UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
__________________________
(Mark One)
☒ |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2020 |
☐ |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission file number: 000-55462 |
GB SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Nevada (State or other Jurisdiction of Incorporation or organization) |
|
59-3733133 (IRS Employer I.D. No.) |
3550 W. Teco Avenue
Las Vegas, Nevada 89118
Phone: (866) 721-0297
(Address and telephone number of
principal executive offices)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of exchange on which registered |
None | N/A | N/A |
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). ☐ Yes ☒ No
There were 293,521,444 shares of common stock, par value $0.0001 per share, outstanding as of February 13, 2021.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED December 31, 2020
INDEX
ITEM 1. Financial Statements (Unaudited)
GB SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, |
As of March 31, |
|||||||
2020 |
2020 |
|||||||
CURRENT ASSETS: |
(unaudited) | |||||||
Cash and cash equivalents |
$ | 771,064 | $ | 2,406 | ||||
Prepaid expenses and other current assets |
40,225 | 18,776 | ||||||
Note receivable |
- | 5,224,423 | ||||||
Current assets from discontinued operations |
2,084,877 | 1,755,275 | ||||||
TOTAL CURRENT ASSETS |
2,896,166 | 7,000,880 | ||||||
Property and equipment, net |
28,150 | 37,821 | ||||||
Intangible assets, net of accumulated amortization of $28,968 and $12,287 at December 31, 2020 and March 31, 2020, respectively |
1,647,376 | 1,128,702 | ||||||
Long term assets from discontinued operations |
5,677,156 | 6,185,465 | ||||||
TOTAL ASSETS |
$ | 10,248,848 | $ | 14,352,868 | ||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 1,456,695 | $ | 1,913,049 | ||||
Accrued interest |
462,930 | 366,865 | ||||||
Accrued liabilities |
1,110,525 | 813,618 | ||||||
Notes and convertible notes payable and line of credit, net of unamortized discount of $0 and $608,580 at December 31, 2020 and March 31, 2020, respectively |
3,726,308 | 5,054,728 | ||||||
Indebtedness to related parties |
331,895 | 586,512 | ||||||
Note payable to related party |
- | 151,923 | ||||||
Income tax payable |
827,546 | 592,982 | ||||||
Current liabilities from discontinued operations |
1,115,379 | 1,406,080 | ||||||
TOTAL CURRENT LIABILITIES |
9,031,278 | 10,885,757 | ||||||
Convertible notes payable, net of unamortized discount of $63,058 and $0 at December 31, 2020 and March 31, 2020, respectively | 283,942 | - | ||||||
Long term liabilities from discontinued operations |
3,429,704 | 3,555,605 | ||||||
TOTAL LIABILITIES |
12,744,924 | 14,441,362 | ||||||
Commitments and contingencies (Note 8) |
||||||||
STOCKHOLDERS' DEFICIT: |
||||||||
Common Stock, $0.0001 par value, 600,000,000 shares authorized, 283,819,453 and 275,541,602 outstanding at December 31, 2020 and March 31, 2020, respectively |
28,382 | 27,554 | ||||||
Additional paid-in capital |
98,126,152 | 97,271,157 | ||||||
Accumulated deficit |
(100,650,610 | ) | (97,387,205 | ) | ||||
TOTAL STOCKHOLDERS' DEFICIT |
(2,496,076 | ) | (88,494 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
$ | 10,248,848 | $ | 14,352,868 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended December 31, |
||||||||
2020 |
2019 |
|||||||
OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (3,246,142 | ) | $ | (4,483,341 | ) | ||
Loss from discontinued operations |
(2,479 | ) | (3,359,868 | ) | ||||
Net loss from continuing operations |
(3,243,663 | ) | (1,123,473 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
30,097 | 100,877 | ||||||
Stock-based compensation and modification expense |
248,850 | 455,242 | ||||||
Compensation warrants issued | - | 132,914 | ||||||
Amortization of debt discount and beneficial conversion feature |
776,908 | 698,615 | ||||||
Interest expense on conversion of notes payable |
- | 93,931 | ||||||
Loss on induced conversion | - | 127,059 | ||||||
Amortization of discount on note receivable | - | (120,583 | ) | |||||
Accrued interest income | - | (50,411 | ) | |||||
ASC 842 Adjustment | - | (1,227 | ) | |||||
Loss on amendment to line of credit | 650,000 | - | ||||||
Loss/(gain) on extinguishment |
(467,872 | ) | 216,954 | |||||
Gain on settlement of accounts payable | (372,415 | ) | - | |||||
Gain on deconsolidation | - | (4,502,058 | ) | |||||
Debt default penalty |
286,059 | - | ||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses and other current assets |
(21,449 | ) | 204,699 | |||||
Accounts payable |
20,961 | 485,774 | ||||||
Accrued expenses |
319,407 | 169,096 | ||||||
Accrued interest |
518,892 | 291,256 | ||||||
Deposits and other noncurrent assets | - | 106,385 | ||||||
Income tax payable |
234,564 | - | ||||||
Indebtedness to related parties |
(254,617 | ) | - | |||||
Net cash used in operating activities of continuing operations |
(1,274,278 | ) | (2,714,950 | ) | ||||
Net cash provided by/(used in) operating activities of discontinued operations |
21,098 | (1,533,341 | ) | |||||
Net cash used in operating activities |
(1,253,180 | ) | (4,248,291 | ) | ||||
INVESTING ACTIVITIES: |
||||||||
Proceeds from note receivable |
5,051,923 | - | ||||||
Acquisition of intangible assets |
(326,000 | ) | (91,862 | ) | ||||
Net cash provided by/(used in) investing activities of continuing operations |
4,725,923 | (91,862 | ) | |||||
Net cash used in investing activities of discontinued operations |
(131,302 | ) | (446,922 | ) | ||||
Net cash provided by/(used in) investing activities |
4,594,621 | (538,784 | ) | |||||
FINANCING ACTIVITIES: |
||||||||
Proceeds from issuance of common stock |
- | 790,225 | ||||||
Gross proceeds from warrant exercises |
249,807 | 1,069,975 | ||||||
Gross proceeds from convertible notes payable |
300,000 | 2,630,000 | ||||||
Proceeds from Line of Credit | 375,000 | - | ||||||
Principal payment of notes and convertible notes payable | (3,156,014 | ) | (26,664 | ) | ||||
Principal payment of note payable to related party | (151,923 | ) | - | |||||
Fees for issuance of note payable and convertible note payable |
(34,500 | ) | (175,000 | ) | ||||
Brokerage fees for issuance of common stock and warrants |
(24,983 | ) | (175,628 | ) | ||||
Net cash provided by/(used in) financing activities of continuing operations |
(2,442,613 | ) | 4,112,908 | |||||
Net cash provided by/(used in) financing activities of discontinued operations |
(129,237 | ) | 529,412 | |||||
Net cash provided by/(used in) financing activities |
(2,571,850 | ) | 4,642,320 | |||||
Net change in cash and cash equivalents |
769,591 | (144,755 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
151,766 | 182,055 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
921,357 | 37,300 | ||||||
Less: cash and cash equivalents classified as discontinued operations |
(150,293 | ) | (17,782 | ) | ||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD FROM CONTINUING OPERATIONS |
$ | 771,064 | $ | 19,518 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Nine Months Ended December 31, 2020 and 2019
(unaudited)
Nine Months Ended December 31, |
||||||||
2020 |
2019 |
|||||||
Cash paid for interest | $ | 241,014 | $ | 451,040 | ||||
Cash paid for income tax | $ | - | $ | - | ||||
Non-cash transactions: |
||||||||
Accrued liabilities forgiven in connection with Wellcana Note settlement | $ | 172,500 | $ | - | ||||
Depreciation capitalized in inventory (discontinued operations) |
$ | 417,616 | $ | 370,167 | ||||
Accrued interest capitalized in convertible note principal | $ | 223,094 | $ | - | ||||
Property capitalized under operating leases |
$ | - | $ | 182,624 | ||||
Patent acquisition costs capitalized in intangible assets | $ | 45,100 | $ | 163,174 | ||||
Stock options issued for services | $ | 168,000 | $ | - | ||||
Stock issued upon conversion of notes payable | $ | - | $ | 525,000 | ||||
Induced dividend from warrant exercises |
$ | 17,263 | $ | 267,525 | ||||
Beneficial conversion feature on notes payable | $ | 196,886 | $ | 829,736 | ||||
Cumulative effect of the new lease standard |
$ | - | $ | 7,550 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
For the Three Months Ended December 31, 2020 and 2019
(unaudited)
Shares |
Amount |
Additional Paid-In Capital |
Accumulated Deficit |
Non-Controlling Interest |
Total |
|||||||||||||||||||
Balance at September 30, 2020 |
280,532,686 | $ | 28,054 | $ | 97,679,001 | $ | (100,056,626 | ) | $ | - | $ | (2,349,571 | ) | |||||||||||
Exercise of warrants for stock | 3,286,767 | 328 | 88,415 | - | - | 88,743 | ||||||||||||||||||
Share based compensation expense | - | - | 191,500 | - | - | 191,500 | ||||||||||||||||||
Modification of employee options and warrants | - | - | 57,350 | - | - | 57,350 | ||||||||||||||||||
Beneficial conversion feature on notes payable | 46,886 | - | - | 46,886 | ||||||||||||||||||||
Stock options issued for services | 63,000 | - | - | 63,000 | ||||||||||||||||||||
Net loss |
- | - | - | (593,984 | ) | - | (593,984 | ) | ||||||||||||||||
Balance at December 31, 2020 |
283,819,453 | $ | 28,382 | $ | 98,126,152 | $ | (100,650,610 | ) | $ | - | $ | (2,496,076 | ) |
Shares |
Amount |
Additional Paid-In Capital |
Accumulated Deficit |
Non-Controlling Interest |
Total |
|||||||||||||||||||
Balance at September 30, 2019 |
255,345,019 | $ | 25,535 | $ | 95,333,271 | $ | (90,071,120 | ) | $ | 9,027,977 | $ | 14,315,663 | ||||||||||||
Issuance of stock for debt conversion |
5,583,333 | 558 | 244,442 | - | - | 245,000 | ||||||||||||||||||
Exercise of warrants for stock |
3,125,000 | 313 | 115,088 | - | - | 115,401 | ||||||||||||||||||
