FORM
424B3
Filed pursuant to Rule 424(b)(3)
Registration No. 333-227452
PROSPECTUS SUPPLEMENT NO. 1
(To the Prospectus dated March 8, 2019)
GB SCIENCES, INC.
64,053,812 Shares of Common
Stock
This Prospectus Supplement No. 1 supplements the prospectus dated
March 8, 2019 (the “Prospectus”), relating to the resale of up to
64,053,812 shares of common stock of GB Sciences, Inc. by the
selling stockholders identified in the Prospectus. This Prospectus
Supplement should be read in conjunction with the Prospectus which
is to be delivered with this Prospectus Supplement. Any
statement contained in the Prospectus shall be deemed to be
modified or superseded to the extent that information in this
Supplement modifies or supersedes such statement. Any statement
that is modified or superseded shall not be deemed to constitute a
part of the Prospectus except as modified or superseded by this
Supplement.
This Prospectus Supplement is being filed to update and supplement
the information in the Prospectus with the information contained in
our Annual Report on Form 10-K for the year ended March 31, 2020,
filed with the Securities and Exchange Commission on August 28,
2020, and with the information contained in our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2020, filed with the
Securities and Exchange Commission on November 13, 2020, all set
forth below.
Investing in our common stock involves a high degree of risk.
Before making an investment decision, please read “Risk Factors” on
page 8 of the Prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this Prospectus Supplement (or the
Prospectus including any supplements or amendments thereto) is
truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus Supplement is January 28, 2021.
FORM
10-K
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
__________________________
(Mark One)
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☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the Fiscal Year Ended March 31,
2020
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☐
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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For the transition period from __________ to ___________
Commission file number: 000-55462
GB SCIENCES, INC.
(Exact name of registrant as specified in its charter)
____________________
Nevada
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59-3733133
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(State or other Jurisdiction of
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(IRS Employer I.D. No.)
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Incorporation or Organization)
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___________________________
3550 W. Teco Avenue
Las Vegas, Nevada 89118
Phone: (866) 721-0297
(Address and telephone number of
principal executive offices)
___________________________
Securities registered under Section 12 (b) of the Exchange Act:
Title of each class
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Name of each exchange on which registered
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None
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None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.0001 Par Value
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Title of Class
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Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☑
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 ☑
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 ☒ 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 ☒ 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.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☑
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Indicate by check mark whether the registrant is a shell company
(as defined by Rule 12b-2 of the
Act). Yes ☐ No ☑
The aggregate market value of the voting stock held by
non-affiliates of the registrant computed by reference to the price
at which the common equity was last sold as of the last business
day of the registrant’s most recently completed second fiscal
quarter, that being September 2019, was approximately $25.5
million.
The shares outstanding on August 28, 2020 were 280,532,686.
Documents Incorporated by Reference
None
GB SCIENCES,
INC.
FORM 10-K
TABLE OF CONTENTS
PART I
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K of GB Sciences, Inc., a Nevada
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: (i) 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) ability to increase cultivation
production, (vi) the timing and extent of changes in prices for
medical and adult-use cannabis, (vii) agricultural risks of growing
and harvesting medical and adult-use cannabis, (viii) the
availability of equipment, such as extraction equipment, (ix) the
adequacy of capital reserves and liquidity including, but not
limited to, access to additional borrowing capacity, (x) our
ability to close the sale of the Company's Nevada cannabis
cultivation and production facilities, (xi) and 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”).
Any forward-looking statements are based on information available
to us today and we undertake no obligation to publicly update any
forward-looking statements, whether as a result of future events,
new information or otherwise.
COVID-19 EXPLANATORY DISCLOSURE
GB Sciences, Inc. (“the Company”) has relied on the March 4, 2020
order issued by the Commission under Section 36 (Release No.
3488318), as modified on March 25, 2020 (Release No. 3488465) of
the Securities Exchange Act of 1934 (“Exchange Act”) granting
exemptions from specified provisions of the Exchange Act and
certain rules thereunder (the “Order”), as a result of the novel
coronavirus (“COVID19”) pandemic, to delay the filing of its Annual
Report on Form 10-K for the year ended March 31, 2020 (the
“Report”). A significant portion of the Company’s business
operations are contracted in certain employees and independent
contractors who have recently been under “lock-down” orders or
“shelter in place” recommendations for the national health crisis,
including key personnel responsible for assisting the Company in
the development of its financial statements. As a result of the
travel and work restrictions stemming from the COVID-19 pandemic,
the Company was unable to file a timely and accurate Annual Report
on Form 10-K for its year ended March 31, 2020 by the prescribed
date without undue hardship and expense to the Company.
ITEM 1. DESCRIPTION OF
BUSINESS
Unless the context indicates otherwise, all references to “GB”
and “GB Sciences” refers solely to GB Sciences, Inc., a Nevada
corporation, and all references to “the Company,” “we”, “us” or
“our” in this Annual Report refers to GB Sciences and its
consolidated subsidiaries.
Overview
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or
“our”) seeks to be a biopharmaceutical research and
cannabinoid-based drug development company whose goal is to create
patented formulations for safe, standardized, cannabinoid therapies
that target a variety of medical conditions in both the
pharmaceutical and wellness markets. The Company is engaged in the
research and development of cannabinoid medicines and plans to
produce cannabinoid therapies for the wellness markets based on its
portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma,
Inc. (“GBSGB”), the Company is engaged in the research and
development of cannabinoid medicines with virtual operations in
North America and Europe. GBSGB assets include cannabinoid medicine
intellectual property, research contracts and key supplier
arrangements. GBSGB’s intellectual property covers a range of
conditions and several programs are in pre-clinical animal stage of
development; including Parkinson’s disease, neuropathic pain, and
cardiovascular therapeutic programs. GBSGB runs a lean drug
development program and takes effort to minimize expenses,
including personnel, overhead, and fixed capital expenses
through strategic partnerships with Universities and Contract
Research Organizations (“CROs”). GBSGB’s intellectual property
portfolio includes two issued USPTO Patents, five USPTO patent
applications, four provisional USPTO patent applications, and one
USPTO application that we anticipate filing by the end of calendar
year 2020, as well as licenses for three additional patents
covering novel cannabinoid delivery systems. In addition to the
USPTO patents and patent applications, the company has filed 28
patent applications internationally.
We were incorporated in the State of Delaware on April 4, 2001,
under the name “Flagstick Venture, Inc.” On March 28, 2008,
stockholders owning a majority of our outstanding common stock
approved changing our then name “Signature Exploration and
Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase
agreement for the acquisition of assets, including the Growblox™
cultivation technology which resulted in a change in our corporate
name on April 4, 2014, from Signature Exploration and Production
Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of
Corporation pursuant to shareholder approval as reported in the
Form 8-K filed on October 14, 2016. Pursuant to the amendment
the Company’s name was changed from Growblox Sciences, Inc. to GB
Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the
change in corporate domicile from the State of Delaware to the
State of Nevada and increase in the number of authorized capital
shares from 250,000,000 to 400,000,000. Effective August 15, 2019,
Shareholders of the Company approved an increase in authorized
capital shares from 400,000,000 to 600,000,000.
Our Business Strategy
Drug Discovery and Development of Novel Cannabis-Based
Therapies
Through its wholly-owned, Canadian subsidiary, GBS Global
Biopharma, Inc. ("GBSGB"), the Company has conducted
ground-breaking research embracing the complexity of the whole
plant led by Dr. Andrea Small-Howard, the Company’s Chief Science
Officer and Director, and Dr. Helen Turner, Vice President of
Innovation and Dean of the Natural Sciences and Mathematics
Department at Chaminade University. Small-Howard and Turner
posited that complex mixtures of cannabinoids and terpenes that are
derived from native mixtures in the cannabis plant, but with
precise optimizations, would provide more targeted and effective
treatments for specific disease conditions than either single
cannabinoids or whole plant formulations. They developed a
rapid screening and assaying system which tested thousands of
combinations of cannabinoids and terpenes in
vitro against cell-based models of disease. This process
identified precise mixtures of cannabinoids and terpenes, many of
which contained no THC, to treat categories of disease conditions,
including neurological disorders, inflammation, heart disease,
metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery process combines: 1) HTS: high throughput
screening of tens of thousands of combinations of compounds derived
from specific chemovars of the cannabis plant in well-established
cellular models of diseases, and 2) NPP: a proprietary Network
Pharmacology Platform algorithm for the prediction of complex
therapeutic mixtures that the Company spent two-and-a-half-years
training and testing against cell assay data. This combined
approach to drug discovery increases research efficiency and
accuracy reducing the time from ideation to patenting from 7 years
to 1.5 years. Screening of cannabis-based mixtures for drug
discovery involves the testing of specific combinations of plant
chemicals from many naturally occurring cannabis chemovars and the
use of live models for these diseases that have been well
established by other researchers. First, the Company finds
chemovars that show some therapeutic activity, and then refines
these natural mixtures to optimize their effectiveness in cellular
assays by removing compounds that do not act synergistically with
the others in the mixtures. The Company also use its
internally-validated Network Pharmacology Platform to prioritize
and eliminate some potential combinations, which reduces the time
in the discovery period.
The U.S. Patent and Trademark Office allows complex mixtures to be
claimed as Active Pharmaceutical Ingredients. GBSGB has two issued
patents and a series of pending patents containing cannabis-derived
complex mixtures that act as therapeutic agents for specific
disease categories, as described below. GBSGB’s pending patents are
protected whether the individual compounds are derived from the
cannabis plant, another plant, synthetically produced, or derived
from a combination of sources for the individual chemical compounds
in these mixtures.
Annual Drug Development Progress Report
GBS Global Biopharma, Inc. has made significant strides in the past
year with respect to both its drug discovery research and product
development programs. Our lead pharmaceutical programs in both
Parkinson’s disease and chronic neuropathic pain are now in
preclinical animal studies with Dr. Lee Ellis of the National
Research Council (NRC) Canada in Halifax, Nova Scotia. In addition,
the two patents which protect GBSGB’s formulations in our lead
development programs have been issued by the US Patent and
Trademark Office (USPTO). Achieving these significant milestones is
driving interest in these novel therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it
has obtained the statistically significant reduction of
Parkinson’s-disease like symptoms using its proprietary complex
mixtures in an animal model of Parkinson’s disease (PD). Several of
GBSGB’s PD formulations significantly reduced the symptoms, while
the most effective formula reduced the symptoms back to the
baseline activity of normal animals. In addition, the toxicity
studies for these PD formulas came back without any significant
negative findings. These important preclinical results will be
included in GBS’ Investigational New Drug (IND) application with
the US FDA to enter human clinical trials as soon as possible. New
therapies to address Parkinson’s disease symptoms are needed to
help those afflicted with this debilitating disease. The combined
direct and indirect costs associated with Parkinson’s disease are
estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s
Cannabinoid-Containing Complex Mixtures (CCCM™) are being
formulated by Catalent Pharma using Catalent’s Zydis® Orally
Disintegrating Tablet (ODT) technology. This ODT format was
selected for the PD formulas because it dissolves on the tongues of
patients without the need to swallow for ease of use in patients
with PD, who often have difficulties with swallowing. GBSGB
selected Catalent as its development partner for the PD therapies
due to Catalent’s prior experience in working on US FDA-approved,
cannabinoid-containing drugs, their Schedule I drug manufacturing
facilities, their familiarity with US FDA and international
regulatory and manufacturing requirements, their expertise in
tackling formulation challenges, and their ability to achieve the
stability and dosing necessary for these novel complex mixtures. In
addition to its Zydis® technology, Catalent has early drug
development services and additional oral drug delivery solutions
available for the efficient delivery of GBSGB's proprietary
APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its
Cannabinoid-Containing Complex Mixtures (CCCM) and
Myrcene-Containing Complex Mixtures (MCCM) both as encapsulated,
time-released nanoparticles, as well as in non-encapsulated forms
of these therapeutic mixtures in an animal model at the NRC in
Halifax, Nova Scotia. In preparation for human clinical trials, our
standard MCCM and the time-released MCCM are currently being
compared in an animal model that demonstrates their potential
effectiveness at treating chronic pain. The early results from this
preclinical research project look very promising.
The two patents which protect formulations in the Company’s lead
therapeutic programs have been issued by the USPTO. The issuance of
U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex
Mixtures for the Treatment of Neurodegenerative Diseases" on May
19, 2020 protects methods of using GBSGB’s proprietary
cannabinoid-containing complex mixtures (CCCM™) for treating
Parkinson’s Disease (PD). This was an important milestone in the
development of these vitally-important therapies and validates
GBSGB’s drug discovery platform. In the US alone, the combined
direct and indirect costs associated with Parkinson’s disease are
estimated at $52 billion, and new therapies to address Parkinson’s
disease symptoms are greatly needed. This was also the first time
that a US patent has been awarded for a cannabis-based complex
mixture defined using this type of drug discovery method. The first
US patent for PD therapies validated our drug discovery platform
and strengthened our intellectual property portfolio of unique
CCCM’s™, each targeting one of up to 60 specific clinical
applications. The issuance of GBSGB’s second US patent for active
pharmaceutical ingredients that are complex mixtures identified by
our biotech platform further confirms that GBSGB’s pharmaceutical
compositions can be patent-protected for use as biopharmaceutical
and nutraceutical products. The US Patent entitled
“Myrcene-Containing Complex Mixtures Targeting TRPV1” protects
methods of using GBSGB’s proprietary Myrcene-Containing Complex
Mixtures (“MCCM”) for the treatment of pain disorders related to
arthritis, shingles, irritable bowel syndrome, sickle cell disease,
and endometriosis. In the US alone, chronic pain represents an
estimated health burden of between $560 and $650 billion dollars,
and an estimated 20.4% of U.S. adults suffer from chronic pain that
significantly decreases their quality of life. Despite the
widespread rates of addiction and death, opioids remain the
standard of care treatment for most people with chronic pain. The
Company believes that it is important to create safer, less
addictive alternatives to opioids for the treatment of chronic pain
disorders, like GBSGB’s myrcene-containing complex mixtures.
In this fiscal year, two new patent applications were filed, and
two additional provisional patent applications were filed on August
18, 2020. In addition, several of our international patents have
progressed to the country-specific phase of patent review. We are
also raising awareness of our research and development work through
peer-reviewed journal articles and presentations at national and
international science and industry meetings.
Favorable Research Updates from our university collaborators reveal
the promise in our discovery programs with Michigan State
University (HIV-Associated Neurodegenerative Disorder and COVID-19
therapies), Chaminade University (Chronic Neuropathic Pain,
Metabolic Syndrome, Cannabis Metabolomics with the University of
Athens), the University of Athens, Greece (Cannabis Metabolomics),
the University of Seville, Spain (Time-Released Nanoparticles), and
the National Research Council (NRC) of Canada (Parkinson’s Disease,
Chronic Neuropathic Pain).
Intellectual Property Portfolio
GBSGB retained Fenwick & West, a Silicon Valley based law firm
focusing on life sciences and high technology companies with a
nationally top-ranked intellectual property practice, to develop
strategies for the protection of the Company's intellectual
property. The status of the intellectual property portfolio is as
follows.
Two USPTO Patents Issued/Allowed for Cannabinoid- and
Myrcene-Containing Complex Mixtures
Title:
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
NEURODEGENERATIVE DISEASES
U.S. Patent Number 10,653,640;
Expiration date: October 23, 2038
Issued:
May 19, 2020;
Inventors:
Andrea Small-Howard et al.
Patent protection was granted for GBSGB’s Cannabinoid-Containing
Complex Mixtures for the treatment of Parkinson’s disease.
Title: MYRCENE-CONTAINING COMPLEX MIXTURES
TARGETING TRPV1
U.S. Patent Number 10,709,670;
Expiration date: May 22, 2038
Issued:
July 14, 2020;
Inventors:
Andrea Small-Howard, et al.
On May 12, 2020, GBSGB received a Notice of Allowance for its
Myrcene-Containing Complex Mixtures. The fee was paid, and the
patent will issue soon.
GBSGB’s MCCMs are protected for use in the treatment of pain
related to arthritis, shingles, irritable bowel syndrome, sickle
cell disease, and endometriosis.
Five USPTO & Twenty-Three International Patent Applications
Pending
Title: CANNABINOID-CONTAINING
COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE
DISEASES
U.S. Patent Application No. 15/729,565;
WIPO Application number: PCT/US2017/055989
Filed:
October 10, 2017;
Inventors:
Andrea Small-Howard et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and
JP on October 10, 2017.
On April 3, 2020, GBSGB Received a Notice of Allowance on our
Cannabinoid-Containing Complex Mixtures for Parkinson’s Disease. On
the same day as we paid the fee for the allowed patent claims, we
filed a Continuation for Review of the non-Parkinson’s formulas
within this application, which includes Alzheimer’s disease,
Huntington’s disease, Lewy body dementia, and dementia. U.S.
Continuation Application No. 16/844,713, filed on Apr 9, 2020, is
pending. This application claims benefit of U.S. Patent Application
No. 62/406,764 filed October 11, 2016.
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR
BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
U.S. Patent Application
No.15/885,620; WIPO
Application number: PCT/US2018/016296
Filed: January 31, 2018;
Inventors:
Andrea Small-Howard, et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and
JP on January 31, 2018.
Claims benefit of U.S. Patent Application No. 62/453,161 filed
February 1, 2017.
Title: MYRCENE-CONTAINING COMPLEX MIXTURES
TARGETING TRPV1
U.S. Patent Application No. 15/986,316;
WIPO Patent Application No.
PCT/US2018/033956
Filed:
May 22, 2018;
Inventors:
Andrea Small-Howard, et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and
JP on May 22, 2018.
