UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
__________________________
(Mark One)
| x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
Fiscal Year Ended March 31, 2015
| ¨ | TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from
__________ to ___________
Commission
file number: 333-82580
GROWBLOX SCIENCES,
INC.
(Exact name of registrant
as specified in its charter)
____________________
| Delaware |
|
59-3733133 |
| (State or other Jurisdiction of |
|
(IRS Employer I.D. No.) |
| Incorporation or Organization) |
|
|
___________________________
6450 Cameron Street, Suite 110
Las Vegas, Nevada 89118
Phone: (844) 866-721-0297
Fax: (702) 441-0324
(Address and telephone number of
principal executive offices)
___________________________
Securities registered under Section 12
(b) of the Exchange Act:
| Title of each class |
|
Name of each exchange
on which registered |
| None |
|
None |
Securities registered under Section 12(g)
of the Exchange Act:
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the 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 x No ¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ |
Accelerated filer ¨ |
| Non-accelerated filer ¨ |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company
(as defined by Rule 12b-2 of the Act). Yes ¨ No þ
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 2015, the last business day of the registrant’s most recently completed fiscal year, based
on the closing price on that date of $0.21 on the OTCQB, was approximately $7,554,315.
The shares outstanding on March 31, 2015 were 35,972,929.
Documents Incorporated by Reference
None
GROWBLOX SCIENCES, INC.
FORM 10-K
TABLE OF CONTENTS
Forward Looking Statements
This Annual Report on Form 10-K of Growblox Sciences, Inc.,
a Delaware corporation and its subsidiaries (the “Company”), 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 market opportunity, strategies, competition, expected
activities and expenditures as we pursue business our plan, and the adequacy of available cash reserves. 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 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 any or all of the Company’s 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 any other factors discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”).
Management has included projections and estimates in this Form
10-K, which are based on management’s experience in the industry, assessments of the results of operations, discussions
and negotiations with third parties and a review of information filed by competitors with the SEC or otherwise publicly available.
We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We
disclaim any obligation subsequently to revise and forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated results or events.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. Factors which may cause actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by us in those statements include, among others, the following:
| ● | the quality of properties with regard to, among other
things, the existence of reserves in economic quantities; |
| ● | uncertainties about the estimates of reserves; |
| ● | ability to increase cultivation production |
| ● | the timing and extent of changes in prices for medical
cannabis; |
| ● | domestic demand for medical cannabis; |
| ● | Agricultural risks of growing and harvesting medical cannabis; |
| ● | the availability of equipment, such as extraction equipment; |
| ● | changes in harvest plans and related budgets; |
| ● | the adequacy of capital reserves and liquidity including,
but not limited to, access to additional borrowing capacity; and |
| ● | other factors discussed under Item 1A Risk Factors with
the heading “Risks Related To Business”. |
Because such statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by the forward-looking statements. You are cautioned not
to place undue reliance on such statements, which speak only as of the date of this report.
PART I
ITEM
1. DESCRIPTION OF BUSINESS
The following summary highlights information contained elsewhere
in this Form 10-K Annual Report. It is not complete and does not contain all of the information that you should consider. You
should read the entire Annual Report carefully, especially the risks of investing in our common stock discussed under “Risk
Factors” and our consolidated financial statements and accompanying notes. Unless the context indicates otherwise, all references
to “Growblox” refers solely to Growblox Sciences, Inc., a Delaware corporation, and all references to “the Company,”
“we”, “us” or “our” in this Annual Report refers to Growblox and its consolidated subsidiaries.
Overview
The Company believes that it is a leader in developing innovative
technologies and processes to convert the cannabis plant into medicines, therapies and treatments for a variety of ailments. We
are developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with
biotechnology, to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies. We
seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and
terpenes, which we intend to market in those states within the United States and in other countries where the sale of medical
cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend
to market our cannabinoid based drug discoveries on a world-wide basis.
Growblox intends to conduct its business operations, primarily
through its subsidiaries in three distinct operating units which we designate as our “Solutions,” “Sciences”
and “Product” divisions.
Our Solutions division involves the development and use of
our proprietary suite of controlled-climate indoor agricultural technology growing and cultivation Suites, which we call “TissueBLOX”,
“GrowBLOX,” TM “CureBLOX” and “ExtractionLAB” (collectively,
the “GrowBLOX Suites”). Our GrowBLOX Suites are engineered and designed to cultivate medical grade cannabis and create
cGMP-certified plant extracts, and thereafter to enable us to process and manufacture a variety of pharmaceutical, nutraceutical
and cosmeceutical formulations and products based on these certified raw ingredients. .
We believe that the key advantage of our GrowBLOX Suites is
that they are capable of producing certified raw materials with consistent and measurable profiles of active ingredients. We believe
that producing cannabis-based materials with validated chemical compositions is ideal for scientifically-rigorous testing of the
safety and effectiveness of these materials as a therapy for patients. If these materials are approved by the FDA they can be
marketed in patented pharmaceutical compositions. As such, we believe that the medical grade cannabis and other extracts produced
in our GrowBLOX Suites can serve as the raw materials for our Science and Products divisions. We
will seek to obtain ISO and Current Good Manufacturing Practices (cGMP) certifications for the process of growing and processing
botanical ingredients in our GrowBlox Suites. The manufacture, licensing, installation and support of such equipment will be the
focus of our Growblox Sciences Puerto Rico, LLC subsidiary, which will operate our Solutions division.
Our Science division will seek to create and validate the effectiveness
of proprietary formulations of active ingredients derived from the cannabis plant, in combination with “big data”
driven clinical research and development programs to bring pain relief and potential cures to patients suffering from a variety
of neurological and other diseases. Our Science division is currently engaged in preclinical testing of its biopharmaceutical
cannabinoid product prototypes to begin future human clinical trials. In addition, we are seeking co-development partners to assist
us with growing a phytocannabinoid-based biopharmaceutical product pipeline.
We are currently developing and intend to file patent applications
for specific, cannabis-based, pharmaceutical formulations that fit within seven broad therapeutic categories. Many of these disease
categories are not currently being treated effectively by traditional pharmaceutical companies. Once our patent applications are
filed with the U.S. Patent Office, we will submit IND-applications to the FDA and request “orphan drug” designation
status for our formulations in some instances or “breakthrough drug” designations in others in order to fast track
our clinical trials. In addition, we intend to implement adaptive design clinical trials based on recent FDA-guidance documents.
Adaptive design clinical trials have the potential to reduce the total clinical trial time to as little as three to five years,
as it has for other new FDA-approved treatments like Gilead’s Hepatitis C treatment. Additionally, we believe that our time
to market can be reduced because we expect to shortly be able to cultivate and dispense to human recipients consistent and measurable
medical-grade cannabis in Nevada and thereafter in other states by licensed dispensaries and oncologists. In these dispensary
trials, we hope to use our GBLX-PRO smartphone application currently under development to establish correlations between the profiles
of active ingredients in the cannabis-based extracts and symptom improvement as reported by patients and confirmed biometrically.
We therefore believe that these human clinical trials will help establish the safety and efficacy of our raw cannabis-based formulations.
It should be emphasized that we face significant hurdles in
obtaining FDA approval and certification for our therapies. Not only is the FDA certification process for any proposed pharmaceutical
both extremely expensive and time consuming, but the current policy and regulations of the Federal government and some of its
agencies are that cannabis has no medical benefit. Despite current Federal policy, there are more than 500 clinical trials currently
in process in the United States testing cannabis or marijuana, and they are registered on the FDA-regulated website at www.clinicaltrials.gov,
Of these trials, approximately 188 are testing potentially positive clinical effects of cannabis-based therapies.
Medical cannabis has been shown in numerous trials to be an
effective source of pain therapy and has been indicated as being effective in treating some conditions such as glaucoma, AIDS,
multiple sclerosis, chemotherapy-induced nausea and certain seizure disorders. While the therapeutic effects of medical cannabis
on these conditions have been well documented in the medical literature, many patients and their physicians have well-founded
concerns regarding the consistency, safety and efficacy of medical cannabis that is available any most standard dispensaries.
We will seek to alleviate these concerns and increase safety and efficacy through cultivating harvest-to-harvest consistency in
the levels of active cannabinoids in our proprietary stains; eliminate harmful pesticides and fungicides in our Growblox Suites
growing and curing system.
We are also in the preliminary stages of developing, through
a third party contactor, a mobile cannabis delivery application that would be downloaded into a smart phone that we call the GBLX-PRO.
Once data on a user of medical cannabis is obtained and the precise formulation of medical grade cannabis is dispensed, the proposed
application will permit a user to remotely order additional deliveries or obtain the identical product by using thumb print identification
on his or her smart phone. In addition, by use of a “health” wrist watch, the user’s blood pressure, pulse rate
and potentially sleep patterns and genetic markers can be accessed; all of which, we believe, would be significant in providing
“big data” capabilities for the clinical trials to be conducted by our Science division.
However, it should be emphasized that the development of our
proposed mobile application is in the early stages of testing. Accordingly, there is no assurance that such application will ever
be successfully developed or, even if developed, will be sold or used in any meaningful way or otherwise assist us in our contemplated
medical research.
Our Products division will market the pharmaceutical, nutraceutical
and cosmeceutical drugs and therapies produced by our Science Division. In addition, our Products division will seek to dispense
medical-grade cannabis solutions and products in states within the United States and in other countries where the sale and use
of such products are permitted. Growblox will operate its Products division and market its solutions and products through existing
and future subsidiaries to be located in permitted jurisdictions.
Our 65% owned subsidiary GB Sciences Nevada, LLC (“GBS
Nevada”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. GBS Nevada holds a provisional certificate
from the Division of Public & Behavioral Health of the Nevada Department of Health and Human Services to operate an establishment
to cultivate medical cannabis at its Las Vegas location. The certificate is considered provisional until the establishment is
in compliance with applicable local government requirements and has received a state business operating license. Granted in November
2014, the provisional certificate is subject to revocation if a medical marijuana establishment is not fully operational within
18 months from receipt.
GBS Nevada has applied for a permit or certificate to dispense
medical cannabis at two locations in Clark County, Nevada, including one location within the City of Las Vegas, and a certificate
to deliver medical grade cannabis throughout the State of Nevada. GBS Nevada is waiting for approval of such dispensary and delivery
certificates by the State of Nevada. There can be no assurance that such certificates or permits will be issued, or if issued,
that Growblox or GBS Nevada will derive any significant revenues or profits from the cultivation, dispensing and delivery of medical
cannabis within such County or City.
In March 2015, Growblox and GBS Nevada entered into a binding
memorandum with the local minority members of GBS Nevada who now own 35% of its equity. Under the terms of such agreement, Growblox’s
equity in GBS Nevada increased from 55% to 65%, GBS Nevada will retain its existing certification to cultivate and grow cannabis
and, if and when issued by Clark County and/or Las Vegas, Nevada, the delivery certification. If and when issued, the dispensary
certification will be assigned to an entity to be wholly-owned by the 35% minority owners of GBS Nevada. In consideration for
such assignment, the entity operating the dispensaries will agree to purchase a minimum of 20% of its inventory of cannabis from
GBS Nevada and pay to Growblox 10% of all profits derived from its dispensary business. In addition, GBS Nevada shall retain the
delivery certificate and the exclusive right to provide all delivery services on behalf of the dispensaries that are permitted
by applicable state and local Nevada law.
Our principal executive offices and where we operate our Science
and Product divisions is currently located at 6450 Cameron St., Suite 110A, Las Vegas, Nevada.
Our Business Strategy
Growblox intends to operate as an intellectual property company
that will conduct its business through its subsidiaries. Growblox intends to own all patents and related technologies developed
by it and its subsidiaries. In addition, Growblox owns and will seek to own majority interests in each of its existing and future
operating subsidiaries.
The completion of pre-clinical and clinical trials and FDA-approvals
for a pharmaceutical product is traditionally a long and expensive process. However, we believe that strategic partnering and
aggressive licensing of these products at early clinical stages can mitigate some of the risks. If we are able to obtain “orphan
drug” or “breakthrough drug” fast track status, this would be very helpful in shortening the process; as is
the use of the new adaptive design clinical trial strategy. In order to achieve the strategic goals for our Science division,
we intend to enter into partnerships or joint ventures with respected, independent contract research organizations, medical schools
and other researchers. To this end, in December 2014, we signed a letter of intent with NRC Research Institute, a respected contract
research organization in California. It is contemplated that NRC will focus on designing Phase I/II studies in parallel to simultaneously
evaluate safety and efficacy of therapeutics.
If we achieve successful outcomes of product prototypes and
meet all of our intermediate clinical trial goals, we will seek to proceed with testing using the adaptive design clinical trial
strategy that allows us to proceed more quickly through all three human trial phases in a single series. We would then apply for
FDA approval. If and when one or more of our drugs, therapies or treatments are approved by the FDA, we will seek to market them
either through our Products division or under joint ventures or licensing arrangements with major 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 our Science Division. There can be no assurance that we will be able to obtain
such additional capital on reasonable terms, if at all. If our Science Division 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.
Although we believe that maximum shareholder value will ultimately
be achieved through the development, production and marketing of certified cannabinoid medicines, therapies and treatments, in
order to generate cash flow and near term profitability we intend to cultivate and dispense cannabis for medical purposes in both
Nevada and other states which permit such sales and in which we and our operating partners are able to obtain cultivation and
dispensing licenses.
Agreement with Growblox Sciences
Puerto Rico
On May 8, 2015, the Company entered
into agreements with Growblox Sciences, Puerto Rico, LLC, a limited liability company organized under the laws of the Commonwealth
of Puerto Rico (“GBSPR”). GBSPR was formed to operate our Solutions division, and is being capitalized primarily by
Cesar Cordero-Kruger, a prominent business executive and resident of Puerto Rico. Such agreements include a commercialization
agreement under which the Company has granted to GBSPR the exclusive world-wide rights to all Company technology and intellectual
property, including our research, technical support and trademarks, to, among other things:
(a) manufacture,
produce, lease and license the Company’s indoor series of controlled-climate indoor agricultural technology growing and
cultivation suites, which we call “TissueBLOX”, “Growblox” and “CureBLOX,” and which engineered
and designed to produce medical grade cannabis and other plant extracts (the “Growblox Suites”);
(b) provide
remote diagnostic monitoring and servicing of the Growing Suites to third party growers and processors of hemp, cannabis and other
plant extracts; and
(c) sell
to our Company or our other subsidiaries, for resale and distribution throughout the world in all territories and jurisdictions
(including states in the United States) where the sale and use of such products are permitted, any and all pharmaceutical raw
materials and products as well as neutraceuticals and cosmeceutical skin care products derived from medical-grade cannabis and
hemp raw materials that were cultivated and grown in Growblox Suites.
The grant of rights under the commercialization agreement is
subject to the condition that GBSPR obtain not less than $1,250,000 of equity financing by no later than September 30, 2015; failing
which the Company may unilaterally terminate the agreement. In such connection, Cesar Cordero-Kruger has invested the initial
$300,000 of capital to GBSPR and will be responsible for accessing the remaining $950,000 of capital for GBSPR. Neither Growblox,
nor any officer or director of Growblox, will participate in obtaining financing for GBSPR. If the initial $1,250,000 of equity
financing is completed, GBSPR will thereafter seek to raise up to an additional $4,750,000 to expand its operations. To date,
GBSPR has not raised additional financing.
There can be no assurance that the proposed initial $1,250,000
capitalization of GBSPR will be consummated by September 30, 2015 or thereafter, or that the contemplated $4,750,000 of additional
financing will be undertaken or completed upon terms and conditions that are acceptable to GBSPR or the Company, if at all.
Recent Financing
On May 12, 2015, Growblox entered into a note purchase agreement,
to be effective as of June 9, 2015, with Pacific Leaf Ventures, LP ( “Pacific Leaf”), pursuant to which Pacific Leaf
agreed to make an installment loan to our Company of up to $1,750,000 (the “Loan”). The purpose of the financing will
be to provide for the acquisition and installation of an operating facility, equipment and other tangible assets by GBS Nevada.
Such facility and equipment will be dedicated to the cultivation of cannabis and the extraction of oils and other constituents
present in cannabis, subject at all times to Nevada legal requirements.
Under the note purchase agreement, Pacific Leaf made a $100,000
advance on June 9, 2015 and shall make additional advances to GBS Nevada in installments, as follows: (a) $600,000 by July 9,
2015; (b) $700,000 by August 9, 2015; and (c) $350,000 by September 9, 2015. The installment advances are designed to dovetail
with construction and implementation needs for the cultivation facility for GBS Nevada. The obligation of Pacific Leaf to make
each periodic installment is subject to satisfaction of certain conditions, including compliance with certain covenants and with
Nevada legal requirements and no material adverse events. The proceeds of the loan can be used only for the purchase of assets,
construction, and leasehold improvements related to the cultivation facility. Part of the assets purchased with the proceeds of
the note will include extraction equipment developed by the Company in cooperation with Pacific Leaf. The note is secured by a
first lien and security interest on (i) the equipment of GBS Nevada, including the equipment purchased with the proceeds of the
Loan, and (ii) the Company’s equity in GBS Nevada.
To evidence the loan, we issued a 6% senior secured $1,750,000
convertible promissory note, to bear interest at a fixed rate of 6% per annum, payable quarterly. All outstanding principal and
interest due under the note shall be due and payable on May 12, 2020. The Company is required to prepay the outstanding principal
amount of the note on a quarterly basis in an amount equal to 50% of the earnings before interest taxes depreciation and amortization
(EBITDA) of GBS Nevada attributable to the Company’s existing percentage interest (currently 55%) in GBS Nevada.
Pacific Leaf has the option, at any
time and from time to time, prior to the date on which the Company makes payment in full of the note, to convert all or any portion
of the outstanding principal amount of the note into shares of our common stock, par value $0.0001 per share at an initial conversion
price equal to $0.50. Pacific Leaf and any subsequent holders of the note shall be granted rights to piggyback registration on
all shares of common stock issuable upon conversion of the note.
In a related development, we also entered into an exclusive
perpetual license agreement with Pacific Leaf to make use of Pacific Leaf’s intellectual property for the cultivation of
cannabis and extraction of oils and other cannabis formulations that it has developed or acquired (the “Pacific Leaf Intellectual
Property”) for the sole use of GBS Nevada in its operations within the state of Nevada; it being understood that any other
use of the Pacific Leaf Intellectual Property requires the approval of the licensor. We believe that the rights to the Pacific
Leaf Intellectual Property will give GBS Nevada a significant competitive advantage in the Nevada cannabis market. In consideration
for the license of the Pacific Leaf Intellectual Property, the Company has agreed to pay Pacific Leaf for a period of ten years
out of all periodic distributions we receive from GBS Nevada (based on our percentage equity in GBS Nevada a royalty at the rate
of 14% of the gross revenue earned by the Company from GBS Nevada for the initial five years, and a royalty at the rate of 7%
of gross sales revenues of GBS Nevada in years six through ten.
As part of the Pacific Leaf license, we were also granted the
exclusive perpetual right in Nevada to use certain proprietary techniques developed by Pacific Leaf for the extraction of oils
from the product grown in the Nevada facility, using the extraction equipment financed by the proceeds of the Pacific Leaf loan.
In connection therewith, the Company agreed to pay a royalty of $2.00 per extracted gram for a period of five years.
There can be no assurance that
| · | we will be
able to comply with our covenants under the Pacific Leaf Note Purchase Agreement so as
to enable us to receive all of the anticipated funding thereunder; |
| · | there will
not be cost over-runs in connection with the purchase and/or lease of the cultivation
facility and related equipment resulting in the proceeds of the loan being insufficient
to enable GBS Nevada to complete the installation and commence production of cannabis
for medical purposes; |
| · | a final certificate
to cultivate medical cannabis at the Las Vegas facility will be issued, or that Growblox
or or GBS Nevada will not violate existing or newly imposed state, county and city regulations
in Nevada that would significant restrict or prohibit our proposed business activities;
or |
| · | that the proposed
cannabis cultivation, dispensary and delivery business to be conducted by Growblox and
GBS Nevada will prove profitable to us.. |
A default under the note purchase agreement could have a material
adverse effect on the our business and business prospects.
In addition, there can also be no assurance that:
| · | the proposed
business activities of GBSPR, GBS Sciences or our other subsidiaries will ever be successful; |
| · | our existing
and intended research and development programs will result in pre-clinical trials or
clinical trials that will lead to the production of any pharmaceutical, nutraceutical
or cosmeceutical related products that will either be commercially accepted or permitted
to be sold by the FDA or any other state or federal regulatory authority; or |
| · | we will ever
be able to purchase or be permitted to resell medical grade cannabis or other products. |
Competition
The medical cannabis industry is subject to intense and increasing
competition. Some of our competitors may have substantially greater capital resources, facilities and infrastructure then we have,
which may enable them to compete more effectively in this market. These competitors include MedBox, Inc., TerraTech Corp., Cannabis
Science, Inc., Peak Pharmaceuticals, Inc., Cannabis-Rx, Inc. and Nemus Biosciences, Inc. In addition, the development of therapies
and pharmaceutical products based on extracts from the cannabis plant is being undertaken by a number of medical and educational
institutions, including the University of Mississippi, which is the only U.S. based entity authorized by the Federal government
to cultivate cannabis for research. Such institutions have significantly greater financial resources and facilities than we have
Intellectual Property
We believe that we have the opportunity to
file applications for several potential patents relating to our cultivation and growing technologies. We filed a provisional patent
application in 2014 which has expired. We intend to expand our prior claims and refile on or more new patent applications in the
near future.
Our key technology is the indoor agricultural
growing Suite known as the Growblox™. The Growblox™ is a controlled-climate indoor agricultural growing
Suite designed and engineered to cultivate medical-grade cannabis plants. We believe that our Growblox™ Suites create
the ideal growing environment for each plant while economically monitoring and adjusting the light, humidity, nutrition, temperature
and aeration, The Growblox™ Suites also excludes outside stresses like, toxins, pathogens and pests. We believe that
this customized environment ensures maximum harvest of the finest grade products and will consistently deliver the quality and
efficacy expected from a medical-grade cannabis product.
We believe that the Growblox™ system
is economical, environmental and user friendly as it utilizes the following technologies:
| · | Growblox’s™
AeroVAPOR™ misting system delivers all of the moisture, nutrients and oxygen the
cannabis plants need to grow through a misting system that recycles the water used. Absolutely,
no gray water remains that would traditionally be released back into the environment. |
| · | Energy-efficient
LED lighting system. |
| · | Integrated,
intelligent control system that continuously monitors, manages, records, and analyzes
the cultivation methodology for optimal growth. |
| · | Remote
monitoring system sends alerts via text, email and telephone to scientists, botanists
and cultivators, recommending adjustments to the Suites cultivation levels. |
We also anticipate filing
a number of patent applications for specific, cannabis-based, pharmaceutical formulations that fit within seven broad therapeutic
categories using phytocannabinoid ingredients extracted from the cannabis plant. Canabinoids, we believe, either in isolated form
or in varying combinations within various prototypes of cannabis plants, are either proven, or have the potential, for treatment
of numerous conditions, including pain; nausea, seizure and inflammation reduction; tumor inhibition; psychotic and anxiety issue;
and muscle spasms. There is no assurance that any or all of these patent applications will be filed in the near future or if filed
that letters patent will issue in the near future, if at all. Even if issued, there is no assurance that our patents will afford
us with adequate protection for the intellectual property that we may develop.
Government Regulation and Federal Policy
Under the Controlled Substances Act (“CSA”), the
policies and regulations of the Federal government and its agencies are that cannabis (marijuana) is a stage 1 narcotic that is
addictive and has no medical benefit. Accordingly, and a range of activities including cultivation and the personal use of cannabis
is prohibited and subject to prosecution and criminal penalties. Unless and until Congress amends the CSA with respect to medical
cannabis, there is a risk that the federal authorities may enforce current federal law, and we may be deemed to be engaged in
producing, cultivating, or dispensing cannabis in violation of federal law, or we may be deemed to be facilitating the sale or
distribution of drug paraphernalia in violation of federal law with respect to our Company’s business operations. Active
enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our strategic goals,
revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated
federal policy remains uncertain. See “Risk Factors” below.
The U.S. Supreme Court declined to hear a case brought by San
Diego County, California that sought to establish federal preemption over state medical cannabis laws. The preemption claim was
rejected by every court that reviewed the case. The California 4th District Court of Appeals wrote in its unanimous ruling, “Congress
does not have the authority to compel the states to direct their law enforcement personnel to enforce federal laws.” However,
in another case, the U.S. Supreme Court held that, as long as the CSA contains prohibitions against cannabis, under the Commerce
Clause of the United States Constitution, the United States may criminalize the production and use of cannabis even where states
approve its use for medical purposes.
In an effort to provide guidance to federal law enforcement,
the Department of Justice (“DOJ”) has issued Guidance Regarding Cannabis Enforcement to all United States attorneys
in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James
Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides
that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and
prosecutorial resources to address the most significant threats in the most effective, consistent and rational way.
The August 29, 2013 memorandum provides updated guidance to
federal prosecutors concerning cannabis enforcement in light of state laws legalizing medical and recreational cannabis possession
in small amounts.
The memorandum sets forth certain enforcement priorities that
are important to the federal government:
| · | Distribution
of cannabis to children; |
| · | Revenue from
the sale of cannabis going to criminals; |
| · | Diversion
of medical cannabis from states where it is legal to states where it is not; |
| · | Using state
authorized cannabis activity as a pretext of other illegal drug activity; |
| · | Preventing
violence in the cultivation and distribution of cannabis; |
| · | Preventing
drugged driving; |
| · | Growing cannabis
on federal property; and |
| · | Preventing
possession or use of cannabis on federal property. |
The DOJ has not historically devoted resources to prosecuting
individuals whose conduct is limited to possession of small amounts of cannabis for use on private property but has relied on
state and local law enforcement to address cannabis activity. In the event the DOJ reverses its stated policy and begins strict
enforcement of the CSA in states that have laws legalizing medical cannabis and recreational cannabis in small amounts, there
may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December
16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations
Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the
use, distribution, possession, or cultivation of medical cannabis.
In contrast to federal policy, there are currently 23 states
plus the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate medical uses
for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation.
Employees
We currently employ a Chief Executive
Officer, Chief Financial Officer, Chief Science Officer, and a support staff of six employees and other contractors.
ITEM
1A. RISK FACTORS
You should carefully consider the risks, uncertainties and
other factors described below, in addition to the other information set forth in this Annual Report on Form 10-K, including our
financial statements and the related notes thereto. Any of these risks, uncertainties and other factors could materially and adversely
affect our business, financial condition, results of operation and cash flows. In that case, the trading price of our common stock
could decline, and you may lose all or part of your investment. An investment in our securities is speculative and involves a
high degree of risk. You should not invest in our securities if you cannot bear the economic risk of your investment for an indefinite
period of time and cannot afford to lose your entire investment. There may be additional risks that we do not presently know of
or that we currently believe are immaterial which could also impair our business and financial position. See also “Cautionary
Note Regarding Forward-Looking Statements.”