Issuance of stock for services | 2,500,000 | 250 | 213,750 | - | - | 214,000 | ||||||||||||||||||
Share based compensation expense |
- | - | 32,431 | - | - | 32,431 | ||||||||||||||||||
Issuance of stock for cash, net of issuance costs | 4,000,000 | 400 | 239,600 | - | - | 240,000 | ||||||||||||||||||
Beneficial conversion feature on notes payable |
- | - | 695,932 | - | - | 695,932 | ||||||||||||||||||
Contributions from non-controlling interest |
- | - | - | - | 40,000 | 40,000 | ||||||||||||||||||
Inducement dividend from warrant exercises |
- | - | 37,499 | (37,499 | ) | - | - | |||||||||||||||||
Induced note conversions |
- | - | 127,059 | - | - | 127,059 | ||||||||||||||||||
Deconsolidation of subsidiary | - | - | - | - | (8,707,650 | ) | (8,707,650 | ) | ||||||||||||||||
Net loss |
- | - | - | 1,344,474 | (360,327 | ) | 984,147 | |||||||||||||||||
Balance at December 31, 2019 |
270,553,352 | $ | 27,056 | $ | 97,039,072 | $ | (88,764,145 | ) | $ | - | $ | 8,301,983 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
For the Nine Months Ended December 31, 2020 and 2019
(unaudited)
Shares |
Amount |
Additional Paid-In Capital |
Accumulated Deficit |
Non-Controlling Interest |
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 |
8,277,851 | 828 | 223,996 | - | - | 224,824 | ||||||||||||||||||
Share based compensation expense | - | - | 191,500 | 191,500 | ||||||||||||||||||||
Modification of employee options and warrants | - | - | 57,350 | - | - | 57,350 | ||||||||||||||||||
Beneficial conversion feature on notes payable |
- | - | 196,886 | - | - | 196,886 | ||||||||||||||||||
Stock options issued for services | - | - | 168,000 | - | - | 168,000 | ||||||||||||||||||
Inducement dividend from warrant exercises |
- | - | 17,263 | (17,263 | ) | - | - | |||||||||||||||||
Net loss |
- | - | - | (3,246,142 | ) | - | (3,246,142 | ) | ||||||||||||||||
Balance at December 31, 2020 |
283,819,453 | $ | 28,382 | $ | 98,126,152 | $ | (100,650,610 | ) | $ | - | $ | (2,496,076 | ) |
Shares |
Amount |
Additional Paid-In Capital |
Accumulated Deficit |
Non-Controlling Interest |
Total |
|||||||||||||||||||
Balance at March 31, 2019 |
240,627,102 | $ | 24,063 | $ | 93,020,015 | $ | (84,743,836 | ) | $ | 8,855,757 | $ | 17,155,999 | ||||||||||||
Issuance of stock for debt conversion |
7,583,333 | 758 | 524,242 | - | - | 525,000 | ||||||||||||||||||
Exercise of warrants for stock |
12,574,750 | 1,257 | 964,620 | - | - | 965,877 | ||||||||||||||||||
Issuance of stock for services | 2,500,000 | 250 | 213,750 | - | - | 214,000 | ||||||||||||||||||
Share based compensation expense |
- | - | 241,242 | - | - | 241,242 | ||||||||||||||||||
Issuance of stock for cash, net of issuance costs |
7,668,167 | 768 | 717,929 | - | - | 718,697 | ||||||||||||||||||
Beneficial conversion feature on notes payable |
- | - | 829,736 | - | - | 829,736 | ||||||||||||||||||
Contributions from non-controlling interest |
- | - | - | - | 590,000 | 590,000 | ||||||||||||||||||
Compensation warrants |
- | - | 132,914 | - | - | 132,914 | ||||||||||||||||||
Cancelled shares issued to consultant | (400,000 | ) | (40 | ) | 40 | - | - | - | ||||||||||||||||
Inducement dividend from warrant exercises |
- | - | 267,525 | (267,525 | ) | - | - | |||||||||||||||||
Induced note conversions | - | - | 127,059 | - | - | 127,059 | ||||||||||||||||||
Cumulative effect of the new lease standard |
- | - | - | (7,550 | ) | - | (7,550 | ) | ||||||||||||||||
Deconsolidation of subsidiary | - | - | - | - | (8,707,650 | ) | (8,707,650 | ) | ||||||||||||||||
Net loss |
- | - | - | (3,745,234 | ) | (738,107 | ) | (4,483,341 | ) | |||||||||||||||
Balance at December 31, 2019 |
270,553,352 | $ | 27,056 | $ | 97,039,072 | $ | (88,764,145 | ) | $ | - | $ | 8,301,983 |
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
Note 1 – Background and Significant Accounting Policies
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) seeks to be a biopharmaceutical research and cannabinoid-based drug development company whose goal is to create patented formulations for safe, standardized, cannabinoid therapies that target a variety of medical conditions in both the pharmaceutical and wellness markets. The Company is engaged in the research and development of cannabinoid medicines and plans to produce cannabinoid therapies for the wellness markets 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 cannabinoid medicine intellectual property, critical research contracts, and key supplier arrangements. GBSGB’s intellectual property covers a range of 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, seven USPTO nonprovisional patent applications pending in the US, and three provisional patent applications in the US. In addition to the USPTO patents and patent applications, the company has filed 29 patent applications internationally to protect its proprietary technology.
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, 2021. The balance sheet at March 31, 2020 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. The 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-K for the year ended March 31, 2020.
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 non-controlling participants in subsidiaries that are not wholly owned is included as a separate component of equity. The non-controlling participants’ share of the net loss is included as “Net loss attributable to non-controlling 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 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 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 to conform to the current period presentation. Certain items on the unaudited balance sheets and statements of operations and cash flows have been reclassified to conform with current period presentation. The assets, liabilities, income/(loss), and cash flows of GB Sciences Louisiana, LLC, GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC have been reclassified to discontinued operations due to the sale of the Company's Louisiana cultivation and extraction facility (Note 10) and the pending sale of the Company's Nevada cultivation and extraction facilities (Note 11).
Discontinued Operations
Refer to Note 3.
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 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 December 31, 2020.
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 (classified as discontinued operations) 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.
Earnings/(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 131,886,787 and 158,728,095 potentially dilutive common shares at December 31, 2020 and March 31, 2020, respectively. However, such common stock equivalents were not included in the computation of diluted net loss per share for the three and nine months ended December 31, 2020, and the nine months ended December 31, 2019, as their inclusion would have been anti-dilutive. The computation of diluted earnings per share for the three months ended December 31, 2019, is as follows:
For the Three Months Ended December 31, 2019 |
||||||||||||
Diluted EPS Computation |
Income (Numerator) |
Shares (Denominator) |
Per-Share Amount |
|||||||||
Net income from continuing operations available to common stockholders |
$ | 2,531,453 | ||||||||||
Plus: Income impact of assumed conversions |
||||||||||||
Interest expense on convertible notes payable |
51,608 | |||||||||||
Effect of assumed conversions |
51,608 | |||||||||||
Income from continuing operations plus assumed conversions |
2,583,061 | |||||||||||
Net loss from discontinued operations available to common stockholders |
(1,186,979 | ) | ||||||||||
Net income available to common stockholders |
$ | 1,396,082 | ||||||||||
Weighted-average common shares outstanding |
263,055,254 | |||||||||||
Plus: incremental shares from assumed conversions |
||||||||||||
Warrants |
26,648,530 | |||||||||||
Convertible notes payable |
36,086,770 | |||||||||||
Dilutive potential common shares |
62,735,300 | |||||||||||
Adjusted weighted-average shares |
325,790,554 | |||||||||||
Diluted EPS |
||||||||||||
Net income from continuing operations |
$ | 2,583,061 | 325,790,554 | $ | 0.00 | |||||||
Net loss from discontinued operations |
$ | (1,186,979 | ) | 325,790,554 | $ | (0.00 | ) | |||||
Net income |
$ | 1,396,082 | 325,790,554 | $ | 0.00 |
Recent Accounting Pronouncements
Recently Adopted Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on its financial statements.
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted the standard on April 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements.
All other newly issued but not yet effective accounting pronouncements have been deemed either immaterial or not applicable.
Note 2 – 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 $(100,650,610) at December 31, 2020. The Company had a working capital deficit of $(6,135,112) at December 31, 2020, net of working capital of $969,498 classified as discontinued operations, compared to $(3,884,877) at March 31, 2020, net of working capital of $349,195 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $(1,253,180) for the nine months ended December 31, 2020, including $21,098 provided by discontinued operations, compared to $(4,248,291) including $(1,533,341) used in discontinued operations for the nine months ended December 31, 2019. 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.
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 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 10) and the pending sale of the Company's Nevada cultivation and extraction facilities (Note 11).