On May 12, 2020, GBSGB received a Notice of Allowance for its
Myrcene-Containing Complex Mixtures. On the same day as we paid the
fee for the allowed claims, we filed a Continuation for the review
of the other formulations including those for heart disease and
other TRPV1-related pathologies. U.S. Continuation Application No.
16/878,295, filed on May 19, 2020, is pending. Claims benefit of
U.S. Patent Application No. 62/509,546 filed May 22, 2017.
Title: TRPV1 ACTIVATION-MODULATING COMPLEX
MIXTURES OF CANNABINOIDS AND/OR TERPENES
U.S. Patent Application No.: 16/420,004;
WIPO Patent Application No.: PCT/US2019/033618
Filed:
May 22, 2019;
Inventors:
Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application Nos. 62/674,843 filed May
22, 2018; 62/769,743 filed November 20, 2018; and 62/849,719 filed
May 17, 2019.
Title: THERAPEUTIC NANOPARTICLES
ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS
U.S. Patent Application
No.:16/686,069 WIPO
Patent Application No.: PCT/ES2019/070765
Filed:
November 8, 2019;
Inventors:
Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application Nos. 62/757,660 filed
November 8, 2018
Two Provisional USPTO Patent Applications Pending
Title: TREATMENT OF PAIN USING ALLOSTERIC
MODULATOR OF TRPV1
U.S. Patent Application No.: 62/868,794;
Inventors:
Andrea Small-Howard, et al.
Filed:
June 28, 2019
Title: THERAPEUTIC NANOPARTICLES
ENCAPSULATING TERPENOIDS AND/OR
CANNABINOIDS
U.S. Patent Application No.:
62/897,235 Inventors: Andrea
Small-Howard, et al.
Filed: September 6, 2019
Two Additional Provisional Patent Applications Filed on August
18, 2020
GBSGB has data sets for two new provisional patent applications
filed on August 18, 2020, as follows:
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF CHRONIC INFLAMMATORY DISORDERS
Filing Date: August 18,
2020;
Inventor:
Andrea Small-Howard
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF CYTOKINE RELEASE SYNDROME WHILE
PRESERVING KEY ANTI-VIRAL IMMUNE REACTIONS
Filing Date: August 18, 2020;
Inventor:
Andrea Small-Howard
Multiple Licensed Patents for GBSGB’s Intellectual Property
Portfolio
Title: METHODS AND COMPOSITIONS FOR
PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY.
Inventor:
Alexander
Stokes;
Assignee:
University of Hawai’i
Commercialization rights licensed to Makai Biotech, LLC
Sublicensed by Makai Biotech, LLC to GBS Global Biopharma, Inc.
Status: Granted in the following territories on the corresponding
dates
U.S. Patent Number:
9,084,786;
Issued: July 21, 2015
U.S. Patent Number:
10,137,123;
Issued: November 27, 2018
U.S. Continuation Application: 16/181,204
European Union Patent Number: 2,635,281; Granted: March 14,
2018
Europe Patent Application: 3,348,267
Hong Kong Patent Number: 14102182.8; Granted: March 14, 2018
India Patent Application: 1404/KOLNP/2013
China Patent Application: 201180063998.4
Title: METHOD FOR PRODUCING A
PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING
NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Inventors:
Martin Banderas, Lucia; Fernandez Arevala, Mercedes; Berrocoso,
Dominguez, Esther; and Mico Segura, Juan Antonio
Assignees:
Universidad de Sevilla, Universidad de Cadiz, and Centro de
Investigacion Biomedica En Red (CIBER)
Exclusive worldwide license held by GBS Global Biopharma, Inc.
WIPO/PCT Application: PCT/ES2016/000016 (Pub. No. WO
2016/128591)
Filed: August 18, 2016
Claims benefit of Spanish Patent Application no. P201500129 (Pub.
No. ES 2582287)
Filed: February 9, 2015
U.S. Patent Application: 15/549,653
Spain Patent ES2582287; Granted: September 29, 2017
Europe Patent Application: EP3257503
Canada Patent Application CA2976040
Partnering Strategy
GBSGB runs a lean drug development program and minimizes expenses,
including personnel, overhead, and fixed capital expenses (such as
lab and diagnostic equipment), through strategic partnerships with
Universities and Contract Research Organizations (“CROs”). Through
these research and development agreements, GBSGB has created a
virtual pipeline for the further development of novel medicines
extracted from the cannabis plant. The partners bring both
expertise and infrastructure at a reasonable cost to the life
sciences program. In most instances, GBSGB has also negotiated with
these partners to keep 100% of the ownership of the IP within GBSGB
for original patent filings.
GBSGB currently has on-going research agreements with the following
institutions covering the indicated areas of research:
Chaminade University: Broad-based research program to support the
drug discovery platform that has yielded most of GBSGB’s original
patents to date in the areas of neurodegenerative diseases, heart
disease, inflammatory diseases, neuropathic pain and chronic pain.
They have also performed the bioassay portion of the Cannabis
Metabolomics study performed with the University of Athens, Greece
and GBSGB.
University of Athens: Broad-based metabolomics analysis of over 100
cannabis genotypes including both hemp and THC-producing cannabis
varieties, in combination with GBSGB’s bioassay data linking
genotypes and potential disease-remediations. This project has the
potential to define active ingredients from plant-derived mixtures
beyond the standard cannabinoids and terpenoids. The discovery
potential is huge, and novel agents have recently been
discovered.
Michigan State University: Discovery work using a cutting-edge,
multi-cellular model of the human immune system and a multi-cell
model of the brain to explore CCCM™s for use in the prevention of
HIV-Associated Neurocognitive Disorders (HAND). Although
combination antiretroviral therapy keeps symptoms for most
HIV-patients well controlled, between 40% and 70% of these
well-controlled HIV patients end up with HAND symptoms that range
from movement disorders to dementia-like symptoms. The results from
this work were included in a new patent application that was filed
on August 18, 2020. In addition, MSU has performed experiments
using their novel model of the human-immune system that have
allowed GBSGB to prepare cannabis-based formulas for the potential
treatment of virally-induced hyperinflammation/cytokine storm
syndrome that has led to the majority of COVID-19 deaths. The new
patent application for our novel, cannabinoid-containing complex
mixtures (CCCM™) for the treatment of hyperinflammation and
cytokine storm syndrome in COVID-19 patients was filed on August
18, 2020.
The University of Seville: Bringing their novel expertise to the
development and functional testing of time-released and
disease-targeted nanoparticles of cannabis-based complex mixtures
for oral administration. These specialized nanoparticles are being
used for the precise and time-released delivery of several of our
therapies, including GBSGB’s MCCM™ and CCCM™’s used in the
preclinical animal testing performed at the NRC Canada. The
University of Seville has completed functional testing on
nanoparticles containing myrcene, nerolidol, and beta-caryophyllene
for our Myrcene-Containing Complex Mixtures. In these cell-based
assays, the effectiveness and kinetics of the nanoparticle-forms of
these terpenes were compared with the “naked” terpenes both
individually and in mixtures. In all cases, the effectiveness of
the nanoparticles were superior to the naked terpenes, however, the
mixtures were dramatically more effective than the individuals.
These results from Seville are very promising as these
nanoparticles have entered the animal testing phase at the NRC in
Halifax.
The National Research Center (NRC) of Canada, Halifax, Nova Scotia:
Two animal-phase studies are being performed by Dr. Lee Ellis’
group at the NRC. An animal safety and efficacy study was initiated
in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the
NRC has demonstrated that the company’s PD formulations were able
to reduce behavioral changes associated with the loss of
dopamine-producing neurons, which underlies the pathology of
Parkinson’s disease in the animal model. Based on achieving the
statistically significant reduction in Parkinson’s disease
symptomology, GBSGB has signed an amendment to include a final
phase of testing, which will study the mechanism of action for
these promising formulations. In Q1 of 2019, GBSGB started a safety
and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain
(CNP) formulas. The midterm results for these preclinical pain
studies are promising.
The University of Cadiz: Testing the safety and efficacy of the
above-mentioned time-released nanoparticles in rodent models of
chronic pain. Proof of concept complete for one formulation.
University of Hawaii: Validating the efficacy of a complex
cannabis-based mixture for the treatment of cardiac hypertrophy and
cardiac disease in a rodent model. Proof of concept work is
complete.
Path to Market: Drug Development Stages and Proposed Clinical
Trials
GBSGB has cannabis-based therapeutic products in the following
stages of drug development: Discovery, Pre-Clinical, and entering
the Clinical Phase. It has also licensed therapeutic products that
the Company intends to develop through partners, labeled Partner
Programs.
The completion of pre-clinical studies, clinical trials, and
obtaining FDA-approvals for pharmaceutical products is
traditionally a long and expensive process. However, GBSGB asserts
that its cannabis-based drug discovery engine, lean development
program, novel regulatory strategy, experienced development
partners, and aggressive licensing of these products at early
clinical stages can mitigate some of the risks. The Company
uses a combination of in silico discovery methods and
automated screening of cellular models of disease to decrease the
time in Discovery prior to filing novel patent applications for
disease-specific therapeutics. GBSGB’s original patent applications
cover new chemical entities (“NCE”) based on complex combinations
of plant-derived compounds. Its Exploratory IND/Phase 0 Program
gets the Company to First-in-Man sooner than traditional programs,
which reduces translational risks, and includes preliminary
efficacy measures for responsible development decisions. In
contrast, a traditional phased-development path would not provide
any efficacy measures until Phase II. After the completion of our
Phase 0 study, which compares the efficacies of multiple related
cannabis-based formulations, the Company plans to advance the lead
drug candidate using an adaptive trial design that is more
efficient than the traditional phased-development pathway. GBSGB
has entered into research contracts, partnerships, and/or joint
ventures with several respected, independent contract research
organizations, medical schools, universities, and other scientific
researchers to increase developmental efficiencies. If and when one
or more of GBSGB’s drugs, therapies or treatments are approved by
the FDA, GBSGB will seek to market them under licensing
arrangements with major biotechnology or pharmaceutical
companies.
GBSGB plans to use a combination of FDA-registered human clinical
trials, as described in detail above, and pilot human studies in
the development of its therapeutic product portfolio. Early in
product development, human pilot studies that are fully compliant
with state medical cannabis programs will be used to gather early
data on safety and efficacy that can later be referenced in the
next phase of product development. GBSGB may be able to produce and
sell the early products that prove efficacious, through licensing
agreements with cannabis companies in other US states and countries
that have legalized cannabis programs. GBSGB believes that
these pilot studies will provide significant value by reducing the
cost of commercialization, more rapidly putting effective drugs in
the hands of patients, and accelerating by years the monetization
of the research. GBSGB’s goal is to be the perfect partner to
those companies with greater resources and experience in the
marketing and distribution of medications worldwide.
There can be no assurance that we will ever be able to enter into
any joint ventures or other arrangements with third parties to
finance our drug development program or that if we are able to do
so, that any of our projected therapies will ever be approved by
the FDA. Even if we obtain FDA approval for a therapy, there can be
no assurance that it could be successfully marketed or would not be
superseded by another cannabis-based therapy produced by one or
more of our competitors. It also may be anticipated that even if we
enter into a joint venture development with a financially stable
pharmaceutical or institutional partner, we will still be required
to raise significant additional capital in the future to
achieve the strategic goals of GBSGB. There can be no assurance
that we will be able to obtain such additional capital on
reasonable terms, if at all. If GBSGB fails to achieve its goal of
producing one or more cannabis-based pharmaceuticals or therapies,
it would have a material adverse effect on our future financial
condition and business prospects.
Description of Operations
In addition to our biopharmaceutical research and development
activities described in detail above, the Company has operated in
the medical and adult-use cannabis markets under State-issued
cultivation and production licenses. Our wholly owned
subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse
facility at 3550 W. Teco Avenue, Las Vegas Nevada (the "Teco
Facility") and operates a cannabis cultivation facility under
Nevada licenses for the medical and adult-use markets. Our wholly
owned subsidiary GB Sciences Las Vegas, LLC ("GBLV") holds Nevada
certificates for medical and adult-use cannabis production and
produces extracts and concentrates for the wholesale market.
On September 18, 2017, our subsidiary GB Sciences Louisiana, LLC
finalized its agreement with Louisiana State University (“LSU”)
AgCenter to be the sole operator of LSU’s medical marijuana
program. The LSU Board of Supervisors entered into a five-year
agreement—that has an option to renew for two additional five-year
terms—with GB Sciences.The contract included the Company’s
commitment to make a minimum financial contribution to the LSU
AgCenter in the amount of $3.4 million, or a 10% commission of
gross receipts, in addition to annual research investments of
$500,000 to the LSU AgCenter. The monetary contributions would be
used to conduct research on plant varieties, compounds, extraction
techniques and delivery methods that could generate additional
revenue through discoveries that are subject to intellectual
property rights, which AgCenter would retain 50% of those
rights.
On November 15, 2019, the Company entered into the Membership
Interest Purchase Agreement ("MIPA") with the noncontrolling
interest in GB Sciences Louisiana, LLC ("GBSLA"). In consideration
for the sale of its 50.01% membership interest in GBSLA, the
Company received the $8,000,000 Promissory Note ("Wellcana
Note") and may receive up to an additional $8,000,000 in earn-out
payments. On August 24, 2020, the Company entered into a letter of
intent with the purchaser to discount the note receivable in
exchange for accelerated payment. Pursuant to the letter of intent,
the Company will receive payments totaling $5,224,423, including
the forgiveness by purchaser of $324,423 in liabilities and the
payment of $4,900,000 in cash, on or before October 15, 2020, less
any cash payments made by the purchaser up to the date of the final
payment. Upon receipt of the payment, all liabilities owed to the
Company by the purchaser, including the $8,000,000 note receivable
and any potential earn-out payments will be considered satisfied in
full.
On November 15, 2019, we entered into a Binding Letter of Intent
(the "LOI") to sell 75% of the Company's membership interest
interests in GBSN and GBLV (together, the "Teco Subsidiaries") for
$3.0 million cash upon close and up to an additional $3.0 million
in earn-out payments after close. In connection with the LOI, we
entered into a Management Agreement with the purchaser whereby the
facilities will be managed by an affiliate of the purchaser until
the close of the sale. On March 24, 2020, we entered into the
Membership Interest Purchase Agreement ("Teco MIPA") which
formalized the sale of the Teco Subsidiaries and modified the terms
of the sale. Pursuant to the Teco MIPA, the Company will sell 100%
of its membership interests in GBSN and GBLV for $4.0 million cash
upon close and will receive a $4.0 million 8% promissory note to be
paid in monthly installments over 36 months.
The Company also holds a Nevada license for cultivation of medical
marijuana located in Sandy Valley, Nevada (the “Nopah License”).
The license is owned by the Company’s wholly owned subsidiary, GB
Sciences Nopah, LLC ("Nopah"). Operations have not begun under the
Nopah License. On November 27, 2019, the Company entered into a
Binding Letter of Intent to sell its 100% interest in GB Sciences
Nopah, LLC (the “Nopah LOI”), with the transaction closing upon
transfer of the Nopah License. As consideration for the transfer of
the license, the Company will receive $300,000 and the purchaser
will pay all expenses related to the upkeep and maintenence of the
Nopah License. The transfer of the Nopah License is subject to the
same restrictions on license transfers currently in effect in the
State of Nevada (see Note 16).
The sales of the Teco Facility and Nopah are expected to close upon
the successful transfer of the Nevada cultivation and production
licenses. The transfer of cannabis licenses in the State of Nevada
has been subject to an indefinite moratorium since October 2019. In
a meeting held on July 21, 2020, the Nevada Cannabis Compliance
Board lifted the moratorium, however, the board has indicated that
there are over 90 requests pending and it will take up to several
months to process the entire backlog of pending license transfers.
Based on this information, we cannot provide any assurances as to
the timing of the close of the sale. The lifting of the moratorium
and processing of cannabis license transfers have been delayed by
the COVID-19 pandemic and could be further delayed if the pandemic
continues.
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 GW Pharmaceuticals plc, TerraTech Corp.,
Cannabis Science, Inc., Peak Pharmaceuticals, Inc., Cannabis-Rx,
Inc. and Nemus Biosciences, Inc. In addition, the development of
therapies and pharmaceutical products based on extracts from the
cannabis plant is being undertaken by a number of medical and
educational institutions, including the University of Mississippi,
which is the only U.S. based entity authorized by the Federal
government to cultivate cannabis for research. Such institutions
have significantly greater financial resources and facilities than
we have.
Government Regulation and Federal Policy
Under the Controlled Substances Act (“CSA”), the policies and
regulations of the Federal government and its agencies are that
cannabis (marijuana) is a Schedule 1 narcotic that is addictive and
has no medical benefit. Accordingly, and a range of activities
including cultivation and the personal use of cannabis is
prohibited and subject to prosecution and criminal penalties.
Unless and until Congress amends the CSA with respect to medical
cannabis, there is a risk that the federal authorities may enforce
current federal law, and we may be deemed to be engaged in
producing, cultivating, or dispensing cannabis in violation of
federal law, or we may be deemed to be facilitating the sale or
distribution of drug paraphernalia in violation of federal law with
respect to our Company’s business operations. Active enforcement of
the current federal regulatory position on cannabis may thus
indirectly and adversely affect our strategic goals, revenues and
profits. The risk of strict enforcement of the CSA in light of
Congressional activity, judicial holdings, and stated federal
policy remains uncertain. 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:
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Distribution of cannabis to children;
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Revenue from the sale of cannabis going to criminals;
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Diversion of medical cannabis from states where it is legal to
states where it is not;
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Using state authorized cannabis activity as a pretext of another
illegal drug activity;
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Preventing violence in the cultivation and distribution of
cannabis;
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Preventing drugged driving;
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Growing cannabis on federal property; and
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Preventing possession or use of cannabis on federal property.
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On January 4, 2018, Attorney General Jeff Sessions revoked the
Ogden Memo and the Cole Memos.