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
We have a limited operating history, which may make it difficult
for investors to predict future performance based on current operations.
We have a limited operating history upon which investors may
base an evaluation of our potential future performance. In particular, we have not proven that we can supply growing equipment
in a manner that enables us to be profitable and meet customer requirements, develop intellectual property to enhance our product
lines, obtain the necessary permits to develop medical grade cannabis, develop and maintain relationships with key manufacturers
and strategic partners to extract value from our intellectual property, raise sufficient capital in the public and/or private
markets, or respond effectively to competitive pressures. As a result, there can be no assurance that we will be able to develop
or maintain consistent revenue sources, or that our operations will be profitable and/or generate positive cash flows.
Any forecasts we make about our operations may prove to be
inaccurate. We must, among other things, determine appropriate risks, rewards, and level of investment in our product lines, respond
to economic and market variables outside of our control, respond to competitive developments and continue to attract, retain and
motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing
such risks and the failure to do so could have a materially adverse effect on our business, results of operations and financial
condition. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies
in the early stage of development. As a result of these risks, challenges and uncertainties, the value of your investment could
be significantly reduced or completely lost.
Our independent auditor’s report for the fiscal years
ended March 31, 2014 has expressed doubts about our ability to continue as a going concern;
Due to the uncertainty of our ability to meet our current operating
and capital expenses, in our audited annual financial statements as of and for the year ended December 31, 2014 our independent
auditors included a note to our financial statements regarding concerns about our ability to continue as a going concern. The
Company has incurred recurring losses, has not generated revenue and has had negative operating cash flows since inception of
the exploration activities. These factors and the need for additional financing in order for the Company to meet its business
plan, raise substantial doubt about the ability to continue as a going concern. The presence of the going concern note to our
financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties
as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing,
all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of
your investment.
We have incurred significant losses in prior periods, and
losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial
condition, our ability to pay our debts as they become due and on our cash flows.
We have incurred significant losses in prior periods. For the
years ended March 31, 2015 and 2014, We incurred net losses of $7,722,755 and $655,955 respectively, and we had an accumulated
deficit of $14,008,525 and $6,212,756 respectively. Any losses in the future could cause the quoted price of our common stock
to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due, and
on our cash flows.
We will likely need additional capital to sustain our operations
and will likely need to seek further financing, which we may not be able to obtain on acceptable terms or at all. If we fail to
raise additional capital, as needed, our ability to implement our business plan could be compromised.
We have limited capital resources and operations. To date,
our operations have been funded entirely from the proceeds of debt and equity financings. We expect to require substantial additional
capital in the near future to expand our product lines, develop our intellectual property base, and establish our targeted levels
of commercial production. We may not be able to obtain additional financing on terms acceptable to us, or at all.
Even if we obtain financing for our near-term operations, we
expect that we will require additional capital thereafter, especially if we are to develop our Science division and start to conduct,
individually or with joint venture partners, pre-clinical and clinical trials for potential pharmaceutical, nutraceutical or cosmeceutical
products derived from cannabis.. Our capital needs will depend on numerous factors including: (i) our profitability; (ii) the
release of competitive products by our competition; (iii) the level of our investment requirements for research and development;
and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital
in the future to meet our needs.
If we raise additional funds through the issuance of equity
or convertible debt securities, the percentage ownership held by our existing stockholders will be reduced and our stockholders
may experience significant dilution. In addition, new securities may contain rights, preferences or privileges that are senior
to those of our common stock. If we raise additional capital by incurring debt, this will result in increased interest expense.
If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of common stock
could limit our ability to obtain equity financing.
We cannot give you any assurance that any additional financing
will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our
business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce
or discontinue our operations.
The establishment of our Solutions division operation in
Puerto Rico will require additional financing.
In order for GB Sciences Puerto Rico to commence the manufacture,
licensing, installation and servicing of our proprietary GrowBLOX Suites, it will need to raise a minimum of $1,250,000 and up
to $6,000,000 of financing. Although we believe that Cesar Cordero-Kruger and his business associates are capable of raising such
capital, there is no assurance that he will be able to do so or that even if such financing is obtained that it will be sufficient
to enable our Puerto Rico subsidiary to effectively commence operations. There is also no assurance that there will be any significant
third demand to license or lease our GrowBLOX Suites or that, even if successfully established, our Solutions division will ever
be able to operate profitably.
The inability of our Solutions division to establish its business
and provide an adequate number of GrowBLOX Suites would materially and adversely affect our proposed Science and Products division
and our business prospects taken as a whole.
We must establish a cannabis cultivation facility in Nevada
by May 2016
Our GBS Nevada subsidiary holds a provisional cultivation certificate
for a cannabis cultivation facility which must be operational by May 2016, or we will lose such certification. Although we have
obtained a maximum $1,750,000 line of credit to construct such facility to be funded in installments though September 2015, there
can be no assurance that:
| · | we will be
able to comply with our loan covenants to enable it to receive all of the anticipated
funding thereunder; |
| · | there will
not be cost over-runs in connection with the purchase and/or lease of the cultivation
facility and related equipment resulting in the proceeds of the loan being insufficient
to enable us to timely complete the facility and commence production of cannabis for
medical purposes; |
| · | a final certificate
to cultivate medical cannabis at the Las Vegas facility will be issued, or we or GBS
Nevada will not violate existing or newly imposed state, county and city regulations
in Nevada that would significant restrict or prohibit proposed business activities; or |
| · | that the proposed
business to be conducted by GBS Nevada with the proceeds of will prove profitable. |
The occurrence of any of the above events could have a material
adverse effect on our business and prospective cash flow.
Drug research and development programs typically involves
huge expenditures, long periods to obtain FDA approvals and the potential that such prospective pharmaceutical products will not
prove to be safe and effective.
The production of FDA-approved pharmaceutical products and
related drug is typically a highly expensive a long and drawn out process, typically involving hundred’s of millions of
dollars and a decade or more to achieve. Although we believe that some, if not all, of our planned cannabinoid based pharmaceutical
protocols can qualify for “orphan drug” status and be accelerated through the FDA approval process, there can be no
assurance that this will be the case.
In addition, we do not now have, and do not expect in the foreseeable
future to have, the capital resources to fund our drug discovery programs, nor do we have the infrastructure to conduct such program
alone. For that reason, we intend to engage in joint ventures with third parties, including hospitals, clinics, foundations and
other qualified sources. Although we are in preliminary discussions with various potential partners, to date, we have not entered
into any definitive drug development joint venture or partnership agreement. Our failure or inability to enter into one or more
drug development agreements will materially and adversely affect our ability to develop our Science division. Even if we are able
to obtain such joint drug development agreements there can be no assurance that it will be on terms and conditions that will be
favorable to us.
Although we believe that we can significant reduce the costs
of engaging in FDA certified pre-clinical and clinical trails, including traditional Phase IV human trials, by obtaining data
from existing users of our medical cannabis protocols, there can be no assurance that such data will be available, or if it is,
that the FDA will accept our data. There is the further risk that the anticipated costs of producing an FDA approved drug will
not escalate to the point that will cause us and any of our prospective development partners to abandon such efforts.
Even if we do develop an FDA-approved pharmaceutical product,
there is the risk that it will not be salable to a major pharmaceutical company (either before or after completion of the FDA
approval process), or that other competing drugs will not be produced providing the same medical benefits.
Accordingly, there is a significant risk that we will never
be able to generate a return on our investment, and we could lose our entire investment in our Science division. Either of such
events, would have a material adverse effect on our business prospects and equity value.
Federal law prohibits the use of cannabis for the purposes
in which the Company expects to engage.
Under the federal Controlled Substances Act (“CSA”),
cannabis is deemed to be a Stage One narcotic that has no medical benefit. Therefore a range of activities including cultivation
and the personal use of cannabis is prohibited and is a criminal offense. Unless and until Congress amends the CSA with respect
to medical cannabis, as to the timing or scope of any which amendments there can be no assurance, there is a risk that federal
authorities may enforce current federal law. The risk of strict enforcement of the CSA in light of Congressional activity, judicial
holdings, and stated federal policy remains uncertain.
The current policy and regulations of the Federal government
and its agencies, including the U.S. Drug Enforcement Agency and the FDA, are that cannabis has no medical benefit and a range
of activities including cultivation and use of cannabis for personal use is prohibited on the basis of Federal law. Although 23
states have passed legislation permitting the cultivation and dispensing of medical cannabis, these laws are, in many jurisdictions,
subject to strict regulation and limitations and are still being developed. Active enforcement of the current federal regulatory
position on cannabis on a regional or national basis may directly and adversely affect the ability of the Company to develop its
business plan even though it is allowed by state regulation in the various states in which the Company intends to operate. Although
research and development in the growing and processing of cannabis products for medicinal purposes and in seeking to obtain state
permits for the cultivation and sale of cannabis products are not in violation of Federal law, our business plan to conduct our
Solutions and Products divisions, even if conducted within the parameters of any state licenses or permits we are able to obtain,
will violate federal laws, as currently in effect. Accordingly, even if the Company is successful in obtaining a cultivation and
dispensing license or permit in Nevada or other states and operates pursuant to such licenses, if federal law does not change,
we believe the Company will at that time be in violation of federal law. If existing federal laws are enforced by the United States
Department of Justice or the FDA, it is likely that our proposed business will be significantly and materially adversely affected.
FDA regulation of marijuana and the possible registration
of facilities where medical marijuana is grown could negatively affect the cannabis industry which would directly affect our financial
condition.
Should the federal government legalize marijuana for medical
use, it is possible that the U.S. Food and Drug Administration (FDA) would seek to regulate it under the Food, Drug and Cosmetics
Act of 1938. Additionally, the FDA may issue rules and regulations including cGMPs (current good manufacturing practices) related
to the growth, cultivation, harvesting and processing of medical marijuana. Clinical trials may be needed to verify efficacy and
safety. It is also possible that the FDA would require that facilities where medical marijuana is grown be registered with the
FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed,
we do not know what the impact would be on the medical marijuana industry, what costs, requirements and possible prohibitions
may be enforced.
If no additional states allow the
medicinal use of cannabis, or if one or more states that currently allow it reverse their position, we may not be able to continue
our growth, or the market for our products and services may decline.
Currently, twenty three states and
the District of Columbia allow the use of medicinal cannabis. While we believe that the number of states that allow
the use of medicinal cannabis will grow, there can be no assurance that it will, and if it does not, there can be no assurance
that the twenty three existing states and/or the District of Columbia won’t reverse their position and disallow it. If
either of these things happens, then not only will the growth of our business be materially impacted, we may experience declining
revenue as the market for our products and services declines.
Because the business activities
of some of our customers are illegal under Federal law, we may be deemed to be aiding and abetting illegal activities through
the services that we provide to those customers. As a result, we may be subject to actions by law enforcement authorities
which would materially and adversely affect our business.
We provide services to customers that
are engaged in businesses involving the possession, use, cultivation, and transfer of cannabis. As a result, law enforcement
authorities may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s
criminal activities. Such an action would have a material effect on our business and operations.
In the states where medicinal cannabis
is permitted, local laws and regulations could adversely affect our clients, including causing some of them to close, which would
materially and adversely affect our business.
Even in areas where the medicinal
use of cannabis is legal under state law, there are also local laws and regulations that affect our clients. These local
laws and regulations may cause some of our customers to close and having a material effect on our business and operations. In
addition, the enforcement of identical rules or regulations as it pertains to medicinal cannabis may vary from municipality to
municipality, or city to city.
Variations in state and local regulation and enforcement
in states that have legalized medical cannabis that may restrict cannabis-related activities, including activities related to
medical cannabis may negatively impact our revenues and profits.
Individual state laws do not always conform to the federal
standard or to other states laws. A number of states have decriminalized cannabis to varying degrees, other states have created
exemptions specifically for medical cannabis, and several have both decriminalization and medical laws. Two states, Colorado and
Washington, have legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized,
or created medical cannabis exemptions. For example, Alaska and Colorado have limits on the number of cannabis plants that can
be homegrown. In most states, the cultivation of cannabis for personal use continues to be prohibited except for those states
that allow small-scale cultivation by the individual in possession of medical cannabis needing care or that person’s caregiver.
Active enforcement of state laws that prohibit personal cultivation of cannabis may indirectly and adversely affect our business
and our revenue and profits.
It is possible that federal or state legislation could be
enacted in the future that would prohibit us from selling our products or any resulting cannabis products, and if such legislation
were enacted, it could prevent us from generating revenue, leading to a loss in your investment.
We are not aware of any federal or state regulation that regulates
the sale of indoor cultivation equipment to medical or recreational cannabis growers. The extent to which the regulation of drug
paraphernalia under the CSA is applicable to our business and the sale of our products is found in the definition of “drug
paraphernalia.” Drug paraphernalia means any equipment, product, or material of any kind that is primarily intended
or designed for use in manufacturing, compounding, converting, concealing, producing processing, preparing, injecting, ingesting,
inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful.
If federal and/or state legislation is enacted which prohibits
the sale of our growing equipment to medical cannabis growers, our revenues would decline, leading to a loss of a material portion
of your investment.
Prospective customers may be deterred from doing business
with a company with a significant nationwide online presence because of fears of federal or state enforcement of laws
prohibiting possession and sale of medical or recreational cannabis.
Internet websites are visible by people everywhere, not just
in jurisdictions where the medical or recreational use of cannabis is considered legal. Our website is visible in jurisdictions
where medicinal and/or recreational use of cannabis is not permitted and, as a result, we may be found to be violating the laws
of those jurisdictions. We could lose potential customers as they could fear federal prosecution for growing cannabis with our
Growblox Suites, reducing our revenue. In most states in which the production and sale of cannabis have been legalized, there
are additional laws or licenses required and some states altogether prohibit home cultivation, all of which could make the loss
of potential customers more likely.
We may not obtain the necessary permits and authorizations
to operate the medical cannabis business.
We may not be able to obtain or maintain the necessary licenses,
permits, authorizations, or accreditations, or may only be able to do so at great cost, to operate its medical cannabis business.
In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the medical cannabis
industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations, or accreditations could result
in restrictions on our ability to operate the medical cannabis business, which could have a material adverse effect on our business.
If we incur substantial liability from litigation, complaints,
or enforcement actions, our financial condition could suffer.
Our participation in the medical cannabis industry may lead
to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental
authorities against these subsidiaries. Litigation, complaints, and enforcement actions involving these subsidiaries could consume
considerable amounts of financial and other corporate resources, which could have a negative impact on our sales, revenue, profitability,
and growth prospects.
We have difficulty accessing the service of banks, which
may make it difficult for us to operate.
Since the use of cannabis is illegal under Federal law, there
is an argument that banks should not accept for deposit funds from businesses involved with the cannabis industry. Consequently,
such businesses often have difficulty finding a bank willing to accept their business.
On February 14, 2014, the U.S. government issued rules allowing
banks to legally provide financial services to state licensed marijuana businesses. A memorandum issued by the Justice Department
to federal prosecutors re-iterated guidance previously given, this time to the financial industry that banks can do business with
legal marijuana businesses and “may not” be prosecuted. The Treasury Department's Financial Crimes Enforcement Network
(FinCEN) issued guidelines to banks that “it is possible to provide financial services" to state-licensed marijuana
businesses and still be in compliance with federal anti-money laundering laws. To date we are unaware if any banks have relied
on the guidance and taken on legal marijuana companies as clients.
Notwithstanding the above federal guidelines and in addition
to potential federal sanctions, regulators in the states in which we are able to conduct business may make it difficult for local
banks to do business with companies considered to be engaged in cultivating and dispensing cannabis. . To date, two financial
institutions have closed our corporate bank account and we have been notified by a third bank that they will close our account
within the next 30 days. We are currently searching for a new financial institution with which to establish a banking relationship.
There is no assurance that we will be able to do so. Failure to establish a permanent banking relationship could have a material
and adverse effect on our future business operations.
We face intense competition and many of our competitors
have greater resources that may enable them to compete more effectively.
The industries in which we operate in general are subject to
intense and increasing competition. Some of our competitors may have greater capital resources, facilities and diversity of product
lines, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing
and marketing products that will directly compete with our product lines. Due to this competition, there is no assurance that
we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. There are no
assurances that competition in our respective industries will not lead to reduced prices for our products. If we are unable to
successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and
financial condition.
If
we fail to protect or develop our intellectual property, our business could be adversely affected.
Our viability will depend, in part, on our ability to develop
and maintain the proprietary aspects of our technology to distinguish our products from our competitors’ products. We will
rely on patents, copyrights, trademarks, trade secrets, and confidentiality provisions to establish and protect our intellectual
property.
Any infringement or misappropriation of our intellectual property
could damage its value and limit our ability to compete. We may have to engage in litigation to protect the rights to our intellectual
property, which could result in significant litigation costs and require a significant amount of our time. In addition, our ability
to enforce and protect our intellectual property rights may be limited in certain countries outside the United States, which could
make it easier for competitors to capture market position in such countries by utilizing technologies that are similar to those
developed or licensed by us.
Competitors may also harm our sales by designing products that
mirror the capabilities of our products or technology without infringing on our intellectual property rights. If we do not obtain
sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights,
our competitiveness could be impaired, which would limit our growth and future revenue.
We may also find it necessary to bring infringement or other
actions against third parties to seek to protect our intellectual property rights. Litigation of this nature, even if successful,
is often expensive and time-consuming to prosecute and there can be no assurance that we will have the financial or other resources
to enforce our rights or be able to enforce our rights or prevent other parties from developing similar technology or designing
around our intellectual property.
Although we believe that our intellectual
property does not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement
or violation has occurred or may occur, which could have a material adverse effect on our business.
We are not aware of any infringement by us of any person’s
or entity’s intellectual property rights. In the event that products we sell are deemed to infringe upon the patents or
proprietary rights of others, we could be required to modify our products or obtain a license for the manufacture and/or sale
of such products or cease selling such products. In such event, there can be no assurance that we would be able to do so in a
timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material
adverse effect upon our business.
There can be no assurance that we will have the financial or
other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. If our products or
proposed products are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject
to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect
on our business and our financial condition.
Our trade secrets may be difficult to protect.
Our success depends upon the skills, knowledge, and experience
of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. Because we
operate in several highly competitive industries, we rely in part on trade secrets to protect our proprietary technology and processes.
However, trade secrets are difficult to protect. We enter into confidentiality or non-disclosure agreements with our corporate
partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally
require that the receiving party keep confidential and not disclose to third parties confidential information developed by the
receiving party or made known to the receiving party by us during the course of the receiving party’s relationship with
us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services
to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.
These confidentiality, inventions and assignment agreements
may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently
discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. The
enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive
and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to
protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive
position.
Our future success depends on our key executive officers
and our ability to attract, retain, and motivate qualified personnel.
Our future success largely depends upon the continued services
of our executive officers and management team, especially our Chief Executive Officer, Mr. Craig Ellins. If one or more of our
executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily,
if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive
officers joins a competitor or forms a competing company, we may lose some of our potential customers. Finally, we do not maintain
“key person” life insurance on any of our executive officers. Because of these factors, the loss of the services of
any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an investment
in our stock.
Our continuing ability to attract and retain highly qualified
personnel will also be critical to our success because we will need to hire and retain additional personnel as our business grows.
There can be no assurance that we will be able to attract or retain highly qualified personnel. We face significant competition
for skilled personnel in our industry. This competition may make it more difficult and expensive to attract, hire, and retain
qualified managers and employees. Because of these factors, we may not be able to effectively manage or grow our business, which
could adversely affect our financial condition or business. As a result, the value of your investment could be significantly reduced
or completely lost.
We may not be able to effectively manage our growth or improve
our operational, financial, and management information systems, which would impair our results of operations.
In the near term, we intend to expand the scope of our operations
activities significantly. If we are successful in executing our business plan, we will experience growth in our business that
could place a significant strain on our business operations, finances, management and other resources. The factors that may place
strain on our resources include, but are not limited to, the following:
| · | The need for
continued development of our financial and information management systems; |
| · | The need to
manage strategic relationships and agreements with manufacturers, customers and partners;
and |
| · | Difficulties
in hiring and retaining skilled management, technical, and other personnel necessary
to support and manage our business. |
Additionally, our strategy could produce a period of rapid
growth that may impose a significant burden on our administrative and operational resources. Our ability to effectively manage
growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract,
train, manage, and retain qualified management and other personnel. There can be no assurance that we will be successful in recruiting
and retaining new employees, or retaining existing employees.
We cannot provide assurances that our management will be able
to manage this growth effectively. Our failure to successfully manage growth could result in our sales not increasing commensurately
with capital investments or otherwise materially adversely affecting our business, financial condition, or results of operations.
If we are unable to continually
innovate and increase efficiencies, our ability to attract new customers may be adversely affected.
In the area of innovation, we must be able to develop new technologies
and products that appeal to our customers. This depends, in part, on the technological and creative skills of our personnel and
on our ability to protect our intellectual property rights. We may not be successful in the development, introduction, marketing,
and sourcing of new technologies or innovations, that satisfy customer needs, achieve market acceptance, or generate satisfactory
financial returns.
If we are unable to adopt or incorporate
technological advances into Growblox™’s equipment products, our business could become less competitive, uncompetitive,
or obsolete and we may not be able to compete effectively with competitors’ products.
We expect that technological advances in the processes and
procedures for growing equipment will continue to occur. As a result, there are risks that products that compete with our products
could be improved or developed. If we are unable to adopt or incorporate technological advances, our products could be less efficient
or cost-effective than methods developed and sold by our competitors, which could cause our products to become less competitive,
uncompetitive or obsolete, which would have a material adverse effect on our financial condition, and to a much lesser
extent, on our financial condition.
Competing forms of specialized
agricultural equipment may be more desirable to consumers or make our products obsolete.
There are currently several different specialized agricultural
equipment technologies being deployed in urban vertical farming operations other than hydroponics, such as aquaponics and terraponics.
Further development of any of these competitive technologies may lead to advancements in vertical farming techniques that will
make our products obsolete. Consumers may prefer alternative technologies and products. Any developments that contribute to the
obsolescence of our products may substantially impact our business, reducing our ability to generate revenues.
Litigation may adversely affect our business, financial
condition, and results of operations.
From time to time in the normal course of our business operations,
we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively
affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant
and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively
affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found
liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other
matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business
and the results of our operations.
Our officers and directors have significant control over
stockholder matters and the minority stockholders will have little or no control over our affairs.
Our officers and directors currently own approximately 38.7%
of our outstanding common stock, and have approximately 38.7% of stockholder voting power, and thus significant control over stockholder
matters, such as election of directors, amendments to the Articles of Incorporation, and approval of significant corporate transactions.
As a result, the Company’s minority stockholders will have little or no control over its affairs.
If we fail to implement and maintain proper and effective
internal controls and disclosure controls and procedures pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our ability
to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our operating
results, our ability to operate our business, and investors’ views of us.
As of March 31, 2015, management assessed the effectiveness
of our internal controls over financial reporting. Management concluded, as of the fiscal year ended March 31, 2015,
that our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Management
concluded that our internal controls were adversely affected by deficiencies in the design or operation of our internal controls,
which management considered to be material weaknesses. These material weaknesses include the following:
| · | Lack of a
functioning audit committee consisting of independent Board members as well as a lack
of expertise with respect to the application of US GAAP and SEC rules and regulations
and; |
| · | Inadequate
segregation of duties consistent with control objectives; and |
Lack of audit committee members with prior experience in
financial accounting and the application of US GAAP. The failure to implement and maintain proper and effective internal controls
and disclosure controls could result in material weaknesses in our financial reporting such as errors in our financial statements
and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial
information and disclosure, which could negatively impact our stock price.
We do not expect that our internal controls over financial
reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance
with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
Our insurance coverage may be inadequate
to cover all significant risk exposures; Because we are in the cannabis industry, we have a difficult time obtaining the various
insurances that are desired to operate our business, which may expose us to additional risk and financial liabilities.
We will be exposed to liabilities that are unique to the products
we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate
to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our
business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to
obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business,
financial condition and results of operations. We do not have any business interruption insurance. Any business disruption or
natural disaster could result in substantial costs and diversion of resources.
Currently we have insurance coverage in place for business
personal property located at our principal business address located at 6450 Cameron Street, Suite 110, Las Vegas, Nevada 89118.
Insurance that is otherwise readily
available, such as workers compensation, general liability, and directors and officers insurance, is more difficult for us to
find, and more expensive, because we engaged in the medicinal cannabis industry. There are no guarantees that we will
be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without
such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional
risk and financial liabilities.
Because we do not have an audit or compensation committee,
stockholders will have to rely on our officers and directors, most of whom are not independent, to perform these functions.
Because we do not have a compensation committee, stockholders
will have to rely on our officers and directors, most of whom are not independent, to perform these functions. Thus, there is
a potential conflict of interest in that our officers and directors have the authority to determine issues concerning management
compensation, nominations, and audit issues that may affect management decisions.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
We expect to experience volatility in the price of our common
stock, which could negatively affect stockholders’ investments.
The trading price of our common stock may be highly volatile
and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market
in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of companies with securities traded in those markets. Broad market and industry factors may seriously affect the market
price of companies’ stock, including ours, regardless of actual operating performance. All of these factors could adversely
affect your ability to sell your shares of common stock or, if you are able to sell your shares, to sell your shares at a price
that you determine to be fair or favorable.
The relative lack of public company experience of our management
team could adversely impact our ability to comply with the reporting requirements of U.S. securities laws.
Our management team lacks public company experience, which
could impair our ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002.
Our senior management has little experience in managing a publicly traded company. Such responsibilities include complying with
federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement
programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance,
and reporting requirements, including the establishing and maintaining of internal controls over financial reporting. Any such
deficiencies, weaknesses, or lack of compliance could have a materially adverse effect on our ability to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is necessary to maintain
our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would
be in jeopardy, we could be subject to the imposition of fines and penalties and our management would have to divert resources
from attending to our business plan.
Our common stock is categorized as “penny stock,”
which may make it more difficult for investors to sell their shares of common stock due to suitability requirements.
Our common stock is categorized as “penny stock”.
The Securities and Exchange Commission (the “SEC”) has adopted Rule 15g-9 which generally defines “penny stock”
to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. The price of our common stock is significantly less than $5.00 per share, and is therefore
considered “penny stock.” This designation imposes additional sales practice requirements on broker-dealers who sell
to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer buying our
securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine
that the purchaser is reasonably suitable to purchase the securities given the increased risks generally inherent in penny stocks.