There were no assets and liabilities from discontinued operations attributable to GB Sciences Louisiana, LLC at December 31, 2020 and March 31, 2020. The assets and liabilities associated with discontinued operations included in our condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020 were as follows:
Discontinued Operations - Revenues and Expenses
The revenues and expenses associated with discontinued operations included in our condensed consolidated statements of operations for the three and nine months ended December 31, 2020 and 2019 were as follows:
For the Three Months Ended December 31, |
||||||||||||||||||||||||
2020 |
2019 |
|||||||||||||||||||||||
Continuing |
Discontinued |
Total |
Continuing |
Discontinued |
Total |
|||||||||||||||||||
Sales revenue |
$ | - | $ | 1,015,464 | $ | 1,015,464 | $ | - | $ | 446,201 | $ | 446,201 | ||||||||||||
Cost of goods sold |
- | (596,362 | ) | (596,362 | ) | - | (869,848 | ) | (869,848 | ) | ||||||||||||||
Gross profit/(loss) |
- | 419,102 | 419,102 | - | (423,647 | ) | (423,647 | ) | ||||||||||||||||
General and administrative expenses |
670,311 | 77,064 | 747,375 | 1,472,937 | 937,804 | 2,410,741 | ||||||||||||||||||
INCOME/(LOSS) FROM OPERATIONS |
(670,311 | ) | 342,038 | (328,273 | ) | (1,472,937 | ) | (1,361,451 | ) | (2,834,388 | ) | |||||||||||||
OTHER INCOME/(EXPENSE) |
||||||||||||||||||||||||
Interest expense |
(167,120 | ) | (113,241 | ) | (280,361 | ) | (277,813 | ) | (194,219 | ) | (472,032 | ) | ||||||||||||
Loss on amendment to line of credit | (650,000 | ) | - | (650,000 | ) | - | - | - | ||||||||||||||||
Gain/(loss) on extinguishment | 467,872 | - | 467,872 | (92,796 | ) | - | (92,796 | ) | ||||||||||||||||
Gain on settlement of accounts payable | 372,415 | 15,972 | 388,387 | - | - | - | ||||||||||||||||||
Gain on deconsolidation | - | - | - | 4,502,058 | - | 4,502,058 | ||||||||||||||||||
Debt default penalty | - | - | - | - | - | - | ||||||||||||||||||
Other income/(expense) |
17,523 | (2,442 | ) | 15,081 | (127,059 | ) | 8,364 | (118,695 | ) | |||||||||||||||
Total other income/(expense) |
40,690 | (99,711 | ) | (59,021 | ) | 4,004,390 | (185,855 | ) | 3,818,535 | |||||||||||||||
INCOME/(LOSS) BEFORE INCOME TAXES |
(629,621 | ) | 242,327 | (387,294 | ) | 2,531,453 | (1,547,306 | ) | 984,147 | |||||||||||||||
Income tax expense |
(206,690 | ) | - | (206,690 | ) | - | - | - | ||||||||||||||||
NET INCOME/(LOSS) |
$ | (836,311 | ) | $ | 242,327 | $ | (593,984 | ) | $ | 2,531,453 | $ | (1,547,306 | ) | $ | 984,147 |
For the Nine Months Ended December 31, |
||||||||||||||||||||||||
2020 |
2019 |
|||||||||||||||||||||||
Continuing |
Discontinued |
Total |
Continuing |
Discontinued |
Total |
|||||||||||||||||||
Sales revenue |
$ | - | $ | 2,830,932 | $ | 2,830,932 | $ | - | $ | 2,905,582 | $ | 2,905,582 | ||||||||||||
Cost of goods sold |
- | (1,947,225 | ) | (1,947,225 | ) | - | (3,731,996 | ) | (3,731,996 | ) | ||||||||||||||
Gross profit/(loss) |
- | 883,707 | 883,707 | - | (826,414 | ) | (826,414 | ) | ||||||||||||||||
General and administrative expenses |
1,677,482 | 447,885 | 2,125,367 | 4,555,633 | 1,950,541 | 6,506,174 | ||||||||||||||||||
INCOME/(LOSS) FROM OPERATIONS |
(1,677,482 | ) | 435,822 | (1,241,660 | ) | (4,555,633 | ) | (2,776,955 | ) | (7,332,588 | ) | |||||||||||||
OTHER INCOME/(EXPENSE) |
||||||||||||||||||||||||
Interest expense |
(1,249,994 | ) | (374,383 | ) | (1,624,377 | ) | (942,750 | ) | (568,027 | ) | (1,510,777 | ) | ||||||||||||
Loss on amendment to line of credit | (650,000 | ) | - | (650,000 | ) | - | - | - | ||||||||||||||||
Gain/(loss) on extinguishment | 467,872 | - | 467,872 | (216,954 | ) | - | (216,954 | ) | ||||||||||||||||
Gain on settlement of accounts payable | 372,415 | 15,972 | 388,387 | - | - | - | ||||||||||||||||||
Gain on deconsolidation | - | - | - | 4,502,058 | - | 4,502,058 | ||||||||||||||||||
Debt default penalty |
(286,059 | ) | - | (286,059 | ) | - | - | - | ||||||||||||||||
Other income/(expense) |
14,149 | (79,890 | ) | (65,741 | ) | 89,806 | (14,886 | ) | 74,920 | |||||||||||||||
Total other income/(expense) |
(1,331,617 | ) | (438,301 | ) | (1,769,918 | ) | 3,432,160 | (582,913 | ) | 2,849,247 | ||||||||||||||
INCOME/(LOSS) BEFORE INCOME TAXES |
(3,009,099 | ) | (2,479 | ) | (3,011,578 | ) | (1,123,473 | ) | (3,359,868 | ) | (4,483,341 | ) | ||||||||||||
Income tax expense |
(234,564 | ) | - | (234,564 | ) | - | - | - | ||||||||||||||||
NET INCOME/(LOSS) |
$ | (3,243,663 | ) | $ | (2,479 | ) | $ | (3,246,142 | ) | $ | (1,123,473 | ) | $ | (3,359,868 | ) | $ | (4,483,341 | ) |
Discontinued Operations - Revenues and Expenses (continued)
The components of revenues and expenses associated with discontinued operations included in our condensed consolidated statements of operations for the three and nine months ended December 31, 2020 and 2019 were as follows:
For the Three Months Ended December 31, |
||||||||||||||||||||||||
2020 |
2019 |
|||||||||||||||||||||||
GB Sciences Louisiana, LLC |
Nevada Subsidiaries |
Total Discontinued Operations |
GB Sciences Louisiana, LLC |
Nevada Subsidiaries |
Total Discontinued Operations |
|||||||||||||||||||
Sales revenue |
$ | - | $ | 1,015,464 | $ | 1,015,464 | $ | 192,070 | $ | 254,131 | $ | 446,201 | ||||||||||||
Cost of goods sold |
- | (596,362 | ) | (596,362 | ) | (193,915 | ) | (675,933 | ) | (869,848 | ) | |||||||||||||
Gross profit/(loss) |
- | 419,102 | 419,102 | (1,845 | ) | (421,802 | ) | (423,647 | ) | |||||||||||||||
General and administrative expenses |
- | 77,064 | 77,064 | 666,042 | 271,762 | 937,804 | ||||||||||||||||||
INCOME/(LOSS) FROM OPERATIONS |
- | 342,038 | 342,038 | (667,887 | ) | (693,564 | ) | (1,361,451 | ) | |||||||||||||||
OTHER EXPENSE |
||||||||||||||||||||||||
Interest expense |
- | (113,241 | ) | (113,241 | ) | (52,769 | ) | (141,450 | ) | (194,219 | ) | |||||||||||||
Gain on settlement of accounts payable | - | 15,972 | 15,972 | - | - | |||||||||||||||||||
Other income/(expense) |
- | (2,442 | ) | (2,442 | ) | - | 8,364 | 8,364 | ||||||||||||||||
Total other expense |
- | (99,711 | ) | (99,711 | ) | (52,769 | ) | (133,086 | ) | (185,855 | ) | |||||||||||||
INCOME/(LOSS) BEFORE INCOME TAXES |
- | 242,327 | 242,327 | (720,656 | ) | (826,650 | ) | (1,547,306 | ) | |||||||||||||||
Income tax expense |
- | - | - | - | - | - | ||||||||||||||||||
NET INCOME/(LOSS) |
$ | - | $ | 242,327 | $ | 242,327 | $ | (720,656 | ) | $ | (826,650 | ) | $ | (1,547,306 | ) |
For the Nine Months Ended December 31, |
||||||||||||||||||||||||
2020 |
2019 |
|||||||||||||||||||||||
GB Sciences Louisiana, LLC |
Nevada Subsidiaries |
Total Discontinued Operations |
GB Sciences Louisiana, LLC |
Nevada Subsidiaries |
Total Discontinued Operations |
|||||||||||||||||||
Sales revenue |
$ | - | $ | 2,830,932 | $ | 2,830,932 | $ | 569,077 | $ | 2,336,505 | $ | 2,905,582 | ||||||||||||
Cost of goods sold |
- | (1,947,225 | ) | (1,947,225 | ) | (574,544 | ) | (3,157,452 | ) | (3,731,996 | ) | |||||||||||||
Gross profit/(loss) |
- | 883,707 | 883,707 | (5,467 | ) | (820,947 | ) | (826,414 | ) | |||||||||||||||
General and administrative expenses |
- | 447,885 | 447,885 | 1,292,613 | 657,928 | 1,950,541 | ||||||||||||||||||
INCOME/(LOSS) FROM OPERATIONS |
- | 435,822 | 435,822 | (1,298,080 | ) | (1,478,875 | ) | (2,776,955 | ) | |||||||||||||||
OTHER EXPENSE |
||||||||||||||||||||||||
Interest expense |
- | (374,383 | ) | (374,383 | ) | (178,140 | ) | (389,887 | ) | (568,027 | ) | |||||||||||||
Gain on settlement of accounts payable | - | 15,972 | 15,972 | - | - | - | ||||||||||||||||||
Other expense |
- | (79,890 | ) | (79,890 | ) | - | (14,886 | ) | (14,886 | ) | ||||||||||||||
Total other expense |
- | (438,301 | ) | (438,301 | ) | (178,140 | ) | (404,773 | ) | (582,913 | ) | |||||||||||||
INCOME/(LOSS) BEFORE INCOME TAXES |
- | (2,479 | ) | (2,479 | ) | (1,476,220 | ) | (1,883,648 | ) | (3,359,868 | ) | |||||||||||||
Income tax expense |
- | - | - | - | - | |||||||||||||||||||
NET INCOME/(LOSS) |
$ | - | $ | (2,479 | ) | $ | (2,479 | ) | $ | (1,476,220 | ) | $ | (1,883,648 | ) | $ | (3,359,868 | ) |
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 December 31, 2020 and March 31, 2020.