The DOJ has not historically devoted resources to prosecuting
individuals whose conduct is limited to possession of small amounts
of cannabis for use on private property but has relied on state and
local law enforcement to address cannabis activity. In the event
the DOJ reverses its stated policy and begins strict enforcement of
the CSA in states that have laws legalizing medical cannabis and
recreational cannabis in small amounts, there may be a direct and
adverse impact to our business and our revenue and profits.
Furthermore, H.R. 83, enacted by Congress on December 16, 2014,
provides that none of the funds made available to the DOJ pursuant
to the 2015 Consolidated and Further Continuing Appropriations Act
may be used to prevent certain states, including Nevada and
California, from implementing their own laws that authorized the
use, distribution, possession, or cultivation of medical
cannabis.
In contrast to federal policy, thirty-three states, four U.S.
territories, and the District of Columbia have laws and/or
regulations that recognize, in one form or another, legitimate
medical uses for cannabis and consumer use of cannabis in
connection with medical treatment. Many other states are
considering similar legislation.
Employees
As of March 31,
2020, we employed twenty-three employees consisting of
management and support staff.
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
An occurrence of an uncontrollable event such as the COVID-19
pandemic may negatively affect our operations.
A significant portion of the Company’s business operations are
contracted in certain employees and independent contractors who
have recently been under “lock-down” orders or “shelter in place”
recommendations for the national health crisis, including key
personnel responsible for assisting the Company in the development
of its financial statements. As a result of the travel and work
restrictions stemming from the COVID-19 pandemic, the Company was
unable to file a timely and accurate Annual Report on Form 10-K for
its year ended March 31, 2020 by the prescribed date without undue
hardship and expense to the Company.
We have a limited operating history, which may make it difficult
for investors to predict future performance based on current
operations.
We have a limited operating history upon which investors may base
an evaluation of our potential future performance. In particular,
we have not proven that we can supply growing equipment in a manner
that enables us to be profitable and meet customer requirements,
develop intellectual property to enhance our product lines, obtain
the necessary permits to develop medical grade cannabis, develop
and maintain relationships with key manufacturers and strategic
partners to extract value from our intellectual property, raise
sufficient capital in the public and/or private markets, or respond
effectively to competitive pressures. As a result, there can be no
assurance that we will be able to develop or maintain consistent
revenue sources, or that our operations will be profitable and/or
generate positive cash flows.
Any forecasts we make about our operations may prove to be
inaccurate. We must, among other things, determine appropriate
risks, rewards, and level of investment in our product lines,
respond to economic and market variables outside of our control,
respond to competitive developments and continue to attract, retain
and motivate qualified employees. There can be no assurance that we
will be successful in meeting these challenges and addressing such
risks and the failure to do so could have a materially adverse
effect on our business, results of operations and financial
condition. Our prospects must be considered in light of the risks,
expenses, and difficulties frequently encountered by companies in
the early stage of development. As a result of these risks,
challenges and uncertainties, the value of your investment could be
significantly reduced or completely lost.
Our independent auditors’ report for the fiscal years ended
March 31,
2020 and 2019 have expressed doubts about our ability to
continue as a going concern;
Due to the uncertainty of our ability to meet our current operating
and capital expenses, in our audited annual financial statements as
of and for the years ended March 31,
2020 and 2019 our independent auditors included a note to our
financial statements regarding concerns about our ability to
continue as a going concern. The Company has incurred recurring
losses and has generated limited revenue since inception. These
factors and the need for additional financing in order for the
Company to meet its business plan, raise substantial doubt about
the ability to continue as a going concern. The presence of the
going concern note to our financial statements may have an adverse
impact on the relationships we are developing and plan to develop
with third parties as we continue the commercialization of our
products and could make it challenging and difficult for us to
raise additional financing, all of which could have a material
adverse impact on our business and prospects and result in a
significant or complete loss of your investment.
We have incurred significant losses in prior periods, and losses
in the future could cause the quoted price of our Common Stock to
decline or have a material adverse effect on our financial
condition, our ability to pay our debts as they become due and on
our cash flows.
We have incurred significant losses in prior periods. For the years
ended March 31,
2020 and 2019, we incurred net losses of $
(12,373,579) and $
(23,653,165) respectively, and we had an accumulated deficit
of $ (97,387,205)
and $ (84,743,836)
respectively. Any losses in the future could cause the quoted price
of our common stock to decline or have a material adverse effect on
our financial condition, our ability to pay our debts as they
become due, and on our cash flows.
We will need additional capital to sustain our operations and
will need to seek further financing, which we may not be able to
obtain on acceptable terms or at all. If we fail to raise
additional capital, as needed, our ability to implement our
business plan could be compromised.
We have limited capital resources and operations. To date, our
operations have been funded primarily from the proceeds of debt and
equity financings. We expect to require substantial additional
capital in the near future to implement our strategies, develop our
intellectual property base, and establish our targeted levels of
commercial production. There is no assurance that we will be able
to raise the amount of capital needed for future growth plans.
Even if financing is available, it may not be on terms that are
acceptable. If unable to raise the necessary capital at the times
required, the Company may have to materially change the business
plan, including delaying implementation of aspects of the business
plan or curtailing or abandoning the business plan. Even if we
obtain financing for our near-term operations, we expect that we
will require additional capital thereafter, especially if we are to
develop our Science division and start to conduct, individually or
with joint venture partners, pre-clinical and clinical trials for
potential pharmaceutical, or nutraceutical products derived from
cannabis. Our capital needs will depend on numerous factors
including: (i) our profitability; (ii) the release of competitive
products by our competition; (iii) the level of our investment
requirements for research and development; and (iv) the amount of
our capital expenditures, including acquisitions. We cannot assure
you that we will be able to obtain capital in the future to meet
our needs.
If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership held by our
existing stockholders will be reduced and our stockholders may
experience significant dilution. In addition, new securities may
contain rights, preferences or privileges that are senior to those
of our common stock. If we raise additional capital by incurring
debt, this will result in increased interest expense. If we raise
additional funds through the issuance of securities, market
fluctuations in the price of our shares of common stock could limit
our ability to obtain equity financing.
We cannot give you any assurance that any additional financing will
be available to us, or if available, will be on terms favorable to
us. If we are unable to raise capital when needed, our business,
financial condition, and results of operations would be materially
adversely affected, and we could be forced to reduce or discontinue
our operations.
Drug research and development programs typically involves huge
expenditures, long periods to obtain FDA approvals and the
potential that such prospective pharmaceutical products will not
prove to be safe and effective.
The production of FDA-approved pharmaceutical products and related
drug is typically a highly expensive a long and drawn out process,
typically involving hundreds of millions of dollars and a decade or
more to achieve. Although we believe that some, if not all, of our
planned cannabinoid based pharmaceutical protocols can qualify for
“orphan drug” status and be accelerated through the FDA approval
process, there can be no assurance that this will be the case.
In addition, we do not now have, and do not expect in the
foreseeable future to have, the capital resources to fund our drug
discovery programs, nor do we have the infrastructure to conduct
such program alone. For that reason, we intend to engage in joint
ventures with third parties, including hospitals, clinics,
foundations and other qualified sources. Although we are in
preliminary discussions with various potential partners, to date,
we have not entered into any definitive drug development joint
venture or partnership agreement. Our failure or inability to enter
into one or more drug development agreements will materially and
adversely affect our ability to develop our Science division. Even
if we are able to obtain such joint drug development agreements
there can be no assurance that it will be on terms and conditions
that will be favorable to us.
Although we believe that we can significantly reduce the costs of
engaging in FDA certified pre-clinical and clinical trials,
including traditional Phase IV human trials, by obtaining data from
existing users of our medical cannabis protocols, there can be no
assurance that such data will be available, or if it is, that the
FDA will accept our data. There is the further risk that the
anticipated costs of producing an FDA approved drug will not
escalate to the point that will cause us and any of our prospective
development partners to abandon such efforts.
Even if we do develop an FDA-approved pharmaceutical product, there
is the risk that it will not be saleable to a major pharmaceutical
company (either before or after completion of the FDA approval
process), or that other competing drugs will not be produced
providing the same medical benefits.
Accordingly, there is a significant risk that we will never be able
to generate a return on our investment, and we could lose our
entire investment in our Science division. Either of such events,
would have a material adverse effect on our business prospects and
equity value.
There has been limited study on the effects of medical cannabis
and future clinical research studies may lead to conclusions that
dispute or conflict with our understanding and belief regarding the
medical benefits, viability, safety, efficacy, dosing and social
acceptance of cannabis.
Research regarding the medical benefits, viability, safety,
efficacy and dosing of cannabis or isolated cannabinoids (such as
CBD and THC) remains in relatively early stages. There have been
few clinical trials on the benefits of cannabis or isolated
cannabinoids conducted by us or by others.
Future research and clinical trials may draw opposing conclusions
to statements contained in the articles, reports and studies we
have relied on or could reach different or negative conclusions
regarding the medical benefits, viability, safety, efficacy, dosing
or other facts and perceptions related to medical cannabis, which
could adversely affect social acceptance of cannabis and the demand
for our products.
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 Schedule 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
thirty-three states and District of Columbia have passed
legislation permitting the cultivation and dispensing of medical
cannabis, these laws are, in many jurisdictions, subject to strict
regulation and limitations and are still being developed. Active
enforcement of the current federal regulatory position on cannabis
on a regional or national basis may directly and adversely affect
the ability of the Company to develop its business plan even though
it is allowed by state regulation in the various states in which
the Company intends to operate. Although research and development
in the growing and processing of cannabis products for medicinal
purposes and in seeking to obtain state permits for the cultivation
and sale of cannabis products are not in violation of Federal law,
our business plan to conduct our Solutions and Products divisions,
even if conducted within the parameters of any state licenses or
permits we are able to obtain, will violate federal laws, as
currently in effect. Accordingly, although the Company was
successful in obtaining a cultivation and production license in
Nevada or other states and operates pursuant to such licenses, if
federal law does not change, we believe the Company will at that
time be in violation of federal law. If existing federal laws are
enforced by the United States Department of Justice or the FDA, it
is likely that our proposed business will be significantly and
materially adversely affected.
Because the Company's sales are subject to IRC 280E, we may owe
federal income taxes even though we are incurring losses.
Under the federal Controlled Substances Act (“CSA”), cannabis is
deemed to be a Schedule One narcotic that has no medical benefit.
The production and distribution of Schedule One narcotics is
subject to Internal Revvenue Code Section 280E, which prohibits the
Company from deducting any ordinary and necessary business expenses
from taxable gross profit related to the sale of cannabis products.
Without the deduction of business expenses, it is possible that the
Company will owe income taxes while generating losses. If we are
unable to pay those taxes we may be subject to penalties and IRS
enforcement action.
FDA regulation of marijuana and the possible registration of
facilities where medical marijuana is grown could negatively affect
the cannabis industry which would directly affect our financial
condition.
Should the federal government legalize marijuana for medical use,
it is possible that the U.S. Food and Drug Administration (FDA)
would seek to regulate it under the Food, Drug and Cosmetics Act of
1938. Additionally, the FDA may issue rules and regulations
including cGMPs (current good manufacturing practices) related to
the growth, cultivation, harvesting and processing of medical
marijuana. Clinical trials may be needed to verify efficacy and
safety. It is also possible that the FDA would require that
facilities where medical marijuana is grown be registered with the
FDA and comply with certain federally prescribed regulations. In
the event that some or all of these regulations are imposed, we do
not know what the impact would be on the medical marijuana
industry, what costs, requirements and possible prohibitions may be
enforced.
If no additional states allow the medicinal use of cannabis, or
if one or more states that currently allow it reverse their
position, we may not be able to continue our growth, or the market
for our products and services may decline.
Currently, thirty-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 thirty-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. Variations exist among states
that have legalized, decriminalized, or created medical cannabis
exemptions. For example, Colorado has limits on the number of
cannabis plants that can be homegrown. In most states, the
cultivation of cannabis for personal use continues to be prohibited
except for those states that allow small-scale cultivation by the
individual in possession of medical cannabis needing care or that
person’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. 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 cannabis business.
We may not be able to obtain or maintain the necessary licenses,
permits, authorizations, or accreditations, or may only be able to
do so at great cost, to operate its medical cannabis business. In
addition, we may not be able to comply fully with the wide variety
of laws and regulations applicable to the medical cannabis
industry. Failure to comply with or to obtain the necessary
licenses, permits, authorizations, or accreditations could result
in restrictions on our ability to operate the medical cannabis
business, which could have a material adverse effect on our
business.
Any failure on our part to comply with applicable regulations
could prevent us from being able to carry on our business.
Nevada Department of Taxation inspectors routinely assess the Teco
Facility for compliance with applicable regulatory requirements.
Any failure by us to comply with the applicable regulatory
requirements could require extensive changes to our operations;
result in regulatory or agency proceedings or investigations,
increased compliance costs, damage awards, civil or criminal fines
or penalties or restrictions on our operations; and harm our
reputation or give rise to material liabilities or a revocation of
our licenses and other permits. There can be no assurance that any
pending or future regulatory or agency proceedings, investigations
or audits will not result in substantial costs, a diversion of
management’s attention and resources or other adverse consequences
to us and our business.
If we incur substantial liability from litigation, complaints,
or enforcement actions, our financial condition could
suffer.
Our participation in the medical cannabis industry may lead to
litigation, formal or informal complaints, enforcement actions, and
inquiries by various federal, state, or local governmental
authorities against these subsidiaries. Litigation, complaints, and
enforcement actions involving these subsidiaries could consume
considerable amounts of financial and other corporate resources,
which could have a negative impact on our sales, revenue,
profitability, and growth prospects.
We are subject to risks inherent in an agricultural business,
including the risk of crop failure.
We grow cannabis, which is an agricultural process. As such, our
business is subject to the risks inherent in the agricultural
business, including risks of crop failure presented by weather,
insects, plant diseases and similar agricultural risks.
We have difficulty accessing the service of banks, which may
make it difficult for us to operate.
Since the use of cannabis is illegal under Federal law, there is an
argument that banks should not accept for deposit funds from
businesses involved with the cannabis industry. Consequently, such
businesses often have difficulty finding a bank willing to accept
their business.
On February 14, 2014, the U.S. government issued rules allowing
banks to legally provide financial services to state licensed
marijuana businesses. A memorandum issued by the Justice Department
to federal prosecutors re-iterated guidance previously given, this
time to the financial industry that banks can do business with
legal marijuana businesses and “may not” 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.
Notwithstanding the above federal guidelines and in addition to
potential federal sanctions, regulators in the states in which we
are able to conduct business may make it difficult for local banks
to do business with companies considered to be engaged in
cultivating and dispensing cannabis. Failure to establish a
permanent banking relationship could have a material and adverse
effect on our future business operations.
We face intense competition and many of our competitors have
greater resources that may enable them to compete more
effectively.
The industry in which we operate is subject to intense and
increasing competition. Some of our competitors have greater
capital resources, facilities and diversity of product lines, which
may enable them to compete more effectively in this market. Our
competitors may devote their resources to developing and marketing
products that will directly compete with our product lines. Due to
this competition, there is no assurance that we will not encounter
difficulties in obtaining revenues and market share or in the
positioning of our products. There are no assurances that
competition in our respective industries will not lead to reduced
prices for our products. If we are unable to successfully compete
with existing companies and new entrants to the market this will
have a negative impact on our business and financial condition.
If we fail to protect or develop our intellectual property, our
business could be adversely affected.
Our viability will depend, in part, on our ability to develop and
maintain the proprietary aspects of our technology to distinguish
our products from our competitors’ 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 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. 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:
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●
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The need for continued development of our financial and information
management systems;
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The need to manage strategic relationships and agreements with
manufacturers, customers and partners; and
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Difficulties in hiring and retaining skilled management, technical,
and other personnel necessary to support and manage our
business.
|
Additionally, our strategy could produce a period of rapid growth
that may impose a significant burden on our administrative and
operational resources. Our ability to effectively manage growth
will require us to substantially expand the capabilities of our
administrative and operational resources and to attract, train,
manage, and retain qualified management and other personnel. There
can be no assurance that we will be successful in recruiting and
retaining new employees or retaining existing employees.
We cannot provide assurances that our management will be able to
manage this growth effectively. Our failure to successfully manage
growth could result in our sales not increasing commensurately with
capital investments or otherwise materially adversely affecting our
business, financial condition, or results of operations.
If we are unable to continually innovate and increase
efficiencies, our ability to attract new customers may be adversely
affected.
In the area of innovation, we must be able to develop new
technologies and products that appeal to our customers. This
depends, in part, on the technological and creative skills of our
personnel and on our ability to protect our intellectual property
rights. We may not be successful in the development, introduction,
marketing, and sourcing of new technologies or innovations, that
satisfy customer needs, achieve market acceptance, or generate
satisfactory financial returns.
Litigation may adversely affect our business, financial
condition, and results of operations.
From time to time in the normal course of our business operations,
we may become subject to litigation that may result in liability
material to our financial statements as a whole or may negatively
affect our operating results if changes to our business operations
are required. The cost to defend such litigation may be significant
and may require a diversion of our resources. There also may be
adverse publicity associated with litigation that could negatively
affect customer perception of our business, regardless of whether
the allegations are valid or whether we are ultimately found
liable. Insurance may not be available at all or in sufficient
amounts to cover any liabilities with respect to these or other
matters. A judgment or other liability in excess of our insurance
coverage for any claims could adversely affect our business and the
results of our operations.
If we fail to implement and maintain proper and effective
internal controls and disclosure controls and procedures pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, our ability to
produce accurate and timely financial statements and public reports
could be impaired, which could adversely affect our operating
results, our ability to operate our business, and investors’ views
of us.
