular, the assets, liabilities, income, and cash flows of GB Sciences Nevada LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC, have been separated from the comparative period amounts to conform to the current period presentation as discontinued operations as the result of the pending sale of the Company's Nevada operations. The reclassifications had no effect on the reported financial position, results of operations or cash flows of the Company. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Discontinued Operations See Note 4. Fair Value of Financial Instruments The Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC requirements for fair value measures. The three levels are defined as follows:
The carrying value of cash, accounts receivable, accounts
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had 0 short-term investments classified as cash equivalents at March 31, 2021 and 2020.
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for
Inventory
We value our inventory at the lower of the actual cost of our inventory, as determined using the
Our
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Operating Lease Right-of-Use Asset and Liability The Company determines if an arrangement is a lease at inception and has lease agreements for office facilities, equipment, and other space and assets with non-cancelable lease terms. Certain real estate and property leases, and various other operating leases are measured on the balance sheet with a lease liability and right-of-use asset ("ROU"). ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available. Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the New Lease Standard. Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of twelve months or less are not recorded on the balance sheet. Additionally, lease and non-lease components are accounted for as a single lease component for real estate agreements. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3-8 years for machinery and equipment, and leasehold improvements are amortized over the shorter of the estimated useful lives or the underlying lease term. Property under finance leases and related obligations are initially recorded at an amount equal to the present value of future minimum lease payments computed on the basis of the Company’s incremental borrowing rate, and depreciation is recorded on a straight-line basis and is included within depreciation and amortization expense. Repairs and maintenance expenditures which do not extend the useful lives of related assets are expensed as incurred. Long-Lived Assets
Property and equipment comprise a significant portion of our total
During the year ended March 31, 2020, the Company entered into the Membership Interest Purchase Agreement ("Teco MIPA") to sell 100% of the membership interests in the Teco Facility (Note 14). As a result of this agreement, the Company determined that the long-lived assets of the Teco Facility might be impaired due to the current expectation that the asset group will more likely than not be disposed of by sale significantly before the end of its previously estimated useful life. The Company estimated future undiscounted cash flows related to the Teco Facility to be $8.0 million, which was less than the carrying amount of the Teco Facility asset group of $11.9 million. Using a discounted cash flow approach, the Company estimated the fair value of the asset group to be approximately $7.3 million, resulting in a write-down of $4,645,054 related to the Teco Facility asset group. Fair value was based on expected future cash flows using level 3 inputs under ASC 820. The cash flows are the proceeds expected to be generated from the sale of the assets under the Teco MIPA, discounted to present value at a rate of 17%. The cash flow projection includes the $4.0 million in cash flows that the Company anticipates receiving from the Note Receivable that it will receive from the sale of the Teco facility and the $4.0M payment that will be received at the close of the sale. The impairment loss and the related long-lived assets are included in discontinued operations in the accompanying financial statements. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Beneficial Conversion Feature of Convertible Notes Payable
The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards
The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on a relative fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
Revenue Recognition
The FASB issued
The
Research and Development Costs
Research and development costs are expensed as incurred. During the years ended March 31, 2021 and 2020, the Company recorded $352,274 and $1,543,397, respectively, in research and development expense, which is included in general and administrative expense in the Company's consolidated financial statements.
Equity-Based Compensation
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC calculate the fair value of our stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets.