December 31, 2020 |
March 31, 2020 |
|||||||
Raw materials |
$ | 2,573 | $ | 91,465 | ||||
Work in progress |
1,008,164 | 1,166,511 | ||||||
Finished goods |
651,736 | 466,319 | ||||||
Subtotal |
1,662,473 | 1,724,295 | ||||||
Allowance to reduce inventory to net realizable value |
- | (278,456 | ) | |||||
Total inventory, net |
$ | 1,662,473 | $ | 1,445,839 |
Discontinued Operations - Leases
The Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment. These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2024 to 2025.
As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been 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 April 1, 2019, the date of adoption. Accounting for finance leases is substantially unchanged.
Operating leases are included in other current assets , accrued liabilities, and operating lease obligations, long term on the unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the unaudited condensed consolidated 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.
All finance lease costs recorded in the Company's unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2020 and 2019 relate to discontinued operations. During the nine months ended December 31, 2020, finance lease costs included in discontinued operations were $428,487, of which $312,463 represents interest expense and $116,024 represents amortization of the right-of-use assets.
Amortization of lease assets is included in income/(loss) from discontinued operations. As of December 31, 2020, there are no operating or finance lease obligations included in continuing operations. The future minimum lease payments of lease liabilities as of December 31, 2020, from discontinued operations are as follows:
Year Ending |
||||
March 31, |
Finance Leases |
|||
2021 (3 months) |
$ | 135,061 | ||
2022 |
544,296 | |||
2023 |
560,625 | |||
2024 |
577,444 | |||
2025 |
594,767 | |||
Thereafter |
3,781,102 | |||
Total minimum lease payments |
6,193,295 | |||
Less: Amount representing interest |
(2,627,673 | ) | ||
Present value of minimum lease payments |
3,565,622 | |||
Less: Current maturities of capital lease obligations |
(135,918 | ) | ||
Long-term capital lease obligations |
$ | 3,429,704 |
Note 4 – Leases (Continuing Operations)
As a result of the adoption of ASC 842, 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 April 1, 2019, the date of adoption. Accounting for finance leases is substantially unchanged.
Operating leases are included in discontinued operations under operating right-of-use assets, net and operating lease obligations, short and long term on the unaudited condensed consolidated balance sheets. 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.
There are no finance leases included in continuing operations. Operating lease costs included in continuing operations were $3,243, of which $1,242 represents interest expense and $2,001 represents amortization of the right-of-use assets. As of December 31, 2020, all of the Company's operating leases have terminated, and there are no right-of-use assets or operating or finance lease obligations included in continuing operations.
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 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 December 31, 2020. During the nine months ended December 31, 2020, the Company recorded interest expense of $13,929 related to amortization of the note discount. The remaining unamortized discount as of December 31, 2020 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 11). 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 and the maturity date of the note will be 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.
8% Line of Credit dated November 27, 2019
In connection with the Binding Letter of Intent dated November 27, 2019 (Note 11), the Company entered into a promissory note and received a line of credit for up to $470,000 from the purchaser of the Company's membership interest in its Nevada facilities. The purpose of the line of credit is to supply working capital for the Nevada operations. The note matures upon the close of the sale of membership interests. As of December 31, 2020, the Company has received $485,000 in advances under the line of credit, reflecting an informal agreement with the lender to increase the Line of Credit limit by $15,000. The Company accrued interest of $29,200 on the line of credit for the nine months ended December 31, 2020, and the balance of the line of credit was $485,000 at December 31, 2020. The note and related interest expense are included in discontinued operations. Upon the close of the sale of the Teco Facility all principal and interest due under the line of credit will be considered satisfied in full.
8% Note Payable dated May 7, 2020
On May 7, 2020, the Company received $135,000 cash from an investor, net of $15,000 in brokerage fees, and issued a $150,000 promissory note. The note bears interest at a rate of 8.0% per annum. The note was to be repaid upon the first proceeds received from the $8,000,000 promissory note related to the sale of the Company's membership interest in GB Sciences Louisiana, LLC (Note 10), or from the proceeds of the sale of the Teco Facility (Note 11). As inducement to enter into the note transaction, the Company repriced 8,002,500 preexisting warrants held by the investor to an exercise price of $0.04. The repriced warrants were valued at $272,085 on the date of the transaction using the Black-Scholes Model, which exceeded the value of the warrants prior to the price reduction of $49,525 by $222,560. As the result of the increase in the estimated fair value of the warrants, the Company recorded a full discount on notes payable of $150,000. During the nine months ended December 31, 2020, the Company recorded interest expense of $154,964 related to the note consisting of accrued interest of $4,964 and $150,000 related to amortization of the note discount. The Company paid $154,964 on October 5, 2020 in full satisfaction of the note.
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 (Note 6). 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 (Note 11). 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.
On December 29, 2020, the Company entered into the Omnibus Amendment with the purchaser of the Teco Facility (Note 11). 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 December 31, 2020. Interest expense was $5,112 for the nine months ended December 31, 2020.
Summary of Notes and Convertible Notes Payable
As of December 31, 2020, the following notes payable were recorded in the Company’s consolidated balance sheet:
As of December 31, 2020 |
||||||||||||
Short-Term Notes Payable |
Face Value |
Discount |
Carrying Value |
|||||||||
0% Note Payable dated October 23, 2017 (Note 5) |
$ | 369,445 | $ | - | $ | 369,445 | ||||||
8% Line of Credit dated November 27, 2019 (Note 5) |
485,000 | - | 485,000 | |||||||||
8% Line of Credit dated July 24, 2020 (Note 5) | 1,025,000 | - | 1,025,000 | |||||||||
6% Convertible promissory notes payable (Note 6) |
1,060,000 | - | 1,060,000 | |||||||||
8% Convertible Secured Promissory Note dated February 28, 2019, as amended (Note 6) |
1,271,863 | - | 1,271,863 | |||||||||
Total short-term notes payable |
4,211,308 | - | 4,211,308 | |||||||||
Less: Notes payable classified as discontinued operations | (485,000 | ) | - | (485,000 | ) | |||||||
Total short-term notes payable classified as continuing operations | $ | 3,726,308 | $ | - | $ | 3,726,308 | ||||||
6% Convertible promissory notes payable due September 30, 2023 (Note 6) |
197,000 | (43,752 | ) | 153,248 | ||||||||
6% Convertible note payable due December 31, 2023 (Note 6) |
150,000 | (19,306 | ) | 130,694 | ||||||||
Total long-term notes payable classified as continuing operations | $ | 347,000 | $ | (63,058 | ) | $ | 283,942 |
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 one 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 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 one 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 quarter ended December 31, 2020, 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 issued and the change in the fair value of the conversion feature. The Company recorded interest expense of $6,114 on the extended notes during the three months ended December 31, 2020, of which $3,134 represented amortization of the note discount. Accrued interest on the $197,000 extended notes is $41,417 at December 31, 2020.
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 nine months ended December 31, 2020 was $191,191, of which $143,273 represents amortization of the note discount. Accrued interest on the $1,060,000 notes was $212,591 at December 31, 2020.
8% Senior Secured Convertible 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 and Security Agreement with CSW Ventures, L.P. (together, “CSW Note”). The note matured on August 28, 2020 and was convertible at any time until maturity into 8,823,529 shares of the Company’s common stock at $0.17 per share. Collateral pledged as security for the note includes all of the Company’s 100% membership interests in GB Sciences, Nevada, LLC and GB Sciences Las Vegas, LLC, which together represent substantially all of the Company’s cannabis cultivation and production operations and assets located at the Teco facility in Las Vegas, Nevada. The intrinsic value of the beneficial conversion feature resulting from the market price of the Company’s common stock in excess of the conversion price was $176,471 on the date of issuance, and the Company recorded a discount on the CSW Note in that amount.
On May 28, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $170,000 of the principal balance of the 8% Senior Secured Promissory Note dated February 28, 2019. Accordingly, the Company issued 1,000,000 shares of its common stock based on a $0.17 per share conversion price. In connection with the conversions, $17,225 in unamortized discount was recorded as interest expense and the Company reduced the carrying amount of convertible notes payable by $152,775. After conversion, the remaining balance outstanding was $1,330,000.
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 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 $100,421. After conversion, the remaining balance outstanding was $1,361,863.
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 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, no 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 convertible notes payable by $62,449. After conversion, the remaining balance outstanding was $1,271,863 and the carrying amount of the note was $687,021, net of $584,842 in unamortized discount from the beneficial conversion feature.
On December 29, 2020, the Company entered into the Omnibus Amendment (Note 11), and the note holder agreed to cease interest accrual on the CSW Note after November 30, 2020. During the nine months ended December 31, 2020, 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. As of December 31, 2020, the carrying amount of the CSW Note was $1,271,863, and there is no remaining unamortized discount. The total outstanding balance of $1,416,857 principal and accrued interest will reduce the $4,000,000 cash payment received by the Company upon the close of the sale of the Teco Facility (Note 11), and no further interest expense is to be accrued under the CSW Note.