These rules may restrict the ability and/or willingness of brokers or dealers to buy or sell our common stock, either directly
or on behalf of their clients, may discourage potential stockholders from purchasing our common stock, or may adversely affect
the ability of stockholders to sell their shares.
Financial Industry Regulatory Authority (“FINRA”)
sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock, which could depress
the price of our common stock.
In addition to the “penny stock” rules described
above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable
for that customer before recommending an investment to a customer. Prior to recommending speculative low priced securities to
their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative, low-priced securities will not be suitable for at least some customers. Thus,
the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which
may limit your ability to buy and sell our shares of common stock, have an adverse effect on the market for our shares of common
stock, and thereby depress our price per share of common stock.
The elimination of monetary liability against our directors,
officers, and employees under Nevada law and the existence of indemnification rights for or obligations to our directors, officers,
and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees.
Our Articles of Incorporation contain a provision permitting
us to eliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty
as a director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under
any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial
expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup.
These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches
of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors
and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
We may issue additional shares of common
stock in the future, which could cause significant dilution to all stockholders.
Our Certificate of Incorporation authorizes the issuance of
up to 250,000,000 shares of common stock with a par value of $0.001 per share. As of June 26, 2015, we had 45,321,964 shares of
common stock outstanding. However, we require additional capital and will likely issue additional shares of Common Stock in the
future in connection with one or more financings or an acquisition. Such issuances may not require the approval of our stockholders.
In addition, certain of our outstanding rights to purchase additional shares of common stock or securities convertible into our
common stock are subject to full-ratchet anti-dilution protection, which could result in the right to purchase significantly more
shares of common stock being issued or a reduction in the purchase price for any such shares or both. Any issuance of additional
shares of our common stock, or equity securities convertible into our common stock, including but not limited to, warrants, and
options, will dilute the percentage ownership interest of all stockholders, may dilute the book value per share of our common
stock, and may negatively impact the market price of our common stock.
Anti-takeover effects of certain provisions of Delaware
state law hinder a potential takeover of us.
Nevada has a business combination law which prohibits certain
business combinations between Nevada corporations and “interested stockholders” for three years after an “interested
stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves
the combination in advance. For purposes of Delaware law, an “interested stockholder” is any person who is (i) the
beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation,
or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner,
directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition
of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow
a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests
rather than the interests of the corporation and its other stockholders.
The effect of Delaware’s business combination law is
to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our Board.
Both of these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
Because we do not intend to pay any cash dividends on our
common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development
and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Declaring
and paying future dividends, if any, will be determined by our Board, based upon earnings, financial condition, capital resources,
capital requirements, restrictions in our Articles of Incorporation, contractual restrictions, and such other factors as our Board
deems relevant. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell
them. There is no assurance that stockholders will be able to sell shares when desired.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None
Growblox’s executive offices and our Science division
are located at 6450 Cameron Street, Las Vegas, NV 89118 under a month to month lease with a rental of $6,000 per month. We lease
a warehouse at 3550 W. Teco Avenue, Las Vegas, NV 89118 under a five year lease expiring December 31, 2020 at a monthly base rental
of $28,432. Our Growblox Sciences Puerto Rico, LLC subsidiary lease offices in San Juan, Puerto Rico under a one year lease expiring
January 31, 2016 at a monthly rental of $1.00
On April 2, 2014, Growblox commenced an action
in the United States District Court for the Southern District of New York captioned Signature Exploration and Production Corporation
v. GCM Administrative Services, LLC, Strategic Turnaround Equity Partners, L.P. (Cayman), Seth M. Lukash, and Gary Herman,
14 Civ. 02280 (ER) (the “Action”). After the change of name of Signature Exploration and Production Corporation, the
caption was amended to substitute GrowBlox Sciences, Inc. as the plaintiff. The complaint in the Action sought a declaratory judgment
that neither Lukash nor Herman was entitled to receive any interest in, including any shares of stock of, Growblox pursuant to
certain share conversion rights held under promissory notes in the aggregate amount of $75,000.00, given by a related party of
Growblox to the entity defendants GCM and Strategic.
On May 9, 2014, defendants filed an answer
denying the complaint’s material allegations, and asserted a counterclaim against Growblox, against persons identified as
certain of its officers or directors, and against GrowOpp, LLC and Tumbleweed Holdings, Inc. On November 19, 2014, defendants
filed an amended counterclaim, including a prayer for monetary relief or damages in the sum of $9 million. Growblox moved to dismiss
the counterclaim and by opinion dated June 2, 2015, the Court granted the motion in part and dismissed counts one and two (for
declaratory judgment as to an alleged partnership or joint venture, and for breach of fiduciary duty predicated upon those allegations),
and denied the motion in part, leaving counts three and four of the counterclaim standing. The Court viewed the third and fourth
claims as a single claim for unjust enrichment, in which recovery would be based on quantum meruit, that is, upon the alleged
value of any benefit conferred by defendants to Growblox through alleged work and services rendered. In view of the fact that
the pleading did not assign a particular value to that claim Growblox is unable at present to advise what specific sum of money
damages is sought. Growblox did not challenge the fifth count of the counterclaim at this stage that seeks damages of $75,000
for alleged non-payment of the above-referenced promissory notes.
Growblox intends to vigorously contest
the remaining claim of the defendants as it does not believe that the defendants provided any benefit or value to Growblox or
GrowOpp, LLC and Tumbleweed Holdings, Inc., the predecessor entities affiliated with Craig
Ellins.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not Applicable
Part II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Growblox Sciences, Inc.’s common stock is quoted on the
OTCQB under the symbol "GBLX".
For the periods indicated, the following
table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Fiscal Year
2015 | |
High
($) | | |
Low
($) | |
| Fourth Quarter | |
$ | 0.48 | | |
$ | 0.15 | |
| Third Quarter | |
$ | 1.51 | | |
$ | 0.31 | |
| Second Quarter | |
$ | 1.48 | | |
$ | 0.67 | |
| First Quarter | |
$ | 6.28 | | |
$ | 0.98 | |
Fiscal
Year 2014 | |
| | | |
| | |
| Fourth Quarter | |
$ | 8.90 | | |
$ | 0.40 | |
| Third Quarter | |
$ | 1.00 | | |
$ | 0.30 | |
| Second Quarter | |
$ | 0.70 | | |
$ | 0.30 | |
| First Quarter | |
$ | 0.70 | | |
$ | 0.70 | |
| | |
| | | |
| | |
Dividends and Dividend Policy
Cash dividends have never been declared or paid on common stock
dividends are not anticipated on common stock in the foreseeable future. Future earnings, if any, will be retained to finance
the expansion business and for general corporate purposes. There is no assurance we will pay dividends in the future. Future dividend
policy is within the discretion of the Board of Directors and will depend upon various factors, including results of operations,
financial condition, capital requirements and investment opportunities.
Recent
Sales of Unregistered Securities
Common Stock
On March 13, 2014, Growblox entered
into a definitive assets purchase agreement with Mr. Craig Ellins, the current Chief Executive Officer for the acquisition of
assets that were developed by Mr. Ellins and others in a predecessor company. The assets include:
| • | a provisional patent application; |
| • | concepts associated with Mr. Ellins or his associates; |
| • | investor presentations and histories; |
| • | trade secrets including without limitation trade secrets
involving nutrient mixes; |
| • | drawings and digital artwork; |
| • | production equipment and related assets including without
limitation electrical equipment; plastic molds and internal parts; |
| • | proof-of-concept equipment; and |
Under the terms of such agreement, Growblox agreed to issue
to Mr. Ellins or his designees a total of 12,500,000 restricted shares of Growblox’s common stock. At the time of the transfer
of the assets, a total of 4,500,000 were issued, 4,000,000 shares were issued after Growblox raised an additional $1,000,000 in
financing in May 2014 and the remaining 4,000,000 shares will be issued to Mr. Ellins upon the Company reaching certain milestones
relating to the filing of patent applications in respect of its technology. Under the terms of the asset purchase agreement, Mr.
Ellins had the right to assign certain of his shares to other persons who had assisted him and his predecessor companies in the
development of the assets sold to Growblox. In September and October 2014, Mr. Ellins assigned and transferred a total of 5,580,000
of his 8,500,000 vested shares to 18 persons, including Mark Ellins, the son of Craig Ellins, who received 980,000 of such 5,580,000
transferred shares. Each of such transferees released Growblox from any further obligations in connection with the transfer of
the assets, and none of these persons or their affiliates were or are officers, directors or affiliates of Growblox. The shares
issued to Craig Ellins and transferred by him are restricted securities issued pursuant to the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933.
As of March 31, 2014, Growblox sold 1,480,000 units through
a private placement at a price of $0.50 per unit. Each unit consisted of one share of common stock, one A warrant, expiring
in three years, with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise price of $2.00.
Between April 1, 2014 and September 30, 2014, Growblox sold
additional units of securities through a private placement at $0.50 per unit. Each unit consisted of one share of common
stock, one Class A warrant, expiring in three years, with an exercise price of $1.00 and one Class B warrant, expiring in five
years, with an exercise price of $2.00. As a result of this offering, Growblox issued an aggregate of 9,937,720 shares of common
stock, 10,937,720 Class A warrants and 10,937,720 Class B warrants and 1,000,000 additional warrants with an exercise price of
$0.55, inclusive of warrants issued to the placement agent and its affiliates.
Such securities were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or
Rule 506 of Regulation D under the Securities Act, as amended. Pursuant to Growblox’s registration statement on Form S-1
which became effective February 12, 2015, the common stock included in the units and the shares of common stock issuable under
both the A warrants and B warrants were registered for resale.
Between June 2014 and February 2015, Growblox issued
5,450,000 shares of common stock pursuant to the employment contracts of four executive officers. 1,500,000 shares issued to
the former Chief Financial Officer were cancelled due to employment termination, and 3,000,000 shares issued to Craig Ellins
under his employment agreement were exchanged in June 2015 for warrants. See “Employment Agreements”
below.
In order to encourage the exercise of its B warrants, on February
12, 2015, the board of directors of Growblox passed a resolution to temporarily reduce, until April 30, 2015, the exercise price
of such B warrants from $2.00 per share to $0.20 per share, and the holders of the B warrants were notified of such temporary
exercise price reduction. On April 30, 2015, Growblox’s board of directors extended to 5:00 PDT on May 15, 2015 the temporary
voluntary reduction of the exercise price of the B Warrants to $0.20 per share and notified the holders of the B Warrants. As
at May 15, 2015, B warrants to purchase 2,748,115 shares of common stock were exercised at $0.20 per share, resulting in net proceeds
of $549,623 to Growblox.
On April 22,
2015, Cesar Cordero-Kruger, the Chief Executive Officer of Growblox Sciences Puerto Rico LLC, purchased from Growblox, for $592,200
or $0.21 per share, an aggregate of 2,820,000 shares of Growblox common stock. Growblox agreed to register such common stock for
resale under the Securities Act pursuant to a registration rights agreement.
Between February,
2015 and May 15, 2015, certain holders of Class B Warrants sold back to Growblox for $0.01 each, Class B warrants to purchase
an aggregate of 5,600,000 shares of common stock. During the same period, in addition to the 2,820,000 shares purchased by Mr.
Cordero-Kruger, Growblox sold an additional 2,442,023 shares of common stock to 25 other investors for $0.21 per share, resulting
in total additional proceeds to Growblox of $512,825.
In May and June 2015, seven persons were issued an aggregate
of 485,500 shares of common stock in settlement and release of certain obligations owed by the Company to such person aggregating
$107,504.
In May 2015, Network 1 Financial Services and its affiliates
exercised Class B warrants on a cashless basis and received a total of 1,000,000 shares of common stock.
All of the foregoing securities, including Growblox common
stock, were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of
1933 (the “Securities Act”) and/or Rule 506 of Regulation D under the Securities Act, as amended.
Convertible Notes and Warrants
Between December 2009 and February 2013, Growblox entered into
several Convertible Note Agreements ("Notes") for a total of $1,033,744. Growblox received aggregate proceeds of $884,700
reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.
The Notes were due after one year. The note holders could have
converted any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of
common stock of Growblox at a price equal to $0.10. The Notes includes an anti-dilution adjustment that may not be adjusted below
$0.01.
Simultaneously with the issuance of these Notes, Growblox issued
to the Note holders a 5-year warrant (the "Warrants") to purchase 12,364,766 shares of common stock of Growblox. The
Warrants were exercisable at a price equal to $0.15. The Warrants included an anti-dilution adjustment that may not be adjusted
below $0.01.
The note holders were only be allowed to convert shares or
exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise
will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of Growblox.
Simultaneously with the issuance of this Note, Growblox issued
to each Note holder a 5-year warrant (the "Warrant") to purchase 504,203 shares of common stock of Growblox. The Warrant
is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.
The note holder will only be allowed to convert shares or exercise
warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not
result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of Growblox.
In March 2014, the note holders’ agreed to modify the
terms of the notes and warrants. The notes are now convertible at a fixed price of $0.26. The warrants have been cancelled and
no longer have any value. A loss of $559,048 for the extinguishment of debt has been recorded on the State of Operations as of
March 31, 2014.
The Notes and Warrants were issued in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or
Rule 506 of Regulation D under the Securities Act, as amended.
Note Conversions
During the year ended March 31, 2012, Growblox converted a
total of $104,000 of notes payable from certain Note Holders into common stock of Growblox. Growblox issued 140,000 shares of
common stock to satisfy the principal balances of the notes payable.
During the year ended March 31, 2013, Growblox converted a
total of $114,013 of notes payable from certain Note Holders into common stock of Growblox. Growblox issued 438,681 shares of
common stock to satisfy the principal balances of the notes payable.
From April 2014 to June 2014, Growblox converted a total of
$1,015,459 of notes payable from certain Note Holders into common stock of Growblox. Growblox issued 3,905,612 shares of common
stock to satisfy the principal balances of the notes payable.
Employment Agreements
On June 19, 2014 Craig Ellins entered into an amended employment
agreement having a three year term. Mr. Ellins received a salary of $140,000 per annum, year one, $180,000 per annum year two
and $240,000 per annum year three. Additionally he received 3,000,000 shares of the common stock of Growblox which vest over three
years in equal 1,000,000 amounts. Effective as of June 19, 2015, Growblox and Mr. Ellins amended and restated the employment agreement
with the same compensation terms and cancelling the 3,000,000 share stock grant. In consideration for such forfeiture, Mr. Ellins
received a three year warrant to purchase 5,000,000 shares of Growblox common stock at an exercise price of $0.45 per share, the
closing price of Growblox common stock on the date of the restated employment agreement. The warrant contains customary anti-dilution
provisions and cashless exercise provisions. The warrant and underlying shares of common stock issuable upon exercise of the warrant
are restricted securities as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended.
On June 19, 2014, Dr. Andrea Small-Howard, Chief Science
Officer, entered into a three year employment agreement with Growblox. Dr. Small-Howard received a salary at the annual rate
of $85,000 and 450,000 shares of restricted common stock that vests over the three year term of employment. The stock is
restricted as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended. Dr. Howard also
received 500,000 of stock options not in connection with her employment agreement, of which 100,000 vested immediately and the
remainder vest over five years.
Cathryn Kennedy, Chief Financial Officer, entered into
an Employment Agreement with Growblox for a three-year term beginning November 15, 2014. Ms. Kennedy receives a salary
of $160,000 per annum phased in during year one, $170,000 per annum year two and $180,000 per annum in year three. Ms.
Kennedy was compensated with 500,000 shares of restricted common stock, payable over three years of employment. The stock
is restricted as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended. Ms. Kennedy
also received 500,000 of stock options not in connection with her employment agreement, of which 100,000 vested immediately and the
remainder vest over five years.
Dr. Steven Weldon, former Chief Financial Officer, entered
into an Employment Agreement with Growblox for a three year term. Mr. Weldon would have been compensated with 1,500,000 shares
of restricted common stock, payable upon the completion of three years of employment. Mr. Weldon resigned on November 19, 2014,
and the shares were canceled and no expense was recognized.
Equity Compensation Plan Information
The 2007 Amended Stock Option Plan was adopted by the Board
of Directors on February 6, 2008. The Company revised the plan and the Board of Directors approved the 2014 Equity Compensation
Plan. Under this plan, a maximum of 8,000,000 shares of common stock, par value $0.0001, were authorized for issue. The vesting
and terms of all of the options are determined by the Board of Directors and may vary by optionee; however, the term may be no
longer than 10 years from the date of grant.
Growblox issued 2,010,000 shares under the plan during the
year ended March 31, 2015 to employees and members of the Advisory Boards.
| ITEM 6. | SELECTED FINANCIAL DATA |
FINANCIAL INFORMATION
| | |
2015 | | |
2014 | |
| | |
| | |
| |
| General and administrative expenses | |
$ | 7,973,850 | | |
$ | 187,760 | |
| Net income/(loss) before non-controlling interest | |
| (7,973,715 | ) | |
| (655,954 | ) |
| Non-controlling interest | |
| (250,960 | ) | |
| - | |
| Net income/(loss) | |
$ | (7,722,755 | ) | |
$ | (655,954 | ) |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANICAL CONDITION AND RESULTS OF OPERATION |
The following discussion of the plan of operation, financial
condition and results of operations should be read in conjunction with the Company’s financial statements, and notes thereto,
included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results
may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but
not limited to, those discussed in this Annual Report.
Overview
On March 18, 2014, Growblox purchased assets, including the
Growblox™ cultivation technology from our current CEO, Mr. Craig Ellins and his affiliated companies which resulted in a
change in its corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
We plan to utilize this technology to plan to research the medical treatment potential of cannabis and develop treatments from
those findings and to commercially cultivate and produce medical grade cannabis for sale in the United States and territories
in which it is legal and.
Growblox Sciences, Inc. was incorporated in the State of Delaware
on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, a majority of stockholders approved
changing its then name “Signature Exploration and Production Corp.” as the business model had changed.
Plan of Operation
The Company’s goal is to be an industry
leader in cultivation technology and research and development of medical cannabis drugs and treatments. To achieve this goal,
the Company will use a vertically-integrated approach. Strategically to continue to improve cultivation to enable the provision
of consistent medical-grade yield cannabis, to strive to innovate biopharmaceutical and nutraceutical products using the harvested
materials, and streamline marketing and distribution in coordination with business partnerships in markets in which the distribution
and use of medical cannabis is legal.
Our 65% owned subsidiary GB Sciences Nevada, LLC (“GBS
Nevada”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. GB Sciences LLC holds a provisional certificate
from the Division of Public & Behavioral Health of the Nevada Department of Health and Human Services to operate an establishment
to cultivate medical cannabis at its Las Vegas location. The certificate is considered provisional until the establishment is
in compliance with applicable local government requirements and has received a state business operating license. Granted in November
2014, the provisional certificate is subject to revocation if a medical marijuana establishment is not fully operational within
18 months from receipt.
GBS Nevada has applied for a permit or certificate to dispense
medical cannabis at two locations in Clark County, Nevada, including one location within the City of Las Vegas, and a certificate
to deliver medical grade cannabis throughout the State of Nevada. GBS Nevada is waiting for approval of such dispensary and delivery
certificates by the State of Nevada. There can be no assurance that such certificates or permits will be issued, or if issued,
that Growblox or GBS Nevada will derive any significant revenues or profits from the cultivation, dispensing and delivery of medical
cannabis within such County or City.
In March 2015, Growblox and GBS Nevada entered into a binding
memorandum with the local minority members of GBS Nevada who now own 35% of its equity. Under the terms of such agreement, Growblox’s
equity in GBS Nevada increased from 55% to 65%, GBS Nevada will retain its existing certification to cultivate and grow cannabis
and, if and when issued by Clark County and/or Las Vegas, Nevada, the delivery certification. If and when issued, the dispensary
certification will be assigned to an entity to be wholly-owned by the 35% minority owners of GBS Nevada. In consideration for
such assignment, the entity operating the dispensaries will agree to purchase a minimum of 20% of its inventory of cannabis from
GBS Nevada and pay to Growblox 10% of all profits derived from its dispensary business. In addition, GBS Nevada shall retain the
delivery certificate and the exclusive right to provide all delivery services on behalf of the dispensaries that are permitted
by applicable state and local Nevada law.
We are finalizing the production and testing
of the Growblox™ Suites system, primarily at our Growblox Sciences, Puerto Rico, LLC, (GBSPR) which we opened in San Juan
in April 2015. We shipped our first Growblox Suites from third party contractor production facilities located in China during
November 2014. After testing and revisions are made, GBSPR intends to produce an initial round of demonstration production Suites
in the second quarter of fiscal 2016.
Our Science division will seek to pioneer technologies and
industry leading processes, in combination with “big data” driven clinical research and development programs to bring
pain relief and potential cures to patients suffering from a variety of neurological and other diseases. Our Science division
is currently working on licensing its initial biopharmaceutical cannabinoid product prototypes to begin clinical trials. In addition,
we are currently seeking co-development partners to assist us with growing a phytocannabinoid-based biopharmaceutical product
pipeline.
On May 12, 2015, Growblox entered into a note purchase agreement,
to be effective as of June 9, 2015, with Pacific Leaf Ventures, LP ( “Pacific Leaf”), pursuant to which Pacific Leaf
agreed to make an installment loan to our Company of up to $1,750,000 (the “Loan”). The purpose of the financing will
be to provide for the acquisition and installation of an operating facility, equipment and other tangible assets by GBS Nevada.
Such facility and equipment will be dedicated to the cultivation of cannabis and the extraction of oils and other constituents
present in cannabis, subject at all times to Nevada legal requirements.
Under the note purchase agreement, Pacific Leaf made a $100,000
advance on June 9, 2015 and shall make additional advances to GBS Nevada in installments, as follows: (a) $600,000 by July 9,
2015; (b) $700,000 by August 9, 2015; and (c) $350,000 by September 9, 2015. The installment advances are designed to dovetail
with construction and implementation needs for the cultivation facility for GBS Nevada.
Results of Operations
Comparison of the fiscal year ended
March 31, 2015 and March 31, 2014.
FINANCIAL INFORMATION
| | |
2015 | | |
2014 | |
| | |
| | |
| |
| General expenses | |
$ | 2,995,039 | | |
$ | 156,021 | |
| Payroll and related | |
| 4,467,536 | | |
| 30,824 | |
| Utilities and facilities | |
| 441,250 | | |
| 0 | |
| -Depreciation and amortization | |
| 70,025 | | |
| 915 | |
| |
| (7,973,850 | ) | |
| (187,760 | ) |
| Other income/(expense) | |
| 136 | | |
| (468,195 | ) |
| Net income/(loss) before non-controlling interest | |
| (7,973,715 | ) | |
| (655,955 | ) |
| Non-controlling interest | |
| (250,960 | ) | |
| - | |
| | |
| | | |
| | |
| Net income/(loss) | |
$ | (7,722,755 | ) | |
$ | (655,955 | ) |
General and Administrative. Increase in general
expenses in 2015 over 2014, primarily included $1,000,584 increase for raising capital, $278,518 increase in travel, $717,028
and 415,037 for legal and professional fees related to starting up operations in Nevada and Puerto Rico, respectively.
Payroll and Related. Payroll increased by $4,405,888
due to a $616,899 increase in wages due to an increase in staff, stock option expense of 3,768,120, and an increase in employee
benefits of $51,733 Additionally employee insurance was added in fiscal year 2015. During 2015 previous consulting positions were
moved into full time employees as positions and business developed.
Other Income/(Expense). Other expenses increased
by $468,059 for the year ended March 31, 2015 over the year ended March 31, 2014 primarily due to the change in the fair value
of convertible notes and warrants by 57,000 and a loss on loan modifications of $559,000 in the prior year.
Liquidity
and Capital Resources
We had cash balances totaling approximately $0 and $339,000
as of March 31, 2015 and 2014. Historically principal source of funds has been cash generated from financing activities. Subsequent
to March 31, 2015 we raised approximately $1,603,000 from a combination of private placements and exercise of Class B warrants
during the temporary reduction of the exercise price from $2.00 to t $0.20. Also on June 9, 2015 we signed a note agreement for
$1,750.000 to fund the construction of the grow operations for GBS Nevada LLC.
Cash flow from operations. Cash flows used in
operations were $3,545,583 and 521,127 for the year ended March 31, 2015 and 2014, respectively. We anticipate that cash flows
from operations may 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.
Cash flows from investing activities. Cash used
for investing activities for purchasing equipment were $937,660 and $49,573 for the years ended March 31, 2015 and 2014.
Cash flows from financing activities. Net cash
provided by financing activities was generated from promissory notes, sales of common stock and exercise of warrants that totaled
$3,869,001 and $6,466,828 for the year ended March 31, 2015 and $715,750 for the year ended March 31, 2014.
Variables
and Trends
We have no operating history with respect to the current business
plan. In the event we are able to obtain the necessary financing to move forward with the business plan, we expect expenses to
increase significantly as we grow this 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 these circumstances.
General and Administrative. General and administrative
expenses increased in 2014 due to an increase in professional and consulting fees for obtaining licenses in Nevada.
Variables
and Trends
We have no operating history with respect to the current business
plan.. In the event we are able to obtain the necessary financing to move forward with the business plan, we expect business expenses
to increase significantly as we go operational. Accordingly, the comparison of the financial data for the periods presented may
not be a meaningful indicator of future performance and must be considered in light these circumstances.
Critical Accounting Policies
General
The preparation of financial statements requires management
to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions
that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis,
and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that
are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions
or conditions, management believes that the estimates used in the preparation of the financial statements are reasonable. Policies
involving the most significant judgments and estimates are summarized below.
Fair Value of Financial Instruments
The Company holds certain financial liabilities which are measured
at fair value on a recurring basis in accordance with ASC Topic 825-10-15. ASC Topic 820-10 establishes a fair
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement
date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability.
Convertible notes issued with detachable warrants were measured
at fair value, in accordance with ASC Topic 825-10-15, as one instrument, and that fair value was allocated to each component.
The Company made the fair value election due to this methodology providing a fairer representation of the economic substance of
the transaction within the fair value hierarchy. Due to the lack of relevant and market reflective Level 1 and Level 2 inputs,
the Company valued the instruments using Level 3 inputs, which require significant judgment and estimates on behalf of management
in developing model assumptions. The factors considered in developing those assumptions included; the Company’s inability
to attract investment at terms more favorable to the Company, the lack of success in developing oil properties thus far, the continuing
reduction in the net assets of the Company and the Company’s history of default on currently outstanding debt.
Based on management’s evaluation of the assumptions discussed
above, the liabilities were initially recorded in an amount equal to the transaction price, which represented the fair value of
the total liability at initial recognition.. The model used by the Company is calibrated so that the model value at initial recognition
equals the transaction price. On an ongoing basis the fair value model used in valuing the convertible notes and derivative liability
utilizes the following inputs; exercise price per warrant, conversion price per share, contract term, volatility, current stock
prices and risk free rates. The following assumptions were made in the model: (1) risk free interest rate of 0.19% to 0.51%, (2)
remaining contractual life of 1 to 4.98 years, (3) expected stock price volatility of 697% and (4) expected dividend yield of
zero.
