| Note 1 - Background and Significant Accounting Policies | Note 1 – Background and Significant Accounting Policies GB Sciences, Inc. (“the Company”, “GB
Sciences”, “we”, “us”, or “our”) 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 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. GB Sciences intends to operate as an intellectual property
company that will conduct its business through its subsidiaries. In addition, the Company owns and will seek to own majority interests
in each of its existing and future operating subsidiaries. Through its wholly owned Canadian subsidiary, GBS Global
Biopharma, Inc. (“GBSGB”), the Company conducts research and develops intellectual property related to the medicinal
uses of the cannabis plant. 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”). GBSGB’s intellectual property portfolio includes four USPTO & WIPO patent applications,
two provisional USPTO patent applications, three patent applications that we anticipate filing during the fiscal year ended March
31, 2020, and licenses for three additional patents. Although we believe that maximum shareholder value will ultimately
be achieved through the development, production and marketing of certified cannabinoid medicines, therapies and treatments, in
order to generate near-term cash flow, we cultivate and produce cannabis extracts and products for medical and recreational purposes
in Nevada and Louisiana. We currently operate cultivation and extraction facilities in Nevada under our subsidiaries GB Sciences
Nevada, LLC and GB Sciences Las Vegas, LLC. As of the date of this report, we also have a presence in Louisiana through our controlling
interest in GB Sciences Louisiana, LLC, which has partnered with Louisiana State University to operate a cultivation and extraction
facility to produce products for the medical cannabis market. We recently agreed to terms to sell our interest in GB Sciences Louisiana,
LLC for $8 million cash and up to an additional $8 million in earnout payments, with closing anticipated on or before November
30, 2019. The Company may retain its research relationship with Louisiana State University after the sale is completed and negotiations
are in process as of the date of this report. 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-Q and Article 8 of Regulations 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, 2020. The balance sheet
at March 31, 2019 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 to the consolidated financial
statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended March 31, 2019. 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. Intercompany accounts and transactions have been eliminated in consolidation. The ownership
interest of noncontrolling participants in subsidiaries that are not wholly owned is included as a separate component of equity.
The noncontrolling participants’ share of the net loss is included as “Net loss attributable to noncontrolling interest”
on the unaudited consolidated statements of operations. 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, 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. Reclassifications Certain reclassifications have been made to the comparative
period amounts in order to conform to the current period presentation. The current and long-term capital lease obligations recorded
in the consolidated balance sheet as of March 31, 2019 have been reclassified to conform to the current period presentation as
finance lease obligations, current, and finance lease obligations, long term. In addition, the assets, liabilities, income, and
cash flows of GB Sciences Louisiana, LLC have been separated from the comparative period amounts to confirm to the current period
presentation as discontinued operations as the result of the agreement to pursue the sale of the Company’s interest in GB
Sciences Louisiana, LLC (Note 10). The reclassifications had no effect on the reported financial position, results of operations
or cash flows of the Company. 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 assets and liabilities associated with discontinued operations
included in our condensed consolidated balance sheets are as follows:
Discontinued Operations – (continued) September 30, 2019 March 31, 2019
Continuing Discontinued Total Continuing Discontinued Total
ASSETS
CURRENT ASSETS
Cash $ 84,799 $ 9,519 $ 94,318 $ 182,055 $ 45,703 $ 227,758
Accounts receivable, net 187,179 - 187,179 488,329 - 488,329
Inventory, net 1,541,676 1,450,985 2,992,661 1,533,792 602,714 2,136,506
Prepaid and other current assets 60,066 16,174 76,240 262,208 351,970 614,178
TOTAL CURRENT ASSETS 1,873,720 1,476,678 3,350,398 2,466,384 1,000,387 3,466,771
Property and equipment, net 10,265,138 12,857,404 23,122,542 10,481,706 13,022,996 23,504,702
Intangible assets, net 1,977,672 - 1,977,672 1,818,802 - 1,818,802
Deposits and other noncurrent assets 221,889 1,002,376 1,224,265 230,651 1,002,376 1,233,027
Operating lease right-of-use assets, net 156,972 8,400 165,372 - - -