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 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 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 $9,559 related to a 10% increase in the accrued 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 upon receipt of payment totaling $3,006,014 directly from the proceeds of the Wellcana Note Receivable (Note 10) on or before December 8, 2020. On December 8, 2020, Wellcana failed to close the transaction. 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 $3,006,014 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 $3,006,014 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 Company has no further obligations to Iliad.
During the nine months ended December 31, 2020, 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 interest prior to the judgment, and $209,292 was accrued post-judgment interest. The Company also recorded $25,000 in other expense as the result of the letter agreement to extend the Judgment Settlement Agreement. As of the date of final payment, the outstanding judgment balance of $3,264,594 plus accrued post-judgment interest of $209,292 totaled $3,473,886, and the Company recorded a gain on extinguishment of $467,872.
December 2020 $500,000 6% Convertible Note Offering
On December 18, 2020, the Company began an offering of up to $500,000 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 and will mature on December 31, 2023.
Prior to December 31, 2020, the Company has issued $150,000 in convertible notes under the note raise. The conversion price exceeded the closing stock price on the date of issuance and no beneficial conversion feature was recorded. The Company received cash of $130,500, net of issuance costs, and recorded a discount on convertible notes of $19,500. Interest expense was $514 for the nine months ended December 31, 2020, of which $194 relates to amortization of the note discount. Accrued interest was $320 at December 31, 2020.
Note 7 – 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 to $0.03-$.05 per share. As a result of the price reduction, the Company received notice of the exercise of 8,277,851 warrants during the nine months ended December 31, 2020 and received proceeds of $224,824, net of brokerage fees of $(24,983).
During the nine months ended December 31, 2020, the Company granted 3,500,000 immediately-vesting options to purchase one share of the Company's Common Stock at the price of $0.05 per share for a period of ten years as compensation to a scientist and researcher for drafting and filing U.S. and international patents. The options were valued at $168,000 using the Black-Scholes model.
During the nine months ended December 31, 2020, the Company issued a total of 788,000 warrants to convertible note holders with a term of three years and an exercise price of $0.10 per share in exchange for a three-year extension of notes having an aggregate principal balance of $197,000. Using the Black-Scholes model, the Company valued the warrants at $13,396 (Note 6).
On November 16,2020, the Company entered into a Severance Agreement with Leslie Bocskor, a former member of the Board of Directors, and re-priced 450,000 options held by the director to that day's closing share price of $0.03. The term of the options was extended to November 16, 2025 from June 1, 2023. Using the Black-Scholes Model, the Company valued the options at $4,950 immediately prior to the modification and at $11,250 immediately after the modification, and the Company recorded share-based compensation expense of $6,300.
On December 7, 2020, the Board of Directors approved the issuance of warrants to purchase a total of 3,500,000 shares of the Company's common stock at $0.04 per share for a term of ten years to current employees and directors. The Company valued the warrants at $133,000 using the Black-Scholes Model and recorded share-based compensation expense of $133,000 related to the warrants.
On December 15, 2020, the Board of Directors approved the issuance of options to purchase a total of 3,250,000 shares of the Company's common stock at $0.05 per share for a term of ten years to current employees and directors. The options vest one-third upon grant, one-third after one year of service, and one-third after two years of service. The Company valued the options at $156,000 using the Black-Scholes Model and recorded share-based compensation expense of $58,500 related to the options for the nine months ended December 31, 2020. Remaining unrecognized compensation cost related to the options was $97,500 at December 31, 2020.
On December 15, 2020, the Board of Directors approved the re-pricing of 6,050,000 options held by current employees to an exercise price of $0.05, the closing stock price on that date. All of the options subject to the modification were fully vested. Using the Black-Scholes Model, the Company valued the options at $199,600 immediately prior to the modification and at $250,650 immediately after the modification, and the Company recorded share-based compensation expense of $51,050.
At December 31, 2020, 67,074,495 warrants at exercise prices ranging from $0.08 to $1.00 per share and 18,916,334 options with a weighted average exercise price of $0.19 remain outstanding.
Note 8 – Commitments and Contingencies
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of 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 an annual research investments of $500,000 to the LSU AgCenter. The Company initially retained its 50% interest in the research relationship with LSU after the sale of its membership interest in GB Sciences Louisiana, LLC (Note 10), and accordingly remained obligated for $250,000 of the $500,000 annual research investment for three years, or a total commitment of $750,000. On August 4, 2020, the Company received its first payment under the Wellcana Note Receivable, net of the $250,000 research contribution due for the twelve month period ended September 30, 2020, and our commitment for that twelve month period was paid by the purchaser with the funds withheld from the note payment.
On August 24, 2020, the Company entered into a letter agreement with Wellcana to discount the note receivable in exchange for accelerated payment. Pursuant to the letter of intent, the purchaser assumed the annual $250,000 research contribution commitment to LSU and the Company retains no rights in the intellectual property developed under the research relationship (Note 10).
Tara “Dee” Russell filed a Charge of Discrimination with the Nevada Equal Rights Commission ("NERC") against the Company on April 2, 2019, alleging that she was subjected to sexual harassment and retaliatory discharge. The Company received the Notice of Charge of Discrimination on or about May 15, 2019. The Company submitted its response to the Notice of Discrimination Charge on July 26, 2019. It is the Company's position that Ms. Russell was not an employee of the Company, but rather was an independent contractor. The Company intends to aggressively respond to the charge. To date, the NERC has not issued a ruling regarding the charge.
On 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 $3,006,014 pursuant to the Judgment Settlement Agreement (Note 6).
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 Mutual Compromise, Settlement, and Release Agreement with the contractor and made payment of $25,000 in full satisfaction of the alleged debt and reduced the cost of the related fixed asset by $48,050.
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 9 – Related Party Transactions
As of December 31, 2020 the Company was indebted to officers of the Company for a total of $276,484 in unpaid compensation.
On November 16, 2020, the Company entered into a Severance Agreement with Leslie Bocskor, a former member of the Board of Directors and made payment of $20,000 of Mr. Bocskor's unpaid compensation. The Company agreed to pay the remaining balance of $60,411 owed to Mr. Bocskor in installments of $5,000 per month until paid in full. The remaining balance owed to Mr. Bocskor at December 31, 2020 was $55,411.
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 President of GB Sciences Louisiana, LLC, for unpaid fees and bonuses. The note matured upon receipt of the first payment from the Wellcana Note Receivable (Note 10). The note and interest accrued was repaid on August 4, 2020, when the related funds were withheld from the first payment to the Company under the Wellcana Note Receivable.
Note 10 – Sale of Membership Interests 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 50.01% controlling membership interest in GB Sciences Louisiana, LLC (“GBSLA"), the Company received an $8,000,000 Promissory Note ("Wellcana Note") with the potential to receive up to an additional $8,000,000 in earn-out payments.The Company has presented GBSLA as discontinued operations since November 2019.
On August 24, 2020, the Company entered into a letter of intent with Wellcana to discount the note receivable in exchange for accelerated payment. Pursuant to the letter of intent, the Company would receive payments totaling $5,224,423, including the repayment of a note payable to related party of $151,923, the forgiveness by Wellcana of $172,500 in liabilities and the payment of $4,900,000 in cash, on or before October 15, 2020, less any cash payments made by Wellcana up to the date of the final payment. Upon receipt of the payment, all liabilities owed to the Company by Wellcana, including the $8,000,000 note receivable and any potential earn-out payments were to be considered satisfied in full. Wellcana will assume the annual $250,000 research contribution commitment to LSU (Note 8), and the Company will retain no rights in the intellectual property developed under the research relationship. In addition, the Company agreed to reduce the $750,000 note payment due on September 1, 2020 to $500,000. 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 of $1,895,434 for the year ended March 31, 2020.
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 close 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.
Note 11 – Sale of Membership Interests in Nevada Subsidiaries
On November 15, 2019, we entered into a Binding Letter of Intent ("Teco LOI") to sell 75% of the Company's membership interest interests in GB Sciences Nevada, LLC, and GB Sciences Las Vegas, LLC, for $3.0 million cash upon close and up to an additional $3.0 million in earn-out payments after close. In connection with the Teco 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. As part of the transaction, the Company also entered into a Line of Credit of up to $470,000 with the purchaser (Note 5) to fund the operations of Teco. The line of credit accrues interest at a rate of 8% and the Company pledged its interest in the Teco facilities as collateral for the note, subject to the preexisting lien held by CSW Ventures, L.P. in connection with the 8% Senior Secured Convertible Promissory Note dated February 28, 2019 (Note 6). The Line of Credit will be considered satisfied in full upon close of the sale of the Teco Facility.
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 will receive a $4,000,000 8% promissory note to be paid in monthly installments over 36 months.
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 preexisting lien held by CSW Ventures, L.P. in connection with the 8% Senior Secured Convertible Promissory Note dated February 28, 2019 (Note 6). 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. As of the date of this report, the Company has received advances totaling $375,000 under the July 24 Note (Note 5).
On December 29, 2020, the Company entered into the Omnibus Amendment with the purchaser of the Teco Facility (Note 11). 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 $3,025,000 and any advances made to the 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 the Omnibus Amendment, the Company accrued an expense of $650,000 to increase the balance outstanding under the July 24 Note to three times $325,000, to total $1,025,000, which will offset the $4,000,000 note receivable that the Company will receive upon close of the sale of the Teco Facility.
The Omnibus Amendment also amends the Management Services Agreement to provide that no further management fees will accrue after November 30, 2020. As of December 31, 2020, 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 5 1/2 years.
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 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 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 $300,000 purchase price will be applied 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 transfer of the Nopah License is subject to the same restrictions on license transfers discussed above.