Equity-Based Compensation
The computation of the expense associated with stock-based
compensation requires the use of a valuation model. The FASB issued accounting guidance requires significant judgment and the
use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and
expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to
calculate the fair value of stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes
model and have reason to believe that future data is likely to differ materially from historical data. However, changes in the
assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the
assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based
awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every
effort is made to ensure the accuracy of estimates and assumptions, significant unanticipated changes in those estimates, interpretations
and assumptions may result in recording stock option expense that may materially impact the financial statements for each respective
reporting period.
Property and Equipment
Property and equipment are stated
at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives
of the assets: three to eight years for machinery and equipment, leasehold improvements are amortized over the shorter of the
estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend the useful lives
of related assets are expensed as incurred.
Intangibles
Intangible assets with definite lives
are amortized, but are tested for impairment annually and when an event occurs or circumstances change such that it is more likely
than not that an impairment may exist. The annual testing date is March 31. We test intangibles for impairment by first comparing
the carrying value of net assets to the fair value of the related operations. If the fair value is determined to be less than
carrying value, a second step is performed to compute the amount of the impairment. In this process, a fair value for intangibles
is estimated, based in part on the fair value of the operations, and is compared to its carrying value. The shortfall of the fair
value below carrying value represents the amount of intangible impairment. We test these intangibles for impairment by comparing
their carrying value to current projections of discounted cash flows attributable to the customer list. Any excess carrying value
over the amount of discounted cash flows represents the amount of the impairment.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Stock-Based Compensation
| |
|
Total Awards |
|
|
WA Strike Price |
|
|
WA Volatility |
|
|
WA Interest Rate |
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Starting Balance |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Issued in Period |
|
|
6,014,000.00 |
|
|
$ |
- |
|
|
|
2.74 |
|
|
|
0.01 |
|
| Exercised in Period |
|
|
1,594,400.00 |
|
|
$ |
- |
|
|
|
2.92 |
|
|
|
0.00 |
|
| Naturally Expired in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Expired Vested in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Forfeited Unvested in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Total Expired in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Starting Balance |
|
|
4,419,600.00 |
|
|
$ |
- |
|
|
|
2.67 |
|
|
|
0.01 |
|
| Issued in Period |
|
|
1,000,000.00 |
|
|
$ |
0.20 |
|
|
|
- |
|
|
|
- |
|
| Exercised in Period |
|
|
1,000,000.00 |
|
|
$ |
0.20 |
|
|
|
- |
|
|
|
- |
|
| Naturally Expired in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Expired Vested in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Forfeited Unvested in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Total Expired in Period |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
| Ending Balance |
|
|
4,419,600.00 |
|
|
$ |
- |
|
|
|
2.67 |
|
|
|
0.01 |
|
| Range |
|
Outstanding
Outstanding |
|
|
WA
Remaining
Contractual
Life |
|
|
WA
Outstanding
Strike Price |
|
|
Exercisable
Exercisable |
|
|
Remaining
Exercisable
Contractual
Life |
|
|
WA
Exercisable
Strike Price |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 to 5 |
|
|
4,419,600.00 |
|
|
|
4.47 |
|
|
$ |
- |
|
|
|
1,632,400.00 |
|
|
|
4.11 |
|
|
$ |
- |
|
| 5.01 to 10 |
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
| 10.01 to 15 |
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
| 15.01 to 20 |
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
| 20.01 to 25 |
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
| 0 to 25 |
|
|
4,419,600.00 |
|
|
|
4.47 |
|
|
$ |
- |
|
|
|
1,632,400.00 |
|
|
|
4.11 |
|
|
$ |
- |
|
NOTES:
1) Exercisable information:
At March 31, 2015 and 2016, there were
4 and 1,632,400 exercisable awards with a weighted average exercise price of $0.00 and $0.00, respectively.
2) Intrinsic Value Information:
The aggregate intrinsic value of outstanding as of March 31,
2016 was $1,723,644.00 and far vested as of March 31, 2016 was $694,000.00.
The intrinsic value of awards exercised during the years ended
March 31, 2015 and 2016 was $1,711,628.00 and $0.00, respectively.
3) Unrecognised Compensation Cost:
The total remaining unrecognized compensation cost is $2,147,805.50
and $654,968.43 as of March 31, 2015 and 2016. The weighted average period over which this cost is expected to be recognized is
2.78 and 2.15 years.
Recent Accounting Pronouncements
The Company does not believe that any recently issued, but
not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s consolidated
financial position, results of operations, or cash flows.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSERS
ABOUT MARKET RISK |
N/A
| ITEM 8. | FINANCIAL STATEMENTS |
The financial statements required to be filed hereunder are
set forth on pages F-1 through F-6 and are incorporated herein by this reference.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES |
There were no changes in or disagreements with the accountants
on accounting and financial disclosure during the last two fiscal years.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the
participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design
and operation of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls
and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding
required disclosure. Based on this evaluation, the Chief Financial Officer concluded as of March 31, 2015 that disclosure controls
and procedures were not effective at the reasonable assurance level due to the material weaknesses in internal controls over financial
reporting discussed immediately below.
Management’s Report on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as define in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal
control over financial reporting is designed 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. The
evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation
of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and
control objectives related to the evaluation of the control environment. The internal controls for the Company are provided
by executive management’s review and approval of all transactions. internal control over financial reporting also
includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of assets;
(2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are
being made only in accordance with the authorization of management; and
(3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over
financial reporting as of March 31, 2015. This annual report does not include an attestation report of registered public
accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by registered
public accounting firm pursuant to the rules of the Securities and Exchange Commission that permits us to provide only management's
report in this annual report.
Identified Material Weaknesses
A material weakness is a control deficiency, or combination
of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected. The matters involving internal controls over financial reporting that management considered
to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:
| · | ineffective
controls over period end financial disclosure and reporting processes including not having
a functioning audit committee consisting of independent Board members as well as lack
of expertise with respect to the application of US GAAP and SEC rules and regulations. |
| · | one individual
who, as an officer and director of the Company, has sole access and authority to receive
cash and make cash disbursements |
Management believes that the material weaknesses set forth
above did not have an adverse effect on the financial results.
Management’s Remediation Initiatives
As a result of findings, we have begun to remediate the deficiencies. In
an effort to remediate the identified material weaknesses and enhance internal controls, we have initiated, or plan to initiate,
the following series of measures:
We have implemented and established control
procedures for purchasing and cash disbursements
We have hired a secondary person to handle
cash receipts and disbursements
| | We are currently looking for a third member of the accounting team
to assist with controls and procedures |
We have implemented a fixed asset accounting
system
We have implemented an equity compensation
tracking software.
We have upgraded our entire accounting
software system
Although we have not remedied these issues in the past fiscal
year, we anticipate that these initiatives will be at least partially, if not fully, implemented by March 31, 2016. Additionally,
we plan to test the updated controls in order to remediate the deficiencies by March 31, 2016
Conclusion
As a result of management's assessment of the effectiveness
of internal control over financial reporting as of March 31, 2015, and the identification of the material weakness set forth above,
management has concluded that the internal control over financial reporting is not effective. It is reasonably possible
that, if not remediated, the material weaknesses noted above, could result in a material misstatement in the reported financial
statements that might result in a material misstatement in a future annual or interim period. In light of the identified
material weakness and the conclusion that the internal controls over financial reporting are not effective, management will take
the remediation initiatives set forth above. In addition management performed (1) additional review of the area described
above, and (2) performed additional analyses, including but not limited to a detailed balance sheet and statement of operations
analytical review. These procedures were completed so management could gain assurance that the financial statements and schedules
included in this Form 10-K fairly present in all material respects the financial position, results of operations and cash flows
for the periods presented.
Changes in Internal Control over Financial Reporting
There were no changes were made during most recently completed
fiscal quarter that have materially affected or are reasonably likely to materially affect, internal control over financial reporting,
as required by Rules 13a-15(d) and 15d-15(d) under the exchange Act.
| ITEM 9B. | OTHER INFORMATION |
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE |
The names of the executive officers and directors of Growblox,
their ages as of June 20, 2015, and the positions currently held by each are as follows:
| Name |
|
Age |
|
Position |
| Craig Ellins |
|
62 |
|
Chief Executive Officer and Chairman of the Board |
| Cathryn Kennedy |
|
57 |
|
Chief Financial Officer |
| Dr. Andrea Small-Howard |
|
46 |
|
Chief Science Officer and Director |
Craig Ellins, Chairman and Chief Executive Officer
Mr. Ellins was appointed as our Chief Executive Officer and
as chairman of our board of directors on March 13, 2014, and has served continuously in both positions since that time. Mr. Ellins
has spent over 30 years discovering emerging trends and developing start-ups for various industries. He has served as Chief Executive
Officer and on the Board of Directors of numerous organizations, both in the private and public sectors and has worked with a
multitude of Fortune 500 organizations. Mr. Ellins has a proven and successful background in international and domestic product
and business development, technological innovation, trade secrets, strategic planning, critical infrastructure and sustainable
growth. Mr. Ellins continuously sets new standards for innovation and most recently set his sights on the cannabis industry. His
work in medical marijuana has produced significant advancements in indoor growing technology, all of which have pending patents.
Mr. Ellins has worked diligently over the years to produce state-of-the-art technology that has a substantial impact on cultivation
and ingenuity. Finding treatments to serious medical conditions has become the benchmark to Mr. Ellins technological innovation,
out of which has come the Growblox™. Mr. Ellins’ rich history of new technology and financial expertise has created
a framework for change in technological enterprises, especially in cultivation.
From 2013 to 2014, Mr. Ellins served as the Chairman and CEO
of Cognitiv, Inc. Cognitiv, Inc., together with its subsidiaries, engages in the creation, development, and maintenance of Websites
and mobile applications. It also provides Website search engine optimization services; email marketing services; pay per click
consultation services; social media consultation, creation, and marketing services; domaining services; and mobile marketing services.
The company was formerly known as University Health Industries, Inc. and changed its name to Cognitiv, Inc. in March 2012. Cognitiv,
Inc. is based in Heathrow, Florida. As Chairman and CEO, Mr. Ellins was responsible for all aspects of the company.
From 2009 to 2013, Mr. Ellins served as CEO and Chairman of
Phototron Holdings, Inc., now known as GrowLife, Inc. GrowLife, Inc. manufactures and supplies branded equipment and expendables
for urban gardening in the United States. The company offers equipment and expendables, such as nutrients and soils for the growing
of medical marijuana. As Chairman and CEO, Mr. Ellins was responsible for all aspects of the company.
Cathryn J. Kennedy, Chief Financial Officer
Effective December 9, 2014, Cathryn J.
Kennedy was appointed as our Chief Financial Officer. From 2013 to the present Ms. Kennedy served as controller and secretary
to the board of directors of American Optical Services. American Optical Services owns and operates ophthalmology and optometry
practices across the U.S. As controller, she managed profit and loss and cash flow, implemented audit policies and managed financial
reporting and tax return preparation with a national firm. She managed personnel in the accounting and treasury departments.
From 2008 through 2013, Ms. Kennedy worked for eCommLink, Inc.
eCommLink, Inc. is a prepaid card processor which supports a full array of global and domestic payments and transactions, which
was sold via asset sale to a top prepaid processor in the United States. From 2011 to 2013 she served as CFO, from 2010 to 2011
she served as Vice President of Finance and as Controller from 2008 to 2010.
From 2005 to 2008, Ms. Kennedy served as director of SEC reporting
for Pinnacle Entertainment Inc., an entertainment company with fifteen hotel and gaming operations located in the U.S. with over
ten thousand employees. Prior to 2005, she served as Controller for American Wagering Inc. overseeing all corporate reporting,
consolidations, financial preparations, preparation of SEC reports and preparation of NGC tax filings, and oversaw gaming audits
and compliance.
Dr. Andrea Small-Howard, PhD, MBA, Chief Science Officer
and Board of Directors
Dr. Small-Howard was appointed as our Chief Science Officer
and as a member of our board of directors on June 10, 2014 and has served continuously in both positions since that time. As the
Chief Science Officer, her goal is to create and maintain a novel cannabinoid therapy pipeline based on the Company's proprietary
technology suite, direct research & development efforts, facilitate clinical research partnerships, guide product commercialization
strategies, develop corporate cannabis education programming, and create corporate messaging around our novel drug discovery process.
From January, 2012 to present, she has served as a Director
on the Board of Directors at The Center for Healthcare Innovation, "CHI". CHI is a non-profit, non-partisan, and independent
organization committed to serving as a catalyst for stimulating ideas, people, companies, and institutions to collaborate and
achieve excellence in healthcare innovation, particularly in the biotechnology, medical device, nanotechnology, and pharmaceutical
sectors. Her board level responsibilities at CHI have included shaping and supporting the evolving mission of this dynamic group.
She has also been on the planning committee for their annual "Emerging Markets in the Life Sciences" seminar series,
which is now in its 5th consecutive year.
From July 2011 to June 2014, Dr. Small-Howard was the Founder
and President of International Biotechnology Solutions, a management consulting firm that created customized, cost-effective commercialization
solutions for viable yet abandoned biopharmaceutical products. International Biotechnology Solutions provided management consulting
with a focus on assisting US biotech companies with products that could be commercialized within the Asia-Pacific region. Dr.
Small-Howard she successfully completed projects within the areas of business development, corporate alliance building, product
commercialization, due diligence reporting on medical marijuana companies, corporate restructuring, and management of successful
fund raising campaigns.
From June 2011 to March 2013, she served as a Director on the
Board of Directors (President for part of that time), for the Ceremax Investment Corporation. The Ceremax Investment Group was
established by members of the USC EMBA Class XXV to pool its financial and intellectual resources to identify investment opportunities.
During her tenure at Ceremax, Dr. Small Howard reviewed and approved capital and resource investments in promising start-up or
scale-up phase private companies.
From November, 2008 to July, 2011, she served
as the Vice President of Scientific Oversight for the Radient Pharmaceutical Corporation, a vertically-integrated biopharmaceutical
research, development and manufacturing corporation with operations in both the US and China. Dr. Small-Howard provided oversight
for global product development in multiple international business divisions. She authored and/or attained 12 patents & 3 trademarks
on proprietary cancer tests, cancer (gene) therapies, cosmeceuticals, and animal models. She achieved numerous regulatory approvals
for cancer tests, cancer therapies, pharmaceuticals, and cosmeceutical products with the United States FDA, Health Canada and
other foreign ministries of health. She initiated and/or nurtured five international, collaborative, cancer research trial programs
with universities and that yielded 7 publications supporting cancer products, and supervised the Quality Management Systems for
an ISO 13485/cGMP compliant medical device manufacturing facility in the US; as well as the regulated manufacturing facilities
in China. She also led and participated in internal and US FDA, CDPH, CE Mark/ISO 13485, and CMDR audits of Radient’s Quality
Management System.
During the past five years none of our directors, executive
officers, promoters or control persons was:
| 1) | the subject of any bankruptcy petition filed by or against
any business of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that time; |
| 2) | convicted in a criminal proceeding or is subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); |
| 3) | subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking activities; or |
| 4) | found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have violated a federal
or state securities or commodities law. |
Section 16(a) Beneficial Ownership Reporting Compliance.
The Company does not have stock registered under Section 12(b)
or Section 12(g) of the Exchange Act. Effective June 25, 2015 beneficial owners and officers need to file reports under Section
16(a) of the Exchange Act.
Code of Ethics
We adopted the Growblox Sciences, Inc. Code of Ethics for the
CEO and Senior Financial Officers (the “finance code of ethics”), a code of ethics that applies to Chief Executive
Officer, Chief Financial Officer, Chief Science Officer and other finance organization employees. A copy of the finance code of
ethics may be obtained from the Company, free of charge, upon written request delivered to Growblox Sciences, Inc. 6450 Cameron
St. Suite 110, Las Vegas, NV 89118. If we make any substantive amendments to the finance code of ethics or grant any waiver, including
any implicit waiver, from a provision of the code to the Chief Executive Officer or Chief Financial Officer, we will disclose
the nature of such amendment or waiver in a report on Form 8-K.
| ITEM 11. | EXECUTIVE COMPENSATION |
The following summary compensation table
reflects all compensation awarded to, earned by, or paid to the Chief Executive Officer, Chief Financial Officer and Chief Science
Officer for all services rendered to us in all capacities during each of the years ended March 31, 2015, 2014 and 2013.
Summary Compensation Table [
| Name and Position | |
Year | |
Salary
($) | | |
Bonus ($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
Non-Equity
Incentive
Plan Compensation | | |
All
Other Compensation | | |
Total | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Craig Ellins, CEO and | |
2015 | |
$ | 168,617 | | |
$ | - | | |
$ | 1,470,000 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 1,490,629 | |
| Chairman of the Board | |
2014 | |
$ | 6,125 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 120,975 | |
| | |
2013 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cathryn Kennedy, | |
2015 | |
$ | 32,774 | | |
$ | - | | |
$ | 28,000 | | |
$ | 16,985 | | |
$ | - | | |
$ | - | | |
$ | 65,009 | |
| CFO | |
2014 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 12,750 | |
| | |
2013 | |
$ | - | | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Dr. Andrea Small-Howard | |
2015 | |
$ | 62,700 | | |
$ | - | | |
$ | 73,500 | | |
$ | 16,985 | | |
$ | - | | |
$ | - | | |
$ | 104,358 | |
| Chief Science Officer | |
2014 | |
$ | 0 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 45,833 | |
| | |
2013 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Directors’ Compensation
All directors hold office until the next
annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect
to the election of directors. Officers are appointed annually by the Board of Directors and each executive officer serves at the
discretion of the Board of Directors. Directors are not currently compensated, although each is entitled to be reimbursed for
reasonable and necessary expenses incurred on behalf of the Company. Currently the board of directors has an audit committee.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table presents information
known to us, as of June 24, 2015, relating to the beneficial ownership of common stock by:
| · | each
person who is known by us to be the beneficial holder of more than 5% of outstanding
common stock; |
| · | each
of named executive officers and directors; and |
| · | directors
and executive officers as a group. |
We believe that all persons named in the
table have sole voting and investment power with respect to all shares beneficially owned by them, except as noted.
Percentage ownership in the following
table is based on 45,321,964 shares of common stock outstanding as of June 26, 2015. A person is deemed to be the beneficial owner
of securities that can be acquired by that person within 60 days from the date of this Annual Report upon the exercise of options,
warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by dividing the number of
shares beneficially owned by that person by the base number of outstanding shares, increased to reflect the shares underlying
options, warrants or other convertible securities included in that person’s holdings, but not those underlying shares held
by any other person.
| Name of Beneficial Owner(1) | |
Number
of Shares
of Common
Stock Beneficially Owned | | |
Percentage
of Shares Beneficially
Owned | |
| | |
| | |
| |
| Craig Ellins | |
| 7,920,000 | (2) | |
| 17.5 | % |
| | |
| | | |
| | |
| Cesar Cordero-Kruger | |
| 2,820,000 | (3) | |
| 6.2 | % |
| | |
| | | |
| | |
| Lazarus Investment Partners, LLLP(4) | |
| 4,000,000 | | |
| 8.8 | % |
| | |
| | | |
| | |
| Dr. Andrea Small-Howard | |
| 250,000 | (5) | |
| 0.6 | % |
| | |
| | | |
| | |
| Cathryn Kennedy | |
| 200,000 | (6) | |
| 0.6 | % |
| | |
| | | |
| | |
| All directors and officers as a group (3) persons | |
| 8,370,000 | | |
| 18.5 | % |
_______________________
| (1) | Unless otherwise noted, the address
of each person listed is c/o Growblox Sciences, Inc. 6450 Cameron St., Suite
110, Las Vegas, NV 89118. |
| (2) | Includes (a) 2,920,000 shares of
common stock currently owned of record by Mr. Ellins, and (b) 5,000,000 additional shares
of common stock issuable upon exercise of warrant at an exercise price of $0.45 per share.
Does not include an additional 4,000,000 shares of common stock issuable to Mr. Ellins
if the Company files patent applications on either its GrowBLOX Suites or drug delivery
technologies. |
| (3) | Does not include a minimum of 16.2%
and a maximum of 20.6% of the equity of GBSPR, our Puerto Rico subsidiary with operates
the Solutions division |
| (4) | Address is c/o Lazarus Management
Company LLC, 3200 Cherry Creek South Drive, Suite 670, Denver, CO 80209. |
| (5) | Includes 150,000 of the 450,000
shares issued to Dr. Small-Howard under her employment agreement and 100,000 stock options
granted to Dr. Small Howard at an exercise price of $0.17 per share. Does not include
an additional 300,000 shares that vest in June 2016 and June 2017 in equal installments
under her employment agreement, and 400,000 additional shares issuable upon exercise
of stock options that vest in 100,000 increments over four years under the Growblox equity
compensation plan. |
| (6) | Includes 100,000 of the 500,000
shares issued to Ms. Kennedy under her employment agreement and 100,000 stock options
granted to Ms. Kennedy at an exercise price of $0.17 per share. Does not include an additional
400,000 shares that vest in June 2016 and June 2017 in equal installments under her employment
agreement, and 400,000 additional shares issuable upon exercise of stock options that
vest in 100,000 increments over the next four years under the Growblox equity compensation plan. |
| ITEM 13. | CERTAIN RELATIONSHIPS,
RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
"We do not have any independent directors
serving on the Board of Directors. The definition the Company uses to determine whether a director is independent is NASDAQ Rule
4200(a)(15). The text of this rule is attached to this Annual Report as Exhibit 99.
| ITEM 14. | PRINCIPAL ACCOUNTANT
FEES AND SERVICES |
| | |
Fiscal
2015 | | |
Fiscal
2014 | | |
Fiscal
2013 | |
| Audit Fees(1) | |
$ | 44,035 | | |
$ | 22,370 | | |
$ | 29,000 | |
| Audit-Related Fees(2) | |
| -0- | | |
| -0- | | |
| -0- | |
| Tax Fees(3) | |
| -0- | | |
| -0- | | |
| -0- | |
| | |
| | | |
| | | |
| | |
| Subtotal | |
$ | 44,035 | | |
$ | 22,370 | | |
$ | 29,000 | |
| All other Fees(4) | |
| -0- | | |
| -0- | | |
| -0- | |
| | |
| | | |
| | | |
| | |
| Total | |
$ | 44,035 | | |
$ | 22,370 | | |
$ | 29,000 | |
| (1) | Audit Fees –Audit
fees billed to the Company in FY 2015 by auditor, LJ Sullivan Certified Public Accountant,
LLC were for auditing the Company’s annual financial statements and reviewing the
financial statements included in the Company’s Quarterly Reports on Form 10-Q. |
| (2) | Audit-Related Fees
– There were no other fees billed by LJ Sullivan Certified Public Accountant, LLC
and during the last two fiscal years for assurance and related services that were reasonably
related to the performance of the audit or review of the Company's financial statements
and not reported under "Audit Fees" above. |
| (3) | Tax Fees –
There were no tax fees billed during the last past fiscal year for professional services. |
| (4) | All Other Fees –
There were no other fees billed by during the last two fiscal years for products and
services provided. |
Pre-approval of Audit and Non-Audit
Services
The Board of Director’s policy is
to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services,
audit-related services, tax services and other services. The Board of Director’s pre-approval policy with respect to non-audit
services is included as Exhibit 99.1 of to this Annual Report. Pre-approval is generally provided for up to 12 months from the
date of pre-approval and any pre-approval is detailed as to the particular service or category of services. The Board of Directors
may delegate pre-approval authority to one or more of its members when expedition of services is necessary.
PART IV
Exhibit
No. |
|
Description |
| 3.1 |
|
Articles of Incorporation (1) |
| 3.2 |
|
Amendment to Articles of Incorporation (8) |
| 3.3 |
|
Bylaws (1) |
| 10.1 |
|
2005 Restricted Stock Plan (2) |
| 10.2 |
|
2007 Restricted Stock Plan (3) |
| 10.3 |
|
Amended Employment Agreement (Craig Ellins) (5) |
| 10.4 |
|
Amended Employment Agreement (Steven Weldon) (6) |
| 10.5 |
|
Amended Employment Agreement (Andrea Small-Howard) (6) |
| 10.6 |
|
Employment Agreement (Cathryn Kennedy) (7) |
| 10.7 |
|
Operating Agreement of GB Sciences Nevada LLC (8) |
| 10.8 |
|
Asset Assignment, Acquisition and Professional Association Agreement with Craig Ellins (9) |
| 10.9 |
|
2014 Equity Incentive Plan (10) |
| 10.10 |
|
A Warrant Certificate (11) |
| 10.11 |
|
B Warrant Certificate (11) |
| 10.12 |
|
Commercialization Agreement with Growblox Sciences Puerto Rico LLC (12) |
| 10.13 |
|
Operating Agreement of Growblox Sciences LLC (12) |
| 10.14 |
|
Note Purchase Agreement between Growblox Sciences, Inc. and Pacific Leaf Ventures LP (13) |
| 10.15 |
|
$1,750,000 6% senior secured convertible note issued to Pacific Leaf Ventures LP (13) |
| 10.16 |
|
Security Agreement between GB Sciences Nevada LLC and Pacific Leaf Ventures LP
(13) |
| 10.17 |
|
Royalty Agreement between Growblox Sciences, Inc. and Pacific Leaf Ventures LP (13) |
| 10.18 |
|
Warrant to purchase 5,000,000 shares of common stock issued to Craig Ellins (5) |
| 14.1 |
|
Code of Ethics (4) |
| 21.1 |
|
Subsidiaries (6) |
| 31.1 |
|
Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Securities
Exchange Act of 1934 |
| 31.2 |
|
Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Securities
Exchange Act of 1934 |
| 32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
| 32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
| 99.1 |
|
Independent Director Rule |
| 101 |
|
XBRL Instant Documents |
| (1) |
Previously filed as an exhibit to Form SB-2 on February 12, 2002 |
| (2) |
Previously filed as part of Schedule 14A on August 5, 2005 |
| (3) |
Previously filed as an exhibit to Form S-8 on February 8, 2008 |
| (4) |
Previously filed as an exhibit to Form 10-KSB on June 22, 2004 |
| (5) |
Filed herewith. |
| (6) |
Previously filed as an exhibit to Form 10-K on June 17, 2014 |
| (7) |
Intentionally left blank |
| (8) |
Previously filed as an exhibit to Form S-1/A on October 6, 2014. |
| (9) |
Previously filed as an exhibit to Form 8-K/A on March 19, 2014. |
| (10) |
Previously filed as an exhibit to Form S-1/A on December 23, 2014 |
| (11) |
Previously filed as an exhibit to Form S-1/A on January 14, 2015 |
| (12) |
Previously filed as an exhibit to Form 8-K on May 5, 2015. |
|
|
| (13) |
Previously filed as an exhibit to Form 8-K on June 15, 2015. |
SIGNATURES
In accordance with Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
GROWBLOX SCIENCES, INC. |
| |
|
|
|
|
| Dated: June 29, 2015 |
|
|
|
| |
|
|
|
|
| |
|
|
By: |
/S/ Craig Ellins |
| |
|
|
Name: |
Craig Ellins |
| |
|
|
Title: |
Chief Executive Officer, President and Chairman |
| |
|
|
|
|
| By: |
/S/ Craig Ellins |
|
|
|
| Name: |
Craig Ellins |
|
|
|
| Title: |
Chief Executive Officer and Director |
|
|
|
| |
|
|
|
|
| By: |
/S/ Cathryn Kennedy |
|
|
|
| Name: |
Cathryn Kennedy |
|
|
|
| Title: |
Chief Financial Officer |
|
|
|
Table of Contents
LJ SULLIVAN CERTIFIED
PUBLIC ACCOUNTANT, LLC
701 Brickell Avenue,
Suite 1550
Miami, Florida
33131
REPORT OF IINDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Growblox Sciences,
Inc.
