FORM
10-K
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
__________________________
(Mark One)
|
☒
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the Fiscal Year Ended March 31,
2021
|
☐
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|
For the transition period from __________ to ___________
Commission file number: 000-55462
GB SCIENCES, INC.
(Exact name of registrant as specified in its charter)
____________________
Nevada
|
59-3733133
|
(State or other Jurisdiction of
|
(IRS Employer I.D. No.)
|
Incorporation or Organization)
|
|
___________________________
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
|
|
Name of each exchange on which registered
|
None
|
|
None
|
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.0001 Par Value
|
Title of Class
|
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.
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Non-accelerated filer ☐
|
Smaller reporting company ☑
|
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 2020, was approximately $7.4
million.
Total shares outstanding on July 2, 2021 were 317,012,411.
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.
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”) is a phytomedical research and biopharmaceutical drug
development company whose goal is to create patented formulations
of plant-inspired, complex therapeutic mixtures for the
prescription drug market that target a variety of medical
conditions. The Company is engaged in the research and development
of plant-based medicines and plans to produce plant-inspired,
complex therapeutic mixtures based on its portfolio of intellectual
property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma,
Inc. (“GBSGB”), the Company is engaged in the research and
development of plant-based medicines, primarily cannabinoid
medicines, with virtual operations in North America and Europe.
GBSGB’s assets include a portfolio of intellectual property
containing both proprietary cannabinoid-containing formulations and
our AI-enabled drug discovery platform, as well as critical
research contracts and key supplier arrangements. GBSGB’s
intellectual property covers a range of medical conditions and
several programs are in the pre-clinical animal stage of
development including Parkinson’s disease, neuropathic pain, and
cardiovascular therapeutic programs. GBSGB runs a lean drug
development program and takes effort to minimize expenses,
including personnel, overhead, and fixed capital expenses through
strategic partnerships with Universities and Contract Research
Organizations (“CROs”). GBSGB’s intellectual property portfolio
includes five USPTO issued patents, nine USPTO nonprovisional
patent applications pending in the US, and one provisional patent
application in the US. In addition to the USPTO patents and patent
applications, the company has filed 35 patent applications
internationally to protect its proprietary technology. We recently
filed a provisional USPTO patent application to further protect
aspects of our proprietary drug discovery engine, “Phytomedical
Analytics for Research Optimization at Scale," or PhAROS™.
We were incorporated in the State of Delaware on April 4, 2001,
under the name “Flagstick Venture, Inc.” On March 28, 2008,
stockholders owning a majority of our outstanding common stock
approved changing our then name “Signature Exploration and
Production Corp.” as our business model had changed.
On April 4, 2014, we changed our name from Signature Exploration
and Production Corporation to Growblox Sciences, Inc. Effective
December 12, 2016, the Company amended its Certificate of
Corporation pursuant to shareholder approval, and the Company’s
name was changed from Growblox Sciences, Inc. to GB Sciences,
Inc.
Effective April 8, 2018, Shareholders of the Company approved the
change in corporate domicile from the State of Delaware to the
State of Nevada and increase in the number of authorized capital
shares from 250,000,000 to 400,000,000. Effective August 15, 2019,
Shareholders of the Company approved an increase in authorized
capital shares from 400,000,000 to 600,000,000.
Business Strategy
Drug Discovery and Development of Novel Cannabis-Based
Therapies
Through its wholly owned Canadian subsidiary, GBS Global Biopharma,
Inc. ("GBSGB"), the Company has conducted ground-breaking research
embracing the rational design of plant-based medicines led by Dr.
Andrea Small-Howard, the Company’s Chief Science Officer and
Director, and Dr. Helen Turner, Vice President of Innovation and
Dean of the Natural Sciences and Mathematics Department at
Chaminade University. Small-Howard and Turner posited that
complex mixtures of plant-based ingredients would provide more
targeted and effective treatments for specific disease conditions
than either single ingredient or whole plant formulations.
They developed a rapid screening and assaying system which tested
thousands of combinations of cannabinoids and terpenes in
vitro against cell-based models of disease. This process
identified precise mixtures of cannabinoids and terpenes, many of
which contained no THC, to treat categories of disease conditions,
including neurological disorders, inflammation, heart disease,
metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery engine involves both high throughput
screening of cell models of disease and a data analytics/machine
learning tool to expedite drug discovery. Initially, GBSGB explored
the potential medical uses of specific mixtures derived from
cannabis-based raw materials, but these tools are also effective
for investigating the medical applications of complex therapeutic
mixtures from any plant-derived starting material. In 2014, GBSGB
developed its first rapid screening and assaying system which
tested thousands of combinations of cannabinoids and
terpenes against cell-based models of diseases. This
process has been refined over the years and now has identified
precise mixtures of cannabinoids and terpenes, many of which
contained no THC, to treat categories of disease conditions,
including neurological disorders, inflammation, heart disease,
metabolic syndrome, chronic and neuropathic pain. GBSGB has
filed for patent protection on these plant-inspired, complex
therapeutic mixtures, and they are testing them in disease-specific
animal models in preparation for human trials.