Because 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 the Teco Subsidiaries and GB Sciences Nopah, LLC have been reclassified as discontinued operations for all periods presented in the Company's condensed consolidated financial statements.
Note 12 – Subsequent Events
Capital Transactions
Subsequent to December 31, 2020, the Company received warrant exercise notices for 9,701,991 shares at a price of $0.03 per share and received payment totaling $261,938, net of $29,104 in brokerage fees.
Settlement Agreement
On January 2, 2021, the Company entered into the Settlement Agreement with Ksenia Griswold, its former Chief Financial Officer and Chief Operating Officer, and agreed to pay Ms. Griswold $57,000 in full satisfaction of $114,000 of unpaid severance compensation. The Company made the payment of $57,000 on January 4, 2020.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts” or “continue” , which list is not meant to be all-inclusive and other such negative terms and comparable technology. These forward-looking statements, include, without limitation, statements about our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Additional factors that could materially affect these forward-looking statements and/or predictions include among other things: (1)product demand, market and customer acceptance of GB Sciences products, equipment and other goods, (ii) ability to obtain financing to expand its operations, (iii) ability to attract qualified personnel, (iv)competition pricing and development difficulties, (v) general industry and market conditions and growth rates, unexpected natural disasters, and other factors, which we have little or no control: and other factors discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”). The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
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 unaudited financial statements contained in this Quarterly Report, 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. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) seeks to be a phytomedical research and biopharmaceutical drug development company whose goal is to create patented formulations of plant-inspired, complex therapeutic mixtures 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 cannabinoid medicine intellectual property, critical research contracts, and key supplier arrangements. GBSGB’s intellectual property covers a range of 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, seven USPTO nonprovisional patent applications pending in the US, and three provisional patent applications in the US, as detailed in the patent chart below. In addition to the USPTO patents and patent applications, the company has filed 29 patent applications internationally to protect its proprietary technology. We expect to file additional patent applications in the near term to further protect aspects of our proprietary drug discovery engine, PhAROS™. PhAROS™ stands for “Phytomedical Analytics for Research Optimization at Scale."
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 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 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. Effective August 15, 2019, Shareholders of the Company approved an increase in authorized capital shares from 400,000,000 to 600,000,000.
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 a rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes against cell-based models of diseases. This process 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 predict 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.
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 Portfolio
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.
Five USPTO Patents Issued and Three International Patents Issued
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. |
Ten USPTO and Thirty-Five International Patent Applications Pending
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 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: 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 storm 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 maintenence 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 are 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 Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
December 31, |
December 31, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
General and administrative expenses |
$ | 670,311 | $ | 1,472,937 | $ | 1,677,482 | $ | 4,555,633 | ||||||||
LOSS FROM OPERATIONS |
(670,311 | ) | (1,472,937 | ) | (1,677,482 | ) | (4,555,633 | ) | ||||||||
OTHER INCOME/(EXPENSE) | ||||||||||||||||
Interest expense |
(167,120 | ) | (277,813 | ) | (1,249,994 | ) | (942,750 | ) | ||||||||
Loss on amendment to line of credit |
(650,000 | ) | - | (650,000 | ) | - | ||||||||||
Gain/(loss) on extinguishment |
467,872 | (92,796 | ) | 467,872 | (216,954 | ) | ||||||||||
Gain on settlement of accounts payable |
372,415 | - | 372,415 | - | ||||||||||||
Gain on deconsolidation | - | 4,502,058 | - | 4,502,058 | ||||||||||||
Debt default penalty | - | - | (286,059 | ) | - | |||||||||||
Other income/(expense) |
17,523 | (127,059 | ) | 14,149 | 89,806 | |||||||||||
INCOME/(LOSS) BEFORE INCOME TAXES |
(629,621 | ) | 2,531,453 | (3,009,099 | ) | (1,123,473 | ) | |||||||||
Income tax expense |
(206,690 | ) | - | (234,564 | ) | - | ||||||||||
INCOME/(LOSS) FROM CONTINUING OPERATIONS |
$ | (836,311 | ) | $ | 2,531,453 | $ | (3,243,663 | ) | $ | (1,123,473 | ) |
Comparison of the Three and Nine Months Ended December 31, 2020 and 2019
General and Administrative Expenses
General and Administrative Expenses decreased by $(802,626) to $670,311 for the three months ended December 31, 2020, compared to $1,472,937 for the three months ended December 31, 2019. General and Administrative Expenses decreased by $(2,878,151) to $1,677,482 for the nine months ended December 31, 2020, compared to $4,555,633 for the nine months ended December 31, 2019.The decrease in both periods is largely 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.
Interest Expense
Interest expense decreased by $(110,693) to $167,120 for the three months ended December 31, 2020, compared to $277,813 in the prior year quarter. The decrease is primarily attributable to $170,994 of interest income recorded in the prior year quarter related to the Wellcana Note Receivable compared to $0 in the current year quarter.
Interest expense increased by $307,244 to $1,249,994 for the nine months ended December 31, 2020, compared to $942,750 for the nine months ended December 31, 2019. The increases in both periods are attributable to increased average debt balances outstanding, totaling approximately $7,000,000 outstanding (prior to the payoff of the Iliad Note) during the nine months ended December 31, 2020, compared to approximately $5,000,000 during the nine months ended December 31, 2019, and to an increased penalty interest rate of 15% on the note payable to Iliad Research and Trading, L.P. due to the Company's default on that note.
Loss on Amendment to Line of Credit
During the nine months ended December 31, 2020, the Company recorded $650,000 in expense related to the December 29, 2020 modification of the July 24, 2020 Line of Credit payable to AJE Management, LLC as the result of the Omnibus Amendment agreement.
Gain and Loss on Extinguishment
During the three and nine months ended December 31, 2020, the Company recorded a gain on extinguishment of $467,872 related to the discounted payoff of the convertible note payable to Iliad Research and Trading, L.P. pursuant to the Judgment Settlement Agreement. During the nine months ended December 31, 2019, the Company recorded losses on extinguishment of $216,954 related to modifications of the convertible note payable to CSW Ventures, L.P.
Gain on Settlement of Accounts Payable
During the three and nine months ended December 31, 2020, the Company recorded gains totaling $372,415 related to the settlement with vendors of accounts payable for less than the full balance owed. The full amount owed to each vendor was accrued in accounts payable during prior periods.
Gain on Deconsolidation
During the three and nine months ended December 31, 2019, the Company recorded a gain on deconsolidation of $4,502,058 related to the sale of its membership interests in GB Sciences Louisiana, LLC.
Other Income and Expense
Other income was $17,523 for the three months ended December 31, 2020. Other income for the current year quarter primarily relates to income of $50,000 received by the Company as compensation for Wellcana's failure to close the buyout of the Company's note receivable on or before the agreed-upon date of December 8, 2020, offset by other expense of $25,000 paid to Iliad Research and Trading, L.P for an extension of the Judgment Settlement Agreement and various other minor expenses. Other expense of $127,059 for the three months ended December 31, 2019 relates to the induced conversion of a portion of the convertible note payable to Iliad Research and Trading, L.P. at lower-than-market rates.
Other income was $14,149 for the nine months ended December 31, 2020, compared to other income of $89,806 for the nine months ended December 31, 2019. The change is attributable to a $200,000 other income item in the prior year related to the return of cash to the Company that had been seized during transportation , offset by the $127,059 induced conversion expense discussed above.
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 December 31, 2020, cash was $771,064, other current assets excluding cash were $40,225, and our working capital deficit was $(7,104,610). Current liabilities in continuing operations were $7,915,899 and consisted principally of $1,456,695 in accounts payable, $1,573,455 in accrued liabilities, $3,726,308 in notes and convertible notes payable, $331,895 in indebtedness to related parties, and $827,546 in income tax payable. At December 31, 2020, current assets from discontinued operations were $2,084,877, current liabilities from discontinued operations were $1,115,379, and working capital from discontinued operations was 969,498.
At March 31, 2020, continuing operations included a cash balance of $2,406, other current assets excluding cash were $5,243,199, and our working capital deficit was $(4,234,072). Current liabilities in continuing operations were $9,479,677, which consisted principally of $1,913,049 in accounts payable, $1,180,483 in accrued liabilities, $5,054,728 in notes and convertible notes payable, $586,512 of indebtedness to related parties, a note payable to related party of $151,923, and $592,982 in income taxes payable. At March 31, 2020, current assets from discontinued operations were $1,755,275, current liabilities from discontinued operations were $1,406,080, and working capital from discontinued operations was $349,195.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $(1,253,180) including $21,098 provided by discontinued operations for the nine months ended December 31, 2020, compared to $(4,248,291) including $(1,533,341) used in discontinued operations for the nine months ended December 31, 2019. 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 nine months ended December 31, 2020, $4,594,621 was provided by investing activities, net of $(131,302) used in discontinued operations. Cash provided by investing activities of continuing operations consisted of $5,051,923 in proceeds from a note receivable and was offset by $(326,000) paid to acquire intangible assets. During the nine months ended December 31, 2019, the Company used $(538,784) of cash in investing activities, including $(446,922) used in discontinued operations. The cash used in investing activities of continuing operations during the nine months ended December 31, 2019 was primarily for the acquisition of intangible assets.