Because the Company operates in the State-licensed cannabis industry, it is subject to the limitations of Internal Revenue Code Section 280E (“280E”) for U.S. income tax purposes. Under 280E, the Company is allowed to deduct expenses that are directly related to the production of its products, i.e. cost of goods sold, but is allowed no further deductions for ordinary and necessary business expenses from its gross profit. The Company believes that the deductions disallowed include the deduction of NOLs. The unused NOLs will continue to carry forward and may be used by the Company to offset future taxable income that is not subject to the limitations of 280E. Loss per
The
Recent Accounting Pronouncements Recently Adopted Standards
In Standards Not Yet Adopted In May 2021, the FASB issued ASU No.2021-04, Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for The Company's fiscal year beginning April 1, 2022. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements. On June 16, 2016, the FASB issued ASU No.2016-13, Measurement of Credit Losses on Financial Instruments. The standard requires the use of an In June 2020, the FASB issued ASU No.2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. This ASU will be effective for the Company's fiscal year beginning April 1, 2024. Early adoption is permitted. The amendments in this update must be applied on either full retrospective basis or modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related disclosures, as well as the timing of adoption. All other newly issued accounting pronouncements have been deemed either immaterial or not applicable. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 4 - Discontinued Operations Discontinued Operations Discontinued operations comprise those activities that were disposed of during the period, or which were classified as held for sale at the end of the period and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. The Company has included its subsidiaries GB Sciences Louisiana, LLC, GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC in discontinued operations due to the sale of the Company's Louisiana cultivation and extraction facility (Note 13) and the pending sale of the Company's Nevada cultivation and extraction facilities (Note 14). There were 0 assets and liabilities from discontinued operations attributable to GB Sciences Louisiana, LLC at March 31, 2021 and 2020. The assets and liabilities associated with
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 The revenues and expenses associated with discontinued operations included in our consolidated statements of operations for the
The components of revenues and expenses associated with discontinued operations included in our consolidated statements of operations for the years ended March 31, 2021 and 2020 were as follows:
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on aging and subsequent collections. During the year ended March 31, 2021, the Company recorded $24,768 in bad debt recoveries as the result of a $94,912 decrease in the allowance for doubtful accounts and $70,144 of accounts written off as uncollectible. Accounts receivable are included in current assets from discontinued operations in the Company's consolidated balance sheets at March 31, 2021 and 2020. Inventory We value our inventory at the lower of the Raw materials consist of supplies, materials, and consumables used in the cultivation and extraction processes. Work-in-progress includes live plants and cannabis in the drying, curing, and trimming processes. Finished goods includes completed cannabis flower, trim, and extracts in bulk and packaged forms. Inventory is included in current assets from discontinued operations in the Company's consolidated balance sheets at March 31, 2021 and 2020.
Deposits and Noncurrent Assets Deposits and noncurrent assets from discontinued operations were $82,904 and $91,504 at March 31, 2021 and 2020, respectively. The decrease in deposits and prepayments is due to refunds of security deposits. Deposits and noncurrent assets are included in long term assets from discontinued operations in the Company's consolidated balance sheets at March 31, 2021 and 2020. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Leases In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842), (the "New Lease Standard"). This standard requires leases, other than short-term, to be recognized on the balance sheet as a lease liability and a corresponding right-of-use asset. Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the standard. Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. The Company adopted the standard as of April 1, 2019. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification. The Company adopted the New Lease Standard using the modified retrospective transition approach as of the effective date as permitted by the amendments in ASU 2018-11, "Targeted Improvements - Leases (Topic 842)." Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized at the adoption date. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption on April 1, 2019. The Company determines if an arrangement is a lease at inception and has had lease agreements for warehouses, office facilities, and equipment. As a result of the adoption of ASC 842 on April 1, 2019, certain real estate and equipment operating leases were recorded on the balance sheet with a lease liability and right-of-use asset ("ROU"). Application of this standard resulted in the recognition of ROU assets of $182,624, net of accumulated amortization, and a corresponding lease liability of $190,173 at the date of adoption. Accounting for finance leases is substantially unchanged. All of the Company's lease commitments previously recorded as operating leases have terminated as of March 31, 2021. The Company's only remaining lease commitment as of March 31, 2021, is a finance lease for the Teco Facility, which is classified as discontinued operations in the Company's financial statements for the years ended March 31, 2021 and 2020. This lease has a remaining non-cancelable term that ends December 31, 2025 with an option to extend through December 31, 2030. Operating leases are included in discontinued operations as operating lease right-of-use assets, operating lease obligations, current, and operating lease obligations, long term on the Company's balance sheets. Finance leases are included in property and equipment, finance lease obligations, current, and finance lease obligations, long term, on the Company's balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available. The rates used to discount finance leases previously recorded as capital leases range from 10.2% to 11.5%. Operating leases were discounted at a rate of 17.0%. Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the consolidated balance sheet. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 The lease costs recorded in the Company's financial statements for the years ended March 31, 2021 and 2020 are set forth in the table below:
The future minimum lease payments of lease liabilities, including the costs of the lease extension, classified as discontinued operations at March 31, 2021, are as follows:
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 5– Notes Payable and Line of Credit 0% Note Payable dated October 23, 2017 On October 23, 2017, the Company amended the existing Nevada Medical Marijuana Production License Agreement (“Amended Production License Agreement”). Per the terms of the Amended Production License Agreement, GB Sciences purchased the remaining percentage of the production license resulting in the 100% ownership of the license. GB Sciences also received 100% ownership of the cultivation To date, the Company has made principal payments totaling $330,555 and the principal balance of the note was $369,445 at On August 10, 2020, the Company entered into the
In connection with the 8% Note Payable dated May 7, 2020 On May 7, 2020, the Company 8% Line of Credit dated July 24, 2020 On July 24, 2020, the Company entered into the 101 GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and On December 29, 2020, the Company entered into the Omnibus Amendment with the purchaser of the Teco Facility. The Omnibus Amendment reduces the amount of the note receivable that the Company will receive from the sale of the Teco Facility by $975,000 (three times $325,000 in advances made under the July 24 Note) to $3,025,000. Any advances made to the Company under the July 24 Note in excess of $325,000 will reduce the amount of cash received upon close of the sale of Teco one-for-one, i.e., such advances will be considered advance payments of the $4,000,000 cash purchase price. The Company also agreed that it will not repay the balances outstanding under the July 24 Note prior to the closing of the Teco sale. As a result of the Omnibus Amendment, the Company accrued a modification expense of $650,000 (two times $325,000 in addition to $325,000 in advances already recorded under the July 24 Note). The Company has received $50,000 in additional advances above $325,000 bringing the total balance to $1,025,000 at March 31, 2021. Interest expense was $12,510 for the year ended March 31, 2021. Summary of Notes Payable As of March 31, 2021, the following notes payable were recorded in the Company’s consolidated balance sheet:
As of March 31, 2020, the following notes payable were recorded in the Company’s consolidated balance sheet:
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 6– Convertible Notes March 2017 and July 2017 Convertible Note Offerings In March 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.60 per share for the period of three years. Between March 2017 and May 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $2,000,000. The Notes are payable within three years of issuance and are convertible into 8,000,000 shares of the Company’s common stock. The Company also issued 8,000,000 common stock warrants to the Noteholders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase 1 share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The Company recorded an aggregate discount on convertible notes of $1,933,693, which included $904,690 related to the relative fair value of beneficial conversion features and $1,029,003 for the relative fair value of the warrants issued with each note. The fair value of warrants was derived using the Black-Scholes valuation model. In July 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.65 per share for the period of three years. Between July 2017 and December 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $7,201,000. The Notes are payable within three years of issuance and are convertible into 28,804,000 shares of the Company’s common stock. The Company also issued 28,804,000 common stock warrants to the Note holders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase 1 share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The Company recorded an aggregate discount on convertible notes of $7,092,796, which included $3,142,605 related to the relative fair value of beneficial conversion features and $3,950,191 for the relative fair value of the warrants issued with each note. The fair value of warrants was derived using the Black-Scholes valuation model. All notes from the March and July 2017 offerings have passed their maturity dates. During the year ended March 31, 2021, the Company agreed to extensions with the holders of a total of $197,000 of the $1,257,000 that remains outstanding. For