As of March 31,
2020, management assessed the effectiveness of our internal
controls over financial reporting. Management concluded, as of
the fiscal year ended March 31,
2020, that our internal controls and procedures were not
effective to detect the inappropriate application of U.S. GAAP
rules. Management concluded that our internal controls were
adversely affected by deficiencies in the design or operation of
our internal controls, which management considered to be material
weakness; specifically, no member of our board of directors
qualifies as an “audit committee financial expert” as defined in
Item 407(d)(5) of Regulation S-K promulgated under the Securities
Act.
The failure to implement and maintain proper and effective internal
controls and disclosure controls could result in material
weaknesses in our financial reporting such as errors in our
financial statements and in the accompanying footnote disclosures
that could require restatements. Investors may lose confidence in
our reported financial information and disclosure, which could
negatively impact our stock price.
We do not expect that our internal controls over financial
reporting will prevent all errors and all fraud. A control system,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management
override of the controls. Over time, controls may become inadequate
because changes in conditions or deterioration in the degree of
compliance with policies or procedures may occur. Because of the
inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
Our insurance coverage may be inadequate to cover all
significant risk exposures; because we are in the cannabis
industry, we have a difficult time obtaining the various insurances
that are desired to operate our business, which may expose us to
additional risk and financial liabilities.
We will be exposed to liabilities that are unique to the products
we provide. While we intend to maintain insurance for certain
risks, the amount of our insurance coverage may not be adequate to
cover all claims or liabilities, and we may be forced to bear
substantial costs resulting from risks and uncertainties of our
business. It is also not possible to obtain insurance to protect
against all operational risks and liabilities. The failure to
obtain adequate insurance coverage on terms favorable to us, or at
all, could have a material adverse effect on our business,
financial condition and results of operations. We do not have any
business interruption insurance. Any business disruption or natural
disaster could result in substantial costs and diversion of
resources. We do not have directors' and officers' liability
insurance in place and could incur substantial costs to indemnify
our directors and officers against any claims that may arise.
Currently we have insurance coverage in place for business personal
properties located at 3550 W. Teco Avenue, Las Vegas, Nevada 89118,
workers’ compensation insurance, and general liability
insurance.
Insurance that is otherwise readily available is more difficult for
us to find, and more expensive, because we engaged in the medicinal
cannabis industry. There are no guarantees that we will be able to
find such insurances in the future, or that the cost will be
affordable to us. If we are forced to go without such insurances,
it may prevent us from entering into certain business sectors, may
inhibit our growth, and may expose us to additional risk and
financial liabilities.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
We expect to experience volatility in the price of our common
stock, which could negatively affect stockholders’
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.
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 do
not have directors' and officers' liability insurance in place and
could incur substantial costs to indemnify our directors and
officers against any claims that may arise.
We may issue additional shares of common stock in the future,
which could cause significant dilution to all stockholders.
Our Articles of of Incorporation authorize the issuance of up to
600,000,000 shares with a par value of $0.0001 per share. As of
August 28, 2020, we had 280,532,686 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.
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
ITEM 2. PROPERTY
Our executive offices, Science and Cultivation divisions are
located at 3550 W. Teco Avenue, Las Vegas, NV 89118 under a
ten-year initial term with one option to extend the lease for five
years, or until December 31, 2030. The monthly rent payments per
the Amended Lease Agreement were $43,709 as of
March 31,
2020. Rent charges increase by 3% on January 1 of each year
through the expiration of the lease.
ITEM 3. LEGAL
PROCEEDINGS
Tara “Dee” Russell filed a Charge of Discrimination with the Nevada
Equal Rights Commission ("NERC") against the Company on April 2,
2019, alleging that she was subjected to sexual harassment and
retaliatory discharge. The Company received the Notice of Charge of
Discrimination on or about May 15, 2019. The Company submitted its
response to the Notice of Discrimination Charge on July 26, 2019.
It is the Company's position that Ms. Russell was not an employee
of the Company, but rather was an independent contractor. The
Company intends to aggressively respond to the charge. To date, the
NERC has not issued a ruling regarding the charge.
On April 22, 2020, the Company failed to repay any of the
outstanding balance of the Convertible Promissory Note Payable to
Iliad Research and Trading, L.P., resulting in a default. Pursuant
to the terms of the Promissory Note, upon the default, the
principal and accrued interest balances outstanding increased by
10% and the Company recorded expense of $286,059 related to the
default. As of June 30, 2020, the total balance due under the note
was $3,234,149.
On May 20, 2020, Iliad filed a lawsuit against the Company in the
Third Judicial District Court of Salt Lake County in the State of
Utah demanding repayment of the note. The lawsuit further seeks to
compel the Company to participate in arbitration pursuant to the
arbitration provisions contained within the Note Purchase Agreement
and to prohibit the Company to raise funds through the issuance of
its common stock unless the note is paid in full simultaneously
with such issuance. The Company filed a confession of judgment in
response to the complaint and does not intend to defend the
lawsuit. On July 14, 2020, the Court entered judgment in favor of
Iliad in the amount of $3,264,594 and the judgment accrues interest
at the default rate of 15% per annum. The Company will also be
responsible for reasonable attorney's fees amd costs incurred by
Iliad for obtaining and collecting on the judgment. The amount of
such fees has not been established as of the date of this report.
The Company believes it will have sufficient resources to repay the
Iliad Note from the proceeds of the sale of the Teco Facility and
the note receivable therefrom, along with the proceeds of the note
receivable from Wellcana Group from the sale of the Company's
membership interest in GB Sciences Louisiana, LLC.
On April 22, 2020, the Company was served notice of a lawsuit filed
in the Eighth Judicial District Court in Clark County, Nevada,
filed by a contractor who had been hired to perform architectural
and design services. The lawsuit demands payment of $73,050 for the
services provided. The Company is in the process of negotiating a
settlement and the full amount demanded in the lawsuit of $73,050
is accrued in accounts payable as of March 31, 2020.
We are currently not involved in any other material legal
proceedings.
ITEM 4. MINE SAFETY
DISCLOSURES
Not Applicable
PART II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
GB Sciences, Inc.’s common stock is quoted on the OTCQB under the
symbol "GBLX".
For the periods indicated, the following table sets forth the high
and low per share intra-day sales prices per share of common stock.
These prices represent inter-dealer quotations without retail
markup, markdown, or commission and may not necessarily represent
actual transactions.
Fiscal Year 2020
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High ($)
|
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Low ($)
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Fourth Quarter
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|
$ |
0.05 |
|
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$ |
0.02 |
|
Third Quarter
|
|
|
0.10 |
|
|
|
0.03 |
|
Second Quarter
|
|
|
0.15 |
|
|
|
0.08 |
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First Quarter
|
|
|
0.19 |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.28 |
|
|
|
0.15 |
|
Third Quarter
|
|
|
0.44 |
|
|
|
0.14 |
|
Second Quarter
|
|
|
0.45 |
|
|
|
0.24 |
|
First Quarter
|
|
|
0.82 |
|
|
|
0.41 |
|
As of August 24, 2020, there were 171 holders of record of our
common stock. Because many of our shares are held by brokers and
other institutions on behalf of shareholders, we are unable to
estimate the total number of beneficial holders.
Dividend Policy
Cash dividends have never been declared or paid on common stock and
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
Stock Issued for Debt Conversions
During the year
ended March 31, 2020, the Company issued a total
of 7,583,333 shares of common stock for the conversion of
notes payable:
On May 28, 2019, the Company received notice from CSW Ventures,
L.P. of the conversion of a total of $170,000 of the principal
balance of the 8% Senior Secured Promissory Note dated February 28,
2019. Accordingly, the Company issued 1,000,000 shares of its
common stock based on a $0.17 per share conversion price. In
connection with the conversions, $17,225 in unamortized discount
was recorded as interest expense and the Company has reduced the
carrying amount of convertible notes payable by $152,775.
On August 1, 2019, the Company received notice from CSW Ventures,
L.P. of the conversion of a total of $110,000 of the principal
balance of the Amended CSW Note at $0.11 per share. Accordingly,
the Company issued 1,000,000 shares of its common stock. In
connection with the conversions, $9,579 in unamortized discount was
recorded as interest expense and the Company has reduced the
carrying amount of convertible notes payable by $100,421. After
conversion, the remaining balance outstanding was $1,361,863.
On December 16, 2019, the Company received notice from CSW
Ventures, L.P. of the conversion of a total of $120,000 of the
principal balance of the Amended CSW Note at $0.04 per share and we
issued 3,000,000 shares of common stock. In connection with the
conversions, $57,551 in unamortized discount was recorded as
interest expense and the Company has reduced the carrying amount of
convertible notes payable by $62,449. After conversion, the
remaining balance outstanding was $1,271,863 and the carrrying
amount of the note was $687,021, net of $584,842 in unamortized
discount from the beneficial conversion feature.
During the year
ended March 31, 2020, the Company has honored the conversion of
a total of a total of $125,000 of debt owed under the Iliad Note at
reduced conversion rates. On October 30, 2019, the Company received
notice of the conversion of $75,000 at $0.06 per share and issued
1,250,000 shares of its common stock. The fair value of the shares
issued exceeded the fair value of the shares issuable under the
original terms of the Note by $64,706, and the Company recorded an
expense in that amount. On November 18, 2019, the Company received
notice of the conversion of $50,000 of the note balance at $0.0375
per share and issued 1,333,333 shares of its common stock. The fair
value of the shares issued exceeded the fair value of the shares
issuable under the original terms of the Note by $62,353, and the
Company recorded an expense in that amount. In total, the Company
recorded $127,059 in noncash expense for the two conversions of the
Iliad note at below contractual conversion rates for the
year ended
March 31, 2020.
Exercise of Warrants for Stock
During the year
ended March 31, 2020, the Company issued 17,563,000 shares
of common stock for exercises of warrants:
In order to encourage the exercise of approximately 70.5 million
warrants issued to investors in private placements of convertible
notes and common stock having exercise prices ranging between $0.65
and $0.30, the Company effected a temporary decrease in the
exercise price of the warrants to $0.10 per share until July 11,
2019. On July 12, 2019, the Company extended the repricing of the
warrants through August 30, 2019, and on July 31, 2019, the Company
extended the repricing of the warrants to December 31, 2019. As a
result of the price reduction, the Company received notice of the
exercise of 9,449,750 warrants and received proceeds of $850,478,
net of brokerage fees of $94,498. In connection with the induced
exercise of the warrants, the Company recorded an inducement
dividend of $230,025.
In order to encourage the further exercise of the warrants, the
Company effected a temporary decrease in the exercise price of the
warrants to $0.03-$.05 per share beginning in December 2019. As a
result of the price reduction, the Company received notice of the
exercise of an additional 8,113,250 warrants and received proceeds
of $296,834, net of brokerage fees of $32,982. In connection with
the induced exercise of the warrants, the Company recorded an
inducement dividend of $32,215.
Issuance of Stock for Services
During the year
ended March 31, 2020, the Company issued 2,100,000 shares
of common stock for consulting services and recorded related
expense of $214,000 based on the fair value of the stock on the
date of the related consulting agreements.
Issuance of Stock for Cash
During the year
ended March 31, 2020, the company issued 7,668,167 shares
of common stock for cash as follows:
On December 4, 2018, the Company entered into a Placement Agent’s
Agreement to offer a total of 15,000,000 units at the price of
$0.20 per unit up to a total of $3 million. Each unit consisted of
one share of the Company’s common stock and one warrant to purchase
one share of the Company’s common stock at the price of $0.60 for a
period of five years. On January 15, 2019, the Placement Agent’s
Agreement was amended to decrease the unit price from $0.20 per
unit to $0.15 per unit for a total of 20,000,000 units and decrease
the exercise price of the warrants included in each unit from $0.60
to $0.30, applied retroactively to funds raised prior to the date
of the amendment, with no other changes to the agreement. During
the year ended
March 31, 2020, the Company received a total of $478,696 in
proceeds from the private placement, net of $71,529 in brokerage
fees and issued 3,668,167 shares of its common stock and 3,668,167
warrants to purchase one share of its common stock at $0.30 per
share.
On October 10, 2019, the Company issued 4,000,000 shares of common
stock and 2,000,000 warrants to purchase one share of common stock
at $0.08 per share for a period of three years to an investor for
$240,000 cash. The warrants were valued at $110,000 on the date of
issuance using the Black-Scholes model.
ITEM 6. SELECTED
FINANCIAL DATA
As a "smaller reporting company" as defined by Item 10 of
Regulation S-K, the Company is not required to provide information
required by this Item.
ITEM 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.
Executive Overview
The Company seeks to be an innovative technology and solution
company that converts the cannabis plant into medicines, therapies
and treatments for a variety of ailments. The Company is developing
and utilizing state of the art technologies in plant biology,
cultivation and extraction techniques, combined with biotechnology,
and plans to produce consistent and measurable medical-grade
cannabis, cannabis concentrates and cannabinoid therapies.
We seek to become a trusted producer of consistent and efficacious
medicinal strains and products, combining both cannabinoids and
terpenes, which we intend to market in those states within the
United 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.
We were incorporated in the State of Delaware on April 4, 2001,
under the name “Flagstick Venture, Inc.” On March 28, 2008,
stockholders owning a majority of our outstanding common stock
approved changing our then name “Signature Exploration and
Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase
agreement for the acquisition of assets, including the Growblox™
cultivation technology which resulted in a change in our corporate
name on April 4, 2014, from Signature Exploration and Production
Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of
Corporation pursuant to shareholder approval as reported in the
Form 8-K filed on October 14, 2016. Pursuant to the amendment
the Company’s name was changed from Growblox Sciences, Inc. to GB
Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the
change in corporate domicile from the State of Delaware to the
State of Nevada and increase in the number of authorized capital
shares from 250,000,000 to 400,000,000. Effective August 15, 2019,
Shareholders of the Company approved an additional increase in
authorized capital shares from 400,000,000 to 600,000,000.
On September 21, 2018, the Company formed a wholly owned
subsidiary, GBS Global Biopharma, Inc. ("GBS"), in the province of
Ontario, Canada with plans to license and/or transfer some of
Growblox Life Sciences LLC’s intellectual property to the newly
formed entity. On March 15, 2019, the Company entered into the
Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby
all of the assets and certain liabilities held by Growblox Life
Sciences, LLC, a wholly-owned subsidiary of GB Sciences,
Inc., were transferred to GBS Global Biopharma, Inc. in exchange
for a promissory note in the amount of $1,435,700. The assets
transferred include all intellectual property and intangible assets
owned by the Company, consisting primarily of patents in process
and research contracts with universities and researchers. It is
anticipated that GBS Global Biopharma Inc. will pursue clinical
development of the intellectual property, including clinical
trials.
On April 7th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Cannabinoid Containing Complex Mixtures ("CCCMs") for
the Treatment of Parkinson’s disease (PD), which is owned by the
Company’s Canadian entity, GBS Global Biopharma, Inc. (GBS). On May
19, 2020, the patent was issued as United States Patent
10,653,640.
On May 12th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Myrcene Containing Complex Mixtures ("MCCMs") for the
Treatment of Neuropathic Pain. Intellectual property rights to this
application and the MCCM contained within it are owned by the
Company’s Canadian entity, GBS Global Biopharma, Inc. (GBS). The
Company's MCCMs are protected for use in the treatment of pain
related to arthritis, shingles, irritable bowel syndrome, sickle
cell disease, and endometriosis. The patent was issued on July 14,
2020 as United States Patent 10,709,670.
On November 15, 2019, the Company entered into the Membership
Interest Purchase Agreement ("MIPA") with the noncontrolling
interest in GB Sciences Louisiana, LLC ("GBSLA"). In consideration
for the sale of its 50.01% membership interest in GBSLA, the
Company received the $8,000,000 Promissory Note ("Wellcana
Note") and may receive up to an additional $8,000,000 in earn-out
payments. On August 24, 2020, the Company entered into a letter of
intent with the purchaser to discount the note receivable in
exchange for accelerated payment. Pursuant to the letter of intent,
the Company will receive payments totaling $5,224,423, including
the forgiveness by purchaser of $324,423 in liabilities and the
payment of $4,900,000 in cash, on or before October 15, 2020, less
any cash payments made by the purchaser up to the date of the final
payment. Upon receipt of the payment, all liabilities owed to the
Company by the purchaser, including the $8,000,000 note receivable
and any potential earn-out payments will be considered satisfied in
full.
The Company operates State-licensed cannabis cultivation and
extraction facilities in Las Vegas, Nevada through its wholly-owned
subsidiaries, GB Sciences Nevada, LLV and GB Sciences Las Vegas,
LLC (together, "Teco Subsisdiaries"). The facilities hold licenses
for both medical and adult-use cannabis. On November 15, 2019, we
entered into a Binding Letter of Intent (the "LOI") to sell 75% of
the Company's membership interests in the Teco Subsidiaries. In
connection with the LOI, we entered into a Management Agreement
with the purchaser whereby the facilities will be managed by an
affiliate of the purchaser until the close of the sale. On March
24, 2020, we entered into the Membership Interest Purchase
Agreement ("Teco MIPA") which formalized the sale of the Teco
Subsidiaries and modified the terms of the sale. Pursuant to the
Teco MIPA, the Company will sell 100% of its membership interests
in GBSN and GBLV for $4.0 million cash upon close and will receive
a $4.0 million 8% promissory note to be paid in monthly
installments over 36 months.
The Company also holds a Nevada license for cultivation of medical
marijuana located in Sandy Valley, Nevada (the “Nopah License”).
The license is owned by the Company’s wholly owned subsidiary, GB
Sciences Nopah, LLC ("Nopah"). Operations have not begun under the
Nopah License. On November 27, 2019, the Company entered into a
Binding Letter of Intent to sell its 100% interest in GB Sciences
Nopah, LLC (the “Nopah LOI”), with the transaction closing upon
transfer of the Nopah License. As consideration for the transfer of
the license, the Company will receive $300,000 and the purchaser
will pay all expenses related to the upkeep and maintenence of the
Nopah License. The transfer of the Nopah License is subject to the
same restrictions on license transfers currently in effect in the
State of Nevada.