GBSGB’s drug discovery process combines: 1) HTS: high throughput
screening of tens of thousands of combinations of compounds derived
from plants in well-established cellular models of diseases, and 2)
PhAROS™: Phytomedical Analytics for Research Optimization at Scale
for the prediction of complex therapeutic mixtures from plant-based
materials. This combined approach to drug discovery increases
research efficiency and accuracy reducing the time from ideation to
patenting from 7 years to 1.5 years. Screening of plant-based
mixtures for drug discovery involves the testing of specific
combinations of plant chemicals from many naturally occurring
plants and the use of live models for these diseases that have been
well established by other researchers. First, the Company finds
plant materials that show some therapeutic activity, and then
refines these natural mixtures to optimize their effectiveness in
cellular assays by removing compounds that do not act
synergistically with the others in the mixtures. The Company
also use its PhAROS™ Platform to prioritize and eliminate some
potential combinations, which reduces the time in the discovery
period. PhAROS™ can also be used to identify and predict the
efficacy of plant-derived, complex therapeutic mixtures for
specific diseases in silico, which are then tested in the
cell models.
The U.S. Patent and Trademark Office allows complex mixtures to be
claimed as Active Pharmaceutical Ingredients ("APIs"). GBSGB has
three issued patents and a series of pending patents containing
cannabis-derived complex mixtures that act as therapeutic agents
for specific disease categories, as described below. GBSGB’s
pending patents are protected whether the individual compounds are
derived from the cannabis plant, another plant, synthetically
produced, or derived from a combination of sources for the
individual chemical compounds in these mixtures.
Drug Development Progress
GBS Global Biopharma, Inc. has made significant strides in the past
year with respect to both its drug discovery research and product
development programs. Our lead pharmaceutical programs in both
Parkinson’s disease and chronic neuropathic pain are now in
preclinical animal studies with Dr. Lee Ellis of the National
Research Council ("NRC") Canada in Halifax, Nova Scotia. Our
complex therapeutic mixtures for the treatment of Cytokine Release
Syndrome in COVID-19 and other severe hyperinflammatory conditions
are now being tested in preclinical studies with Dr. Norbert
Kaminski at Michigan State University. In addition, the two patents
which protect GBSGB’s formulations in our lead development programs
have been issued by the US Patent and Trademark Office ("USPTO").
On December 8, 2020, our third US patent was issued on complex
therapeutic mixtures for the treatment of the hyper inflammatory
condition, Mast Cell Activation Syndrome ("MCAS"). Achieving these
significant milestones is driving interest in these novel
therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it
has obtained the statistically significant reduction of
Parkinson’s-disease like symptoms using its proprietary complex
mixtures in an animal model of Parkinson’s disease ("PD"). Several
of GBSGB’s PD formulations significantly reduced the symptoms,
while the most effective formula reduced the symptoms back to the
baseline activity of normal animals. In addition, the toxicity
studies for these PD formulas came back without any significant
negative findings. These important preclinical results will be
included in GBS’ Investigational New Drug ("IND") application with
the US FDA to enter human clinical trials as soon as possible. New
therapies to address Parkinson’s disease symptoms are needed to
help those afflicted with this debilitating disease. The combined
direct and indirect costs associated with Parkinson’s disease are
estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s
Cannabinoid-Containing Complex Mixtures ("CCCM™") are being
formulated by Catalent Pharma using Catalent’s Zydis® Orally
Disintegrating Tablet ("ODT") technology. This ODT format was
selected for the PD formulas because it dissolves on the tongues of
patients without the need to swallow for ease of use in patients
with PD, who often have difficulties with swallowing. GBSGB
selected Catalent as its development partner for the PD therapies
due to Catalent’s prior experience in working on US FDA-approved,
cannabinoid-containing drugs, their Schedule I drug manufacturing
facilities, their familiarity with US FDA and international
regulatory and manufacturing requirements, their expertise in
tackling formulation challenges, and their ability to achieve the
stability and dosing necessary for these novel complex mixtures. In
addition to its Zydis® technology, Catalent has early drug
development services and additional oral drug delivery solutions
available for the efficient delivery of GBSGB's proprietary
APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its
Cannabinoid-Containing Complex Mixtures and Myrcene-Containing
Complex Mixtures ("MCCM") both as encapsulated, time-released
nanoparticles, as well as in non-encapsulated forms of these
therapeutic mixtures in an animal model at the NRC in Halifax, Nova
Scotia. In preparation for human clinical trials, our standard MCCM
and the time-released MCCM are currently being compared in an
animal model that demonstrates their potential effectiveness at
treating chronic pain. The early results from this preclinical
research project look very promising.