the $197,000 of extended notes, the Company agreed to reduce the conversion price to $0.10 per share and issued a total of 788,000 additional warrants to the holders of the notes with a term of three years and an exercise price of $0.10 per share. In exchange, the maturity date of the notes was extended to September 30, 2023. Using the Black-Scholes model, the Company valued the warrants at $13,396 and the change in the fair value of the conversion feature at $33,490. Because the change in the fair value of the conversion feature exceeded 10% of the carrying amount of the notes, the Company accounted for the modification of the notes as an extinguishment and recorded a discount on the new convertible notes of Three convertible notes totaling $1,060,000 held by the same investor are past maturity and are currently in default. The Company is negotiating the terms of an extension with the 8% Senior SecuredConvertible Promissory Note dated February 28, 2019 On February 28, 2019, the Company issued a $1,500,000 8% Senior Secured Convertible Promissory Note and entered into the Note Purchase Agreement 103 GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020
On
On July 12, 2019, the Company entered into the Amendment to Note Documents and the Amended and Restated 8% Senior Secured Promissory Note (together, “Amended CSW Note”). The Amended CSW Note increased the note balance by $100,000 to reflect an additional $100,000 advanced to the Company on July 12, 2019, and by $41,863 to add accrued interest to date to the principal balance, and decreased the conversion price to $0.11 per share, with the remaining terms substantially unchanged from the original CSW Note. The Company evaluated the modification under the guidance in ASC 470-50 and determined that the amendment represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the CSW Note on the amendment date. The carrying value of the amended note on the date of extinguishment was $1,338,057, net of a beneficial conversion feature discount of $133,806, and we recorded a loss on extinguishment of $124,158. On August On October 23, 2019, the Company entered into the Amendment to Promissory Note. The October 23, 2019 amendment decreased the conversion price to $0.08 per share, with the remaining terms substantially unchanged from the Amended CSW Note. We evaluated the modification under the guidance in ASC 470-50 and determined that the amendment represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the Amended CSW Note immediately prior to the 2nd Amended CSW Note. The carrying value of the Amended CSW Note on the date of extinguishment was $1,269,067, net of a beneficial conversion feature discount of $92,796, and we recorded a loss on extinguishment of $92,796 during the year ended March 31, 2020. On November 27, 2019, the Company entered into the Second We evaluated the modification under the guidance in
On
stock. In connection with the On December 29, 2020, the Company entered into the Omnibus Amendment (Note 14), and the note holder agreed to cease interest accrual on the CSW Note after November 30, 2020. During the quarter ended March 31, 2021, the Company received notice of the conversion of $160,000 total principal balance at $0.04 per share and issued 4,000,000 shares of common stock to the note holder. After the conversions, the remaining principal balance and carrying amount of the note is $1,111,863 as of March 31, 2021. During the year ended March 31, 2021, we recorded interest expense of $477,500 related to the CSW Note and its amendments consisting of $68,019 in stated interest and $409,481 related to amortization of the note discount. The total outstanding balance of principal and accrued interest totaling $1,256,857 will reduce the $4,000,000 cash payment received by the Company upon the close of the sale of the Teco Facility, and no further interest expense will be accrued on the note. 104 GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 8% Convertible Promissory Note dated April 23, 2019 On April 23, 2019, the Company entered into the Note Purchase Agreement with Iliad Research and Trading, L.P. ("Iliad") and issued an 8% Convertible Promissory Note with a face value of $2,765,000. The Note was issued with original issue discount of $265,000 and is convertible into shares of the Company’s common stock at a price of $0.17 per share at the option of the note holder at any time until the Note is repaid. The Note matured on April 22, 2020. A total discount of $440,000 was recorded on the note, which includes $265,000 of original issue discount and $175,000 in fees paid to brokers. During the year ended March 31, 2020, the Company honored the conversion of a total of a total of $125,000 of accrued interest on the Iliad Note at reduced conversion rates. On October 30, 2019, the Company received notice of the conversion of $75,000 at $0.06 per share and issued 1,250,000 shares of its common stock. The fair value of the shares issued exceeded the fair value of the shares issuable under the original terms of the Note by $64,706, and the Company recorded On April 22, 2020, the Company failed to make payment of the principal and accrued interest due under the Iliad Note, resulting in a default. Upon the occurrence of the default, the principal and accrued interest balances outstanding increased by 10%. As the result of the default, Company recorded an expense of On May 20, 2020, Iliad filed a lawsuit against the Company in the Third Judicial District Court of Salt Lake County in the State of Utah demanding repayment of the note. The lawsuit further sought to compel the Company to participate in arbitration pursuant to the arbitration provisions contained within the Note Purchase Agreement and to prohibit the