I have audited the accompanying balance
sheets of Growblox Sciences, Inc. as of March 31, 2015 and 2014, and the related statements of operations, stockholders’
equity, and cash flows for the year then ended. Growblox Sciences, Inc.’s management is responsible for these financial
statements. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company
is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion the effectiveness of the company’s internal control over
financial reporting. Accordingly, I express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Growblox Sciences, Inc. as of March 31,
2015 and 2014, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming the company will continue as a going concern. As discussed in Note 2 of the accompanying financial
statements, the company has incurred losses, has not generated any revenue, and has negative operating cash flows since the inception
of exploration activities. These factors and the need for additional financing in order for the company to meet its business plan,
raise substantial doubt about its ability to continue as a going concern. Management’s plan to continue as a going concern
is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
L J Sullivan Certified Public Accountant,
LLC
Miami, Florida
June 29, 2015
GROWBLOX SCIENCES,
INC.
Condensed Balance Sheets
| | |
March 31, 2015 | | |
March 31, 2014 | |
| Assets | |
| | | |
| | |
| | |
| | | |
| | |
| Current Assets | |
| | | |
| | |
| Cash and Cash Equivalents | |
$ | - | | |
$ | 339,327 | |
| Accounts Receivable | |
| 50,000 | | |
| - | |
| Subscription Receivable | |
| - | | |
| 150,000 | |
| Prepaid Expenses | |
| 190,374 | | |
| - | |
| Total Current Assets | |
| 240,374 | | |
| 489,327 | |
| | |
| | | |
| | |
| Property and Equipment, Net | |
| 913,642 | | |
| 44,922 | |
| Intangible Assets , Net | |
| 3,555 | | |
| 3,735 | |
| | |
| | | |
| | |
| Other Assets | |
| | | |
| | |
| Deposits | |
| 293,920 | | |
| - | |
| Total Other Assets | |
| 293,920 | | |
| - | |
| | |
| | | |
| | |
| Total Assets | |
$ | 1,451,491 | | |
$ | 537,984 | |
| Liabilities and Stockholders' Equity | |
| | | |
| | |
| | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | |
| Accounts Payable | |
$ | 677,230 | | |
$ | 19,762 | |
| Subscription Payable | |
| - | | |
| 10,000 | |
| Accrued Interest | |
| 230 | | |
| 252,304 | |
| Accrued Liabilities | |
| 72,776 | | |
| 1,846 | |
| Advance from Investor | |
| 150,000 | | |
| - | |
| Notes Payable | |
| 30,000 | | |
| 5,000 | |
| Convertible Notes from Shareholders | |
| - | | |
| 328,693 | |
| Convertible Notes from Shareholders, at Fair Value | |
| - | | |
| 933,748 | |
| Deferred Revenue | |
| 54,409 | | |
| - | |
| Total Current Liabilities | |
| 984,645 | | |
| 1,551,353 | |
| | |
| | | |
| | |
| Other Long-Term Liabilities | |
| | | |
| | |
| Deferred Revenue | |
| 220,506 | | |
| - | |
| Total Other Long-Term Liabilities | |
| 220,506 | | |
| - | |
| | |
| | | |
| | |
| Commitment and Contingency | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders' Equity | |
| | | |
| | |
| Common Stock, $0.0001 par value, 250,000,000 shares authorized 35,972,929
and 7,268,948 shares issued and outstanding at March 31, 2015 and 2014 | |
| 3,597 | | |
| 728 | |
| Additional Paid In Capital | |
| 14,502,228 | | |
| 5,198,659 | |
| Accumulated Deficit | |
| (14,008,525 | ) | |
| (6,212,756 | ) |
| | |
| | | |
| | |
| Total Stockholders' Equity | |
| 497,300 | | |
| (1,013,369 | ) |
| Non-controlling Interest | |
| (250,960 | ) | |
| - | |
| | |
| | | |
| | |
| Total Equity | |
| 246,340 | | |
| (1,013,369 | ) |
| | |
| | | |
| | |
| Total Liabilities and Stockholders ' Equity | |
$ | 1,451,491 | | |
$ | 537,984 | |
The accompanying notes are an integral
part of the financial statements
GROWBLOX SCIENCES, INC.
Statements of Operations
| |
|
For the years ended March 31, |
|
| |
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
| Net revenue |
|
$ |
- |
|
|
$ |
- |
|
| Cost of revenue |
|
|
- |
|
|
|
- |
|
| Gross profit |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| General and administrative expenses |
|
|
7,973,850 |
|
|
|
187,760 |
|
| Loss on oil and gas properties |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Loss from continuing operations |
|
|
7,973,850 |
|
|
|
(187,760 |
) |
| |
|
|
|
|
|
|
|
|
| Other income/(expense) |
|
|
|
|
|
|
|
|
| Change in fair value of convertible notes |
|
|
- |
|
|
|
65,235 |
|
| Change in fair value of warrants |
|
|
- |
|
|
|
78,385 |
|
| Loss on extinguishment of debt |
|
|
- |
|
|
|
(559,048 |
) |
| Interest expense |
|
|
(230 |
) |
|
|
(52,766 |
) |
| Other |
|
|
365 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Total other income/(expenses) |
|
|
135 |
|
|
|
(468,194 |
) |
| |
|
|
|
|
|
|
|
|
| Net income/(loss) before non-controlling interest |
|
|
(7,973,715 |
) |
|
|
(655,954 |
) |
| |
|
|
|
|
|
|
|
|
| Less: Net loss in non-controlling interest |
|
|
(250,960 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Net income/(loss) |
|
$ |
(7,722,755 |
) |
|
$ |
(655,954 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding – basic and diluted |
|
|
29,520,288 |
|
|
|
940,723 |
|
| |
|
|
|
|
|
|
|
|
| Net loss per share - basic and diluted |
|
$ |
(0.26 |
) |
|
$ |
(0.70 |
) |
The accompanying notes are an integral
part of the financial statement.
GROWBLOX SCIENCES,
INC.
Statements of
Stockholders’ Equity (Deficiency)
For the years
ended March 31, 2015 and 2014
| | |
| | |
Additional | | |
| | |
| |
| | |
Common Stock | | |
Paid-In | | |
Accumulated | | |
| |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance, March 31, 2013 | |
| 850,110 | | |
| 85 | | |
| 4,367,028 | | |
| (5,556,800 | ) | |
| (1,189,689 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Fractional share from stock split | |
| 157 | | |
| - | | |
| - | | |
| - | | |
| - | |
| Asset acquisition | |
| 4,500,000 | | |
| 450 | | |
| 33,016 | | |
| - | | |
| 33,466 | |
| Sale of stock subscription | |
| 1,480,000 | | |
| 148 | | |
| 739,852 | | |
| - | | |
| 740,000 | |
| Issuance of stock for debt conversion | |
| 438,681 | | |
| 44 | | |
| 114,013 | | |
| - | | |
| 114,057 | |
| Stock issuance costs | |
| - | | |
| - | | |
| (55,250 | ) | |
| - | | |
| (55,250 | ) |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (655,955 | ) | |
| (655,955 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, March 31, 2014 | |
| 7,268,948 | | |
| 727 | | |
| 5,198,659 | | |
| (6,212,755 | ) | |
| (1,013,371 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Sale of stock subscription | |
| 18,784,044 | | |
| 1,878 | | |
| 4,460,009 | | |
| - | | |
| 4,461,887 | |
| Issuance of stock for debt conversion | |
| 5,957,747 | | |
| 596 | | |
| 1,262,441 | | |
| - | | |
| 1,263,037 | |
| Exercise of warrants for stock | |
| 1,032,190 | | |
| 103 | | |
| 206,335 | | |
| - | | |
| 206,438 | |
| Investment in subsidiary | |
| - | | |
| - | | |
| 127,500 | | |
| - | | |
| 127,500 | |
| Stock issuance costs | |
| - | | |
| - | | |
| (594,750 | ) | |
| - | | |
| (594,750 | ) |
| Induced dividend from warrant exercises | |
| - | | |
| - | | |
| 73,015 | | |
| (73,015 | ) | |
| - | |
| Stock compensation | |
| 2,930,000 | | |
| 293 | | |
| 3,768,120 | | |
| - | | |
| 3,768,413 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (7,973,715 | ) | |
| (7,872,961 | ) |
| Loss attributable in non-controlling interest | |
| - | | |
| - | | |
| - | | |
| 250,960 | | |
| (250,960 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, March 31, 2015 | |
| 35,972,929 | | |
$ | 3,597 | | |
$ | 14,502,230 | | |
$ | (14,008,525 | ) | |
$ | 497,300 | |
The accompanying notes are an integral
part of the financial statements.
GROWBLOX SCIENCES, INC.
Statements of Cash Flows
| |
|
|
2015 |
|
|
|
2014 |
|
| Cash flow from operating activities: |
|
|
|
|
|
|
|
|
| Net income/(loss) |
|
$ |
(7,973,715 |
) |
|
$ |
(655,954 |
) |
| Non-controlling interest |
|
|
250,960 |
|
|
|
|
|
| Adjustments to reconcile net income/(loss) to to |
|
|
|
|
|
|
|
|
| Depreciation and amortization expense |
|
|
70,025 |
|
|
|
138 |
|
| Stock compensation |
|
|
3,768,120 |
|
|
|
- |
|
| Loss on extinguishment of debt |
|
|
- |
|
|
|
559,048 |
|
| Change in fair value of convertible notes |
|
|
- |
|
|
|
(65,235 |
) |
| Change in fair value of warrants |
|
|
- |
|
|
|
(78,385 |
) |
| Non-cash interest |
|
|
- |
|
|
|
8,863 |
|
| Loss on oil and gas assets |
|
|
- |
|
|
|
- |
|
| Increase in deposits |
|
|
(293,920 |
) |
|
|
- |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Prepaid expenses |
|
|
(190,374 |
) |
|
|
- |
|
| Accounts receivable |
|
|
(50,000 |
) |
|
|
- |
|
| Stock subscription receivable |
|
|
150,000 |
|
|
|
(150,000 |
) |
| Accounts payable |
|
|
657,468 |
|
|
|
7,875 |
|
| Accrued expenses |
|
|
76,758 |
|
|
|
- |
|
| Stock subscription payable |
|
|
(10,000 |
) |
|
|
10,000 |
|
| Net cash used in operating activities |
|
|
(3,545,583 |
) |
|
|
(363,650 |
) |
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Deferred Revenue |
|
|
274,915 |
|
|
|
- |
|
| Purchase of property and equipment |
|
|
(937,660 |
) |
|
|
(15,200 |
) |
| Net cash used in investing activities |
|
|
(662,745 |
) |
|
|
(15,200 |
) |
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Advances from related parties |
|
|
150,000 |
|
|
|
- |
|
| Proceeds from issuance of notes payable |
|
|
30,000 |
|
|
|
- |
|
| Reduction of notes from shareholder |
|
|
(5,000 |
) |
|
|
- |
|
| Deferred revenue from licensing |
|
|
(252,074 |
) |
|
|
- |
|
| Net proceeds from sale of stock |
|
|
3,865,259 |
|
|
|
684,750 |
|
| Proceeds from issuance of debt to stockholders |
|
|
- |
|
|
|
31,000 |
|
| Net cash provided by financing activities |
|
|
3,89,001 |
|
|
|
715,750 |
|
| Common stock |
|
|
1981 |
|
|
|
|
|
| Exercise of warrants |
|
|
206,335 |
|
|
|
|
|
| Investment in subsidiary |
|
|
(127,500 |
) |
|
|
|
|
| Net (decrease) increase in cash |
|
|
(339,327 |
) |
|
|
336,900 |
|
| Cash, beginning of year |
|
|
339,327 |
|
|
|
2,427 |
|
| Cash, end of year |
|
$ |
- |
|
|
$ |
339,327 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
| Cash paid during the year for intest |
|
$ |
- |
|
|
$ |
- |
|
| Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
| Stock issued to settle convertible debt |
|
$ |
1,262,441 |
|
|
$ |
114,057 |
|
| Stock issued for intangible assets |
|
$ |
- |
|
|
$ |
33,467 |
|
| Market price over warrant exercise and transfer price |
|
$ |
73,015 |
|
|
$ |
- |
|
The accompanying notes are an integral part
of the financial statements.
NOTE 1 – ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
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. Undivided interests in jointly-owned generation facilities are included on a proportionate basis.
Intercompany accounts and transactions have been eliminated in consolidation. In our opinion, all adjustments, consisting only
of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included.
Recent Developments
On November 3, 2104, our majority owned
subsidiary obtained a provisional license from Clark County, Nevada and the City of Las Vegas to grow and process cannabis products
for medicinal purposes within such areas. Our license applications to distribute cannabis were denied. Accordingly, in Nevada the
Company is currently completing the licensing process to cultivate cannabis. Distribution of the cultivated cannabis will have
to be conducted be through retailers who have received cannabis distribution licenses. We intend to go forward with cultivation
operations in Clark County utilizing our proprietary GrowbloxTM technology, and will reapply for a separate license
to establish dispensary operations. Although we believe that a dispensary license will ultimately be granted to the Company by
Clark County and the City of Las Vegas, there can be no assurance that such efforts will be successful.
On July 25, 2014 the Company filed an S-1
general form for registration of securities under the Securities Act of 1933, which became effective February 12, 2015.
NOTE 2 – BASIS OF PRESENTATION
The Company’s financial statements
have been prepared assuming the Company will continue as a going concern. The Company has experienced net losses since April 4,
2001, which losses have caused an accumulated deficit of approximately $14,008,525 at March 31, 2015. In addition, the Company
has consumed cash in its operating activities of approximately $4,292,161, $363,650 and 37,447 for the years ended March 31, 2015,
2014 and 2013, respectively. 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.
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 cannot continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
Property
and Equipment. Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements
are amortized over the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures
which do not extend the useful lives of related assets are expensed as incurred.
Other Assets. Other assets
include security deposits on our warehouses and potential retail locations in Las Vegas, Nevada.
Revenue
Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, or services
have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue is recorded net of discount,
rebates, promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to the customer which
occurs at shipment (F.O.B. terms). Upon shipment, the Company has no further performance obligations and collection is reasonable
assured as the majority of sales are paid for prior to shipping.
Research and Development Costs.
Research and development costs are expensed as incurred.
Equity-Based Compensation. The
computation of the expense associated with stock-based compensation requires the use of a valuation model. The FASB issued accounting
guidance requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock
price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently
use a Black-Scholes option pricing model to calculate the fair value of our stock options. We primarily use historical data to
determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ
materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock
award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material
change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value
of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant
unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may
materially impact our financial statements for each respective reporting period.
Income Taxes. The Company
recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial
statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued
the deferred tax asset allowance at 100% of the related deferred tax assets.
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 has 29,520,288 and 8,757,106 potentially dilutive common shares at March 31, 2015 and 2014, respectively. However, such
common stock equivalents were not included in the computation of diluted net loss per share as their inclusion would have been
anti-dilutive.
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 financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications. Certain
reclassifications have been made to the prior year amounts in order to conform to the current year presentation. These reclassifications
had no effect on the reported financial position, results of operations or cash flows of the entity.
Note 4 – Fair
Value Measurements
The Company holds certain financial liabilities
that are measured at fair value on a recurring basis in accordance with ASC Topic 825-10-15. ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on
the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs
in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described
below:
Level 1. Valuations
based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2. Valuations
based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are
not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the
assets or liabilities.
Level 3. Valuations
based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities. Level 3 fair value elections are made on an instrument-by-instrument basis. The Company uses Level 3 inputs
to value convertible notes and detachable warrants accounted for as derivatives.
The tables below detail the Company’s
assets and liabilities measured at fair value. There were no convertible notes at March 31, 2015.
| | |
| Fair Value Measurements March
31, 2014
|
|
|
|
|
|
| | |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Total | |
| Convertible notes from stockholders, at fair value | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| Derivative liability | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
The following table presents the changes in Level 3 instruments
measured on a recurring basis for the years ended March 31, 2015, 2014 and 2013:
| | |
Convertible
Notes | | |
Derivative
Liability | | |
Total | |
| | |
| | |
| | |
| |
| Balance, March, 2013 | |
$ | 227,521 | | |
$ | 260,311 | | |
$ | 487,832 | |
| | |
| | | |
| | | |
| | |
| Realized and unrealized gains (losses); | |
| 65,235 | | |
| 78,385 | | |
| 143,720 | |
| Included in other income (expense) | |
| 756,719 | | |
| (197,671 | ) | |
| 559,048 | |
| | |
| | | |
| | | |
| | |
| Purchases, issuances, and settlements | |
| 14,843 | | |
| 15,745 | | |
| 30,588 | |
| Balance, March 31, 2014 | |
$ | 933,748 | | |
$ | - | | |
$ | 933,748 | |
| | |
| | | |
| | | |
| | |
| Realized and unrealized gains (losses); | |
| (933,848 | ) | |
| - | | |
| (933,848 | ) |
| Included in other income (expense) | |
| - | | |
| - | | |
| - | |
| Purchases, issuances, and settlements | |
| - | | |
| - | | |
| - | |
| Balance, March 31, 2015 | |
$ | - | | |
$ | - | | |
$ | - | |
The convertible notes and derivative liability
in the preceding tables were measured at fair value, in accordance with ASC Topic 825-10-15, as one instrument and that fair value
was allocated to each component. The Company made the fair value election due to this methodology providing a fairer representation
of the economic substance of the transaction within the fair value hierarchy. Due to the lack of relevant and market reflective
Level 1 and Level 2 inputs, the Company valued the instruments using Level 3 inputs, which require significant judgment and estimates
on behalf of management in developing model assumptions. The factors considered in developing those assumptions included; the Company’s
inability to attract investment at terms more favorable to the Company, the lack of success in developing oil properties thus far,
the continuing reduction in the net assets of the Company and the Company’s history of default on currently outstanding debt.
Based on management’s evaluation
of the assumptions discussed above, the liabilities were initially recorded in an amount equal to the transaction price, which
represented the fair value of the total liability at initial recognition. The model used by the Company is calibrated so that the
model value at initial recognition equals the transaction price. On an ongoing basis the fair value model used in valuing the convertible
notes and derivative liability utilizes the following inputs; exercise price per warrant, conversion price per share, contract
term, volatility, current stock prices and risk free rates. The following assumptions were made in the model (1) risk free interest
rate of 0.18% to 0.63%, (2) remaining contractual life of 1 to 4.87 years, (3) expected stock price volatility of 797% and (4)
expected dividend yield of zero.
In March 2014, the note holders’
agreed to modify the terms of the notes and warrants. The notes are now convertible at a fixed price of $0.26. The notes will no
longer be carried at fair market value using Level 3 inputs now that the conversion price is a fixed amount. The warrants have
been cancelled and no longer have any value. A loss of $559,048 for the extinguishment of debt has been recorded as of March 31,
2014.
NOTE 5 – PROPERTY AND EQUIPMENT
| | |
March 31, | |
| | |
2015 | | |
2014 | |
| | |
| | |
| |
| Computer and software | |
$ | 136,302 | | |
$ | - | |
| Machinery and equipment | |
| 620,479 | | |
| 45,837 | |
| Leaseholds | |
| 226,697 | | |
| - | |
| Construction in progress | |
| | | |
| - | |
| | |
| | | |
| | |
| | |
$ | 983,478 | | |
$ | 45,837 | |
| Less accumulated depreciation and amortization | |
| (69,836 | ) | |
| (915 | ) |
| | |
| | | |
| | |
| | |
$ | 913,642 | | |
$ | 44,922 | |
Property and equipment is recorded at cost
and depreciated using the straight-line method over the estimated useful lives of the asset or, in the case of leasehold improvements
amortized over the lessor of the useful life of the asset or the underlying lease term. Property and equipment is comprised of
the following:
NOTE 6 – DEFERRED REVENUE
On December 16, 2014, the Company entered
into an agreement to license certain proprietary equipment to an entity that intends to market the service of isolating particular
cannabis strains for the purpose of developing tissue from those strains so as to create a consistent, brandable product of the
customer’s choosing from any such strain. The licensing agreement called for an initial non-refundable one-time license fee.
The Licensee is entitled to sell this service to third parties nationwide for a term of five years. After recouping the one-time
licensing fee, the Licensee is required to pay to the Company a royalty fee of 6% of the gross proceeds generated. The initial
term will automatically renew for a period of three additional years, if certain minimum annual net sales are achieved.
NOTE 7 – DEFERRED INCOME TAXES
At March 31, 2015 and
2014 respectively, the Company had net operating loss carryforwards for income tax purposes of approximately $3,395,126 and
$4,413,000 available as offsets against future taxable income. The net operating loss carryforwards are expected to expire at
various times from 2024 through 2035. Utilization of the Company’s net operating losses may be subject to substantial
annual limitation if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and
similar state provisions. Such an ownership change would substantially increase the possibility of net operating
losses expiring before complete utilization.
The provision for income taxes is
different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the
following reconciliation:
| | |
2015 | | |
2014 | | |
2013 | |
| Tax benefit computed at U.S. statutory rates | |
$ | (2,669,517 | ) | |
$ | (229,000 | ) | |
$ | (205,000 | ) |
| Increases (decreases) in taxes resulting from: | |
| | | |
| | | |
| | |
| Non-deductible items | |
| (3,058 | ) | |
| 145,000 | | |
| 22,000 | |
| Change in valuation allowance | |
| 2,672,575 | | |
| 91,000 | | |
| 198,000 | |
| State taxes | |
| - | | |
| (7,000 | ) | |
| (15,000 | ) |
| Total | |
$ | - | | |
$ | - | | |
$ | - | |
The tax effects of the primary temporary
differences giving rise to the Company’s deferred tax assets and liabilities are as follows for the year ended March 31,
2015 and 2014:
| | |
2015 | | |
2014 | |
| Deferred tax assets: | |
| | | |
| | |
| Net operating loss carryforward | |
$ | 3,080,750 | | |
$ | 1,674,000 | |
| Depreciation expense | |
| (125,507 | ) | |
| - | |
| Stock based compensation | |
| 1,391,032 | | |
| - | |
| Total deferred tax assets | |
| 4,346,575 | | |
| 1,674,000 | |
| Less valuation allowance | |
| (4,346,575 | ) | |
| (1,674,000 | ) |
| Net deferred tax asset | |
$ | - | | |
$ | - | |
Because of the Company’s lack
of earnings history, the deferred tax assets have been fully offset by a valuation allowance. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during those periods that the temporary differences become deductible. The Company believes that the tax
positions taken in its tax returns would be sustained upon examination by taxing authorities. The Company files income tax
returns in the U.S. federal jurisdiction, and other required state jurisdictions. The Company's periodic tax returns filed in
2014 and, thereafter, are subject to examination by taxing authorities under the normal statutes of limitations in the
applicable jurisdictions. During the year ended March 31, 2015 and 2014, the decrease in the deferred tax asset valuation
allowance amounted to approximately 320,500 and $91,000, respectively.
NOTE 8 – CONVERTIBLE NOTES AND WARRANTS
Convertible Notes from Shareholders
The Company has debt outstanding to shareholders,
which was issued between 2006 and 2009. The debt was not issued with warrants and some of the debt was not originally issued with
a conversion feature. Convertible notes from shareholders issued during fiscal year 2010 contained a beneficial conversion feature,
with the discount being amortized over the term of the note.
| | |
Convertible | | |
Accrued | |
| | |
Notes | | |
Interest | |
| | |
| | |
| |
| Balance, March 31, 2013 | |
$ | 442,750 | | |
$ | 208,088 | |
| Increase in convertible notes | |
| 933,748 | | |
| - | |
| Conversion to common stock | |
| (114,057 | ) | |
| - | |
| Accrued interest | |
| - | | |
| 44,216 | |
| Balance, March 31, 2014 | |
$ | 1,262,441 | | |
$ | 252,304 | |
| | |
| | | |
| | |
| Conversion to common stock | |
| (1,262,441 | ) | |
| - | |
| Accrued interest | |
| - | | |
| - | |
| Balance, March 31, 2015 | |
$ | - | | |
$ | - | |
Convertible notes from shareholders accrued
interest at a rate of 10 percent per annum. The note holders had the sole option of converting the principal and interest represented
by these notes into common stock at a strike price equal to a $0.01. The note holders were only be allowed to convert shares or
portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holders beneficially
owning more than 9.9% of the issued and outstanding common shares of the Company.
In March 2014, the note holders agreed
to modify the terms of the notes. The notes are now convertible at a fixed price of $0.26 and interest will no longer accrue on
the remaining notes. The note holders were only be allowed to convert shares or portion thereof to the extent that, at the time
of the conversion, the conversion will not result in the note holders beneficially owning more than 9.9% of the issued and outstanding
common shares of the Company.
| | |
Warrants Outstanding | |
| | |
Number of Shares | | |
Exercise Price | |
| | |
| | |
| |
| Outstanding at April 1, 2013 | |
$ | 12,364,766 | | |
| $0.15-$0.10 | |
| Warrants issued | |
| 2,960,000 | | |
| $1.00-$2.00 | |
| Warrants exercised | |
| - | | |
| - | |
| Warrants expired/cancelled | |
| (12,364,766 | ) | |
| - | |
| Outstanding at March 31, 2014 | |
| 2,960,000 | | |
| $1.00-$2.00 | |
| Warrants issued | |
| 19,915,446 | | |
| $0.55-$2.00 | |
| Warrants exercised | |
| (1,032,190 | ) | |
| $0.20-$0.21 | |
| Warrants expired/cancelled | |
| - | | |
| | |
| Outstanding at March 31, 2015 | |
$ | 21,843,256 | | |
| | |
NOTE 9– CAPITAL TRANSACTIONS
Sale of Common Stock
As of March 31, 2014, the Company sold
1,480,000 units through a private placement. Each unit consists of one share of common stock, one A warrant, expiring in
three years, with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise price of $2.00. The price
was $0.50 per unit.