The three patents which protect formulations in the Company’s lead
therapeutic programs have been issued by the USPTO. The issuance of
U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex
Mixtures for the Treatment of Neurodegenerative Diseases" on May
19, 2020 protects methods of using GBSGB’s proprietary
cannabinoid-containing complex mixtures (CCCM™) for treating
Parkinson’s Disease. This was an important milestone in the
development of these vitally-important therapies and validates
GBSGB’s drug discovery platform. In the US alone, the combined
direct and indirect costs associated with Parkinson’s disease are
estimated at $52 billion, and new therapies to address Parkinson’s
disease symptoms are greatly needed. This was also the first time
that a US patent has been awarded for a cannabis-based complex
mixture defined using this type of drug discovery method. The first
US patent for PD therapies validated our drug discovery platform
and strengthened our intellectual property portfolio of unique
CCCM’s™, each targeting one of up to 60 specific clinical
applications.
The issuance of GBSGB’s second US patent for active pharmaceutical
ingredients that are complex mixtures identified by our biotech
platform further confirms that GBSGB’s pharmaceutical compositions
can be patent-protected for use as biopharmaceutical and
nutraceutical products. The US Patent entitled “Myrcene-Containing
Complex Mixtures Targeting TRPV1” protects methods of using GBSGB’s
proprietary Myrcene-Containing Complex Mixtures for the treatment
of pain disorders related to arthritis, shingles, irritable bowel
syndrome, sickle cell disease, and endometriosis. In the US alone,
chronic pain represents an estimated health burden of between $560
and $650 billion dollars, and an estimated 20.4% of U.S. adults
suffer from chronic pain that significantly decreases their quality
of life. Despite the widespread rates of addiction and death,
opioids remain the standard of care treatment for most people with
chronic pain. The Company believes that it is important to create
safer, less addictive alternatives to opioids for the treatment of
chronic pain disorders, like GBSGB’s myrcene-containing complex
mixtures.
Favorable Research Updates from our university collaborators reveal
the promise in our discovery programs with Michigan State
University (HIV-Associated Neurodegenerative Disorder and COVID-19
therapies), Chaminade University (Chronic Neuropathic Pain,
Metabolic Syndrome, Cannabis Metabolomics with the University of
Athens), the University of Athens, Greece (Cannabis Metabolomics),
the University of Seville, Spain (Time-Released Nanoparticles), and
the National Research Council of Canada (Parkinson’s Disease,
Chronic Neuropathic Pain).
Intellectual Property
GBSGB retained Fenwick & West, a Silicon Valley based law firm
focusing on life sciences and high technology companies with a
nationally top-ranked intellectual property practice, to develop
strategies for the protection of the Company's intellectual
property. The status of the intellectual property portfolio is as
follows. Unless otherwise indicated, all patents listed below are
assigned to the Company's wholly-owned subsidiary, GBS Global
Biopharma, Inc.
Issued Patents
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES
|
|
|
|
|
|
|
|
|
|
U.S. Patent Number:
|
|
10,653,640
|
|
Expiration date:
|
October 23, 2038
|
Issued:
|
|
May 19, 2020
|
|
Inventors:
|
|
Andrea Small-Howard et al.
|
|
|
|
|
|
|
U.S. Patent protection was granted for GBSGB’s
Cannabinoid-Containing Complex Mixtures for the treatment of
Parkinson’s disease.
|
Title: MYRCENE-CONTAINING COMPLEX
MIXTURES TARGETING TRPV1
|
|
|
|
|
|
|
|
|
|
U.S. Patent Number:
|
|
10,709,670
|
|
Expiration date:
|
May 22, 2038
|
Issued:
|
|
July 14, 2020
|
|
Inventors:
|
|
Andrea Small-Howard, et al.
|
|
|
|
|
|
|
GBSGB’s MCCMs are protected in the U.S. for use in the treatment of
pain related to arthritis, shingles, irritable bowel syndrome,
sickle cell disease, and endometriosis.
|
Title: CANNABINOID-CONTAINING COMPLEX
MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR
BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
|
|
|
|
|
|
|
|
|
|
U.S. Patent Number:
|
|
10,857,107
|
|
Expiration date:
|
January 31, 2038
|
Issued:
|
|
December 8, 2020
|
|
Inventors:
|
|
Andrea Small-Howard et al.
|
|
|
|
|
|
|
U.S. Patent protection was granted for GBSGB’s
Cannabinoid-Containing Complex Mixtures for the treatment of Mast
Cell Activation Syndrome (MCAS).