Company to raise funds through the issuance of its common stock unless the note is paid in full simultaneously with such issuance. On July 14, 2020, the Court entered judgment in favor of Iliad in the amount of $3,264,594 plus reasonable attorney's fees and costs and accrued post-judgment interest at the default rate of 15% per annum. On November 20, 2020, the Company, Iliad, and Wellcana Plus, LLC entered into the Judgment Settlement Agreement, whereby Iliad agreed to discharge all amounts owed to it by the Company upon receipt of payment totaling $3,006,015 directly from the proceeds of the Wellcana Note Receivable (Note 14) on or before December 8, 2020. On December 8, 2020, Wellcana failed to make payment to the Company. On December 9, 2020, the Company entered into a letter agreement with Iliad extending the Judgment Settlement agreement in exchange for payment of $25,000 plus $25,000 per week until the payment totaling $3,006,015 is received by Iliad, with such payments not reducing the amount owed under the Judgment Settlement Agreement. On December 16, 2020, Wellcana made payment of the full amount owed to the Company, of which $3,006,015 was paid directly to Iliad in full satisfaction of the Judgment Settlement Agreement. On December 18, 2020, Iliad filed a Satisfaction of Judgment in the Third Judicial District Court of Salt Lake County in the State of Utah, and the lawsuit was dismissed. The Company has no further obligations to Iliad. During the year ended March 31, 2021, interest expense related to the Iliad Note was $379,956, of which $29,831 relates to amortization of the note discount, $140,833 relates to accrued
December 2020 $575,0006% Convertible Notes On December 18, 2020, the Company began an offering of 6.0% convertible notes for the purpose of funding a pre-clinical study of the Company's patent-pending Cannabinoid-Containing Complex Mixtures for the treatment of Cytokine Release Syndromes, including Acute Respiratory Distress Syndrome, in COVID-19 patients. The Company pledged the related intellectual property as security for the notes. The notes are convertible at a rate of $0.05 per share at the lender's request. During the year ended March 31, 2021, the Company issued $575,000 in convertible notes under the offering to three investors. $325,000 of the notes mature in December 2021, and $250,000 mature in December 2023. Payment of accrued interest and principal is due at maturity. The Company received cash of $500,250, net of issuance costs, and recorded At March 31, 2021, notes with a carrying amount of $28,496 were included in
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful
During the year ended March 31, 2020, the Company entered into the Membership Interest Purchase Agreement ("Teco MIPA") to sell 100% of the membership interests in the Teco Facility (Note 14). As a result of this agreement, the Company determined that the long-lived assets of the Teco Facility might be impaired due to the current expectation that the asset group will more likely than not be disposed of by sale significantly before the end of its previously estimated useful life. The Company estimated future undiscounted cash flows related to the Teco Facility to be $8.0 million, which was less than the carrying amount of the Teco Facility asset group of $11.9 million. Using a discounted cash flow approach, the Company estimated the fair value of the asset group to be approximately $7.3 million, resulting in a write-down of $4,645,054 related to the Teco Facility asset group. Fair value was based on expected future cash flows using level 3 inputs under ASC 820. The cash flows are the proceeds expected to be generated from the sale of the assets under the Teco MIPA, discounted to present value at a rate of 17%. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note The Company files income tax returns in the U.S. federal jurisdiction. The Company operates in the state of Nevada, which does not levy an income tax. The Company has analyzed filing positions for all open tax years in the federal jurisdiction where it is required to file income tax returns. The Company identified its federal tax return as its “major” tax jurisdiction, as defined under generally accepted accounting principles. The Company’s effective tax rate was -3.6% and 0.0% for the years ended March 31, 2021 and 2020, respectively. Income tax expense was $168,527 for the year ended March 31, 2021, which includes $48,076 in penalties and interest related to a $486,145 tax liability from the March 31, 2018 tax year. Income tax payable at March 31, 2021 was $761,509 including a $486,145 income tax liability related to the March 31, 2018 tax year and accrued penalties and interest of $154,914. Income tax expense was $86,837 for the year ended March 31, 2020. This amount represents penalties and interest on the March 31, 2018 tax liability. Income tax payable was $592,982 as of March 31, 2020. Income tax expense and income tax payable are included in discontinued operations in the Company's financial statements for the years ended March 31, 2021 and 2020. Because the Company operates in the State-licensed cannabis industry, it is subject to the limitations of Internal Revenue Code Section 280E (“280E”) for U.S. income tax purposes. Under 280E, the Company is allowed to deduct expenses that are directly related to the production of its products, i.e., cost of goods sold, but is allowed no further deductions for ordinary and necessary business expenses from its gross profit. The Company believes that the deductions disallowed include the deduction of NOLs. The unused NOLs will continue to carry forward and may be used by the Company to offset future taxable income that is not subject to the limitations of 280E.