The sales of the Teco Facility and Nopah are expected to close upon
the successful transfer of the Nevada cultivation and production
licenses. The transfer of cannabis licenses in the State of
Nevadahas been subject to an indefinite moratorium since October
2019. In a meeting held on July 21, 2020, the Nevada Cannabis
Compliance Board lifted the moratorium, however, the board has
indicated that there are over 90 requests pending and it will take
up to several months to process the entire backlog of pending
license transfers. Based on this information, we cannot provide any
assurances as to the timing of the close of the sale. The lifting
of the moratorium and processing of cannabis license transfers have
been delayed by the COVID-19 pandemic and could be further delayed
if the pandemic continues.
Results of Operations
The following table sets forth selected data of our Statement of
Operations:
|
|
For the Years Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
SALES REVENUE
|
|
$ |
3,120,620 |
|
|
$ |
3,454,552 |
|
COST OF GOODS SOLD
|
|
|
(4,002,083 |
) |
|
|
(3,246,097 |
) |
GROSS PROFIT (LOSS)
|
|
|
(881,463 |
) |
|
|
208,455 |
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
6,483,513 |
|
|
|
13,399,524 |
|
LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS |
|
|
4,645,054 |
|
|
|
- |
|
LOSS FROM OPERATIONS
|
|
|
(12,010,030 |
) |
|
|
(13,191,069 |
) |
OTHER INCOME/(EXPENSE)
|
|
|
461,402 |
|
|
|
(8,308,646 |
) |
NET LOSS BEFORE INCOME TAX EXPENSE
|
|
|
(11,548,628 |
) |
|
|
(21,499,715 |
) |
INCOME TAX EXPENSE
|
|
|
(86,837 |
) |
|
|
(526,145 |
) |
LOSS FROM CONTINUING OPERATIONS |
|
|
(11,635,465 |
) |
|
|
(22,025,860 |
) |
LOSS FROM DISCONTINUED OPERATIONS |
|
|
(1,476,220 |
) |
|
|
(2,654,427 |
) |
NET LOSS
|
|
|
(13,111,685 |
) |
|
|
(24,680,287 |
) |
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
(738,106 |
) |
|
|
(1,027,122 |
) |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC.
|
|
$ |
(12,373,579 |
) |
|
$ |
(23,653,165 |
) |
Gross Profit (Loss). The Company recorded a gross
loss of $(881,463)
for the year
ended March 31, 2020 as compared to gross profit of
$208,455
for the same period in prior year. The decrease in gross profit was
driven by a decrease in revenue of $(333,932)
compared to the prior year and an increase of 755,986
in cost of goods sold.
General and Administrative Expenses. General and
administrative expense decreased $(6,916,011)
to $6,483,513
for the year
ended March 31, 2020 as compared to $13,399,524
for the same period last year. The decrease is attributable to a
company-wide initiative to reduce general and administrative costs,
including a substantial reduction in the number of employees
involved in administrative functions.
Loss on impairment of long-lived assets. The Company
recorded a loss on impairment of long-lived assets of
$4,645,054
as the result of the agreement to sell the Teco Facility during the
year ended
March 31, 2020, compared to $0 in the prior year.
Other Income/(Expense). Other expense decreased by
$(3,174,308)
compared to the prior year. The decrease is primarily due to
$3,140,925 in cash and noncash expense paid to Pacific Leaf in
connection with the July 2018 Amendment and Termination
Agreement.
Interest Expense. Interest expense decreased by
$(3,314,886)
compared to the prior year. The decrease is largely the result of
total expense of $3,464,187
during the year
ended March 31, 2019 related to unamortized debt discount on
note conversions, compared to only $84,354
for the year ended
March 31, 2020.
Loss on extinguishment. The Company recorded losses
on extinguishment of $(216,954)
for the year ended
March 31, 2020, compared to $0 in the prior year. The current
year losses relate to modifications of the note payable to CSW
Ventures, L.P.
Loss on modification of note receivable. The Company
recorded a loss of $(1,895,434)
related to the modification of the $8,000,000 note receivable from
the sale of the Company's membership interest in GB Sciences
Louisiana, LLC.
Gain on deconsolidation. The Company recorded a gain
on deconsolidation of $4,393,242
related to the sale of its 50% membership interest in GB Sciences
Louisiana, LLC.
Liquidity and Capital Resources
Current Liquidity
The Company will need additional capital to implement our
strategies. There is no assurance that it will be able to raise the
amount of capital needed for future growth plans. Even if financing
is available, it may not be on terms that are acceptable. If unable
to raise the necessary capital at the times required, the Company
may have to materially change the business plan, including delaying
implementation of aspects of the business plan or curtailing or
abandoning the business plan. The Company represents a speculative
investment and investors may lose all of their investment. In order
to be able to achieve the strategic goals, the Company needs to
further expand its business and financing activities. Based upon
the cash position, it is necessary to raise additional capital by
the end of the next quarter in order to continue to fund current
operations. These factors raise substantial doubt about the ability
to continue as a going concern. The Company is pursuing
several alternatives to address this situation, including the
raising of additional funding through equity or debt financings. In
order to finance existing operations and pay current liabilities
over the next twelve months, the Company will need to raise
additional capital. No assurance can be given that the Company will
be able to operate profitably on a consistent basis, or at all, in
the future.
The principal sources of liquidity to date have been cash generated
from sales of debt and equity securities.
At March 31,
2020, the Company had a cash balance of $151,766,
other current assets excluding cash were $6,849,114
and our working capital deficit was $(3,884,877).
Current liabilities were $10,885,757,
which consisted principally of $5,534,728
in notes and convertible notes payable, $2,559,914
in accounts payable, $1,285,664
in accrued liabilities, and $592,982
in income tax payable. At March 31,
2019, the Company had a cash balance of $182,055,
other current assets excluding cash were $3,284,716,
current assets from discontinued operations were $1,000,387,
and our working capital deficit was $(3,245,409)
including $(1,133,890)
from discontinued operations. Current liabilities were
$6,712,180,
which consisted principally of $2,229,812
in notes payable, $1,374,771
in accounts payable, $467,175
in accrued liabilities, $506,145
of income tax payable, and $2,134,277
from discontinued operations.
Sources and Uses of Cash
Operating Activities
Cash flows used in operations were $(4,479,713)
including $(1,244,720)
from discontinued operations for the year ended
March 31, 2020, compared to $(9,855,895)
including $(1,271,177)
from discontinued operations for the year ended
March 31, 2019. 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.
Investing Activities
Cash flows used in investing activities were $(538,784)
including $(260,625)
from discontinued operations for the year ended
March 31, 2020, compared to $(10,996,544)
including $(9,070,409)
from discontinued operations for the year ended
March 31, 2019. Cash used in investing activities primarily was
spent to acquire property and equipment and to pay our attorneys
and researchers to draft and file patent applications.
Financing Activities
During the years ended
March 31, 2020 and 2019 cash flows from financing activities
were $4,988,208
including $282,835
from discontinued operations, and $17,500,497,
including $7,248,480
from discontinued operations, respectively. Cash flows from
financing activities for the year ended
March 31, 2020 relate primarily to $790,225
in proceeds from the issuance of common stock, $1,274,790
from warrant exercises, $2,630,000
in proceeds from the issuance of debt securities, and
$282,835
in proceeds from non-controlling interests, offset by brokerage
fees of $(188,593),
debt issuance fees of $(175,000),
and principal payments on debt and lease obligations of
$(106,049).
Cash flows from financing activities for the year ended
March 31, 2020 consisted of $11,402,464
proceeds from issuance of common stock and $1,500,000
proceeds from convertible notes, offset by $(959,620)
in brokerage fees, $(690,827)
of principal payments on debt and lease obligations, and
$(1,000,000)
paid to settle the Pacific Leaf Royalty Agreement.
0% Note Payable dated December 20, 2018
On December 20, 2018, GB Sciences Louisiana, LLC (“GBSLA") entered
into a $300,000 Loan Agreement with BCM MED, LLC (“BCM MED”). BCM
MED is a related party to Wellcana Group, LLC, the minority member
in GBSLA. The purpose of the financing is to fund operating
expenses incurred by or on behalf of medical marijuana operations
of GBSLA.
Pursuant to the Loan Agreement, GBSLA began making eight (8)
monthly installment payments in the amount of $33,333 on or before
the 10th
business day of each month commencing in April 2019. The aggregate
amount of the installment payments from GBSLA to BCM MED are equal
to the loan amount. Through November 15, 2019, GBSLA made $266,667
in payments towards the loan and reduced the loan balance to
$33,333. The remaining balance was deconsolidated upon close of the
sale of the Company's controlling membership interest.
8% Line of Credit dated November 27, 2019
In connection with the Binding Letter of Intent dated November 27,
2019, the Company entered into a promissory note and received a
line of credit for up to $470,000 from the purchaser of the
Company's membership interest in its Nevada facilities. The purpose
of the line of credit is to supply working capital for the Nevada
operations. The note matures upon the close of the sale of
membership interests. During the year ended
March 31, 2020, the Company received $480,000 in advances under
the line of credit, reflecting an informal agreement with the
lender to increase the Line of Credit limit by $10,000. The Company
accrued interest of $10,444 on the line of credit for the
year ended
March 31, 2020 and the balance of the line of credit was
$480,000 at March 31,
2020. Upon the close of the sale of the Teco Facility all
principal and interest due under the line of credit will be
considered satisfied in full.
March 2017 $2M Convertible Note Offering
In March 2017, the Company entered into a Placement Agent’s
Agreement with a third-party brokerage firm to offer units
consisting of a $1,000 6% promissory note convertible into 4,000
shares of the Company’s common stock at $0.25 per share and 4,000
warrants to purchase shares of the Company’s’ common stock at an
exercise price of $0.60 per share for the period of three years.
Between March 2017 and May 2017, the Company issued short-term
Promissory Notes (“Notes”) to various holders with combined face
value of $2,000,000. The Notes are payable within three years of
issuance and are convertible into 8,000,000 shares of the Company’s
common stock. The Company also issued 8,000,000 common stock
warrants to the Noteholders. The warrants are exercisable at any
time and from time to time before maturity at the option of the
holder. Each warrant gives the Noteholder the right to purchase one
share of common stock of the Company at an exercise price of $0.60
per share for a period of three years. The Company recorded
an aggregate discount on convertible notes of $1,933,693, which
included $904,690 related to the relative fair value of beneficial
conversion features and $1,029,003 for the relative fair value of
the warrants issued with each note. The fair value of warrants was
derived using the Black-Scholes valuation model.
July 2017 $7.2M Convertible Note Offering
In July, 2017, the Company entered into a Placement Agent’s
Agreement with a third-party brokerage firm to offer units
consisting of a $1,000 6% promissory note convertible into 4,000
shares of the Company’s common stock at $0.25 per share and 4,000
warrants to purchase shares of the Company’s’ common stock at an
exercise price of $0.65 per share for the period of three years.
Between July 2017 and December 2017, the Company issued short-term
Promissory Notes (“Notes”) to various holders with combined face
value of $7,201,000. The Notes are payable within three years of
issuance and are convertible into 28,804,000 shares of the
Company’s common stock. The Company also issued 28,804,000 common
stock warrants to the Noteholders. The warrants are exercisable at
any time and from time to time before maturity at the option of the
holder. Each warrant gives the Noteholder the right to purchase one
share of common stock of the Company at an exercise price of $0.60
per share for a period of three years.The Company recorded an
aggregate discount on convertible notes of $7,092,796, which
included $3,142,605 related to the relative fair value of
beneficial conversion features and 3,950,191 for the relative fair
value of the warrants issued with each note. The fair value of
warrants was derived using the Black-Scholes valuation model.
As of March 31,
2020, convertible notes having a carrying value of $1,101,660,
net of unamortized discount of $(155,340) remained outstanding
from the March 2017 and July 2017 note offerings, and accrued
interest on the notes is $197,185. Discount amortization was
$409,589 for the year ended March 31,
2020.
8% Senior Secured Convertible Promissory Note dated
February 28, 2019
On February 28, 2019, the Company issued a $1,500,000 8% Senior
Secured Convertible Promissory Note and entered into the Note
Purchase Agreement and Security Agreement with CSW Ventures, LP
(together, “CSW Note”). The note matures on August 28, 2020 and is
convertible at any time until maturity into 8,823,529 shares of the
Company’s common stock at $0.17 per share. Collateral pledged as
security for the note includes all of the Company’s 100% membership
interests in GB Sciences, Nevada, LLC and GB Sciences Las Vegas,
LLC, which together represent substantially all of the Company’s
cannabis cultivation and production operations and assets located
at the Teco facility in Las Vegas, Nevada.
The intrinsic value of the beneficial conversion feature resulting
from the market price of the Company’s common stock in excess of
the conversion price was $176,471 on the date of issuance, and the
Company recorded a discount on the CSW Note in that amount. During
the nine months ended December 31, 2019, the Company recorded
accrued interest on the CSW Note of $32,186 and recorded an
additional $61,286 in interest expense as the result of
amortization of the note discount.
On May 28, 2019, the Company received notice from CSW Ventures,
L.P. of the conversion of a total of $170,000 of the principal
balance of the 8% Senior Secured Promissory Note dated February 28,
2019. Accordingly, the Company issued 1,000,000 shares of its
common stock based on a $0.17 per share conversion price. In
connection with the conversions, $ 17,225 in unamortized discount
was recorded as interest expense and the Company reduced the
carrying amount of convertible notes payable by $152,775. After
conversion, the remaining balance outstanding was $1,330,000.
On July 12, 2019, the Company entered into the Amendment to Note
Documents and the Amended and Restated 8% Senior Secured Promissory
Note (together, “Amended CSW Note”). The Amended CSW Note increased
the note balance by $100,000 to reflect an additional $100,000
advanced to the Company on July 12, 2019, by $41,863 to add accrued
interest to date to the principal balance, and decreased the
conversion price to $0.11 per share, with the remaining terms
substantially unchanged from the original CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and
determined that the amendment represents an extinguishment because
the change in the fair value of the conversion feature exceeded 10%
of the carrying value of the CSW Note on the amendment date. The
carrying value of the amended note on the date of extinguishment
was $1,338,057, net of a beneficial conversion feature discount of
$133,806, and we recorded a loss on extinguishment of $124,158.
On August 1, 2019, the Company received notice from CSW Ventures,
L.P. of the conversion of a total of $ 110,000 of the principal
balance of the Amended CSW Note at $0.11 per share. Accordingly,
the Company issued 1,000,000 shares of its common stock. In
connection with the conversions, $9,579 in unamortized discount was
recorded as interest expense and the Company has reduced the
carrying amount of convertible notes payable by $100,421. After
conversion, the remaining balance outstanding was $ 1,361,863.
On October 23, 2019, the Company entered into the Amendment to
Promissory Note. The October 23, 2019 amendment decreased the
conversion price to $0.08 per share, with the remaining terms
substantially unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and
determined that the amendment represents an extinguishment because
the change in the fair value of the conversion feature exceeded 10%
of the carrying value of the Amended CSW Note immediately prior to
the 2nd Amended CSW Note. The carrying value of the Amended CSW
Note on the date of extinguishment was $1,269,067, net of a
beneficial conversion feature discount of $92,796, and we recorded
a loss on extinguishment of $92,796.
On November 27, 2019, the Company entered into the Second Amendment
to Note Documents and the Second Amended and Restated 8% Senior
Secured Promissory Note (together, “2nd Amended CSW Note”). The 2nd
Amended CSW Note decreased the conversion price to $0.04 per share
and increased the note balance by $30,000 to reflect an advance
received on that date, with the remaining terms substantially
unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and
determined that the 2nd Amended CSW Note represents an
extinguishment because the change in the fair value of the
conversion feature exceeded 10% of the carrying value of the
Amended CSW Note immediately prior to the 2nd Amended CSW Note;
however, no loss on extinguishment was recorded because the net
consideration paid for the 2nd Amended CSW Note was equal to the
extinguished carrying value of the Amended CSW Note. The carrying
value of the Amended CSW Note on the date of extinguishment was
$1,361,863.
On December 16, 2019, the Company received notice from CSW
Ventures, L.P. of the conversion of a total of $120,000 of the
principal balance of the Amended CSW Note at $0.04 per share and we
issued 3,000,000 shares of common stock. In connection with the
conversions, $57,551 in unamortized discount was recorded as
interest expense and the Company has reduced the carrying amount of
convertible notes payable by $62,449. After conversion, the
remaining balance outstanding was $1,271,863 and the carrrying
amount of the note was $687,021, net of $584,842 in unamortized
discount from the beneficial conversion feature.
During the year ended
March 31, 2020, we recorded interest expense of $398,591
related to the CSW Note and its amendments consisting
of $109,161 in accrued interest and $289,430 related to
amortization of the note discount. As of March 31,
2020, the carrying amount of the CSW Note was $862,382,
net of unamortized discount of $409,481.
The Company is in default on the amended CSW Note due to
non-payment of the quarterly interest payments due on October 1,
2019, January 1, 2020, and March 1, 2020, and nonpayment of an
income tax liability related to the March 31, 2018 tax year. The
terms of the note provide that the Company has 5 days to cure a
default caused by nonpayment of interest and ten days to cure a
default caused by noncompliance with affirmative or negative debt
covenants. The lender has agreed to provide forbearance of the
defaults in connection with the sale of the Teco facilities, and
the Company anticipates that the CSW Note will be settled in full
upon close of the sale of the Company's interests in its Nevada
operations to an entity affiliated with CSW Ventures, LP.