Financing Activities
During the nine months ended December 31, 2020, cash flows used in financing activities totaled $(2,571,850) , including $(129,237) used in discontinued operations. Cash flows used in financing activities of continuing operations related primarily to principal payments of notes payable in the amount of $(3,156,014), brokerage fees of $(24,983),and debt issuance fees of $(34,500), offset by $249,807 in proceeds from warrant exercises, $300,000 in proceeds from the issuance of notes and convertible notes payable, and proceeds from a line of credit of $375,000. Cash provided by financing activities for the nine months ended December 31, 2019 was $4,642,320 including $529,412 from discontinued operations. Cash provided by financing activities in the prior year related primarily to $790,225 in proceeds from the sale of common stock, $1,069,975 in proceeds from warrant exercises, and $2,630,000 in proceeds from issuing convertible notes, offset by $(175,000) in debt issuance fees, $(175,628) of brokerage fees, and $(26,664) principal payments on notes payable.
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 $(100,650,610) at December 31, 2020. The Company had a working capital deficit of $(6,135,112) at December 31, 2020, net of working capital of $969,498 classified as discontinued operations, compared to $(3,884,877) at March 31, 2020, net of working capital of $349,195 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $(1,253,180) for the nine months ended December 31, 2020, including $21,098 provided by discontinued operations, compared to $(4,248,291) including $(1,533,341) used in discontinued operations for the nine months ended December 31, 2019. 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
In the event the Company is able to obtain the necessary financing to progress with its business plan, the Company expects expenses to increase significantly to grow the business. 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 of these circumstances.
CRITICAL ACCOUNTING POLICIES
A description of the Company's significant accounting policies is included in Note 3 of its Annual Report on Form 10–K for the fiscal year ended March 31, 2020.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended December 31, 2020, the Company carried out an evaluation, under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of disclosure controls and procedures, as defined in Rule 13(a)-15(e) and Rule 15d-15(e) under the 1934 Act. Based on this evaluation, management concluded that as of December 31, 2020, the disclosure controls and procedures were not effective due to material weaknesses as 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.
Limitations on Effectiveness of Controls and Procedures
Management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Controls
During the fiscal quarter ended December 31, 2020, there have been no changes in the internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the internal controls over financial reporting.
Tara “Dee” Russell filed a Charge of Discrimination with the Nevada Equal Rights Commission ("NERC") against the Company on April 2, 2019, alleging that she was subjected to sexual harassment and retaliatory discharge. The Company received the Notice of Charge of Discrimination on or about May 15, 2019. The Company submitted its response to the Notice of Discrimination Charge on July 26, 2019. It is the Company's position that Ms. Russel was not an employee of the Company, but rather was an independent contractor. The Company intends to aggressively respond to the charge. To date, the NERC has not issued a ruling regarding the charge.
On 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 $3,006,014 pursuant to the Judgment Settlement Agreement, and on December 18th, 2020 Iliad filed a Satisfaction of Judgment with the District Court.
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 Mutual Compromise, Settlement, and Release Agreement with the contractor and made payment of $25,000 in full satisfaction of the alleged debt.
There are no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 8,277,851 warrants during the nine months ended December 31, 2020 and received proceeds of $224,824, net of brokerage fees of $(24,983).
During the nine months ended December 31, 2020, the Company granted 3,500,000 immediately-vesting options to purchase one share of the Company's Common Stock at the price of $0.05 per share for a period of ten years as compensation to a scientist and researcher for drafting and filing U.S. and international patents. The options were valued at $168,000 using the Black-Scholes model.
During the nine months ended December 31, 2020, the Company issued a total of 788,000 warrants to convertible note holders with a term of three years and an exercise price of $0.10 per share in exchange for a three-year extension of notes having an aggregate principal balance of $197,000. Using the Black-Scholes model, the Company valued the warrants at $13,396 (Note 6).
On November 16,2020, the Company entered into a Severance Agreement with Leslie Bocskor, a former member of the Board of Directors, and re-priced 450,000 options held by the director to that day's closing share price of $0.03. The term of the options was extended to November 16, 2025 from June 1, 2023. Using the Black-Scholes Model, the Company valued the options at $4,950 immediately prior to the modification and at $11,250 immediately after the modification, and the Company recorded share-based compensation expense of $6,300.
On December 7, 2020, the Board of Directors approved the issuance of warrants to purchase a total of 3,500,000 shares of the Company's common stock at $0.04 per share for a term of ten years to current employees and directors. The Company valued the warrants at $133,000 using the Black-Scholes Model and recorded share-based compensation expense of $133,000 related to the warrants.
On December 15, 2020, the Board of Directors approved the issuance of options to purchase a total of 3,250,000 shares of the Company's common stock at $0.05 per share for a term of ten years to current employees and directors. The options vest one-third upon grant, one-third after one year of service, and one-third after two years of service. The Company valued the options at $156,000 using the Black-Scholes Model and recorded share-based compensation expense of $58,500 related to the options for the nine months ended December 31, 2020. Remaining unrecognized compensation cost related to the options was $97,500 at December 31, 2020.
On December 15, 2020, the Board of Directors approved the re-pricing of 6,050,000 options held by current employees to an exercise price of $0.05, the closing stock price on that date. All of the options subject to the modification were fully vested. Using the Black-Scholes Model, the Company valued the options at $199,600 immediately prior to the modification and at $250,650 immediately after the modification, and the Company recorded share-based compensation expense of $51,050.
ITEM 3. Defaults Upon Senior Securities
On 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 3,006,014 pursuant to the Judgment Settlement Agreement, and on December 18th, 2020 Iliad filed a Satisfaction of Judgment with the District Court.
ITEM 4. Mine Safety Disclosures
Not Applicable.
None.
In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
●should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
●have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
●may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
●were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
The following exhibits are included as part of this report:
* This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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GB SCIENCES, INC. |
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February 16, 2021 |
By: |
/s/ John Poss |
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John Poss, Chief Executive Officer (Principal Executive Officer) |
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GB SCIENCES, INC. |
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February 16, 2021 |
By: |
/s/ Zach Swarts |
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Zach Swarts, Chief Financial Officer (Principal Financial Officer) |
JUDGMENT SETTLEMENT AGREEMENT
This Judgment Settlement Agreement (this “Agreement”) is entered into as of November 20, 2020 (the “Effective Date”) by and among Iliad Research and Trading, L.P., a Utah limited partnership (“Lender”), GB Sciences, Inc., a Nevada corporation (“Borrower”), and solely with respect to Section 3 below, Wellcana Plus LLC, a Louisiana limited liability company (“Wellcana”). Capitalized terms used in this Agreement without definition shall have the meanings given to them in the Note (defined below). Each of Borrower and Lender is sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
A. Borrower previously sold and issued to Lender that certain 8% Convertible Promissory Note dated April 23, 2019 in the original principal amount of $2,765,000.00 (the “Note”) pursuant to that certain Note Purchase Agreement dated April 23, 2019 by and between Lender and Borrower (the “Purchase Agreement,” and together with the Note and all other documents entered into in conjunction therewith, the “Transaction Documents”).
B. A number of events of defaults occurred under the Note and, as a result thereof, Lender filed a lawsuit against Borrower in the Third Judicial District Court of Salt Lake County, State of Utah, Case No. 200903437 (the “Lawsuit”).
C. On July 14, 2020, Judge Keith Kelly entered a Default Judgment (the “Judgment”) against Borrower in the amount of $3,264,594.38 plus post-judgment interest at the rate of 15% per annum and all attorneys’ fees incurred by Lender to pursue and collect on the Judgment (the “Judgment Amount”).
D. Lender and Borrower now desire to settle the Judgment on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Recitals. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Agreement are true and accurate, are contractual in nature, and are hereby incorporated into and made a part of this Agreement.
2. Settlement Amount. Notwithstanding the terms and conditions of any prior Agreement between Borrower and Lender, Borrower covenants and agrees to pay Lender $3,006,014.60 (the “Settlement Amount”) in accordance with the terms of this Agreement.
3. Proceeds from Asset Sale. Wellcana and Borrower have reached agreement on the accelerated payment of proceeds from the sale of Borrower’s 50% membership interest in GB Science Louisiana LLC by Borrower to Wellcana (the “Asset Sale”). Borrower hereby directs Wellcana and Wellcana covenants and agrees to pay the Settlement Amount directly to Lender in accordance with the wire transfer instructions attached hereto as Exhibit A from the proceeds owed to Borrower at the closing of the Asset Sale. The amount paid by Wellcana will be recognized by Lender as a credit to the amount due from Borrower to Lender. Wellcana also covenants and agrees to provide Lender with a contact who will provide updates and answer questions regarding the
status of the Asset Sale to Lender. Borrower covenants and agrees that Wellcana’s payment of the Settlement Amount to Lender will be credited toward the purchase price of the Asset Sale.
4. Final Settlement; Payment in Full. Final settlement of this Agreement (“Final Settlement”) (and thereby, the Judgment) shall occur once Lender receives the Settlement Amount from Wellcana. Upon Final Settlement, Borrower shall be deemed to have paid the entire Judgment Amount in full, Borrower shall have no further obligations under the Judgment, the Judgment shall be deemed to be satisfied, and Lender will file a satisfaction of judgment with the court that issued the Judgment. In the event Final Settlement does not occur on or prior to December 8, 2020, this Agreement will immediately and automatically terminate and be deemed to be void ab initio.
5. Failure to Comply. Borrower understands that Lender’s agreement to settle the Judgment for the Settlement Amount, and all other obligations, restrictions, and limitations of or on Lender hereunder shall terminate immediately upon the occurrence of any breach of this Agreement. In any such case, Lender may seek all recourse available to it under the terms of the Judgment, this Agreement, or applicable law following any breach, including without limitation enforcing the Judgment for the full Judgment Amount.
6. Judgment. Borrower represents, warrants and acknowledges that it was properly served the complaint and all other applicable documents related to the Lawsuit and that the Judgment was properly entered. Borrower further agrees that it will not challenge the Judgment or otherwise seek to have the Judgment set aside. In furtherance of the foregoing, Borrower acknowledges that the representations and warranties in the prior sentence are a material inducement to Lender to enter into this Agreement and that but for such representations and warranties from Borrower, Lender would not have entered into this Agreement or agreed to settle the Judgment for the Settlement Amount.