At March 31,
The provision for income taxes included in discontinued operations is different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the following reconciliation:
The tax effects of the primary temporary differences giving rise to the
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income and the The Company believes that the tax positions taken in its tax returns would be sustained upon examination by taxing authorities. The Company files income tax returns in the U.S. federal jurisdiction and other required state jurisdictions. The Company's periodic tax returns filed in Note 9– Capital Transactions Year Ended March 31, 2021 On April 1, 2020, the Company entered into the Advisory Agreement with its brokers and effected a temporary decrease in the exercise price of the Company's outstanding warrants to $0.03-$.05 per share. As a result of the price reduction, the Company received notice of the exercise of 35,798,809 warrants during the year ended March 31, 2021, and received proceeds of $968,023, net of brokerage fees of $(107,373). The Company recorded inducement dividends totaling $1,591,080 as the difference between the reduced exercise price of the warrants and the stock price on the date of exercise. During the year ended March 31,
On December 7, 2020, the board of
108 GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 On January 2, 2021, the board of directors approved the re-pricing and extension of 9,424,613 outstanding compensation warrants issued to the Company's brokers. The exercise price of the warrants was
During the
On February 8, 2021, the board of directors approved the issuance of 42,705,809 replacement warrants to investors who had exercised warrants at prices that were near or at-the-money beginning in December of 2019 in order to provide working capital to the Company. The replacement warrants expire three years from the date of
Stock Issued for Debt Conversions
During the year ended March 31,
On December 16, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $120,000 of the principal balance of the Amended CSW Note at $0.04 per share and we issued 3,000,000 shares of common stock. In connection with the conversions, $57,551 in unamortized discount was recorded as interest expense and the Company has reduced the carrying amount of convertible notes payable by $62,449. After conversion, the remaining balance outstanding was $1,271,863 and the carrrying amount of the note was $687,021, net of $584,842 in unamortized discount from the beneficial conversion feature. During the year ended March 31, 2020, the Company has honored the conversion of a total of a total of $125,000 of debt owed under the Iliad Note at reduced conversion rates. On October 30, 2019, the Company received notice of the conversion of $75,000 at $0.06 per share and issued 1,250,000 shares of its common stock. The fair value of the shares issued exceeded the fair value of the shares issuable under the original terms of the Note by $64,706, and the Company recorded an expense in that amount. On November 18, 2019, the Company received notice of the conversion of $50,000 of the note balance at $0.0375 per share and issued 1,333,333 shares of its common stock. The fair value of the shares issued exceeded the fair value of the shares issuable under the original terms of the Note by $62,353, and the Company recorded an expense in that amount. In total, the Company recorded $127,059 in noncash expense for the two conversions of the Iliad note at below contractual conversion rates for the year ended March 31, 2020. 109 GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Exercise of Warrants for Stock
During the year ended March 31, In order to encourage the exercise of approximately 70.5 million warrants
Issuance of Stock for Services
Warrants Outstanding
Presented below is a summary of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 10– Employee Benefit Plan
Share-Based Employee Compensation
On February 6, 2008, the
Compensation Expense
For the years ended March 31,
Fair Value
The closing price of the Company's stock on the date of grant is used as the fair value for
The following range of assumptions in the Black-Scholes option pricing model was used to determine fair
Expected volatilities used for award valuation Company's common stock. The risk-free interest rate for periods equal to the expected term of an award is based on
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 StockOptions
A summary of employee option activity, including warrants issued to employees, as of March 31,
The table below sets forth nonemployee option activity for the years ended March 31, 2021 and 2020:
Restricted stock awards
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31,
Note 11– Commitments and Contingencies
On September 18, 2017, GB Sciences finalized its agreement with Louisiana State University The contract includes the
An individual filed a Charge of Discrimination with the Nevada Equal Rights Commission ("NERC") against the Company on April 2, 2019, alleging sexual harassment and retaliatory discharge. The On April 22, 2020, the Company failed to On April 22, 2020, the Company was served notice of a lawsuit filed in the Eighth Judicial District Court in Clark County, Nevada, filed by a contractor who had been hired to perform architectural and