As of June 21, 2014, the Company sold 4,520,000
units through a private placement. Each unit consists of one share of common stock, one A warrant, expiring in three years,
with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise price of $2.00. The price was $0.50
per unit.
As of September 30, 2014, the Company
sold units through a private placement at $0.50 per unit. Each unit consists of one share of common stock, one A
warrant, expiring in three years, with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise
price of $2.00. As a result of this offering, The Company issued an aggregate of 9,937,720 shares of common stock, 10,937,720
A warrants and 10,937,720 B warrants, inclusive of warrants issued to the placement agent and its affiliates.
On September 26, 2014 the Company filed
a S-1 Securities Registration Statement. Pursuant to Growblox’s registration statement on Form S-1 which became effective
February 11, 2015, the common stock included in the units and the shares of common stock issuable under both the A warrants and
B warrants were registered for resale.
During the fiscal year ended March 31, 2015, Growblox issued
5,450,000 shares of common stock pursuant to the employment contracts of four executive officers. Two of those officers received
150,000 shares in total, 1,500,000 shares were cancelled due to employment termination, and 3,000,000 shares issued to Craig Ellins
in June 2014 were cancelled in June 2015 and exchanged for three year warrants exercisable at $0.45 per share. The remaining shares
will be held by Growblox until such time as certain milestones are reached and vesting periods have run.
In
order to encourage the exercise of its B warrants, on February 12, 2015, the board of directors of Growblox passed a
resolution to temporarily reduce, until April 30, 2015, the exercise price of such B warrants from $2.00 per share to $0.20
per share, and the holders of the B warrants were notified of such temporary exercise price reduction. On April 30, 2015,
Growblox’s board of directors extended to 5:00 PDT on May 15, 2015 the temporary voluntary reduction of the exercise
price of the B Warrants to $0.20 per share and notified the holders of the B Warrants. As at May 15, 2015, B warrants to
purchase 2,748,115 shares of common stock were exercised at $0.20 per share, resulting in net proceeds of $549,623 to
Growblox.
On April 22, 2015,
Cesar Cordero-Kruger, the Chief Executive Officer of Growblox Sciences Puerto Rico LLC, purchased from Growblox, for $592,200 or
$0.21 per share, an aggregate of 2,820,000 shares of Growblox common stock. Growblox agreed to register such common stock for resale
under the Securities Act pursuant to a registration rights agreement.
Between February,
2015 and May 15, 2015, certain holders of B Warrants sold back to Growblox for $0.01 each, B warrants to purchase an aggregate
of 5,600,000 shares of common stock. During the same period, in addition to the 2,820,000 shares purchased by Mr. Cordero-Kruger,
Growblox sold an additional 2,442,023 shares of common stock to 25 other investors for $0.21 per share, resulting in total additional
proceeds to Growblox of $512,825.
In May and June 2015, ten persons were issued an aggregate of
1,818,750 shares of common stock in settlement and release of certain obligations owed by the Company to such person aggregating
$528,750
In May 2015, Network 1 Financial Services and its affiliates
exercised B warrants on a cashless basis and received a total of 1,000,000 shares of common stock.
All of the foregoing securities, including Growblox common stock,
were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the
“Securities Act”) and/or Rule 506 of Regulation D under the Securities Act, as amended.
Asset Purchase
On March 13, 2014, the Company, entered
into a definitive agreement with Mr. Craig Ellins for the acquisition of assets. The assets include:
| • | a provisional patent application |
| • | concepts associated with the Mr. Ellins or his associates |
| • | investor presentations and histories |
| • | trade secrets including without limitation trade secrets involving nutrient mixes |
| • | drawings and digital artwork |
| • | production equipment and related assets including without limitation electrical equipment, plastic molds and internal parts |
| • | proof-of-concept equipment |
Under the terms of such agreement, Growblox agreed to issue
a total of 12,500,000 restricted shares of Growblox’s common stock. At the time of the transfer of the assets, a total of
4,500,000 were issued, 4,000,000 shares were issued after Growblox raised an additional $1,000,000 in financing, and the remaining
4,000,000 shares will be issued to Mr. Ellins upon reaching the Company reaching certain milestones relating to the filing of patent
applications in respect of its technology. Under the terms of the asset purchase agreement, Mr. Ellins had the right to assign
certain of his shares to other persons who had assisted him and his predecessor company in the development of the assets sold to
Growblox. On September 17, 2014 and October 9, 2014, Mr. Ellins assigned and transferred 4,980,000 and 600,000, respectively of
his 8,500,000 vested shares to eighteen persons, all of whom released Growblox from any further obligations. None of these persons
or their affiliates are officers, directors or affiliates of Growblox. The shares were issued pursuant to the exemption from registration
set forth in Section 4(2) of the Securities Act of 1933.
Below are the assets purchased:
| Equipment | |
$ | 29,721 | |
| Intangibles (patent, trademarks, URL’s) | |
| 3,745 | |
| Total | |
$ | 33,466 | |
The assets were valued at their historical
cost.
Employment Agreements
During the fiscal year ended March 31, 2015, Growblox issued
5,450,000 shares of common stock pursuant to the employment contracts of four executive officers. Two of the officers received
a total of 150,000 shares. The remaining shares will be held by Growblox until such time as certain milestones are reached and
vesting periods have run. The issuance was exempt from the registration requirements of Section 5 of the Securities Act of 1933
pursuant to Section 4(2) of the Act because there was no public offering in connection with the issuance of the shares.
On June 19, 2014 Craig Ellins entered into an amended employment
agreement having a three year term. Mr. Ellins received a salary of $140,000 per annum, year one, $180,000 per annum year two and
$240,000 per annum year three. Additionally he received 3,000,000 shares of the common stock of Growblox which vest over three
years in equal 1,000,000 amounts. Effective as of June 19, 2015, Growblox and Mr. Ellins amended and restated the employment agreement
with the same compensation terms and cancelling the 3,000,000 share stock grant. In consideration for such forfeiture, Mr. Ellins
received a three year warrant to purchase 5,000,000 shares of Growblox common stock at an exercise price of $0.45 per share, the
closing price of Growblox common stock on the date of the restated employment agreement. The warrant contains customary anti-dilution
provisions and cashless exercise provisions. The warrant and underlying shares of common stock issuable upon exercise of the warrant
are restricted securities as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended.
On June 19, 2014, Dr. Andrea Small-Howard, Chief
Science Officer, entered into a three year employment agreement with Growblox. Dr. Small-Howard received a salary at the
annual rate of $78,000 and 450,000 shares of restricted common stock that vest over the three year term of employment. The
stock is restricted as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended. Dr.
Howard also received 500,000 of stock options not in connection with her employment agreement, of which 100,000 vested immediately and
the remainder vest according to the equity compensation plan.
Cathryn Kennedy, Chief Financial Officer, entered into an
Employment Agreement with Growblox for a three-year term beginning November 15, 2014. Ms. Kennedy receives a salary of
$160,000 per annum phased in during year one, $170,000 per annum year two and $180,000 per annum in year three. Ms. Kennedy
was compensated with 500,000 shares of restricted common stock, payable over three years of employment. The stock is
restricted as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended. Ms. Kennedy also
received 500,000 of stock options not in connection with her employment agreement, of which 100,000 vested immediately and the remainder vest according to the equity
compensation plan.
Dr. Steven Weldon, former Chief Financial Officer, entered into
an Employment Agreement with Growblox for a three year term. Mr. Weldon would have been compensated with 1,500,000 shares of restricted
common stock, payable upon the completion of three years of employment. Mr. Weldon resigned on November 19, 2014, and the shares
were canceled and no expense was recognized.
Note Conversions
During the year ended March 31, 2013, the
Company converted a total of $114,057 of notes payable from certain Note Holders into common stock of the Company. The Company
issued 438,681 shares of common stock to satisfy the principal balances of the notes payable.
From April 2014 to June 2014, the Company
converted a total of $1,262,441 of notes payable from certain Note Holders into common stock of the Company. The Company issued
3,905,612 shares of common stock to satisfy the principal balances of the notes payable.
NOTE 10 – STOCK OPTION PLAN
On February 6, 2008, the Board of Directors
adopted the Growblox Sciences, Inc. 2007 Amended Stock Option Plan (“2007 Plan”). Under the 2007 Plan, 8,000,000 shares
of the Company’s restricted common stock may be issuable upon the exercise of options issued to employees, advisors and consultants.
The Company revised the plan and the Board of Directors adopted the new 2014 Equity Compensation Plan.
During
the year ended March 31, 2015, 1,962,000 shares of common stock options were awarded to employees of the Company, and 40,000 to
Advisory Board members. The options vest over a period of 36-60 months. The value of the stock was determined using the Black-Scholes
option pricing model with the following weighted average assumptions:
| | |
Total Awards | | |
WA Strike Price | | |
WA Volatility | | |
WA Interest Rate | |
| 2014 | |
| | | |
| | | |
| | | |
| | |
| Starting Balance | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Issued in Period | |
| 6,014,000.00 | | |
$ | - | | |
| 2.74 | | |
| 0.01 | |
| Exercised in Period | |
| 1,594,400.00 | | |
$ | - | | |
| 2.92 | | |
| 0.00 | |
| Naturally Expired in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Expired Vested in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Forfeited Unvested in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Total Expired in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| 2015 | |
| | | |
| | | |
| | | |
| | |
| Starting Balance | |
| 4,419,600.00 | | |
$ | - | | |
| 2.67 | | |
| 0.01 | |
| Issued in Period | |
| 1,000,000.00 | | |
$ | 0.20 | | |
| - | | |
| - | |
| Exercised in Period | |
| 1,000,000.00 | | |
$ | 0.20 | | |
| - | | |
| - | |
| Naturally Expired in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Expired Vested in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Forfeited Unvested in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Total Expired in Period | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Ending Balance | |
| 4,419,600.00 | | |
$ | - | | |
| 2.67 | | |
| 0.01 | |
| Range | |
Outstanding
Outstanding | | |
WA
Remaining
Contractual
Life | | |
WA
Outstanding
Strike Price | | |
Exercisable
Exercisable | | |
Remaining
Exercisable
Contractual
Life | | |
WA
Exercisable
Strike Price | |
| 0 to 5 | |
| 4,419,600.00 | | |
| 4.47 | | |
$ | - | | |
| 1,632,400.00 | | |
| 4.11 | | |
$ | - | |
| 5.01 to 10 | |
| - | | |
| - | | |
$ | - | | |
| - | | |
| - | | |
$ | - | |
| 10.01 to 15 | |
| - | | |
| - | | |
$ | - | | |
| - | | |
| - | | |
$ | - | |
| 15.01 to 20 | |
| - | | |
| - | | |
$ | - | | |
| - | | |
| - | | |
$ | - | |
| 20.01 to 25 | |
| - | | |
| - | | |
$ | - | | |
| - | | |
| - | | |
$ | - | |
| 0 to 25 | |
| 4,419,600.00 | | |
| 4.47 | | |
$ | - | | |
| 1,632,400.00 | | |
| 4.11 | | |
$ | - | |
NOTES:
1) Exercisable
information:
At
March 31, 2015 and 2016, there were 4 and 1,632,400 exercisable awards with a weighted average exercise price of $0.00 and
$0.00, respectively.
2) Intrinsic
Value Information:
The
aggregate intrinsic value of outstanding as of March 31, 2016 was $1,723,644.00 and far vested as of March 31, 2016 was $694,000.00.
The
intrinsic value of awards exercised during the years ended March 31, 2015 and 2016 was $1,711,628.00 and $0.00, respectively.
3) Unrecognised
Compensation Cost:
The
total remaining unrecognized compensation cost is $2,147,805.50 and $654,968.43 as of March 31, 2015 and 2016. The weighted average
period over which this cost is expected to be recognized is 2.78 and 2.15 years.
NOTE 11 – COMMITMENT AND CONTINGENCY
On April 2, 2014, the Company commenced an action
in the United States District Court for the Southern District of New York captioned Signature Exploration and Production Corporation
v. GCM Administrative Services, LLC, Strategic Turnaround Equity Partners, L.P. (Cayman), Seth M. Lukash, and Gary Herman,
14 Civ. 02280 (ER) (the “Action”). After the Company’s change of name, the caption was amended to substitute
GrowBlox Sciences, Inc. as the plaintiff. The Company’s complaint in the Action sought a declaratory judgment that neither
Lukash nor Herman was entitled to receive any interest in, including any shares of stock of, the Company pursuant to certain share
conversion rights held under promissory notes in the aggregate amount of Seventy-Five Thousand and No Dollars ($75,000.00), given
by a related party of the Company to the entity defendants GCM and Strategic.
On May 9,
2014, defendants filed an answer denying the complaint’s material allegations, and asserted a counterclaim against the Company,
against persons identified as certain of its officers or directors, and against GrowOpp, LLC and Tumbleweed Holdings, Inc. On November
19, 2014, defendants filed an amended counterclaim, including a prayer for monetary relief or damages in the sum of $9 million.
The Company moved to dismiss the counterclaim and by opinion dated June 2, 2015, the Court granted the motion in part and dismissed
counts one and two (for declaratory judgment as to an alleged partnership or joint venture, and for breach of fiduciary duty predicated
upon those allegations), and denied the motion in part, leaving counts three and four of the counterclaim standing. The Court viewed
the third and fourth claims as a single claim for(The fifth count, as set forth above, sought damages of $75,000 for alleged non-payment
of certain promissory notes, and the Company did not challenge in on its motion.) unjust enrichment, in which recovery would be
based on quantum meruit, that is, upon the alleged value of any benefit conferred by defendants on the Company through alleged
work and services rendered. In view of the fact that the pleading did not assign a particular value to that claim, the Company
is unable at present to advise what specific sum of money damages is sought. The Company did not challenge the fifth count of the
counterclaim at this stage. That claim seeks damages of $75,000 for alleged non-payment of the above-referenced promissory notes.
NOTE 12 – SUBSEQUENT EVENT
Growblox Sciences, Inc. – B Warrants
On February 12, 2015, in order to encourage
the exercise of the Company’s B warrants, the board of directors passed a resolution to temporarily reduce, until April 30,
2015, the exercise price of previously-issued warrants from $2.00 per share to $0.20 per share, and the holders of the B warrants
were notified. Additionally, the resolution allowed the transfer of current B Warrant holders to other interested investors at
$0.21 with $0.01 being returned to the original warrant holder.
On April 30, 2015, the Company’s
board of directors extended the temporary voluntary reduction of the exercise price of the B warrants to May 15, 2015.
On April 22, 2015, an individual purchased
an aggregate of 2,820,000 share of common stock at $0.21 per share resulting in net proceeds of $592,200 to the Company.
On April 27, 2015, two limited partnerships
sold back to the Company for $0.01 each, warrants to purchase a total of 4,000,000 warrants.
As of May 15, 2015, there were 9,010,138
warrants to purchase 9,010,138 shares exercised at $0.20.
Glowblox Sciences, Puerto Rico, LLC
On May 7, 2015, the Company entered into an agreement with Growblox
Sciences, Puerto Rico, LLC, (“GBSPR”) a limited liability company organized under the laws of the Commonwealth of Puerto
Rico. GBSPR is a related party through common equity ownership. The agreement grants GBSPR the exclusive worldwide rights to all
Company technology and intellectual property to include, but not be limited to, the manufacture, the production, the lease and
license of the Company’s indoor cultivation Suites and to sell to the Company for resale and distribution any and all pharmaceutical
raw materials and products derived from medical-grade cannabis. All rights not granted to GBSPR under the agreement are retained
by the Company and include the right to conduct pre-clinical and clinical trials; to develop formulations of combinations of active
ingredients to combat specific conditions and diseases; and to sell, cultivate, grow, dispense medical-grade cannabis or cannabis
in Nevada and Colorado. Terms of the agreement require GBSPR to obtain not less than $1,250,000 of equity financing by no later
than September 30, 2015. Failing to do so would unilaterally terminate the agreement.
On May 12, 2015, the Company entered into
a Note Purchase Agreement (“Note”) with Pacific Leaf Ventures, LP (“PLV”) whereby PLV agreed to make an
installment loan to the Company of up to $1,750,000. The purpose of the financing is to provide for the acquisition and installation
of an operating facility, equipment and other tangible assets of GB Sciences Nevada LLC, (“GBS”), a 65% subsidiary
of the Company. The facility and equipment will be dedicated to the cultivation of cannabis and the extraction of oils and other
constituents present in cannabis. The terms call for scheduled advances through August 2015, which will bear interest at a fixed
rate of 6% per annum, payable quarterly. Principal payments are required on a quarterly basis in an amount equal to 50% of EBITDA
of GBS multiplied by the Company’s percentage interest in GBS Nevada (currently 65%). All outstanding principal and interest
is due and payable on May 12, 2020. While principal amounts remain outstanding under the Note, PLV or other holder of the Note,
shall have the option to convert all or any portion of the outstanding principal amount of the Note into shares of common stock
at an initial conversion price of $0.50.
In a related development to the Note Purchase
Agreement entered into May 12, 2015, PLV has entered into a Royalty Agreement which grants to the Company in perpetuity all of
PLV’s intellectual property for the cultivation of cannabis and extraction of oils and other constituent chemicals for the
sole use of GBS Nevada in its operations within the state of Nevada. In consideration, Growblox Sciences, Inc. is obligated to
pay PLV for a period of five years, out of all periodic distributions it receives from GBS Nevada, the sum of $2.00 per gram of
material extracted from cannabis at any facility owned, operated or controlled by GS plus 14% of the gross sales revenue. In years
six through ten, the per gram payment will cease and the gross sales revenue percentage will be reduced to 7%. The gross sales
revenue percentage is subject to equitable adjustments if the equity interest of the Company in GBS Nevada should increase or decrease.
On June 29, 2015, Growblox filed
a Form S-8 Registration Statement with the SEC to register 8,000,000 shares of common stock issuable under stock options to
grant to employees and consultants.
Exhibit 10.3
THIS
AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 22nd day
of June, 2015 by and between Growblox Science, Inc., a Delaware corporation (hereinafter), called the "Company”)
and Craig Ellins (hereinafter called the “Executive”).
A. The
Company and the Executive entered into an employment agreement dated June 19, 2014 as amended on June 19, 2014 (collectively,
the “Prior Agreements”).
B. The
Board of Directors of the Company (the "Board") and the Executive desire to amend and restate in their entirety
the Prior Agreements and to assure the Company of the Executive's continued employment in an executive capacity and to compensate
him therefore.
C. The
Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the
Company.
D. The
Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration
of the premises and mutual covenants set forth herein, the parties agree as follows:
Agreement
1.1 Employment and
Term. The Corporation hereby agrees to employ the Executive as its Chief Executive Officer, in such capacity, agrees to provide
services to the Corporation for the period which began on March 17, 2014 and shall end on June 22, 2017 (the “Termination
Date ") (or such later date as may be agreed to by the parties within 120 days prior to the Termination Date) (the
"Employment Period ").
1.2 Duties of Executive.
The Executive shall serve as the Chief Executive Officer of the Company and, unless otherwise specified by the Board each of the
Company’s subsidiaries. Subject to the preceding sentence, during the Employment Period, the Executive shall diligently
perform all services as may be reasonably assigned to him by the Board, and shall exercise such power and authority as may from
time to time be delegated to him by the Board. The Executive shall be required to report solely to, and shall be subject solely
to the supervision and direction of the Board at duly called meetings thereof, and no other person or group shall be given authority
to supervise or direct Executive in the performance of his duties. In addition, the Executive shall regularly consult with the
Board with respect to the Company's business and affairs. The Executive shall devote such portion of his working time and attention
as he deems appropriate to the business and affairs of the Company (excluding any vacation and sick leave to which the Executive
is entitled), render such services to the best of his ability, and use his reasonable best efforts to promote the interests of
the Company. It shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards
or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal
investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement.
1.3 Place of Performance.
In connection with his employment by the Company, the Executive shall be based at the Company's principal executive offices in
Las Vegas, Nevada except for travel reasonably necessary in connection with the Company's business.
2.1 Base Salary.
Commencing on the effective date of this Agreement, the Executive shall receive a base salary at the annual rate of not less than
$147,000 for the period ending June 22, 2015, $180,000 for the twelve month period ending June 22, 2016, and $240,000 for twelve
month period ending June 22, 2017, payable in installments consistent with the Company's normal payroll schedule, subject to applicable
withholding and other taxes. Each of the three periods ending June 22, 2015, June 22, 2016 and June 22, 2017 is referred to herein
as an “Anniversary Year.”
2.2 Bonuses.
The Executive shall be entitled to receive such bonuses as may from time to time be granted to the Executive by the Board (the
Executive abstaining from any such vote) in the exercise of the Board’s sole discretion.
2.3 Warrant.
(a) The Executive hereby
waives and relinquishes all rights to the grant of s 3,000,000 shares of the common stock of the Company that was awarded under
the Prior Agreements to the Executive over three years as additional compensation (the “Stock Grant”).
(b) In
lieu of the Stock Grant the Company hereby issues to the Executive a three year warrant (the “Warrant”) to purchase
5,000,000 shares of the common stock of the Company at an exercise price of $0.45 per share (100% of the closing price of the Company’s
common stock currently traded on the OTC Markets as of the Effective Date of this Agreement); which Warrant shall be in the form
of Exhibit A annexed hereto and made a part hereof. Such Warrant and the shares of common stock issuable upon exercise of
such Warrant are restricted securities within the meaning of the Securities Act of 1933, as amended.
(c) The
Company shall include the shares of Company common stock issuable upon exercise of the Warrant for registration under the Securities
Act of 1933, as amended, pursuant to a Form S-1 (or post-effective amendment to an existing Form S-1) registration statement to
be filed as soon as practicable with the Securities and Exchange Commission.
2.4. Expense
Reimbursement and Other Benefits.
(a) Expense
Reimbursement. During the term of Executive's employment hereunder, the Company, upon the submission of reasonable supporting
documentation by the Executive, shall reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive
in the course of and pursuant to the business of the Company, including expenses for travel and entertainment.
(b) Vacation.
During the Initial Term, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its subsidiaries as in effect at any time hereafter with respect to other key executives
of the Company and its subsidiaries; provided, however, that in no event shall Executive be entitled to fewer than four
weeks paid vacation per year.
(c) Benefit
Plans The Executive shall participate in all employee benefit plans and fringe benefits provided by the Company. The Company
reserves the right to amend, modify or terminate any of these plans and benefits. The Executive will be entitled to whatever benefits
may be provided to you in accordance with the terms of these plans and benefits, as amended from time to time.
3.1 Termination
for Cause. Notwithstanding anything contained to the contrary in this Agreement, this Agreement may be terminated by the Company
for Cause. As used in this Agreement, Cause" shall only mean (i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the Executive at the expense of the Company, (ii) subject to the following
sentences, repeated violation by the Executive of the Executive's material obligations under this Agreement which are demonstrably
willful and deliberate on the Executive's part and which are not remedied in a reasonable period of time after receipt of written
notice from the Company, or (iii) the conviction of the Executive for any criminal act which is a felony. For purposes of the preceding
sentence, criminal act shall not include any act that violates U.S. Federal law that is related in any way to cannabis. Upon any
determination by the Company's Board of Directors that Cause exists under clause (ii) of the preceding sentence, the Company shall
cause a special meeting of the Board to be called and held at a time mutually convenient to the Board and Executive, but in no
event later than ten (10) business days after Executive's receipt of the notice contemplated by clause (ii). Executive shall have
the right to appear before such special meeting of the Board with legal counsel of his choosing to refute any determination of
Cause specified in such notice, and any termination of Executive's employment by reason of such Cause determination shall not be
effective until Executive is afforded such opportunity to appear. Any termination for Cause pursuant to clause (i) or (iii) of
the first sentence of this Section 3.1 shall be made in writing to Executive, which notice shall set forth in detail all acts or
omissions upon which the Company is relying for such termination.
Upon any termination
pursuant to this Section 3.1, the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company
shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the
date of termination).
3.2 Disability.
Notwithstanding anything contained in this Agreement to the contrary, the Company, by written notice to the Executive, shall at
all times have the right to terminate this Agreement, and the Executive's employment hereunder, if the Executive shall, as the
result of mental or physical incapacity, illness or disability, fail to perform his duties and responsibilities provided for herein
for a period of more than ninety (90) consecutive days in any 12-month period. Upon any termination pursuant to this Section 4.2,
the Executive shall be entitled to be paid his Base Salary to the date of termination and the Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination).
3.3 Death. In
the event of the death of the Executive during the term of his employment hereunder, the Company shall pay to the estate of the
deceased Executive an amount equal to the sum of (x) any unpaid amounts of his Base Salary to the date of his death, plus (y) six
months of Base Salary, and the Company shall have no further liability hereunder (other than for reimbursement for reasonable business
expenses incurred prior to the date of the Executive's death).
3.4 Termination
Without Cause. At any time the Company shall have the right to terminate Executive's employment hereunder by written notice
to Executive; provided, however, that the Company shall (i) pay to Executive any unpaid Base Salary accrued through the effective
date of termination specified in such notice, and (ii) pay to the Executive in a lump sum, in cash within 30 days after the date
of employment termination, an amount equal to the product of (x) the sum of the Executive's then Base Salary for the applicable
Anniversary Year plus the amount of the highest annual bonus or other incentive compensation payment theretofore made by the Company
to the Executive, multiplied times (y) one. The Company shall be deemed to have terminated the Executive's employment pursuant
to this Section 3.4 if such employment is terminated (i) by the Company without Cause, or (ii) by the Executive voluntarily for
"Good Reason." For purposes of this Agreement, "Good Reason" means:
(a) the
assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1.2 of this Agreement, or
any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(b) any
failure by the Company to comply with any of the provisions of this Agreement (including, without limitation, the provisions of
Section 2 or Section 3 hereof), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(c) any
purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement;
(d) any
termination by the Executive within ninety (90) days following a “Change of Control” (hereinafter defined);
For purposes of this Section 3.4, any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
3.5 Change
of Control.
(a) For
purposes of this Agreement, a "Change in Control" shall mean and include:
(i) The
acquisition (other than by or from the Company) at any time following the date hereof, by any person, entity or group", within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the Exchange Act"), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50%or more of either the then outstanding shares of common
stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election
of directors; or
(ii) All or any of
the individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company,
as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iii) Approval
by the stockholders of the Company of (A) a reorganization, merger or consolidation with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, (B) a liquidation or dissolution of the Company, or (C) the sale of
all or substantially all of the assets of the Company, unless the approved reorganization, merger, consolidation, liquidation,
dissolution or sale is subsequently abandoned.