TOTAL ASSETS $ 14,495,391 $ 15,344,858 $ 29,840,249 $ 14,997,543 $ 15,025,759 $ 30,023,302
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 1,621,424 $ 1,303,079 $ 2,924,503 $ 1,374,771 $ 1,695,985 $ 3,070,756
Accrued interest 310,415 - 310,415 142,112 - 142,112
Accrued expenses 393,120 57,296 450,416 244,931 76,415 321,346
Notes payable, net 4,917,653 100,000 5,017,653 2,229,812 300,000 2,529,812
Income tax payable 506,145 - 506,145 506,145 - 506,145
Finance lease obligations, current 106,488 65,131 171,619 80,132 61,877 142,009
Operating lease obligations, current 44,571 - 44,571 - - -
TOTAL CURRENT LIABILITIES 7,899,816 1,525,506 9,425,322 4,577,903 2,134,277 6,712,180
Note payable, net 56,414 - 56,414 161,072 161,072
Operating lease obligations, long term 126,967 8,400 135,367 - -
Finance lease obligations, long term 3,593,372 2,314,111 5,907,483 3,646,540 2,347,511 5,994,051
TOTAL LIABILITIES $ 11,676,569 $ 3,848,017 $ 15,524,586 $ 8,385,515 $ 4,481,788 $ 12,867,303
The revenues and expenses associated with discontinued
operations included in our condensed consolidated statements of operations were as follows:
For the Three Months Ended September 30,
2019 2018
Continuing Discontinued Total Continuing Discontinued Total
Sales revenue $ 1,171,698 $ 377,007 $ 1,548,705 $ 717,229 $ - $ 717,229
Cost of goods sold (1,857,150) (380,629) (2,237,779) (302,744) - (302,744)
Gross profit (loss) (685,452) (3,622) (689,074) 414,485 - 414,485
General and administrative expenses 1,403,314 424,732 1,828,046 3,806,320 762,712 4,569,032
LOSS FROM OPERATIONS (2,088,766) (428,354) (2,517,120) (3,391,835) (762,712) (4,154,547)
OTHER INCOME/(EXPENSE)
Interest expense (475,558) (62,777) (538,335) (2,765,866) (62,985) (2,828,851)
Other income/(expense) 69,457 - 69,457 (3,047,667) - (3,047,667)
Total other expense (406,101) (62,777) (468,878) (5,813,533) (62,985) (5,876,518)
NET LOSS BEFORE INCOME TAXES (2,494,867) (491,131) (2,985,998) (9,205,368) (825,697) (10,031,065)
Income tax benefit 57,392 - 57,392 - - -
NET LOSS $ (2,437,475) $ (491,131) $ (2,928,606) $ (9,205,368) $ (825,697) $ (10,031,065)
For the Six Months Ended September 30,
2019 2018
Continuing Discontinued Total Continuing Discontinued Total
Sales revenue $ 2,082,374 $ 377,007 $ 2,459,381 $ 2,032,513 $ - $ 2,032,513
Cost of goods sold (2,481,519) (380,629) (2,862,148) (883,309) - (883,309)
Gross profit (loss) (399,145) (3,622) (402,767) 1,149,204 - 1,149,204
General and administrative expenses 3,468,863 626,571 4,095,434 7,623,356 1,409,557 9,032,913
LOSS FROM OPERATIONS (3,868,008) (630,193) (4,498,201) (6,474,152) (1,409,557) (7,883,709)
OTHER INCOME/(EXPENSE)
Interest expense (913,374) (125,372) (1,038,746) (4,422,714) (126,319) (4,549,033)
Other income/(expense) 69,457 - 69,457 (2,949,806) - (2,949,806)
Total other expense (843,917) (125,372) (969,289) (7,372,520) (126,319) (7,498,839)
NET LOSS BEFORE INCOME TAXES (4,711,925) (755,565) (5,467,490) (13,846,672) (1,535,876) (15,382,548)
Income tax benefit - - - - - -
NET LOSS $ (4,711,925) $ (755,565) $ (5,467,490) $ (13,846,672) $ (1,535,876) $ (15,382,548) 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. No indicators
of impairment were identified by the Company as of March 31, 2019. 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 net realizable 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. 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 current revenue source is
from sales of cannabis, a distinct physical good. 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. 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 136,230,024 and 73,579,521 potentially
dilutive common shares at September 30, 2019 and 2018, 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 Recently Adopted Standards 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. This standard is effective for interim and annual reporting periods beginning
after December 15, 2018 and 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's consolidated balance sheet was affected by this standard, but the
consolidated statement of operations and consolidated statement of cash flows were not significantly impacted. The most significant
change to the consolidated balance sheet upon adoption on April 1, 2019 relates to the recognition of new right-of-use (ROU) assets
of $182,624, net of accumulated amortizations, and operating liabilities of $190,173 at the date of adoption. The Company's accounting
for finance leases remains substantially unchanged. In June 2018, the FASB issued ASU 2018-07, “Compensation -
Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”).
ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from
nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective
for the Company as of April 1, 2019. The Company determined that all share-based payments were settled as of the date of the adoption,
so there was no impact on the Company's consolidated financial statements. All other newly issued accounting pronouncements but not yet effective
have been deemed either immaterial or not applicable. |