8% Convertible Promissory Note dated April 23, 2019
On April 23, 2019, the Company entered into the Note Purchase
Agreement with Iliad Research and Trading, L.P. ("Iliad") and
issued an 8% Convertible Promissory Note with a face value of
$2,765,000. The Note was issued with original issue discount of
$265,000 and is convertible into shares of the Company’s common
stock at a price of $0.17 per share at the option of the note
holder at any time until the Note is repaid. The Note matures on
April 22, 2020.
A total discount of $440,000 was recorded on the note, which
includes $265,000 of original issue discount and $175,000 in fees
paid to brokers. During the year ended
March 31, 2020, interest expense related to the note was
$617,430, of which $410,169 was amortization of the note
discount.
During the year ended
March 31, 2020, the Company has honored the conversion of a
total of a total of $125,000 of accrued interest on the Iliad Note
at reduced conversion rates. On October 30, 2019, the Company
received notice of the conversion of $75,000 at $0.06 per share and
issued 1,250,000 shares of its common stock. The fair value of the
shares issued exceeded the fair value of the shares issuable under
the original terms of the Note by $64,706, and the Company recorded
an induced conversion expense. On November 18, 2019, the Company
received notice of the conversion of $50,000 of the note balance at
$0.0375 per share and issued 1,333,333 shares of its common stock.
The fair value of the shares issued exceeded the fair value of the
shares issuable under the original terms of the Note by $62,353,
and the Company recorded an expense in that amount. In total, the
Company recorded $127,059 in noncash expense for the two
conversions of the Iliad note at below contractual conversion rates
for the year ended
March 31, 2020, which is included in other expense on the
Company's consolidated statement of operations.
On April 22, 2020, the Company failed to make payment of the
principal and accrued interest due under the Iliad Note, resulting
in a default. Pursuant to the terms of the Promissory Note, upon
the default, the principal and accrued interest balances
outstanding increased by 10% and the Company recorded an expense of
$286,059 related to the default. As of June 30, 2020, the total
balance due under the note was $3,234,149.
On May 20, 2020, Iliad filed a lawsuit against the Company in the
Third Judicial District Court of Salt Lake County in the State of
Utah demanding repayment of the note. The lawsuit further seeks to
compel the Company to participate in arbitration pursuant to the
arbitration provisions contained within the Note Purchase Agreement
and to prohibit the Company to raise funds through the issuance of
its common stock unless the note is paid in full simultaneously
with such issuance. The Company filed a confession of judgment in
response to the complaint and does not intend to defend the
lawsuit. On July 14, 2020, the Court entered judgment in favor of
Iliad in the amount of $3,264,594 and the judgment accrues interest
at the default rate of 15% per annum. The Company will also be
responsible for reasonable attorney's fees amd costs incurred by
Iliad for obtaining and collecting on the judgment. The amount of
such fees has not been established as of the date of this report.
The Company believes it will have sufficient resources to repay the
Iliad Note from the proceeds of the sale of the Teco Facility and
the note receivable therefrom, along with the proceeds of the note
receivable from Wellcana Group from the sale of the Company's
membership interest in GB Sciences Louisiana, LLC.
Variables and Trends
We have limited operating history with respect to the current
business plan. In the event we are able to obtain the necessary
financing to move forward with the business plan, we expect
business expenses to increase significantly as we go operational.
Accordingly, the comparison of the financial data for the periods
presented may not be a meaningful indicator of future performance
and must be considered in light these circumstances.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to allowances
for doubtful accounts, inventory valuation, valuation of initial
right-of-use assets and corresponding lease liabilities, valuation
of beneficial conversion features in convertible debt, valuation of
the assets and liabilities of discontinued operations, stock-based
compensation expense, purchased intangible asset valuations,
deferred income tax asset valuation allowances, uncertain tax
positions, litigation and other loss contingencies. These estimates
and assumptions are based on current facts, historical experience
and various other factors that the Company believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities and the recording of costs and expenses that are not
readily apparent from other sources. The actual results the Company
experiences may differ materially and adversely from these
estimates.
Discontinued Operations
Discontinued operations comprise those activities that were
disposed of during the period or which were classified as held for
sale at the end of the period and represent a separate major line
of business or geographical area that can be clearly distinguished
for operational and financial reporting purposes. Management has
determined that the Company's controlling interest in GB Sciences
Louisiana, LLC qualifies for presentation in discontinued
operations as the result of the sale of the membership interest on
November 15, 2019 (see Note 15 to the Consolidated Financial
Statements).
The Company has also agreed to sell its 100% membership interests
in GB Sciences Nevada, LLC and GB Sciences Las Vegas, LLC pursuant
to the terms of the Membership Purchase Interest Agreement ("Teco
MIPA") dated March 24, 2020. The Company also entered into a
Binding Letter of Intent to sell its 100% interest in GB Sciences
Nopah, LLC ("Nopah"), with the transaction closing upon transfer of
the Nopah License (see Note 16 to the Consolidated Financial
Statements). The sales of the Teco Facility and Nopah are expected
to close upon the successful transfer of the Nevada cultivation and
production licenses held by each respective entity.
The transfer of cannabis licenses in the State of Nevada has been
subject to an indefinite moratorium since October 2019. In a
meeting held on July 21, 2020, the Nevada Cannabis Compliance Board
lifted the moratorium, however, the board has indicated that there
are over 90 requests pending and it will take up to several months
to process the entire backlog of pending license transfers. Based
on this information the timing of thhe license transfers continues
to be subject to significant uncertainty. Because of these
restrictions, which are not usual and customary, the Company is
unable to estimate whether the sale will be completed within one
year and management has determined that the Teco subsidiaries and
Nopah do not meet the held for sale classification requirements and
therefore do not meet the criteria for classification as
discontinued operations. Accordingly, the Teco Facility and Nopah
are classified in continuing operations for the years ended
March 31, 2020 and 2019.
Inventory
We value our inventory at the lower of the actual cost of our
inventory, as determined using the first-in, first-out method, or
its net realizable value. We periodically review our physical
inventory for excess, obsolete, and potentially impaired items and
reserve accordingly. Our reserve estimate for excess and obsolete
inventory is based on expected future use. The estimate of
inventory's net realizable value is based on data published by the
State of Nevada semiannually which reports average selling prices
by category of cultivation products, as well as past sales of the
same products and sales of our products that occurred subsequent to
the balance sheet date. If future selling prices decline
significantly, it may result in a lower net realizable value than
management estimates.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the
value of our patents pending and includes the costs paid to draft
and file patent applications. Upon issuance of the patents, the
indefinite-lived intangible assets will have finite lives. We
amortize our finite-lived intangible assets over their estimated
useful lives using the straight-line method, and we periodically
evaluate the remaining useful lives of our finite-lived intangible
assets to determine whether events or circumstances warrant a
revision to the remaining period of amortization.
Long-Lived Assets
Property and equipment comprise a significant portion of our total
assets. We evaluate the carrying value of property and equipment if
impairment indicators are present or if other circumstances
indicate that impairment may exist under authoritative guidance.
The annual testing date is March 31. When management believes
impairment indicators may exist, projections of the undiscounted
future cash flows associated with the use of and eventual
disposition of property and equipment are prepared. If the
projections indicate that the carrying value of the property and
equipment are not recoverable, we reduce the carrying values to
fair value. These impairment tests are heavily influenced by
assumptions and estimates that are subject to change as additional
information becomes available.
During the year ended March 31,
2020, the Company entered into the Membership Interest Purchase
Agreement ("Teco MIPA") to sell 100% of the membership interests in
the Teco Facility. As a result of this agreement, the Company
determined that the long-lived assets of the Teco Facility might be
impaired due to the current expectation that the asset group will
more likely than not be disposed of by sale significantly before
the end of its previously estimated useful life. The Company
estimated future undiscounted cash flows related to the Teco
Facility to be $8.0 million, which was less than the carrying
amount of the Teco Facility asset group of $11.9 million.
Using a discounted cash flow approach, the Company estimated the
fair value of the asset group to be approximately $7.3 million,
resulting in a write-down of $4,645,054
related to the Teco Facility asset group. Fair value was based on
expected future cash flows using level 3 inputs under ASC 820. The
cash flows are the proceeds expected to be generated from the sale
of the assets under the Teco MIPA, discounted to present value at a
rate of 17%.
Beneficial Conversion Feature of Convertible Notes
Payable
The Company accounts for convertible notes payable in accordance
with the guidelines established by the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) Topic 470-20, Debt with Conversion and Other
Options and Emerging Issues Task Force (“EITF”)
00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments”. A beneficial conversion feature
(“BCF”) exists on the date a convertible note is issued when the
fair value of the underlying common stock to which the note is
convertible into is in excess of the remaining unallocated proceeds
of the note after first considering the allocation of a portion of
the note proceeds to the fair value of any attached equity
instruments, if any related equity instruments were granted with
the debt. In accordance with this guidance, the BCF of a
convertible note is measured by allocating a portion of the note's
proceeds to the warrants, if applicable, and as a reduction of the
carrying amount of the convertible note equal to the intrinsic
value of the conversion feature, both of which are credited to
additional paid-in-capital. The Company calculates the fair value
of warrants issued with the convertible notes using the
Black-Scholes valuation model and uses the same assumptions for
valuing any employee options in accordance with ASC Topic 718
Compensation – Stock Compensation. The only difference
is that the contractual life of the warrants is used.
The value of the proceeds received from a convertible note is then
allocated between the conversion features and warrants on a
relative fair value basis. The allocated fair value is recorded in
the financial statements as a debt discount (premium) from the face
amount of the note and such discount is amortized over the expected
term of the convertible note (or to the conversion date of the
note, if sooner) and is charged to interest expense.
Equity-Based Compensation
The Company accounts for equity instruments issued to employees in
accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC
505-50 (ASC 505-50). The computation of the expense associated with
stock-based compensation requires the use of a valuation model. The
FASB-issued accounting guidance requires significant judgment and
the use of estimates, particularly surrounding Black-Scholes
assumptions such as stock price volatility, expected option lives,
and expected option forfeiture rates, to value equity-based
compensation. We currently use a Black-Scholes option pricing model
to calculate the fair value of our stock options. We primarily use
historical data to determine the assumptions to be used in the
Black-Scholes model and have no reason to believe that future data
is likely to differ materially from historical data. However,
changes in the assumptions to reflect future stock price volatility
and future stock award exercise experience could result in a change
in the assumptions used to value awards in the future and may
result in a material change to the fair value calculation of
stock-based awards. This accounting guidance requires the
recognition of the fair value of stock compensation in net income.
Although every effort is made to ensure the accuracy of our
estimates and assumptions, significant unanticipated changes in
those estimates, interpretations and assumptions may result in
recording stock option expense that may materially impact our
financial statements for each respective reporting period.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included
in financial statements or tax returns. Deferred tax items are
reflected at the enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected
reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Due to the uncertainty regarding the success of future operations,
management has valued the deferred tax asset allowance at 100% of
the related deferred tax assets.
Recent Accounting Pronouncements
Recently Adopted Standards
In February 2016, the Financial Accounting Standards Board ("FASB")
issued ASU 2016-02, Leases (Topic 842), (the "New Lease Standard").
This standard requires leases, other than short-term, to be
recognized on the balance sheet as a lease liability and a
corresponding right-of-use asset.
Lease payments include fixed payments, variable payments based on
an index or rate, reasonably certain purchase options, termination
penalties, and others as required by the standard. Lease payments
do not include variable lease payments other than those that depend
on an index or rate, any guarantee by the lessee of the lessor’s
debt, or any amount allocated to non-lease components. This
standard is effective for interim and annual reporting periods
beginning after December 15, 2018 and the Company adopted the
standard as of April 1, 2019. The Company also elected the package
of practical expedients, which among other things, does not require
reassessment of lease classification.
The Company adopted the New Lease Standard using the modified
retrospective transition approach as of the effective date as
permitted by the amendments in ASU 2018-11, "Targeted Improvements
- Leases (Topic 842)." Under this method, the cumulative effect
adjustment to the opening balance of retained earnings is
recognized at the adoption date. As a result, the Company was not
required to adjust its comparative period financial information for
effects of the standard or make the new required lease disclosures
for periods before the date of adoption on April 1, 2019.
The Company's consolidated balance sheet was affected by this
standard, but the consolidated statement of operations and
consolidated statement of cash flows were not significantly
impacted. The most significant change to the consolidated balance
sheet upon adoption on April 1, 2019 relates to the recognition of
new right-of-use (ROU) assets of $182,624, net of accumulated
amortizations, and operating liabilities of $190,173 at the date of
adoption. The Company's accounting for finance leases remains
substantially unchanged.
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting” (“ASU 2018-07”). ASU No 2018-07 expands the
scope of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. The guidance also
specifies that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be
used or consumed in a grantor’s own operations by issuing
share-based payment awards. This guidance is effective for fiscal
years beginning after December 15, 2018, including interim periods
within those fiscal years, and is effective for the Company as of
April 1, 2019. The Company determined that all share-based payments
were settled as of the date of the adoption, so there was no impact
on the Company's consolidated financial statements.
All other newly issued accounting pronouncements but not yet
effective have been deemed either immaterial or not applicable.
ITEM 7A QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10 of
Regulation S-K, the Company is not required to provide information
required by this Item.
ITEM 8. FINANCIAL
STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee
of GB Sciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of GB
Sciences, Inc. (the Company) as of March 31, 2020 and the related
consolidated statements of operations, stockholders’ deficit and
cash flows for the year ended March 31, 2020 and the related notes
(collectively referred to as the financial statements). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
March 31, 2020, and the results of its operations and its cash
flows for the year ended March 31, 2020, in conformity with
accounting principles generally accepted in the United States of
America.
Explanatory Paragraph- Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has suffered recurring losses. For the year
ended March 31, 2020 the Company had a net loss of $13,111,685 had
net cash used in operating activities of $4,479,713, and had
negative working capital of $3,884,877. These factors raise
substantial doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit.
We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provides a
reasonable basis for our opinion.
/s/ Assurance Dimensions
We have served as the Company’s auditor since 2019.
Margate, Florida
August 27, 2020
ASSURANCE DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS &
ASSOCIATES
TAMPA BAY: 4920 W Cypress Street, Suite 102
| Tampa, FL 33607 | Office: 813.443.5048 | Fax:
813.443.5053
JACKSONVILLE: 4720 Salisbury Road, Suite 223
| Jacksonville, FL 32256 | Office: 888.410.2323
| Fax: 813.443.5053
ORLANDO: 1800 Pembrook Drive, Suite 300 | Orlando, FL
32810 | Office: 888.410.2323 | Fax: 813.443.5053
SOUTH FLORIDA: 2000 Banks Road, Suite 218
| Margate, FL 33063 | Office: 754.800.3400 | Fax:
813.443.5053
www.assurancedimensions.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of GB Sciences, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of GB
Sciences, Inc. (the Company) as of March 31, 2019, and the related
consolidated statements of operations, changes in stockholders’
equity, and cash flows for the year ended March 31, 2019, and the
related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of March 31, 2019, and the results of
its operations and its cash flows for the year ended March 31,
2019, in conformity with accounting principles generally accepted
in the United States of America.
Going Concern
The accompanying consolidated financials have been prepared
assuming the Company will continue as a going concern. As of March
31, 2019, the Company had accumulated losses of approximately $84.7
million, has generated limited revenue, and may experiences losses
in the near term. 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 consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.
/s/Soles, Heyn & Company LLP
We have served as the Company’s auditor since 2014.
Soles, Heyn & Company, LLP
West Palm Beach, Florida
July 15, 2019
400 Executive Center Drive, Suite 203
West Palm Beach, FL 33401
561-429-6625
GB SCIENCES,
INC.