From time to time, the Company may become involved in certain legal proceedings and claims which arise in the ordinary course of business. In
GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and
Note
On September 1, 2019, the Company and its former CFO and COO, Ksenia Griswold, terminated their relationship and entered into the Severance Agreement. Pursuant to the Severance Agreement, Ms. Griswold would receive severance payments of $20,000 per month for 9 months following the date of separation and would continue receive health insurance coverage for the same period. On January 2, 2021, the Company entered into the Settlement Agreement with Ms. Griswold, and made payment of $57,000 in full satisfaction of $114,159 in Severance compensation owed to Ms. Griswold. As the result of the settlement, the Company recorded a gain of $57,159, which is included in gain on settlement of accounts payable in the Company's consolidated financial statements. On November 16, 2020, the Company entered into a
In connection with the sale of membership interest in GB Sciences Louisiana, LLC, the Company issued a note payable in the amount of $151,923 to John Davis, the Company's former General Counsel and GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 13– Sale of 50% Membership Interest in GB Sciences Louisiana, LLC On November 15, 2019, the Company entered into the Membership Interest Purchase Agreement ("MIPA") with Wellcana Plus, LLC ("Wellcana"). In consideration for the sale of its
Upon close of the sale on November 15, 2019, the Company recorded a gain on deconsolidation of $4,393,242 related to the sale of its membership interest in GBSLA, calculated as follows:
115 GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, On August 24, 2020, the Company entered into a As a result of the August 24, 2020 letter of intent, the Company determined that the amount of the note that was collectible as of March 31, 2020 was $5,224,423 and recorded a loss on modification of note receivable calculated as follows:
The Company received payments from Wellcana totaling $550,000 in August and September of 2020, which in combination with the repayment of a note payable to related party of $151,923 and the $172,500 liabilities assumed by Wellcana reduced the final payment owed under the letter agreement to $4,350,000. On October 15, 2020, the Company was notified that Wellcana would be unable to make the payment of $4,350,000 by October 15, 2020, and the parties entered into a letter agreement, which extended the due date of the final $4,350,000 payment to December 8, 2020. The letter agreement also required Wellcana to provide proof of $4,350,000 in funds and an escrow deposit of $250,000, which was to be released to the Company in the event that Wellcana were unable to make the $4,350,000 payment on or before December 8, 2020. On October 24, 2020, the parties entered into the Escrow Agreement and Wellcana made the $250,000 escrow payment on October 29, 2020. On December 8, 2020, Wellcana failed to make the payment and the $250,000 escrow deposit was disbursed to the Company. The Company retained $50,000 of the escrow disbursement as compensation for Wellcana's failure to meet the agreed-upon deadline of December 8, 2020, which is recorded in other income, and did not offset that amount against the $4,350,000 balance owed by Wellcana. On December 16, 2020, Wellcana made payment of the remaining balance of $4,150,000, satisfying its obligations to the Company in full. The Company's statements of operations and cash flows for the year ended March 31, 2020 include activity through the close of the sale on November 15, 2019, classified as discontinued operations. GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 14 - Sale of 100% Membership Interest in Teco Facility and Nopah License On November 15, 2019, we entered into a Binding Letter of Intent ("Teco LOI") to sell 75% of the Company's
On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") with AJE Management, LLC, which formalized the sale of the Teco Subsidiaries and modified the terms of the sale. Pursuant to the Teco MIPA, the Company will sell 100% of its membership interests in GBSN and GBLV for $4,000,000 cash upon close and will receive a On July 24, 2020, the Company entered into the Loan Agreement, 8% Secured Promissory Note, and Security Agreement (together, the "July 24 Note") with AJE Management, LLC. Contemporaneously with the Loan Agreement, the Company and AJE Management entered into the Amendment to the Membership Interest Purchase Agreement with AJE Management. The amendment provides that any balances outstanding under the July 24 Note at the time of