(iv) The
approval by the Board of the sale, distribution and/or other transfer or action (and/or series of sales, distributions and/or other
transfers or actions from time to time or over a period of time), that results in the Company's ownership of less than 50% of the
Company's current assets.
(b) In
the event of a Change of Control and if the Executive shall elect to terminate his employment for Good Reason within ninety (90)
days following such change of Control, the Company or its successor in interest shall pay to the executive in a lump sum, in cash
within 30 days after the date of employment termination, an amount equal to one dollar less than the product of (x) the sum of
the Executive's then Base Salary for the applicable Anniversary Year plus the amount of the highest annual bonus or other incentive
compensation payment theretofore made by the Company to the Executive, multiplied times (y) three (the “Change
of Control Payment”).
3.6 No
Forfeiture of Warrant. Notwithstanding anything to the contrary, express or implied, contained in this Agreement, the
Company acknowledges that the Executive has heretofore paid valid consideration for the Warrant and notwithstanding any
termination of this Agreement pursuant to this Section 3, whether by the Company or by the Executive, the Executive may
thereafter exercise such Warrant prior to the expiration of its three (3) year term and purchase shares of common stock of
the Company in accordance with the procedures, terms and conditions of such Warrant.
4.1 Nondisclosure.
During his employment and for twelve (12) months thereafter, Executive shall not divulge, communicate, use to the detriment of
the Company or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter
defined) pertaining to the business of the Company. Any Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company shall be deemed a valuable, special and unique asset of the Company that is received
by the Executive in confidence and as a fiduciary, and Executive shall remain a fiduciary to the Company with respect to all of
such information.
For purposes of this
Agreement, "Confidential Information" means all material information about the Company's business disclosed to
the Executive or known by the Executive as a consequence of or through his employment by the Company (including information conceived,
originated, discovered or developed by the Executive) after the date hereof, and not generally known.
4.2 Nonsolicitation
of Employees. While employed by the Company and for a period of six (6) months thereafter, Executive shall not directly or
indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee of the Company, unless such employee or former employee
has not been employed by the Company for a period in excess of six months.
4.3 Assignment of
Intellectual Property. During his employment and for twelve (12) months thereafter, Executive shall assign to the Company all
patent applications, trade secrets, inventions, data, discoveries knowhow, research and development and other intellectual property
relating to the business of the Company and its subsidiaries that the Executive shall create, acquire or discover, whether alone
or in conjunction with others.
4.4 Injunction.
It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained
in Section 4.1, 4.2 or 4.3 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which
may be virtually impossible to ascertain. As a result, the Executive recognizes and hereby acknowledges that the Company shall
be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of
the covenants contained in this Section 4 by the Executive or any of his affiliates, associates, partners or agents, either directly
or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may
possess.
5.1 Election
of Executive as Director. Contemporaneously herewith, the Board is appointing Executive to fill the position of Chairman of
the Board. For so long as the Executive continues to serve as the Company's Chief Executive Officer, the Company shall cause the
nomination of the Executive as Chairman of the Board of the Company at each stockholder meeting at which election of directors
is considered and otherwise use its best efforts to cause the election of the Executive as Chairman of the Board of the Company.
5.1 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
5.2. Notices:
Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company: Growblox
Sciences, Inc..
6450 Cameron Street, Suite
110
Las Vegas, Nevada 89118
Phone: (844) 866-721-0297
Fax: (702) 441-0324
If to the Executive: Craig Ellins
6500 Bullring Lane
Las Vegas, NV 89130
or to such
other addresses as either party hereto may from time to time give notice of to the other in the aforesaid manner.
5.3. Successors.
(a) This
Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This
Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The
Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement,
the term “Company” shall mean and include the Company as hereinbefore defined and any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law or otherwise.
5.4. Severability.
The invalidity of any one or more of the words, phrases1 sentences, clauses or sections contained in this Agreement shall not affect
the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on
their being valid in law, and in the event that any one or more of the words, phrases, sentences, clauses or sections contained
in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases,
sentence or sentences, clause or clauses, or section or sections had not been inserted. If such invalidity is caused by length
of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would
cure such invalidity.
5.5. Waivers.
The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
5.6 Damages.
Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other
damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement.
5.7 No
Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon
or give any person (other than the parties hereto and, in the case of Executive, his heirs, personal representative(s) and/or legal
representative) any rights or remedies under or by reason of this Agreement.
5.8 Full
Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company
may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of or liability under,
any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Code.
5.9. Certain Reduction of Payments by the Company.
(a) Anything
in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a "Payment"), would be nondeductible by the Company for Federal income tax purposes
because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit
of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced to the Reduced Amount. The “Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment
to be nondeductible by the Company because of Section 280G of the Code. Anything to the contrary notwithstanding, if the Reduced
Amount is zero and it is determined further that any Payment which is not an Agreement Payment would nevertheless be nondeductible
by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of Payments
which are not Agreement Payments shall also be reduced (but not below zero) to an amount expressed in present value which maximizes
the aggregate present value of Payments without causing any Payment to be nondeductible by the Company because of Section 280G
of the Code. For purposes of this Section 5.9, present value shall be determined in accordance with Section 280G(d)(4) of the Code.
Any amount which is not paid in the taxable year in which it was originally scheduled to be paid as a result of the postponement
thereof pursuant hereto shall be payable in the next succeeding taxable year in which such payment will not result in the disallowance
of a deduction pursuant to either Section 162(m) or 280G of the Code; provided, however, that all postponed payments shall be placed
in a Rabbi trust or similar vehicle for the benefit of the Executive in such a way that the amounts so transferred are not taxable
to such person or deductible by the Company until payment from such vehicle to the Executive is made. In the event a payment has
been made to the Executive, but then disallowed as a deduction by the Internal Revenue Service and return of the payment is required
into the trust, said payment to the Executive shall be treated as a loan and said payment to the trust shall be treated as repayment
of said loan. The Company shall not pledge, hypothecate or otherwise encumber any amounts held in the trust or other similar vehicle
for the benefit of the Executive hereunder.
(b) All
determinations required to be made under this Section 16 shall be made by a firm of independent public accountants selected by
the Executive and approved by the Company, which approval shall not be unreasonably withheld or delayed (the "Accounting
Firm"), which shall provide (ii) detailed supporting calculations both to the Company and the Executive within twenty
(20) business days of the termination of Executive's employment or such earlier time as is requested by the Company, and (iii)
an opinion to the Executive that he has substantial authority not to report any excise tax on his Federal income tax return with
respect to any Payments. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. The
Executive shall determine which and how much of the Payments shall be eliminated or reduced consistent with the requirements of
this Section 5.9, provided that, if the Executive does not make such determination within ten business days of the receipt of the
calculations made by the Accounting Firm, the Company shall elect which and how much of the Payments shall be eliminated or reduced
consistent with the requirements of this Section 5.9 and shall notify the Executive promptly of such election. Within five business
days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to
the Executive under this Agreement. All fees and expenses of the Accounting Firm incurred in connection with the determinations
contemplated by this Section 5.9 shall be borne by the Company.
(c) As
a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Payments will have been made by the Company which should not have been made ("Overpayment")
or that additional Payments which will not have been made by the Company could have been made ("Underpayment"),
in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm, based upon
the assertion of a deficiency by the Internal Revenue Service against the Executive which the Accounting Firm believes has a high
probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to
or for the benefit of the Executive shall be treated for all purposes as a loan ab initio to the Executive which the Executive
shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Employee to the Company
if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under
Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
5.10. Conflicts
With Certain Existing Arrangements. The Company agrees that (a) it shall not hereafter acquire a "Conflicting Organization"
or otherwise expand its present business activities such that Executive could reasonably be expected to be deemed in breach or
violation of such non-competition covenants, and (b) it shall indemnify and hold harmless the Executive from any and all damages
that Executive may hereafter suffer or incur by reason of any such Company acquisition or expansion of business after the date
hereof.
5.11 Headings.
The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
5.12 Amendment.
This Agreement may only be amended by a written instrument executed by each of the parties hereto.
5.13 Entire
Agreement. This Agreement supersedes, amends and restates in their entirety, all of the Prior Agreements, constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject matter hereof.
5.14 Binding
Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Company and the controlling persons,
directors and officers of the Company, and its respective successors, legal representatives, heirs and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement
or any provisions herein contained.
5.15 Governing
Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Delaware, without giving effect to conflict of laws principles thereof. The Company hereby agrees that
any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced
in the Supreme Court of the State of Nevada, Clark County, and irrevocably submits to such jurisdiction, which jurisdiction shall
be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or
certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 5.2 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The
Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of
its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the
preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders
and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated
hereby.
5.16 Execution
in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission
shall constitute valid and sufficient delivery thereof.
5,17 Waiver,
etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof
or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach,
non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance
or non-fulfillment.
Signature pages follows
************************.
IN WITNESS WHEREOF, the undersigned
have executed this Agreement as of the date first above written.
| |
COMPANY: |
| |
|
| |
GROWBLOX SCIENCES, INC. |
| |
|
|
| |
|
|
| |
By: |
|
| |
Name: Cathryn Kennedy |
| |
Title: Chief Financial Officer |
| |
|
|
| |
EXECUTIVE: |
| |
|
|
| |
|
|
| |
CRAIG ELLINS |
Exhibit 10.6
Page
9
Employment
Agreement
CathrynJ.
Kennedy
Party
seeking
to be
indemnified
in
connection
with
any
proceeding,
demand
for
payment
or litigation.
This
indemnification
shall
be binding
on the
heirs,
personal
representatives,
successors
and
assigns
of the
Parties
and
shall
continue
indefinitely.
17.
Attorney's
Fees.
Should
any
litigation
be
commenced
by any
third-party
against
the executive
the
Company
will
shall
be obligated
to pay
all legal
fees
incurred
by the
Executive
for her
defense.
18.
Jurisdiction
and
Service
of Process.
The
Company
and Executive
further
agree
that
service
of process
on
them
may be
made
by personal
service
or by
certified
or registered
mai I,
return receipt
requested
in accordance
with the
notice
provision
set forth
in Section
9. Service
of process
shall
be deemed
effective
upon receipt.
19. Modification and Waiver. This Agreement may be amended, modified, superseded or canceled, and the terms or covenants hereof may be
waived, only by
a written instrument executed by both of
the Parties hereto, or in the
case of a waiver, by the Party waiving compliance. The failure of either Party at any time or times to require performance
of any provision hereof shall in no manner
affect the right of such Party at a later
time to
enforce the same. No
waiver by either
Party of the breach of any term or covenant contained
in this
Agreement, whether by conduct or otherwise, in anyone or more instances, shall be deemed to be, or construed as, a further
or continuing
waiver
of any
such breach
or a waiver of the breach
of any
other term or covenant contained
in this Agreement.
20.
Entire
Agreement.
This
Agreement
constitutes
the
entire
Agreement
of
the Parties
with respect
to the
subject
matter
hereof
and
supersedes
any and
all agreements,
understandings,
statements,
or representations
either
oral
or in writing.
IN
WITNESS
WHEREOF,
the
undersigned
have
executed
this Agreement
as
of the
date first
above
written.
| COMPANY: |
|
EXECUTIVE: |
|
| |
|
|
|
| GROWBOX SCIENCES |
|
CATHRYN J. KENNEDY |
|
| |
|
|
|
| /s/ Craig Ellins |
|
/s/ Cathryn
J.
Kennedy |
|
| Signature |
|
Signature |
|
| |
|
|
|
| CEO |
|
CFO |
|
| Title |
|
Tile |
|
Page 8
Employment Agreement
CathrynJ. Kennedy
12.
Waivers. The waiver
by either party
hereto of a
breach or violation
of any term
or provision of this Agreement shall not operate
nor be construed as a waiver of
any subsequent breach or violation.
13.
Damages. Nothing contained
herein shall be construed to
prevent the Company
or the Executive from
seeking and recovering
from the other
damages sustained by either or both
of them as a result of its or her breach of any term or provision
of this Agreement.
14.
No Third-Partv Beneficiarv.
Nothing expressed or
implied in this
Agreement is intended or
shall be construed
to confer upon
or give any person
(other than the
Parties hereto, and, in the case
of Executive, her heirs,
personal representative(s) and/or legal representative) any rights or remedies under
or by reason of this
Agreement.
15.
Conflicts with Certain
Existing Arrangements. The
Company agrees that
if shall not hereafter
acquire a "Conflicting
Organization" or otherwise
expand its present business activities such
that Executive could reasonably expected
to be deemed
in breach or violation of
such non competition covenants,
and it shall indemnify and hold harmless the Executive from any and all damages
that Executive may hereafter suffer or incur by
reason of any such Company
acquisition or expansion of business
after the date hereof.
16. Indemnification. The Company fully releases, acquits and forever discharges Executive
of and from any and all known and unknown claims for damages, costs,
expenses, liabilities, causes of action,
claims for relief and suits
for damages arising out of
any state or federal action
concerning the validity and legality of the
Company or its Board's day-to-day operations
in the dispensing of medical marijuana and
the further research and development of medical marijuana
and its varied uses. The Parties further agree
to indemnity one another from any and all claims
or actions of third parties
arising out of or
related to the matters set forth
in the Recitals that are due to negligence or misconduct
of a Party asserted against the
other Party unless such other Party is also guilty
of negligence or misconduct. This indemnification
provision shall apply to any actions or omissions
(regardless of the date of any such
action or omission), to
the extent permitted by law, against all
expense, liability and loss reasonably
incurred or suffered by the
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Employment
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CathrynJ.
Kennedy
| If to the Company: | | Growblox Sciences,
Inc. |
6450
Cameron St. Suite 110A
Las Vegas,
NV 89118
| If to the Executive: | | Cathryn Kennedy |
1123
Scenic Crest Dr.
Henderson,
NV 89052
| With a Copy to: | | Gerald F. Neal,
Esq. |
1125 Shadow
Lane
Las Vegas,
NV 89102
or
to such other
addresses as either
party hereto may
from time to
time give notice
of to the other in the aforesaid manner.
10. Successors.
10.1
This Agreement is
personal to the
Executive and without
the prior written consent of
the Company shall
not be assignable
by the Executive
otherwise than by will or the
laws of descent and distribution. This Agreement
shall inure to the benefit
of and be enforceable by
the Executive's legal representatives.
10.2
This Agreement shall inure
to the benefit
of and be
binding upon the
Company and its successors
and assigns.
10.3
The Company will
use its best
efforts to require
any successor (whether
direct or indirect, by
purchase, merger, consolidation
or otherwise) to
all or substantially all of the
business and/or assets of the Company
to expressly assume and
agree to perform this Agreement in the same manner and to
the same extent that the Company
would be required to
perform it if no such
succession had taken place. As
used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor
to its business and/or assets which
assumes and agrees to perform this
Agreement by operation of
law or otherwise.
11. Severabilitv. The invalidity of anyone or more of the words phrases, sentences, clauses
or sections contained in this Agreement
shall not affect the enforceability of the remaining portions of this
Agreement or any part thereof, all of which are inserted
conditionally on their being valid in law, and, in
the event that anyone or more of the words,
phrases, sentences, clauses or sections contained in this Agreement
shall be declared invalid, this Agreement shall be construed as if
such invalid word or words,
phrase or phrases, sentence
or sentences, clause or clauses, or section or sections had not been inserted. If
such validity is caused by length of time
or size of area or both,
the otherwise invalid provision will
be considered to be reduced to a period
or area which would cure such invalidity.
Page
6
Employment
Agreement
CathrynJ.
Kennedy
confidence and as a fiduciary and Executive shall remain a fiduciary to the Company with respect
to all of such information. For purposes of this Agreement, "Confidential Information"
means all material information about the Company's business disclosed to the
Executive or known by the
Executive as a consequence of or
through his employment by the
Company (including information conceived, originated, discovered
or developed by the
Executive) after the date hereof, and not generally known. This
restrictive covenant does not apply to any
positions performed outside the limited scope of
the medical marijuana business.
6.2
Nonsolicitation of Employees.
While employed by
the Company and
for a period of
six (6) months
thereafter, Executive shall not
directly or indirectly, for herself or
for any other person, firm
corporation, partnership, association or other entity,
attempt to employ or enter into
any contractual arrangement with any employee
or former employee of
the Company, unless such employee or former
employee has not been employed by
the Company for a period in excess of
six (6) months.
6.3
Injunction. It is
recognized and hereby
acknowledged by the
Parties hereto that a breach
by the Executive
of any of the covenants contained
in Sections 6.1, 6.2 or 6.3 of this Agreement
will cause irreparable harm and damage to
the Company, the monetary amount of which may
be virtually impossible to ascertain. As
a result, the Executive
recognizes and hereby acknowledges
that the Company shall be entitled
to an injunction from any
court of competent jurisdiction enjoining and
restraining any violation of any or all of the
covenants contained in this Section
6 by the Executive or any of
her affiliates, associates, partners or
agents, either directly or indirectly, and that such right to injunction shall
be cumulative and in addition to whatever
other remedies the Company may possess.
7. Other
Matters,
7.1
Election of Executive
as Director. Contemporaneously
herewith, the Board is appointing
Executive to fill
the position of
a Director. For
so long as the Executive continues to
serve as the Company's Chief Financial Officer,
the Company shall cause the nomination
of the Executive as a Director at
each stockholder meeting at which
election of directors is considered and
otherwise us its best efforts to cause the
election of the Executive as a
Director of the Company.
8.
Governing Law. This
Agreement shall be governed
by and construed in
accordance with the
laws of the
State of Nevada.
9.
Notices. Any notice
required or permitted
to be given
under this Agreement
shall be in writing
and shall be
deemed to have been given
when delivered by hand or when deposited
in the United States mail, by registered
or certified mail, return receipt requested, postage prepaid, addressed
as follows:
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5
Employment
Agreement
CathrynJ.
Kennedy
5. Change
in Control. For
purposes of this
Agreement, a "Change
in Control" shall mean:
(a)
The acquisition, other
than by or from
the Company, at
any time after
the date hereof, by any
person, entity or group within the
meaning of Section 13(d)(3) or 14(d)(2)of the Securities Exchange
Act of 1934 (the "Exchange Act") of
beneficial ownership, within the meaning of Rule 13d-3promulgated under
the Exchange Act, of 50% or
more of either the
then outstanding shares of common stock
or the combined voting power of
the Company's then outstanding voting securities
entitled to vote generally in the
election of directors;
(b) All
or any of the individuals who, as of the
date hereof, constitute the Board
( as of the date hereof the
"incumbent board") cease for
any reason to constitute at
least a majority of the Board, provided
that any person becoming a director subsequent to the date
hereof whose election or nomination
for election by the Company's shareholders, was approved by a vote by at
least a majority of the directors then
comprising the incumbent board (other than an election or nomination
of an individual whose initial
assumption of office is in connection
with an actual or threatened election contest relating to the election of
the directors of the
Company, as such terms are used
in Rule 14a-l1 of Regulation 14Apromulgated
under the Exchange Act) shall be,
for purposes of this Agreement, considered as
though such person were
a member of the incumbent board;
or
(c)
Approved by the
stockholders of the
Company of (1),
a reorganization, merger or
consolidation with respect to
which persons who
were the shareholders of
the Company immediately prior
to such reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the combined
voting power entitled to vote generally in
the election of directors of the reorganized,
merged or consolidated Company's then outstanding voting securities, (2)
a liquidation or dissolution of
the Company, or (3) the
sale of all or substantially all
of the assets ofthe Company, unless
the approved reorganization, merger,
consolidation, liquidation, dissolution or sale is
subsequently abandoned.
(d)
The approval by
the Board of the
sale, distribution and/or other
transfer or action (and/or
series of sales,
distributions and/or other
transfers or actions from
time to time or over
a period of time), then results
in the Company's ownership of
less than 50% of the Company's
assets.
6. Restrictive
Covenants.
6.1 Nondisclosure. During her employment and for six (6) months thereafter,
Executive shall not divulge, communicate, use to the detriment of the Company
or for the benefit
of any other person or persons,
or misuse in any way, any
Confidential Information (as hereinafter defined)
pertaining to the business of the Company.
Any confidential information now or hereafter acquired by
the Executive with respect to the business of the Company
shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in months of Executive's base
salary.
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4
Employment
Agreement
CathrynJ.
Kennedy
4.4 Termination Without Cause. At any time the Company shall have the right to
terminate Executive's employment
hereunder by written notice to
Executive; provided, however, that the Company
shall pay to Executive in a lump
sum within thirty (30) days an amount
equal to six (6) months salary calculated at the current
pay rate. The Company shall be deemed to
have terminated the Executive's employment pursuant to this
Section if such employment is terminated by the Company without cause or by
the Executive voluntarily for
"good reason". For purposes of this Agreement, "good reason" means
the following:
(a)
The assignment to
the Executive of
any duties significantly
inconsistent in any respect
with the Executive's
position (including status,
offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 1.2 of this Agreement, or
any other action by the
Company which results in
a significant diminution in
such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial
and inadvertent action not
taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof
given by the Executive;
(b) Any
failure by the
Company to comply
with any of
the provisions of
Section
2,
Section 3, Section
7 or Section
17 of this
Agreement, other than
an isolated, insubstantial
and inadvertent failure not occurring
in bad faith and which is remedied by the
Company promptly after receipt of notice thereof
given by the Executive;
(c)
Any purported termination by
the Company of
the Executive's employment otherwise
than as expressly
permitted by this
Agreement;
(d) Any
failure by the
Company to comply
with and satisfy
Section 10 of
this Agreement; or
(e)
Any termination by
the Executive for
any reason during
the three-month period following
the effective date
of any "change in control".
Inaddition
to other rights the Executive has pursuant to this Section 4.4, if the Executive
is terminated by the Company pursuant to this
Section 4.4, or if the Executive
terminates her own employment for "good reason" pursuant to Section
4.4(e) with regard to "change in control", if on the date
of termination the Executive has
worked for the Company less than three
years from the date of this
Agreement, the Executive shall be entitled to receive
the shares of stock
she would have received under Section 2.2 if she
had been employed for a full three years from the date of this Agreement.
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Employment
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CathrynJ.
Kennedy
and
benefits. You will
be entitled to
whatever benefits may
be provided to
you in accordance with
the terms of
these plans and
benefits as amended
from time to
time.
3.4
Mandatory Leave of
Absence. In the
event Executive is
placed on leave
of absence, Executive shall
continue to be paid
her salary and
stock as described in 2.1 and 2.2
of this Agreement.
4. Termination.
4.1
Termination for Cause.
Notwithstanding anything contained
to the contrary
in this Agreement, this
Agreement may be
terminated by the
Company for Cause.
As used in this Agreement, "Cause"
shall only mean an
act or acts of personal dishonesty
taken by the Executive and
intended to result in substantial personal
enrichment of the Executive
at the expense
of the Company. Repeated violation
by the Executive of the Executive's material obligations under
this Agreement which are demonstrably willful and
deliberate on the Executive's
part and which are not remedied
in a reasonable period of time after
receipt of written notice from the Company or the conviction
of the Executive for
any criminal act which
is a felony may be
cause for termination. For purpose of the preceding sentences, criminal acts
shall not include
any acts that violate any U.S.
Federal laws or state laws that are related
in any way to cannabis. Upon a
valid determination by the Company's
Board of Directors of
any state that cause exists
under the preceding sentences, the
Company shall cause a special meeting
of the Board to be called
and held at a time mutually convenient to the
Board and Executive, but
in no event later than
ten (l0) business days after
Executive's receipt of adequate notice.
The Executive shall
have the right to appear before such special
meeting of the Board with
legal counsel of her choosing to refute
any determination of cause
specified in such notice and any
termination of Executive's employment by reason of
such cause. Determination shall not be in
effect until Executive is afforded such opportunity
to appear. Any termination for cause
shall be made in writing to Executive.
The notice shall
set forth in detail
all acts or omissions upon which the
Company is relying for suchtermination. Upon any
termination pursuant to this Section,
the Executive shall
be entitled to
be paid her base salary to the date of termination.
4.2
Disability. Notwithstanding anything
contained in this
Agreement to the
contrary, the Company, by
written notice to
the Executive, shall
at all times
have the right
to terminate this Agreement, and
the Executive's employment hereunder,
if the Executive shall, as the
result of mental or physical incapacity,
illness or disability, fails to
perform her duties and
responsibilities provided for herein for
a period of more than sixty (60) consecutive days
in any 12-monthperiod. Upon
any termination pursuant to this
Section, 4.2, the Executive shall be
entitled to be paid
her base salary to the
date of termination, plus six (6)
months of Executive's base salary.
4.3 Death. In the event of the death of the Executive during the term of her
employment hereunder, the Company shall pay to the estate of the deceased
Executive an amount equal to the sum
of (1) any unpaid amounts of her
base salary to the date
of her death, plus six (6)
personal investments, so long as such activities
do not significantly interfere with the
performance of the Executive's
responsibilities as an employee of the
Company in accordance with this
Agreement.
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Employment
Agreement
CathrynJ.
Kennedy
1.3
Place of Performance.
In connection with
her employment by
the Company, the Executive
shall be based
at the Company's principal executive
offices in Las Vegas, NV
except for travel reasonably necessary in
connection with the Company's business, or
as otherwise agreed by the parties.
2. Compensation.
2.1
Base Salary. Commencing
on the effective
date of this
Agreement, the Executive shall
receive a base
salary of $8,500 for three (3)
months ending 02/18/15; $10,000 for the next three
(3) months to 05/15115; thereafter,
$13,333 until Executive's next annual raise
at 06/15/16. Executive's annual salary will
be raised on 06/15/16 to $170,000 per year and
on 06/15117 to $180,000 per year.
2.2 Restricted
Stock Grant. As compensation for entering into this Agreement, the
Company hereby grants to the Executive 100,000 shares of the common stock
of the Company that is currently
traded on the Over-the-Counter
Bulletin Board under the symbol, "GBLX". Certificates representing
100,000 shares of the stock shall
transfer to the Executive upon signing
of this Agreement. 100,000 shares of the
stock shall transfer to the Executive on the first
anniversary of the execution of this Agreement and 300,000 shares of stock shall
transfer to the Executive on the second anniversary of the execution of
this Agreement. The stock is
restricted as defined by the Rules and Regulations
promulgated under the Securities Act of
1933, as amended.
3. Expenses.
Reimbursement and other
Benefits.
3.1
Expense Reimbursement. During
the term Executive's
employment hereunder, the Company
upon the submission
of reasonable supporting
documentation by the Executive, shall reimburse the Executive for
all reasonable expenses actually
paid or incurred by the Executive
in the course of and pursuant to
the business of the Company, including expenses
for travel and entertainment.