CONSOLIDATED BALANCE SHEETS
|
|
As of March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
151,766 |
|
|
$ |
182,055 |
|
Accounts receivable, net of allowance for doubtful accounts of
$130,378 and $66,748 at March 31, 2020 and 2019, respectively
|
|
|
117,967 |
|
|
|
488,329 |
|
Inventory, net
|
|
|
1,445,839 |
|
|
|
1,533,792 |
|
Prepaid expenses and other current assets
|
|
|
60,885 |
|
|
|
262,208 |
|
Note receivable |
|
|
5,224,423 |
|
|
|
- |
|
Current assets from discontinued operations |
|
|
- |
|
|
|
1,000,387 |
|
TOTAL CURRENT ASSETS
|
|
|
7,000,880 |
|
|
|
3,466,771 |
|
Property and equipment, net
|
|
|
5,533,833 |
|
|
|
10,481,706 |
|
Intangible assets, net of accumulated amortization of $12,287 and
$3,745 at March 31, 2020 and 2019, respectively
|
|
|
1,699,966 |
|
|
|
1,818,802 |
|
Deposits and other noncurrent assets
|
|
|
91,504 |
|
|
|
230,651 |
|
Operating lease right-of-use assets, net
|
|
|
26,685 |
|
|
|
- |
|
Non-current assets from discontinued operations |
|
|
- |
|
|
|
14,025,372 |
|
TOTAL ASSETS
|
|
$ |
14,352,868 |
|
|
$ |
30,023,302 |
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,559,914 |
|
|
$ |
1,374,771 |
|
Accrued interest
|
|
|
397,652 |
|
|
|
142,112 |
|
Accrued liabilities
|
|
|
888,012 |
|
|
|
244,931 |
|
Notes and convertible notes payable, net of unamortized discount of
$608,580 and $799,410 at March 31, 2020 and 2019, respectively
|
|
|
5,534,728 |
|
|
|
2,229,812 |
|
Indebtedness to related parties |
|
|
586,512 |
|
|
|
- |
|
Note payable to related party |
|
|
151,923 |
|
|
|
- |
|
Income tax payable
|
|
|
592,982 |
|
|
|
506,145 |
|
Operating lease obligations, current |
|
|
7,265 |
|
|
|
- |
|
Finance lease obligations, current
|
|
|
166,769 |
|
|
|
80,132 |
|
Current liabilities from discontinued operations |
|
|
- |
|
|
|
2,134,277 |
|
TOTAL CURRENT LIABILITIES
|
|
|
10,885,757 |
|
|
|
6,712,180 |
|
Note payable, net of unamortized discount of $0 and $13,928 at
March 31, 2020 and 2019, respectively
|
|
|
- |
|
|
|
161,072 |
|
Operating lease obligations, long term |
|
|
22,515 |
|
|
|
- |
|
Finance lease obligations, long term |
|
|
3,533,090 |
|
|
|
3,646,540 |
|
Long term liabilities from discontinued operations |
|
|
- |
|
|
|
2,347,511 |
|
TOTAL LIABILITIES
|
|
|
14,441,362 |
|
|
|
12,867,303 |
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Common Stock, $0.0001 par value, 600,000,000 shares authorized,
275,541,602 and 240,627,102 at March 31, 2020 and 2019,
respectively
|
|
|
27,554 |
|
|
|
24,063 |
|
Additional paid-in capital
|
|
|
97,271,157 |
|
|
|
93,020,015 |
|
Accumulated deficit
|
|
|
(97,387,205 |
) |
|
|
(84,743,836 |
) |
TOTAL GB SCIENCES, INC. STOCKHOLDERS' EQUITY/(DEFICIT)
|
|
|
(88,494 |
) |
|
|
8,300,242 |
|
Non-controlling interest in discontinued operations
|
|
|
- |
|
|
|
8,855,757 |
|
TOTAL EQUITY/(DEFICIT)
|
|
|
(88,494 |
) |
|
|
17,155,999 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
14,352,868 |
|
|
$ |
30,023,302 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
$ |
3,120,620 |
|
|
$ |
3,454,552 |
|
Cost of goods sold
|
|
|
(4,002,083 |
) |
|
|
(3,246,097 |
) |
Gross profit (loss)
|
|
|
(881,463 |
) |
|
|
208,455 |
|
General and administrative expenses
|
|
|
6,483,513 |
|
|
|
13,399,524 |
|
Loss on impairment of long-lived assets |
|
|
4,645,054 |
|
|
|
- |
|
LOSS FROM OPERATIONS
|
|
|
(12,010,030 |
) |
|
|
(13,191,069 |
) |
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,625,204 |
) |
|
|
(4,940,090 |
) |
Other expense
|
|
|
(194,248 |
) |
|
|
(3,368,556 |
) |
Loss on extinguishment |
|
|
(216,954 |
) |
|
|
- |
|
Loss on modification of note receivable |
|
|
(1,895,434 |
) |
|
|
- |
|
Gain on deconsolidation of subsidiary
|
|
|
4,393,242 |
|
|
|
- |
|
Total other income/(expense)
|
|
|
461,402 |
|
|
|
(8,308,646 |
) |
LOSS BEFORE INCOME TAXES
|
|
|
(11,548,628 |
) |
|
|
(21,499,715 |
) |
Income tax expense
|
|
|
(86,837 |
) |
|
|
(526,145 |
) |
LOSS FROM CONTINUING OPERATIONS
|
|
|
(11,635,465 |
) |
|
|
(22,025,860 |
) |
Loss from discontinued operations
|
|
|
(1,476,220 |
) |
|
|
(2,654,427 |
) |
NET LOSS
|
|
|
(13,111,685 |
) |
|
|
(24,680,287 |
) |
Net loss attributable to non-controlling interest
|
|
|
(738,106 |
) |
|
|
(1,027,122 |
) |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC.
|
|
$ |
(12,373,579 |
) |
|
$ |
(23,653,165 |
) |
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders of GB Sciences,
Inc. |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(11,635,465 |
) |
|
$ |
(22,025,860 |
) |
Discontinued operations |
|
|
(738,114 |
) |
|
|
(1,627,305 |
) |
Net loss |
|
$ |
(12,373,579 |
) |
|
$ |
(23,653,165 |
) |
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
(0.10 |
) |
Discontinued operations |
|
|
- |
|
|
|
(0.01 |
) |
Net loss |
|
$ |
(0.05 |
) |
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted |
|
|
258,450,641 |
|
|
|
209,537,769 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES,
INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
|
|
Additional Paid-
|
|
|
Accumulated
|
|
|
Non-Controlling
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
In Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
Balance at March 31, 2018
|
|
|
168,616,855 |
|
|
$ |
16,862 |
|
|
$ |
70,961,104 |
|
|
$ |
(58,229,235 |
) |
|
$ |
2,882,990 |
|
|
$ |
15,631,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for debt conversion
|
|
|
18,563,885 |
|
|
|
1,856 |
|
|
|
4,639,115 |
|
|
|
- |
|
|
|
- |
|
|
|
4,640,971 |
|
Exercise of warrants for stock
|
|
|
12,657,875 |
|
|
|
1,266 |
|
|
|
3,919,454 |
|
|
|
- |
|
|
|
- |
|
|
|
3,920,720 |
|
Issuance of stock for services
|
|
|
4,032,407 |
|
|
|
403 |
|
|
|
1,253,960 |
|
|
|
- |
|
|
|
- |
|
|
|
1,254,363 |
|
Share based compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
1,966,388 |
|
|
|
- |
|
|
|
- |
|
|
|
1,966,388 |
|
Issuance of stock for cash, net of issuance costs
|
|
|
36,156,080 |
|
|
|
3,616 |
|
|
|
6,518,509 |
|
|
|
- |
|
|
|
- |
|
|
|
6,522,125 |
|
Beneficial conversion feature on notes payable
|
|
|
- |
|
|
|
- |
|
|
|
176,471 |
|
|
|
- |
|
|
|
- |
|
|
|
176,471 |
|
Contributions from non-controlling interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,999,889 |
|
|
|
6,999,889 |
|
Stock issued to settle Pacific Leaf royalty agreement
|
|
|
600,000 |
|
|
|
60 |
|
|
|
130,940 |
|
|
|
- |
|
|
|
- |
|
|
|
131,000 |
|
Compensation warrants
|
|
|
- |
|
|
|
- |
|
|
|
592,638 |
|
|
|
- |
|
|
|
- |
|
|
|
592,638 |
|
Inducement dividend from warrant exercises
|
|
|
- |
|
|
|
- |
|
|
|
2,861,436 |
|
|
|
(2,861,436 |
) |
|
|
- |
|
|
|
- |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(23,653,165 |
) |
|
|
- |
|
|
|
(23,653,165 |
) |
Loss attributable to non-controlling interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,027,122 |
) |
|
|
(1,027,122 |
) |
Balance at March 31, 2019
|
|
|
240,627,102 |
|
|
|
24,063 |
|
|
|
93,020,015 |
|
|
|
(84,743,836 |
) |
|
|
8,855,757 |
|
|
|
17,155,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for debt conversion |
|
|
7,583,333 |
|
|
|
758 |
|
|
|
524,242 |
|
|
|
- |
|
|
|
- |
|
|
|
525,000 |
|
Exercise of warrants for stock, net of issuance costs |
|
|
17,563,000 |
|
|
|
1,756 |
|
|
|
1,155,971 |
|
|
|
- |
|
|
|
- |
|
|
|
1,157,727 |
|
Issuance of stock for services |
|
|
2,100,000 |
|
|
|
210 |
|
|
|
213,790 |
|
|
|
- |
|
|
|
- |
|
|
|
214,000 |
|
Share based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
287,260 |
|
|
|
- |
|
|
|
- |
|
|
|
287,260 |
|
Issuance of stock for cash, net of issuance costs |
|
|
7,668,167 |
|
|
|
767 |
|
|
|
717,929 |
|
|
|
- |
|
|
|
- |
|
|
|
718,696 |
|
Beneficial conversion feature on notes payable |
|
|
- |
|
|
|
- |
|
|
|
829,737 |
|
|
|
- |
|
|
|
- |
|
|
|
829,737 |
|
Contributions from non-controlling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
590,000 |
|
|
|
590,000 |
|
Compensation warrants |
|
|
- |
|
|
|
- |
|
|
|
132,914 |
|
|
|
- |
|
|
|
- |
|
|
|
132,914 |
|
Inducement dividend from warrant exercises |
|
|
- |
|
|
|
- |
|
|
|
262,240 |
|
|
|
(262,240 |
) |
|
|
- |
|
|
|
- |
|
Induced conversions of accrued interest on notes payable |
|
|
- |
|
|
|
- |
|
|
|
127,059 |
|
|
|
- |
|
|
|
- |
|
|
|
127,059 |
|
Cumulative effect of the new lease standard |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,550 |
) |
|
|
- |
|
|
|
(7,550 |
) |
Deconsolidation of GB Sciences Louisiana, LLC |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,707,651 |
) |
|
|
(8,707,651 |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,373,579 |
) |
|
|
- |
|
|
|
(12,373,579 |
) |
Loss attributable to non-controlling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(738,106 |
) |
|
|
(738,106 |
) |
Balance at March 31, 2020
|
|
|
275,541,602 |
|
|
$ |
27,554 |
|
|
$ |
97,271,157 |
|
|
$ |
(97,387,205 |
) |
|
$ |
- |
|
|
$ |
(88,494 |
) |
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(13,111,685 |
) |
|
$ |
(24,680,287 |
) |
Loss from discontinued operations |
|
|
(1,476,220 |
) |
|
|
(2,654,427 |
) |
Net loss from continuing operations |
|
|
(11,635,465 |
) |
|
|
(22,025,860 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
258,729 |
|
|
|
250,187 |
|
Stock-based compensation
|
|
|
287,260 |
|
|
|
1,966,388 |
|
Stock issued for services |
|
|
214,000 |
|
|
|
1,254,363 |
|
Issuance of compensation warrants to brokers |
|
|
132,914 |
|
|
|
592,638 |
|
Bad debt expense
|
|
|
108,001 |
|
|
|
5,849 |
|
Amortization of debt discount and beneficial conversion feature
|
|
|
1,150,995 |
|
|
|
793,820 |
|
Interest expense on conversion of notes payable
|
|
|
84,354 |
|
|
|
3,464,187 |
|
Noncash expense recorded for settlement of note payable and related
royalty agreement (Note 6)
|
|
|
- |
|
|
|
2,140,925 |
|
Loss on extinguishment of debt
|
|
|
216,954 |
|
|
|
- |
|
Loss on disposal of assets and termination of operating lease
|
|
|
178,760 |
|
|
|
128,946 |
|
Loss on induced conversion of note payable
|
|
|
127,059 |
|
|
|
- |
|
Loss on impairment of long-lived assets |
|
|
4,645,054 |
|
|
|
- |
|
Loss on modification of note receivable |
|
|
1,895,434 |
|
|
|
- |
|
Gain on deconsolidation of subsidiary
|
|
|
(4,393,242 |
) |
|
|
- |
|
Interest income receivable and amortization of discount on note
receivable |
|
|
(509,265 |
) |
|
|
- |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
412,498 |
|
|
|
172,895 |
|
Prepaid expenses and other current assets
|
|
|
51,186 |
|
|
|
869,210 |
|
Decrease in deposits and other noncurrent assets
|
|
|
139,147 |
|
|
|
120,089 |
|
Inventory
|
|
|
665,560 |
|
|
|
(16,971 |
) |
Accounts payable
|
|
|
781,589 |
|
|
|
1,002,846 |
|
Accrued expenses
|
|
|
707,158 |
|
|
|
38,780 |
|
Accrued interest |
|
|
421,055 |
|
|
|
150,845 |
|
Income tax payable
|
|
|
86,837 |
|
|
|
506,145 |
|
Indebtedness to related parties
|
|
|
738,435 |
|
|
|
- |
|
Net cash used in operating activities of continuing operations |
|
|
(3,234,993 |
) |
|
|
(8,584,718 |
) |
Net cash used in operating activities of discontinued
operations
|
|
|
(1,244,720 |
) |
|
|
(1,271,177 |
) |
Net cash used in operating activities
|
|
|
(4,479,713 |
) |
|
|
(9,855,895 |
) |
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(202,297 |
) |
|
|
(1,512,094 |
) |
Proceeds from disposal of fixed assets
|
|
|
16,000 |
|
|
|
- |
|
Acquisition of intangible assets
|
|
|
(91,862 |
) |
|
|
(414,041 |
) |
Net cash used in investing activities of continuing operations
|
|
|
(278,159 |
) |
|
|
(1,926,135 |
) |
Net cash used in investing activities of discontinued
operations
|
|
|
(260,625 |
) |
|
|
(9,070,409 |
) |
Net cash used in investing activities
|
|
|
(538,784 |
) |
|
|
(10,996,544 |
) |
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
790,225 |
|
|
|
11,402,464 |
|
Proceeds from warrant exercises
|
|
|
1,274,790 |
|
|
|
- |
|
Proceeds from convertible notes payable
|
|
|
2,630,000 |
|
|
|
1,500,000 |
|
Proceeds from line of credit
|
|
|
480,000 |
|
|
|
- |
|
Brokerage fees for issuance of common stock and warrants
|
|
|
(188,593 |
) |
|
|
(959,620 |
) |
Fees for issuance of convertible note |
|
|
(175,000 |
) |
|
|
- |
|
Principal payments on debt and lease obligations
|
|
|
(106,049 |
) |
|
|
(690,827 |
) |
Cash paid for global settlement of note payable and related royalty
agreement
|
|
|
- |
|
|
|
(1,000,000 |
) |
Net cash provided by financing activities of continuing
operations
|
|
|
4,705,373 |
|
|
|
10,252,017 |
|
Net cash provided by financing activities of discontinued
operations |
|
|
282,835 |
|
|
|
7,248,480 |
|
Net cash provided by financing activities
|
|
|
4,988,208 |
|
|
|
17,500,497 |
|
Net change in cash and cash equivalents |
|
|
(30,289 |
) |
|
|
(3,351,942 |
) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
|
182,055 |
|
|
|
3,579,700 |
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
|
151,766 |
|
|
|
227,758 |
|
Less: cash and cash equivalents classified as discontinued
operations |
|
|
- |
|
|
|
(45,703 |
) |
CASH AND CASH EQUIVALENTS AT END OF YEAR FROM CONTINUING
OPERATIONS |
|
$ |
151,766 |
|
|
$ |
182,055 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES, INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
Year Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for interest
|
|
$ |
451,040 |
|
|
$ |
539,242 |
|
Cash paid for income tax
|
|
$ |
- |
|
|
$ |
20,000 |
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Stock issued upon conversion of convertible notes payable
|
|
$ |
525,000 |
|
|
$ |
4,640,971 |
|
Stock issued to settle royalty agreement
|
|
$ |
- |
|
|
$ |
131,000 |
|
Depreciation capitalized in inventory
|
|
$ |
811,508 |
|
|
$ |
584,017 |
|
Induced dividend from warrant exercises
|
|
$ |
262,240 |
|
|
$ |
2,861,436 |
|
Beneficial conversion feature on notes payable
|
|
$ |
829,737 |
|
|
$ |
176,471 |
|
Patent filing and drafting costs capitalized in intangible
assets |
|
$ |
247,646 |
|
|
$ |
- |
|
Property capitalized under operating leases
|
|
$ |
182,624 |
|
|
$ |
- |
|
Cumulative effect of the new lease standard
|
|
$ |
7,550 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
Note 1 -
Background and Basis of Presentation
Background
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or
“our”) seeks to be a biopharmaceutical research and
cannabinoid-based drug development company whose goal is to create
patented formulations for safe, standardized, cannabinoid therapies
that target a variety of medical conditions in both the
pharmaceutical and wellness markets. The Company is is engaged in
the research and development of cannabinoid medicines and plans to
produce cannabinoid therapies for the wellness markets based on its
portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma,
Inc. (“GBSGB”), the Company is engaged in the research and
development of cannabinoid medicines with virtual operations in
North America and Europe. GBSGB assets include cannabinoid medicine
intellectual property, research contracts and key supplier
arrangements. GBSGB’s intellectual property covers a range of
conditions and several programs are in pre-clinical animal stage of
development; including Parkinson’s disease, neuropathic pain, and
cardiovascular therapeutic programs. GBSGB runs a lean drug
development program and takes effort to minimize expenses,
including personnel, overhead, and fixed capital expenses
through strategic partnerships with Universities and Contract
Research Organizations (“CROs”). GBSGB’s intellectual property
portfolio includes two issued USPTO Patents, five USPTO patent
applications, four provisional USPTO patent applications, and one
USPTO application that we anticipate filing by the end of calendar
year 2020, as well as licenses for three additional patents
covering novel cannabinoid delivery systems. In addition to the
USPTO patents and patent applications, the company has filed 28
patent applications internationally.
We were incorporated in the State of Delaware on April 4, 2001,
under the name “Flagstick Venture, Inc.” On March 28, 2008,
stockholders owning a majority of our outstanding common stock
approved changing our then name “Signature Exploration and
Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase
agreement for the acquisition of assets, including the Growblox™
cultivation technology which resulted in a change in our corporate
name on April 4, 2014, from Signature Exploration and Production
Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Articles of
Incorporation pursuant to shareholder approval as reported in the
Form 8-K filed on October 14, 2016. Pursuant to the amendment
the Company’s name was changed from Growblox Sciences, Inc. to GB
Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the
change in corporate domicile from the State of Delaware to the
State of Nevada and increase in the number of authorized capital
shares from 250,000,000 to 400,000,000. Effective August 15, 2019,
Shareholders of the Company approved an additional increase in
authorized capital shares from 400,000,000 to 600,000,000.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Recent Developments
On April 7th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Cannabinoid Containing Complex Mixtures ("CCCMs") for
the Treatment of Parkinson’s disease (PD), which is owned by the
Company’s Canadian entity, GBS Global Biopharma, Inc. (GBS). The
Notice of Allowance is a significant milestone in the process of
patenting intellectual property in that it is the final step before
the patent is issued. It signifies that the claims from the patent
application have been reviewed successfully and that these claims
are considered meritorious. On May 19, 2020, the patent was issued
as United States Patent 10,653,640.