The Omnibus Amendment also amends the Management Services Agreement to provide that no further management fees will accrue after November 30, 2020. As of March 31, 2021, the Company has accrued $850,000 which will reduce the $4,000,000 in cash proceeds received upon the close of the sale. The form of the note receivable that the Company will receive on close was amended to accelerate payments such that the Company will receive payment in full within three years, rather than over 36 months with payments beginning 30 months after the close of the sale. The sale is expected to close upon the successful transfer of the Nevada cultivation and production licenses. The transfer of cannabis licenses in the State of Nevada was subject to an indefinite moratorium beginning in October 2019. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there are over 90 requests pending, and it will take up to several months to process the entire backlog of pending license transfers. The lifting of the moratorium and processing of cannabis license transfers have been delayed by the COVID-19 pandemic and could be further delayed if the pandemic continues. The Company also holds a Nevada license for cultivation of medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The license is owned by the Company’s wholly owned subsidiary, GB Sciences Nopah, LLC ("Nopah"). Operations have not begun under the Nopah License. On November 27, 2019, the Company entered into a
Binding Letter of Intent to GB Sciences Nopah, LLC. On Because the GB SCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 and 2020 Note 15– Concentrations
Note 16–
On
On
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in connection with the issuance and distribution of common stock registered hereby, all of which expenses, except for the Securities and Exchange Commission registration fee, are estimated.
ITEM 14.
Section 78.7502 of the NRS permits a Nevada corporation to Section 78.751 of the NRS permits a Nevada corporation to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit, or proceeding as they are incurred and in advance of final disposition thereof, upon determination by the stockholders, the disinterested board members, or by independent Section 78.752 of the NRS provides that a Nevada corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. Our Articles of Incorporation are silent on the indemnification and insurance provisions of Chapter 78 of the NRS. However, our Bylaws provide as follows: “INDEMNIFICATION AND INSURANCE. 6.1 Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent permitted by the General Corporation Law of Delaware, as amended from time to time, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and that indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and administrators; provided, however, that, except as provided in section 6.2, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by that person, only if that proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in these by-laws shall be a contract right and shall include 6.2 Right of Claimant to Bring Suit. If a claim under section 6.1 is not paid in full by the corporation within 30 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant also shall be entitled to be paid the expense of prosecuting that claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking, if any, is required and has been tendered to the corporation) that the claimant has failed to meet a standard of conduct that makes it permissible under Delaware law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board, its independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he has met that standard of conduct, nor an actual determination by the corporation (including its Board, its independent counsel or its stockholders) that the claimant has not met that standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet that standard of conduct. 6.3 Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this section 6 shall not be exclusive of any other 6.4 Insurance. The corporation may maintain insurance, at its expense, to 6.5 Expenses as a Witness. To the extent any director, officer, employee or agent of the corporation is 6.6 Indemnity Agreements. The corporation may enter into agreement with any director, officer, employee or agent of the corporation providing for indemnification to the By way of At the present time, there is no pending litigation or
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the
123
The above mentioned securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the "Securities Act") and/or Rule 506 of Regulation D under the Securities Act, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(b) Financial Statement Schedules
See the Index to Financial Statements included on page
ITEM
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(ii) To reflect in the prospectus any facts or events arising after the effective date of
(2) That for the purpose of determining any liability under the Securities Act of 1933, each (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. (5) That for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to In the event that a claim for indemnification against such liabilities
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Las Vegas, State of Nevada, on
Each person whose signature appears below hereby constitutes and appoints John Poss his true and lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all (1) amendments (including post-effective amendments) and additions to this Registration Statement and (2) Registration Statements, and any and all amendments thereto (including post-effective amendments), relating to the offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
/s/ John Poss John Poss, CEO and Director
/s/ Andrea Small-Howard Andrea Small-Howard, President and Director
/s/
/s/
129 |