3.2
Vacation. During the
initial term of
one year, the
Executive shall be
entitled to paid vacation
in accordance with
the most favorable plans, policies, programs
and practices of the Company as in
effect at any time
hereafter with respect
to other key
executives of the Company provided, however,
that in no event shall Executive be entitled
to fewer than three weeks paid
vacation per year.
3.3
Benefit Plans. The
Company provides its executives
certain employee benefit
plans and fringe benefits.
Company reserves the
right to amend,
modify or terminate any of
these plans
EMPLOYMENT
AGREEMENT
This
Employment Agreement is
entered into on
this 18day
of November, 2014,
by and between GROWBLOX SCIENCES,
INC., a Delaware corporation,
(hereinafter "Company") and CATHRYN J.
KENNEDY, (hereinafter ''Executive''), all of whom
are collectively referred to herein as ''the
Parties" .
RECITALS
WHEREAS,
the Board of
Directors of the
Company, (hereinafter "Board"),
desires to assure
the Company of the Executive's
continued employment in
an executive capacity
and to compensate her therefore.
WHEREAS, the
Board has determined
that this Agreement
will enforce and
encourage the
Executive's continued
attention and dedication
to the Company.
WHEREAS, the
Executive is willing
to make her
services available to
the Company on
the terms and conditions
hereinafter set forth.
AGREEMENT
NOW THEREFORE,
in consideration of
the mutual premises
and mutual covenants
herein, the
Parties hereto
agree as follows:
1. Employment.
1.1 Employment and Term. The Company hereby agrees to employ the Executive with
a start date of November
18, 2014. The Executive was
promoted to Chief Financial Officer
on December 06, 2014, and in such capacity, Executive agrees to provide
services to the Corporation for the employment period beginning on November 18,
2014 and ending December 06, 2017, the termination
date, or such later date as may be agreed
to by the Parties within 120 days prior to the termination date.
1.2
Duties of Executive.
The Executive shall
serve as the Chief
Financial Officer of the
Company, subject to
the preceding sentence,
during the term
of employment, the Executive shall diligently perform all
services as may be reasonably assigned to her by the
Board and shall exercise such power and authority as may from time
to time be
delegated to her by the Board.
The Executive shall be
required to report solely to, and
shall be subject solely to the
supervision and direction of the Board and no other person or
group shall be
given authority to supervise or direct
Executive in the performance of her duties. Inaddition, the
Executive shall regularly consult with the
Board with respect to the
Company's business and affairs. The
Executive shall devote her working time
and attention as she deems appropriate to the
business and affairs of the Company, render such services
to the best
of her ability and use her reasonable best
efforts to promote the interests of the
Company. Itshall not be a violation of this Agreement forthe Executive to (A)
serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements orteach at educational institutions, and (C) manage
Exhibit 10.18
Warrant Certificate No. ___
NEITHER THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS.
| Effective Date: June 22, 2015 |
Void After: June 22, 2018 |
GROWBLOX SCIENCES, INC.
WARRANT TO PURCHASE COMMON STOCK
GROWBLOX SCIENCES,
INC., a Delaware corporation (the “Company”), for value received on June 22, 2015 (the “Effective Date”),
hereby issues to CRAIG ELLINS, an individual (“Ellins”) and/or his assignees, heirs, executors or successors-in-interest
(together with Ellins, the “Holder” or “Warrant Holder”) this Warrant (the “Warrant”)
to purchase, five million (5,000,000) shares (each such share as from time to time adjusted as hereinafter provided being a “Warrant
Share” and all such shares being the “Warrant Shares”) of the Company’s Common Stock (as defined
below), at the Exercise Price (as defined below), as adjusted from time to time as provided herein, on or before June 22, 2018
(the “Expiration Date”), all subject to the following terms and conditions. This Warrant has been issued in
connection with an amended and restated employment agreement dated the Effective Date between the Company and the Executive ( the
“Restated Employment Agreement”) and in connection with the Executive’s agreement to relinquish and forfeit
his right to receive as additional “compensation” up to 3,000,000 shares of Company Common in accordance with, and
subject to, the terms and conditions described in the amended employment agreement dated June 19, 2014 (the “Prior Agreement”)
which has been superseded in its entirety by the Restated Employment Agreement..
As used in this Warrant,
(i) “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the
City of Las Vegas, Nevada, are authorized or required by law or executive order to close; (ii) “Common Stock”
means the common stock of the Company, par value $0.001 per share, including any securities issued or issuable with respect thereto
or into which or for which such shares may be exchanged for, or converted into, pursuant to any stock dividend, stock split, stock
combination, recapitalization, reclassification, reorganization or other similar event; (iii) “Exercise Price”
means forty-five cents ($0.45) per share of Common Stock, subject to adjustment as provided herein; (iv) “Trading Day”
means any day on which the Common Stock is traded (or available for trading) on its principal trading market; and (v) “Affiliate”
means any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common
control with, a person, as such terms are used and construed in Rule 144 promulgated under the Securities Act of 1933, as amended
(the “Securities Act”).
1. DURATION
AND EXERCISE OF WARRANTS
(a) Exercise
Period. The Holder may exercise this Warrant in whole or in part on any Business Day on or before 5:00 P.M., Eastern Time,
on the Expiration Date, at which time this Warrant shall become void and of no value.
(b) Exercise
Procedures.
(i) While
this Warrant remains outstanding and exercisable in accordance with Section 1(a), in addition to the manner set forth in Section
1(b)(ii) below, the Holder may exercise this Warrant in whole or in part at any time and from time to time by:
(A) delivery
to the Company of a duly executed copy of the Notice of Exercise attached as Exhibit A;
(B) surrender
of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify
in writing to the Holder; and
(C) payment
of the then-applicable Exercise Price per share multiplied by the number of Warrant Shares being purchased upon exercise of the
Warrant (such amount, the “Aggregate Exercise Price”) made in the form of cash, or by certified check, bank
draft or money order payable in lawful money of the United States of America or in the form of a Cashless Exercise to the extent
permitted in Section 1(b)(ii) below.
(ii) In
addition to the provisions of Section 1(b)(i) above, the Holder may, in his or its sole discretion, exercise all or any part of
the Warrant in a “cashless” or “net-issue” exercise (a “Cashless Exercise”)
by delivering to the Company (1) the Notice of Exercise and (2) the original Warrant, pursuant to which the Holder shall surrender
the right to receive upon exercise of this Warrant, a number of Warrant Shares having a value (as determined below) equal to the
Aggregate Exercise Price, in which case, the number of Warrant Shares to be issued to the Holder upon such exercise shall be calculated
using the following formula:
with:
X = the
number of Warrant Shares to be issued to the Holder
Y = the
number of Warrant Shares with respect to which the Warrant is being exercised
A = the
fair value per share of Common Stock on the date of exercise of this Warrant
B = the
then-current Exercise Price of the Warrant
Solely for the purposes
of this paragraph, “fair value” per share of Common Stock shall mean the average Closing Price (as defined below)
per share of Common Stock for the twenty (20) trading days immediately preceding the date on which the Notice of Exercise is deemed
to have been sent to the Company. “Closing Price” means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then listed or quoted on the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market or any other national securities
exchange, the closing price per share of the Common Stock for such date (or the nearest preceding date) on the primary eligible
market or exchange on which the Common Stock is then listed or quoted; (b) if prices for the Common Stock are then quoted on the
OTC Bulletin Board or any tier of OTC Markets Group, Inc., the closing bid price per share of the Common Stock for such date (or
the nearest preceding date) so quoted; or (c) if prices for the Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent closing bid price per share of the Common Stock so reported. If the Common Stock is not publicly traded
as set forth above, the “fair value” per share of Common Stock shall be reasonably and in good faith determined
by the Board of Directors of the Company as of the date which the Notice of Exercise is deemed to have been sent to the Company.
For purposes of Rule
144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for such shares shall be deemed
to have commenced, on the date this Warrant was originally issued.
(iii) Upon
the exercise of this Warrant in compliance with the provisions of this Section 1(b), and except as limited pursuant to the last
paragraph of Section 1(b)(ii), the Company shall promptly issue and cause to be delivered to the Holder a certificate for the Warrant
Shares purchased by the Holder. Each exercise of this Warrant shall be effective immediately prior to the close of business on
the date (the “Date of Exercise”) that the conditions set forth in Section 1(b) have been satisfied, as the
case may be. On or before the third Business Day following the date on which the Company has received each of the Notice of Exercise
and the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance with Section 1(b)(ii)) (the “Exercise
Delivery Documents”), the Company shall transmit an acknowledgment of receipt of the Exercise Delivery Documents to the
Company’s transfer agent (the “Transfer Agent”). On or before the fifth Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company
shall (X) provided that the Warrant Shares have been registered or that the Warrant Shares are eligible for sale under Rule 144
without restriction and that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast
Automated Securities Transfer Program, upon the request of the Holder and to the extent applicable, Holder’s supplying the
Company with required Rule 144 documentation, credit such aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal
Agent Commission system, or (Y) if the Warrant Shares have not been registered and are not eligible for sale under Rule 144 without
restriction or if Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch
by overnight courier to the address as specified in the Notice of Exercise, a certificate, registered in the Company’s share
register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant
to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date
of delivery of the certificates evidencing such Warrant Shares.
(c) Partial
Exercise. This Warrant shall be exercisable, either in its entirety or, from time to time, for part only of the number of Warrant
Shares referenced by this Warrant. If this Warrant is submitted in connection with any exercise pursuant to Section 1 and the number
of Warrant Shares represented by this Warrant submitted for exercise is greater than the actual number of Warrant Shares being
acquired upon such an exercise, then the Company shall as soon as practicable and in no event later than five (5) Business Days
after any exercise and at its own expense, issue a new Warrant of like tenor representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which
this Warrant is exercised.
(d) Disputes.
In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance
with Section 16.
| 2. | ISSUANCE OF WARRANT SHARES |
(a) The
Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized,
fully paid and non-assessable, and (ii) free from all liens, charges and security interests, with the exception of claims arising
through the acts or omissions of any Holder and except as arising from applicable Federal and state securities laws.
(b) The
Company shall register this Warrant upon records to be maintained by the Company for that purpose in the name of the record holder
of such Warrant from time to time. The Company shall deem and treat the registered Holder of this Warrant as the absolute owner
thereof for the purpose of any exercise thereof, any distribution to the Holder thereof and for all other purposes.
(c) The
Company will not, by amendment of its certificate of incorporation, by-laws or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the taking of all action necessary or appropriate in order to
protect the rights of the Holder to exercise this Warrant, or against impairment of such rights.
| 3. | ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT
SHARES |
(a) The
Exercise Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time
to time upon the occurrence of certain events described in this Section 3.
(i) Subdivision
or Combination of Stock. In case the Company shall at any time subdivide (whether by way of stock dividend, stock split or
otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior
to such subdivision shall be proportionately reduced and the number of Warrant Shares shall be proportionately increased, and conversely,
in case the outstanding shares of Common Stock of the Company shall be combined (whether by way of stock combination, reverse stock
split or otherwise) into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares shall be proportionately decreased. The Exercise Price and the Warrant
Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in
this Section 3(a)(i).
(ii) Dividends
in Stock, Property, Reclassification. If at any time, or from time to time, all of the holders of Common Stock (or any shares
of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor:
(A) any
shares of stock or other securities that are at any time directly or indirectly convertible into or exchangeable for Common Stock,
or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution,
or
(B) additional
stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or
similar corporate rearrangement (other than shares of Common Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3(a)(i) above),
then and in each such case, the Exercise
Price and the number of Warrant Shares to be obtained upon exercise of this Warrant shall be adjusted proportionately, and the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and
property (including cash in the cases referred to above) that such Holder would hold on the date of such exercise had such Holder
been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive
such shares or all other additional stock and other securities and property. The Exercise Price and the Warrant Shares, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(ii).
(iii) Reorganization,
Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially
all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities, or other assets or property (an “Organic Change”), then, as a condition of such Organic Change,
lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase
and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented by this Warrant) such shares of stock, securities or other assets or property as may be issued
or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore purchasable and receivable assuming the full exercise of the rights represented by this Warrant.
In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests
of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments
of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant and registration
rights) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing
such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holder executed and mailed
or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation
to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder
may be entitled to purchase. If there is an Organic Change, then the Company shall cause to be mailed to the Holder at its last
address as it shall appear on the books and records of the Company, at least 10 calendar days before the effective date of the
Organic Change, a notice stating the date on which such Organic Change is expected to become effective or close, and the date as
of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares for securities, cash,
or other property delivered upon such Organic Change; provided, that the failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is
entitled to exercise this Warrant during the 10-day period commencing on the date of such notice to the effective date of the event
triggering such notice. In any event, the successor corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall be deemed to assume such obligation to deliver to such Holder such shares
of stock, securities or assets even in the absence of a written instrument assuming such obligation to the extent such assumption
occurs by operation of law.
(iv) Adjustment
of Exercise Price upon Issuance of Additional Shares of Common Stock. In the event the Company shall at any time prior to the
Expiration Date issue Additional Shares of Common Stock, as defined below, without consideration or for a consideration per share
less than the Exercise Price in effect immediately prior to such issue, then the Exercise Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by multiplying such Exercise Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number
of shares of Common Stock which the aggregate consideration received or to be received by the Company for the total number of Additional
Shares of Common Stock so issued would purchase at such Exercise Price; and (B) the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided that, (i) for the purpose of this Section 3(a)(iv), all shares of Common Stock issuable upon conversion
or exchange of convertible securities outstanding immediately prior to such issue shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon conversion or exchange of such outstanding convertible securities shall be
determined without giving effect to any adjustments to the conversion or exchange price or conversion or exchange rate of such
convertible securities resulting from the issuance of Additional Shares of Common Stock that is the subject of this calculation.
For purposes of this Warrant, “Additional Shares of Common Stock” shall mean all shares of Common Stock issued
by the Company after the Effective Date (including without limitation any shares of Common Stock issuable upon conversion or exchange
of any convertible securities or upon exercise of any option or warrant, on an as-converted basis), other than: (i) shares
of Common Stock issued or issuable upon conversion or exchange of any convertible securities or exercise of any options outstanding
on the Effective Date; (ii) shares of Common Stock issued or issuable upon exercise of the Warrants; (iii) shares of Common
Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is
covered by Sections 3(a)(i) through 3(a)(iii) above; (iv) shares of Common Stock issued in a registered public offering under the
Securities Act; (v) shares of Common Stock issued or issuable pursuant to the acquisition of another entity or business by the
Company by merger, purchase of substantially all of the assets or other reorganization or pursuant to a joint venture agreement,
but not including a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities; or (vi) securities issued to financial institutions, institutional investors
or lessors in connection with credit arrangements, equipment financings, lease arrangements or similar transactions, in each case
approved by a majority of disinterested directors of the Company. The provisions of this Section 3(b) shall not operate
to increase the Exercise Price.
Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 3(a)(iv), the number of Warrant Shares issuable upon exercise
of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product
so obtained by the adjusted Exercise Price.
(b) Certificate
as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 3, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant
a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment
is based. The Company shall promptly furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such
adjustments and readjustments; and (ii) the number of shares and the amount, if any, of other property which at the time would
be received upon the exercise of the Warrant.
4. TRANSFERS
AND EXCHANGES OF WARRANT AND WARRANT SHARES
(a) Registration
of Transfers and Exchanges. Subject to Section 4(c), upon the Holder’s surrender of this Warrant, with a duly executed
copy of the Form of Assignment attached as Exhibit B, to the Secretary of the Company at its principal offices or at such other
office or agency as the Company may specify in writing to the Holder, the Company shall register the transfer of all or any portion
of this Warrant. Upon such registration of transfer, the Company shall issue a new Warrant, in substantially the form of this Warrant,
evidencing the acquisition rights transferred to the transferee and a new Warrant, in similar form, evidencing the remaining acquisition
rights not transferred, to the Holder requesting the transfer.
(b) Warrant
Exchangeable for Different Denominations. The Holder may exchange this Warrant for a new Warrant or Warrants, in substantially
the form of this Warrant, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased
hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of
Warrant Shares as shall be designated by the Holder. The Holder shall surrender this Warrant with duly executed instructions regarding
such re-certification of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency
as the Company may specify in writing to the Holder.
(c) Restrictions
on Transfers. This Warrant may not be transferred at any time without (i) registration under the Securities Act or (ii) an
exemption from such registration and a written opinion of legal counsel addressed to the Company that the proposed transfer of
the Warrant may be effected without registration under the Securities Act, which opinion will be in form and from counsel reasonably
satisfactory to the Company.
(d) Permitted
Transfers and Assignments. Notwithstanding any provision to the contrary in this Section 4, the Holder may transfer, with or
without consideration, this Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s Affiliates (as such
term is defined under Rule 144 of the Securities Act), and additionally, to each of the members of the Holder and each of the members
and/or equityholders of the members of the Holder, without obtaining the opinion from counsel that may be required by Section 4(c)(ii),
provided, that the Holder delivers to the Company and its counsel certification, documentation, and other assurances reasonably
required by the Company’s counsel to enable the Company’s counsel to render an opinion to the Company’s Transfer
Agent that such transfer does not violate applicable securities laws.
| 5. | MUTILATED OR MISSING WARRANT CERTIFICATE |
If this Warrant is
mutilated, lost, stolen or destroyed, upon request by the Holder, the Company will, at its expense, issue, in exchange for and
upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially
the form of this Warrant, representing the right to acquire the equivalent number of Warrant Shares; provided, that, as a prerequisite
to the issuance of a substitute Warrant, the Company may require satisfactory evidence of loss, theft or destruction as well as
an indemnity from the Holder of a lost, stolen or destroyed Warrant.
The Company will pay
all transfer and stock issuance taxes attributable to the preparation, issuance and delivery of this Warrant and the Warrant Shares
(and replacement Warrants) including, without limitation, all documentary and stamp taxes; provided, however, that the Company
shall not be required to pay any tax in respect of the transfer of this Warrant, or the issuance or delivery of certificates for
Warrant Shares or other securities in respect of the Warrant Shares to any person or entity other than to the Holder.
| 7. | FRACTIONAL WARRANT SHARES |
No fractional Warrant
Shares shall be issued upon exercise of this Warrant. The Company, in lieu of issuing any fractional Warrant Share, shall round
up the number of Warrant Shares issuable to nearest whole share.
| 8. | NO STOCK RIGHTS AND LEGEND |
Until this Warrant
is exercised, no holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of
the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer
upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to
receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription
rights or otherwise (except as provide herein).
Each certificate for
Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:
“THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.”
All notices, consents,
waivers, and other communications under this Warrant must be in writing and will be deemed given to a party when (a) delivered
to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile
or e-mail with confirmation of transmission by the transmitting equipment; (c) received or rejected by the addressee, if sent by
certified mail, return receipt requested, if to the registered Holder hereof; or (d) seven days after the placement of the notice
into the mails (first class postage prepaid), if to the Company or the Holder at the addresses set forth in the Restated Employment
(or to such other address, facsimile number, or e-mail address as the Holder or the Company as a party may designate by notice
the other party) with a copy to CKR Law LLP, 1330 Avenue of the Americas, 35th Floor, New York, New York 10019, Attention: Stephen
A. Weiss, Esq.
If a court of competent
jurisdiction holds any provision of this Warrant invalid or unenforceable, the other provisions of this Warrant will remain in
full force and effect. Any provision of this Warrant held invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
This Warrant shall
be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, the registered Holder or
Holders from time to time of this Warrant and the Warrant Shares.
| 12. | SURVIVAL OF RIGHTS AND DUTIES |
This Warrant shall
terminate and be of no further force and effect on the earlier of 5:00 P.M., Eastern Time, on the Expiration Date or the date on
which this Warrant has been exercised in full.
This Warrant will be
governed by and construed under the laws of the State of Delaware without regard to conflicts of laws principles that would require
the application of any other law.
In the case of a dispute
as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Notice of Exercise
giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination
or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within two Business Days, submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder
or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed
determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.
| 15. | NOTICES OF RECORD DATE |
Upon (a) any establishment
by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or right or option to acquire securities of the Company, or any other
right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into
any other corporation, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution,
liquidation or winding up of the Company, or the sale, in a single transaction, of a majority of the Company’s voting stock
(whether newly issued, or from treasury, or previously issued and then outstanding, or any combination thereof), the Company shall
mail to the Holder at least ten (10) Business Days, or such longer period as may be required by law, prior to the record date specified
therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option
or right and a description of such dividend, option or right, (ii) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up, or sale is expected to become effective and (iii) the
date, if any, fixed as to when the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization, reclassification, transfer, consolation, merger, dissolution,
liquidation or winding up.
The Company shall reserve
and keep available out of its authorized but unissued shares of Common Stock for issuance upon the exercise of this Warrant, free
from pre-emptive rights, such number of shares of Common Stock for which this Warrant shall from time to time be exercisable. The
Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation. Without limiting the generality of the foregoing, the Company covenants
that it will use commercially reasonable efforts to take all such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents, including but not limited to consents from the Company’s
stockholders or Board of Directors or any public regulatory body, as may be necessary to enable the Company to perform its obligations
under this Warrant.
This Warrant is not
intended, and will not be construed, to create any rights in any parties other than the Company and the Holder, and no person or
entity may assert any rights as third-party beneficiary hereunder.
[signature
page follows]
IN WITNESS WHEREOF,
the Company has caused this Warrant to be duly executed as of the date first set forth above.
| |
GROWBLOX SCIENCES, INC. |
| |
|
|
| |
By: |
|
| |
Name: Cathryn Kennedy |
| |
Title: Chief Financial Officer |
EXHIBIT A
NOTICE OF EXERCISE
(To be executed by the Holder of Warrant
if such Holder desires to exercise Warrant)
To __________:
The undersigned hereby irrevocably elects
to exercise this Warrant and to purchase thereunder, ___________________ shares of common stock issuable upon exercise of the Warrant
and delivery of:
(1) $_________
(in cash as provided for in the foregoing Warrant) and any applicable taxes payable by the undersigned pursuant to such Warrant;
and
(2) __________
shares of Common Stock (pursuant to a Cashless Exercise in accordance with Section 1(b)(ii) of the Warrant) (check here if the
undersigned desires to deliver an unspecified number of shares equal to the number sufficient to effect a Cashless Exercise [___]).
The undersigned requests that certificates
for such shares be issued in the name of:
_________________________________________
(Please print name, address and social security
or federal employer
identification number (if applicable))
_________________________________________
_________________________________________
If the shares issuable upon this exercise
of the Warrant are not all of the Warrant Shares which the Holder is entitled to acquire upon the exercise of the Warrant, the
undersigned requests that a new Warrant evidencing the rights not so exercised be issued in the name of and delivered to:
_________________________________________
(Please print name, address and social security
or federal employer
identification number (if applicable))
_________________________________________
_________________________________________
| |
Name of Holder
(print): |
|
| |
(Signature): |
|
| |
(By:) |
|
| |
(Title:) |
|
| |
Dated: |
|
EXHIBIT B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, ___________________________________
hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the Warrant (as
defined in and evidenced by the attached Warrant) to acquire the number of Warrant Shares set opposite the name of such assignee
below and in and to the foregoing Warrant with respect to said acquisition rights and the shares issuable upon exercise of the
Warrant:
| Name of Assignee |
|
Address |
|
Number of Shares |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
If the total of the Warrant Shares are not
all of the Warrant Shares evidenced by the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right
to acquire the Warrant Shares not so assigned be issued in the name of and delivered to the undersigned.
| |
Name of Holder
(print): |
|
| |
(Signature): |
|
| |
(By:) |
|
| |
(Title:) |
|
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Dated: |
|
Exhibit
31.1
Certification of Chief Executive Officer
I, Craig Ellins, certify that:
| (1) | I have reviewed this Annual Report on Form 10-K of Growblox Sciences, Inc. (“small business
issuer”); |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a 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
report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report; |
| (4) | The small business issuer’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under XXXX supervision, to ensure that material information relating to the small business issuer is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures
and presented in this report 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 |
| (c) | Disclosed in this report any change in the small business issuer’s internal control over
financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the small business issuer’s internal control over financial reporting; and |
| (5) | The small business issuer’s other certifying officer(s) and I have disclosed, based on XXXX
most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit
committee of the small business issuer’s Board of Directors (or persons performing the equivalent functions): |
| (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 small business issuer’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 small business issuer’s internal control over financial reporting. |
| |
/s/ Craig Ellins |
| |
Craig Ellins |
| |
Chief Executive Officer and Chairman of the Board |
| |
June 29, 2015 |
Exhibit 31.2
Certification of Chief Financial Officer
I, Cathryn Kennedy, certify that:
| (1) | I have reviewed this Annual Report on Form 10-K of Growblox Sciences, Inc. (“small business
issuer”); |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a 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
report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report; |
| (4) | The small business issuer’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under supervision, to ensure that material information relating to the small business issuer is made known to us
by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures
and presented in this report 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 |
| (c) | Disclosed in this report any change in the small business issuer’s internal control over
financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the small business issuer’s internal control over financial reporting; and |
| (5) | The small business issuer’s other certifying officer(s) and I have disclosed, based on XXXX
most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit
committee of the small business issuer’s Board of Directors (or persons performing the equivalent functions): |
| (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 small business issuer’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 small business issuer’s internal control over financial reporting. |
| |
/s/ |
| |
Cathryn Kennedy, |
| |
Chief Financial Officer |
| |
June 29, 2015 |
Exhibit 32.1
GROWBLOX SCIENCES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
The undersigned, Craig Ellins, in his capacities
as Chief Executive Officer and President, of Growblox Sciences, Inc. do each hereby certify that the Form 10-K of Growblox Sciences,
Inc. for the year ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in such Form 10-K fairly presents, in all material respects,
the financial condition and results of operations of Growblox Sciences, Inc.
This certification is given by the undersigned
solely for the purpose of 18 U.S.C. 1350 and is subject to the knowledge standard contained therein.
Executed this 29th day of June, 2015.
| |
/s/ Craig Ellins |
| |
Craig Ellins |
| |
Chief Executive Officer and Chairman of the Board |
Exhibit 32.2
GROWBLOX SCIENCES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
The undersigned, Cathryn Kennedy, in her
capacities as Chief Financial Officer and Chief Accounting Officer, of Growblox Sciences, Inc. do each hereby certify that the
Form 10-K of Growblox Sciences, Inc. for the year ended March 31, 2015 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in such Form 10-K fairly
presents, in all material respects, the financial condition and results of operations of Growblox Sciences, Inc.
This certification is given by the undersigned
solely for the purpose of 18 U.S.C. 1350 and is subject to the knowledge standard contained therein.
Executed this 29th day of June, 2015.
| |
/s/ Cathryn Kennedy |
| |
Cathryn Kennedy |
| |
Chief Financial Officer |
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