On May 12th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Myrcene Containing Complex Mixtures ("MCCMs") for the
Treatment of Neuropathic Pain. Intellectual property rights to this
application and the MCCM contained within it are owned by the
Company’s Canadian entity, GBS Global Biopharma, Inc. (GBS). The
Company's MCCMs are protected for use in the treatment of pain
related to arthritis, shingles, irritable bowel syndrome, sickle
cell disease, and endometriosis. The patent was issued on July 14,
2020 as United States Patent 10,709,670.
On November 15, 2019, the Company entered into the Membership
Interest Purchase Agreement ("MIPA") with the noncontrolling
interest in GB Sciences Louisiana, LLC ("GBSLA"). In consideration
for the sale of its 50.01% membership interest in GBSLA, the
Company received the $8,000,000 Promissory Note ("Wellcana
Note") and may receive up to an additional $8,000,000 in earn-out
payments. On August 24, 2020, the Company entered into a letter of
intent with the purchaser to discount the note receivable in
exchange for accelerated payment. Pursuant to the letter of intent,
the Company will receive payments totaling $5,224,423, including
the forgiveness by purchaser of $324,423 in liabilities and the
payment of $4,900,000 in cash, on or before October 15, 2020, less
any cash payments made by the purchaser up to the date of the final
payment. Upon receipt of the payment, all liabilities owed to the
Company by the purchaser, including the $8,000,000 note receivable
and any potential earn-out payments will be considered satisfied in
full.
On November 15, 2019, we entered into a Binding Letter of Intent
(the "LOI") to sell 75% of the Company's membership interest
interests in GBSN and GBLV (together, the "Teco Subsidiaries") for
$3.0 million cash upon close and up to an additional $3.0 million
in earn-out payments after close. In connection with the LOI, we
entered into a Management Agreement with the purchaser whereby the
facilities will be managed by an affiliate of the purchaser until
the close of the sale. On March 24, 2020, we entered into the
Membership Interest Purchase Agreement ("Teco MIPA") which
formalized the sale of the Teco Subsidiaries and modified the terms
of the sale. Pursuant to the Teco MIPA, the Company will sell 100%
of its membership interests in GBSN and GBLV for $4.0 million cash
upon close and will receive a $4.0 million 8% promissory note to be
paid in monthly installments over 36 months (see Note 16).
The Company also holds a Nevada license for cultivation of medical
marijuana located in Sandy Valley, Nevada (the “Nopah License”).
The license is owned by the Company’s wholly owned subsidiary, GB
Sciences Nopah, LLC ("Nopah"). Operations have not begun under the
Nopah License. On November 27, 2019, the Company entered into a
Binding Letter of Intent to sell its 100% interest in GB Sciences
Nopah, LLC (the “Nopah LOI”), with the transaction closing upon
transfer of the Nopah License. As consideration for the transfer of
the license, the Company will receive $300,000 and the purchaser
will pay all expenses related to the upkeep and maintenence of the
Nopah License. The transfer of the Nopah License is subject to the
same restrictions on license transfers currently in effect in the
State of Nevada (see Note 16).
The sales are expected to close upon the successful transfer of the
Nevada cultivation and production licenses. The transfer of
cannabis licenses in the State of Nevada has been subject to an
indefinite moratorium since October 2019. In a meeting held on July
21, 2020, the Nevada Cannabis Compliance Board lifted the
moratorium, however, the board has indicated that there are over 90
requests pending and it will take up to several months to process
the entire backlog of pending license transfers. Based on this
information, we cannot provide any assurances as to the timing of
the close of the sale. The lifting of the moratorium and processing
of cannabis license transfers have been delayed by the COVID-19
pandemic and could be further delayed if the pandemic
continues.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Intellectual Property
Our intellectual property portfolio includes:
Two USPTO Patents Issued/Allowed for Cannabinoid- and
Myrcene-Containing Complex Mixtures
Title:
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
NEURODEGENERATIVE DISEASES
U.S. Patent Number 10,653,640;
Inventors:
Andrea Small-Howard et al.
Issued:
May 19, 2020;
Expiration:
October 23, 2038
Patent protection was granted for GBSGB’s Cannabinoid-Containing
Complex Mixtures for the treatment of Parkinson’s disease.
Title: MYRCENE-CONTAINING COMPLEX MIXTURES
TARGETING TRPV1
U.S. Patent Number 10,709,670;
Inventors:
Andrea Small-Howard, et al.
Issued:
July 14, 2020;
Expiration:
May 22, 2038
Five USPTO & Twenty-Three International Patent Applications
Pending
Title: CANNABINOID-CONTAINING
COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE
DISEASES
U.S. Patent Application No. 15/729,565;
WIPO Application number: PCT/US2017/055989
Filed:
October 10, 2017;
Inventors:
Andrea Small-Howard et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and
JP on October 10, 2017.
On April 3, 2020, GBSGB Received a Notice of Allowance on our
Cannabinoid-Containing Complex Mixtures for Parkinson’s Disease. On
the same day as we paid the fee for the allowed patent claims, we
filed a Continuation for Review of the non-Parkinson’s formulas
within this application, which includes Alzheimer’s disease,
Huntington’s disease, Lewy body dementia, and dementia. U.S.
Continuation Application No. 16/844,713, filed on Apr 9, 2020, is
pending. This application claims benefit of U.S. Patent Application
No. 62/406,764 filed October 11, 2016.
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR
BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
U.S. Patent Application
No.15/885,620; WIPO
Application number: PCT/US2018/016296
Filed: January 31, 2018;
Inventors:
Andrea Small-Howard, et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and
JP on January 31, 2018.
Claims benefit of U.S. Patent Application No. 62/453,161 filed
February 1, 2017.
48
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Title: MYRCENE-CONTAINING COMPLEX MIXTURES
TARGETING TRPV1
U.S. Patent Application No. 15/986,316;
WIPO Patent Application No.
PCT/US2018/033956
Filed:
May 22, 2018;
Inventors:
Andrea Small-Howard, et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and
JP on May 22, 2018.
On May 12, 2020, GBSGB received a Notice of Allowance for its
Myrcene-Containing Complex Mixtures. On the same day as we paid the
fee for the allowed claims, we filed a Continuation for the review
of the other formulations including those for heart disease and
other TRPV1-related pathologies. U.S. Continuation Application No.
16/878,295, filed on May 19, 2020, is pending. Claims benefit of
U.S. Patent Application No. 62/509,546 filed May 22, 2017.
Title: TRPV1 ACTIVATION-MODULATING COMPLEX
MIXTURES OF CANNABINOIDS AND/OR TERPENES
U.S. Patent Application No.: 16/420,004;
WIPO Patent Application No.: PCT/US2019/033618
Filed:
May 22, 2019;
Inventors:
Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application Nos. 62/674,843 filed May
22, 2018; 62/769,743 filed November 20, 2018; and 62/849,719 filed
May 17, 2019.
Title: THERAPEUTIC NANOPARTICLES
ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS
U.S. Patent Application
No.:16/686,069 WIPO
Patent Application No.: PCT/ES2019/070765
Filed:
November 8, 2019;
Inventors:
Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application Nos. 62/757,660 filed
November 8, 2018
Two Provisional USPTO Patent Applications Pending
Title: TREATMENT OF PAIN USING ALLOSTERIC
MODULATOR OF TRPV1
U.S. Patent Application No.: 62/868,794;
Inventors:
Andrea Small-Howard, et al.
Filed:
June 28, 2019
Title: THERAPEUTIC NANOPARTICLES
ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS
U.S. Patent Application No.:
62/897,235 Inventors: Andrea
Small-Howard, et al.
Filed: September 6, 2019
Two Additional Provisional Patent Applications Filed on August
18, 2020
GBSGB has data sets for two new provisional patent applications
filed on August 18, 2020, as follows:
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF CHRONIC INFLAMMATORY DISORDERS
Filing Date: August 18,
2020;
Inventor:
Andrea Small-Howard
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF CYTOKINE RELEASE SYNDROME WHILE
PRESERVING KEY ANTI-VIRAL IMMUNE REACTIONS
Filing Date: August 18, 2020;
Inventor:
Andrea Small-Howard
49
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Multiple Licensed Patents for GBSGB’s Intellectual Property
Portfolio
Title: METHODS AND COMPOSITIONS FOR
PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY.
Inventor:
Alexander
Stokes;
Assignee:
University of Hawai’i
Commercialization rights licensed to Makai Biotech, LLC
Sublicensed by Makai Biotech, LLC to GBS Global Biopharma, Inc.
Status: Granted in the following territories on the corresponding
dates
U.S. Patent Number:
9,084,786;
Issued: July 21, 2015
U.S. Patent Number:
10,137,123;
Issued: November 27, 2018
U.S. Continuation Application: 16/181,204
European Union Patent Number: 2,635,281; Granted: March 14,
2018
Europe Patent Application: 3,348,267
Hong Kong Patent Number: 14102182.8; Granted: March 14, 2018
India Patent Application: 1404/KOLNP/2013
China Patent Application: 201180063998.4
Title: METHOD FOR PRODUCING A
PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING
NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Inventors:
Martin Banderas, Lucia; Fernandez Arevala, Mercedes; Berrocoso,
Dominguez, Esther; and Mico Segura, Juan Antonio
Assignees:
Universidad de Sevilla, Universidad de Cadiz, and Centro de
Investigacion Biomedica En Red (CIBER)
Exclusive worldwide license held by GBS Global Biopharma, Inc.
WIPO/PCT Application: PCT/ES2016/000016 (Pub. No. WO
2016/128591)
Filed: August 18, 2016
Claims benefit of Spanish Patent Application no. P201500129 (Pub.
No. ES 2582287)
Filed: February 9, 2015
U.S. Patent Application: 15/549,653
Spain Patent ES2582287; Granted: September 29, 2017
Europe Patent Application: EP3257503
Canada Patent Application CA2976040
Note 2 - Going Concern
The Company’s consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company
has sustained net losses since inception, which have caused an
accumulated deficit of $(97,387,205)
at March 31,
2020. The Company had a working capital deficit of
$(3,884,877)
at March 31,
2020, compared to $(3,245,409)
including $(1,133,890)
from discontinued operations at March 31, 2019. In addition, the
Company has consumed cash in its operating activities of
$(4,479,713)
including $(1,244,720)
from discontinued operations for the year ended
March 31, 2020, compared to $(9,855,895)
including $(1,271,177)
from discontinued operations for the year ended
March 31, 2019. These factors, among others, raise substantial
doubt about the Company’s ability to continue as a going
concern.
Management has been able, thus far, to finance the losses through a
public offering, private placements and obtaining operating funds
from stockholders. The Company is continuing to seek sources of
financing. There are no assurances that the Company will be
successful in achieving its goals.
In view of these conditions, the Company’s ability to continue as a
going concern is dependent upon its ability to obtain additional
financing or capital sources, to meet its financing requirements,
and ultimately to achieve profitable operations. Management
believes that its current and future plans provide an opportunity
to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts and classification of liabilities that may be necessary in
the event the Company is unable to continue as a going concern.
50
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Basis of Presentation and Summary of Significant
Accounting Policies
Principles of Consolidation
We prepare our consolidated financial statements in accordance with
generally accepted accounting principles (GAAP) for the United
States of America. Our consolidated financial statements include
all operating divisions and majority-owned subsidiaries, reported
as a single operating segment, for which we maintain controlling
interests.
The subsidiaries of the Company are:
GB Sciences Nevada, LLC
GB Sciences Las Vegas, LLC
ECRX, Inc.
GB Sciences Texas, LLC
GB Sciences Nopah, LLC
GBS Global Biopharma, Inc.
Intercompany accounts and transactions have been eliminated in
consolidation. The ownership interest of non-controlling
participants in subsidiaries that are not wholly owned is included
as a separate component of equity. The non-controlling
participants’ share of the net loss is included as “Net loss
attributable to non-controlling interest” on the consolidated
statements of operations.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. The
Company regularly evaluates estimates and assumptions related to
allowances for doubtful accounts, inventory valuation and standard
cost allocations, valuation of initial right-of-use assets and
corresponding lease liabilities, valuation of beneficial conversion
features in convertible debt, valuation of the assets and
liabilities of discontinued operations, stock-based compensation
expense, purchased intangible asset valuations, deferred income tax
asset valuation allowances, uncertain tax positions, litigation,
other loss contingencies, and impairment of long lived
assets. These estimates and assumptions are based on
current facts, historical experience and various other factors that
the Company believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities and the recording of
costs and expenses that are not readily apparent from other
sources. The actual results the Company experiences may differ
materially and adversely from these estimates.
Reclassifications
Certain reclassifications have been made to the comparative period
amounts in order to conform to the current period presentation. The
current and long-term capital lease obligations recorded in the
consolidated balance sheet as of March 31, 2019 have been
reclassified to conform to the current period presentation as
finance lease obligations, current, and finance lease obligations,
long term. Certain items on the statements of cash flows have been
reclassified to confirm with current period presentation. In
addition, the assets, liabilities, income, and cash flows of GB
Sciences Louisiana, LLC have been separated from the comparative
period amounts to confirm to the current period presentation as
discontinued operations as the result of the sale of the Company’s
interest in GB Sciences Louisiana, LLC (Note 15). The
reclassifications had no effect on the reported financial position,
results of operations or cash flows of the Company.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations
Discontinued operations comprise those activities that were
disposed of during the period or which were classified as held for
sale at the end of the period and represent a separate major line
of business or geographical area that can be clearly distinguished
for operational and financial reporting purposes.
The assets and liabilities associated with discontinued operations
included in our consolidated balance sheets are as follows:
Discontinued Operations – (continued)
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Total
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
151,766 |
|
|
$ |
- |
|
|
$ |
151,766 |
|
|
$ |
182,055 |
|
|
$ |
45,703 |
|
|
$ |
227,758 |
|
Accounts receivable, net
|
|
|
117,967 |
|
|
|
- |
|
|
|
117,967 |
|
|
|
488,329 |
|
|
|
- |
|
|
|
488,329 |
|
Inventory, net
|
|
|
1,445,839 |
|
|
|
- |
|
|
|
1,445,839 |
|
|
|
1,533,792 |
|
|
|
602,714 |
|
|
|
2,136,506 |
|
Prepaid and other current assets
|
|
|
60,885 |
|
|
|
- |
|
|
|
60,885 |
|
|
|
262,208 |
|
|
|
351,970 |
|
|
|
614,178 |
|
Note receivable
|
|
|
5,224,423 |
|
|
|
- |
|
|
|
5,224,423 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
TOTAL CURRENT ASSETS
|
|
|
7,000,880 |
|
|
|
- |
|
|
|
7,000,880 |
|
|
|
2,466,384 |
|
|
|
1,000,387 |
|
|
|
3,466,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
5,533,833 |
|
|
|
- |
|
|
|
5,533,833 |
|
|
|
10,481,706 |
|
|
|
13,022,996 |
|
|
|
23,504,702 |
|
Intangible assets, net
|
|
|
1,699,966 |
|
|
|
- |
|
|
|
1,699,966 |
|
|
|
1,818,802 |
|
|
|
- |
|
|
|
1,818,802 |
|
Deposits and other noncurrent assets
|
|
|
91,504 |
|
|
|
- |
|
|
|
91,504 |
|
|
|
230,651 |
|
|
|
1,002,376 |
|
|
|
1,233,027 |
|
Operating lease right-of-use assets, net
|
|
|
26,685 |
|
|
|
- |
|
|
|
26,685 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
14,352,868 |
|
|
$ |
- |
|
|
$ |
14,352,868 |
|
|
$ |
14,997,543 |
|
|
$ |
15,025,759 |
|
|
$ |
30,023,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,559,914 |
|
|
$ |
- |
|
|
$ |
2,559,914 |
|
|
$ |
1,374,771 |
|
|
$ |
1,695,985 |
|
|
$ |
3,070,756 |
|
Accrued interest
|
|
|
397,652 |
|
|
|
- |
|
|
|
397,652 |
|
|
|
142,112 |
|
|
|
- |
|
|
|
142,112 |
|
Accrued expenses
|
|
|
888,012 |
|
|
|
- |
|
|
|
888,012 |
|
|
|
244,931 |
|
|
|
76,415 |
|
|
|
321,346 |
|
Notes payable, net
|
|
|
5,534,728 |
|
|
|
- |
|
|
|
5,534,728 |
|
|
|
2,229,812 |
|
|
|
300,000 |
|
|
|
2,529,812 |
|
Indebtedness to related parties
|
|
|
586,512 |
|
|
|
- |
|
|
|
586,512 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Note payable to related party |
|
|
151,923 |
|
|
|
- |
|
|
|
151,923 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income tax payable
|
|
|
592,982 |
|
|
|
- |
|
|
|
592,982 |
|
|
|
506,145 |
|
|
|
- |
|
|
|
506,145 |
|
Operating lease obligations, current
|
|
|
7,265 |
|
|
|
- |
|
|
|
7,265 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Finance lease obligations, current
|
|
|
166,769 |
|
|
|
- |
|
|
|
166,769 |
|
|
|
80,132 |
|
|
|
61,877 |
|
|
|
142,009 |
|
TOTAL CURRENT LIABILITIES
|
|
|
10,885,757 |
|
|
|
- |
|
|
|
10,885,757 |
|
|
|
4,577,903 |
|
|
|
2,134,277 |
|
|
|
6,712,180 |
|