7. Representations, Warranties and Agreements. In order to induce Lender to enter into this Agreement, Borrower, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:
7.1. Authority. Borrower has full power and authority to enter into this Agreement and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Agreement or the performance of any of the obligations of Borrower hereunder. Borrower asserts that any governmental filings that are required will be filed by Borrower as required by law.
7.2. No Waiver. Any Event of Default which may have occurred under the Note has not been, is not hereby, and shall not be deemed to be waived by Lender, expressly, impliedly, through course of conduct or otherwise except upon full satisfaction of Borrower’s obligations under this Agreement. The agreement of Lender to refrain and forbear from exercising any rights and remedies by reason of any existing default or any future default shall not constitute a waiver of, consent to, or condoning of, any other existing or future default.
7.3. Accurate Representations. All understandings, representations, warranties and recitals contained or expressed in this Agreement are true, accurate, complete, and correct in all respects; and no such understanding, representation, warranty, or recital fails or omits to state or otherwise disclose any material fact or information necessary to prevent such understanding, representation, warranty, or recital from being misleading. Borrower acknowledges and agrees that Lender has been induced in part to enter into this Agreement based upon Lender’s justifiable reliance on the truth, accuracy, and completeness of all understandings, representations, warranties, and recitals contained in this Agreement. There is no fact known to Borrower or which should be known to Borrower which Borrower has not disclosed to Lender on or prior to the date hereof which would or could materially and adversely affect the understandings of Lender expressed in this Agreement or any representation, warranty, or recital contained in this Agreement.
7.4. No Defenses. Borrower has no defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against Lender, directly or indirectly, arising out of, based upon, or in any manner connected with, the transactions contemplated hereby, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted or begun in accordance with, pursuant to, or by virtue of any of the terms or conditions of the Transaction Documents. To the extent any such defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action exist or existed, such defenses, rights, claims, counterclaims, actions and causes of action are hereby waived, discharged and released. Borrower hereby acknowledges and agrees that the execution of this Agreement by Lender shall not constitute an acknowledgment of or admission by Lender of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted.
7.5. Voluntary Agreement. Borrower hereby acknowledges that it has freely and voluntarily entered into this Agreement after an adequate opportunity and sufficient period of time to review, analyze, and discuss (i) all terms and conditions of this Agreement, (ii) any and all other documents executed and delivered in connection with the transactions contemplated by this Agreement, and (iii) all factual and legal matters relevant to this Agreement and/or any and all such other documents, with counsel freely and independently selected by Borrower (or had the opportunity to be represented by counsel). Borrower further acknowledges and agrees that it has actively and with full understanding participated in the negotiation of this Agreement and all other documents executed and delivered in connection with this Agreement after consultation and review with its counsel (or had the opportunity to be represented by counsel), that all of the terms and conditions of this Agreement and the other documents executed and delivered in connection with this Agreement have been negotiated at arm’s-length, and that this Agreement and all such other documents have been negotiated, prepared, and executed without fraud, duress, undue influence, or coercion of any kind or nature whatsoever having been exerted by or imposed upon any party by any other party. No provision of this Agreement or such other documents shall be construed against or interpreted to the disadvantage of any party by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated, or drafted such provision.
7.6. No Proceedings. There are no proceedings or investigations pending or
threatened before any court or arbitrator or before or by, any governmental, administrative, or judicial authority or agency, or arbitrator, against Borrower.
7.7. No Statutes. There is no statute, regulation, rule, order or judgment and no
provision of any mortgage, indenture, contract or other agreement binding on Borrower, which would prohibit or cause a default under or in any way prevent the execution, delivery, performance, compliance or observance of any of the terms and conditions of this Agreement and/or any of the other documents executed and delivered in connection with this Agreement.
7.8. Solvent. Borrower is solvent as of the date of this Agreement, and none of
the terms or provisions of this Agreement shall have the effect of rendering Borrower insolvent. The terms and provisions of this Agreement and all other instruments and agreements entered into in connection herewith are being given for full and fair consideration and exchange of value.
4. Certain Acknowledgments. Each of the parties acknowledges and agrees that no property or cash consideration of any kind whatsoever has been or shall be given by Lender to Borrower in connection with this Agreement.
5. Miscellaneous.
9.1. Further Assurances. At any time or from time to time after the Effective
Date, at the request of a Party, and without further consideration, each of the Parties shall execute and deliver, or shall cause its respective affiliate(s) to execute and deliver, such other agreements, instruments, certifications or other documents as may be necessary or desirable to effectuate the transactions and fulfill its obligations under this Agreement.
9.2. Arbitration. By its execution of this Agreement, each Party agrees to be bound by the Arbitration Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the Purchase Agreement and the parties agree to submit all Claims (as defined in the Purchase Agreement) arising under this Agreement or any Transaction Document or other agreement between the parties and their affiliates to binding arbitration pursuant to the Arbitration Provisions.
9.3. Governing Law; Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah without regard to the principles of conflict of laws. Each Party consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out of or relating to this Agreement or any Transaction Document or the relationship of the Parties or their affiliates shall be in Salt Lake County, Utah. Without modifying the Parties obligations to resolve disputes hereunder or under any Transaction Document pursuant to the Arbitration Provisions, each Party hereto submits to the exclusive jurisdiction of any state or federal court sitting in Salt Lake County, Utah in any proceeding arising out of or relating to this Agreement and agrees that all Claims in respect of the proceeding may only be heard and determined in any such court and hereby expressly submits to the exclusive personal jurisdiction and venue of such court for the purposes hereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each Party hereto hereby irrevocably consents to the service of process of any of the aforementioned courts
in any such proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to its address as set forth in the Purchase Agreement, such service to become effective ten (10) days after such mailing. BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
9.4. Severability. If any part of this Agreement is construed to be in violation of
any law, such part shall be modified to achieve the objective of the Parties to the fullest extent permitted and the balance of this Agreement shall remain in full force and effect.
9.5. Successors. This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors and assigns. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Lender hereunder may be assigned by Lender to a third party, including its financing sources, in whole or in part. Borrower may not assign this Agreement or any of its obligations herein without the prior written consent of Lender.
9.6. Entire Agreement. This Agreement, together with all other documents
referred to herein, supersedes all other prior oral or written agreements between Borrower, Lender, its affiliates and persons acting on its behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the Parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Lender nor Borrower makes any representation, warranty, covenant or undertaking with respect to such matters.
9.7. Amendments; Waiver. This Agreement may be amended, modified, or
supplemented only by written agreement of the Parties. No provision of this Agreement may be waived except in writing signed by the Party against whom such waiver is sought to be enforced.
9.8. Attorneys’ Fees. In the event of any action at law or in equity to enforce or
interpret the terms of this Agreement, the Parties agree that the Party who is awarded the most money (without regard to any fines, penalties, or charges imposed by any governmental or regulatory authority) shall be deemed the prevailing Party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by such prevailing Party in connection with the dispute without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair an arbitrator’s or a court’s power to award fees and expenses for frivolous or bad faith pleading.
9.9. Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile transmission or other electronic transmission (including email) shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. Signatures of
the Parties transmitted by facsimile transmission or other electronic transmission (including email) shall be deemed to be their original signatures for all purposes.
9.10. Acknowledgement. By executing this Agreement, each of the Parties evidences that it carefully read and fully understands all of the provisions of this Agreement.
9.11. No Reliance. Borrower acknowledges and agrees that neither Lender nor any of its officers, directors, members, managers, representatives or agents has made any representations or warranties to Borrower or any of its agents, representatives, officers, directors, stockholders, or employees except as expressly set forth in this Agreement and, in making its decision to enter into the transactions contemplated by this Agreement, Borrower is not relying on any representation, warranty, covenant or promise of Lender or its officers, directors, members, managers, agents or representatives other than as set forth in this Agreement.
9.12. Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of this Agreement.
9.13. Notices. Unless otherwise specifically provided for herein, all notices,
demands or requests required or permitted under this Agreement to be given to Borrower or Lender shall be given as set forth in the “Notices” section of the Purchase Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the Effective Date.
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ILIIAD RESEARCH AND TRADING, L.P. |
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By: | Iliad Management, LLC, its General Partner | ||
By: | Fife Trading, Inc., its Manager | ||
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By: |
/s/ John Fife |
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John M. Fife, President |
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GB SCIENCES, INC. |
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By: |
/s/ John C Poss |
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Name: John C Poss |
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Title: CEO |
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Solely with Respect to Section 3:
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WELLCANA PLUS LLC |
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By: |
/s/ Charles Hohorst |
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Name: Charles Hohorst |
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Title: Managing Member K2LOGIC |
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/s/ Charles Rush
Title: On behalf of K2 Logic, LLC Managing Member of
Wellcana Plus LLC.
[Signature Page to Judgment Settlement Agreement]
EXHIBIT A
WIRE TRANSFER INSTRUCTION
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Poss, certify that:
1.I have reviewed this quarterly report on Form 10-Q of GB Sciences, Inc.;
2.Based on my knowledge, the quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
Date: February 16, 2021 |
/s/ John Poss |
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John Poss, Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zach Swarts, certify that:
1.I have reviewed this quarterly report on Form 10-Q of GB Sciences, Inc.;
2.Based on my knowledge, the quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
Date: February 16, 2021 |
/s/ Zach Swarts |
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Zach Swarts, Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GB Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Poss, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: February 16, 2021 |
/s/ John Poss |
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John Poss, Chief Executive Officer
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Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GB Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zach Swarts, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: February 16, 2021 |
/s/ Zach Swarts |
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Zach Swarts, Chief Financial Officer
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