|
Title: METHODS AND COMPOSITIONS FOR
PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY
|
|
|
|
|
|
|
|
|
|
Inventor:
|
|
Alexander Stokes
|
|
Assignee:
|
University of Hawai'i
|
U.S. Patent Number:
|
|
9,084,786
|
|
Issued:
|
July 21, 2015
|
U.S. Patent Number:
|
|
10,137,123
|
|
Issued:
|
|
November 27, 2018
|
E.U. Patent Number:
|
|
2,635,281
|
|
Issued:
|
|
March 14, 2018
|
Hong Kong Patent Number:
|
|
14102182.8
|
|
Issued:
|
March 14, 2018
|
|
GBSGB has sublicensed from Makai Biotechnology, LLC these two
issued USPTO patents and two issued international patents for the
prevention and treatment of heart failure due to cardiac
hypertrophy through therapeutic regulation of TRPV1.
|
Title: METHOD FOR PRODUCING A
PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING
NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
|
Spain Patent Number:
|
|
ES2582287
|
|
Inventors:
|
Lucia Martin Banderas, Mercedes Fernandez Arevalo, Esther Berrocoso
Dominguez, Juan Antonio Mico Segura
|
Issued:
|
|
September 29, 2017
|
|
Assignees:
|
Universidad de Sevilla, Universidad de Cadiz, Centro de
Investigacion Biomedica En Red
|
|
Exclusive worldwide license held by GBS Global Biopharma, Inc.
Claims benefit of Spanish Patent Application No. P201500129 (Pub.
No. ES 2582287). GBSGB holds the exclusive rights to commercialize
these cannabinoid-containing, time-released, oral nanoparticles for
the treatment of neuropathic pain.
|
In addition to the issued patents listed above, GBSGB's
intellectual property portfolio includes a total of ten USPTO and
thirty-five international patents pending:
Title
|
Jurisdiction
|
Application Number
|
Other International Applications Filed
|
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
NEURODEGENERATIVE DISEASES
|
US
|
USPTO 16/844,713 PCT/US2017/055989
|
AU, CA, CN, EP, HK, IL, JP
|
MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1
|
US
|
USPTO 16/878,295 PCT/US2018/033956
|
AU, CA, CN, EP, HK, IL, JP
|
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST
CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
|
US
|
USPTO 17/065,400 PCT/US2018/016296
|
AU, CA, CN, EP, HK, IL, JP
|
TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR
TERPENES
|
US
|
USPTO 16/420,004 PCT/US2019/033618
|
AU, CA, CN, EP, HK, IL, JP
|
THERAPEUTIC NANOPARTICLES ENCAPSULATING TERPENOIDS AND/OR
CANNABINOIDS
|
US
|
USPTO 16/686,069 PCT/ES2019/070765
|
|
TREATMENT OF PAIN USING ALLOSTERIC MODULATOR OF TRPV1
|
US
|
USPTO 16/914,205 PCT/US2020/039989
|
|
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
CHRONIC INFLAMMATORY DISORDERS
|
US
|
USPTO 63/067,269 (provisional)
|
|
CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
CYTOKINE RELEASE SYNDROME WHILE PRESERVING KEY ANTI-VIRAL IMMUNE
REACTIONS
|
US
|
USPTO 63/067,269 (provisional)
|
|
IN SILICO META-PHARMACOPEIA ASSEMBLY FROM NON-WESTERN MEDICAL
SYSTEMS USING ADVANCED DATA ANALYTIC TECHNIQUES TO IDENTIFY AND
DESIGN PHYTOTHERAPEUTIC STRATEGIES
|
US
|
USPTO 63/091,816 (provisional)
|
|
METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC
HYPERTROPHY
|
EU
|
EPO 3,348,267
|
IN, CN
|
METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC
NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL
NERVE COMPRESSION
|
WIPO/PCT
|
WIPO 2016/128591 PCT/ES2016/000016
|
EU, CA
|
Partnering Strategy
GBSGB runs a lean drug development program and minimizes expenses,
including personnel, overhead, and fixed capital expenses (such as
lab and diagnostic equipment), through strategic partnerships with
Universities and Contract Research Organizations (“CROs”). Through
these research and development agreements, GBSGB has created a
virtual pipeline for the further development of novel medicines
extracted from the cannabis plant. The partners bring both
expertise and infrastructure at a reasonable cost to the life
sciences program. In most instances, GBSGB has also negotiated with
these partners to keep 100% of the ownership of the IP within GBSGB
for original patent filings.
GBSGB currently has on-going research agreements with the following
institutions covering the indicated areas of research:
Chaminade University: Broad-based research program to support the
drug discovery platform that has yielded many of GBSGB’s original
patents to date in the areas of neurodegenerative diseases, heart
disease, inflammatory diseases, neuropathic and chronic pain. They
have also performed the bioassay portion of the Cannabis
Metabolomics study performed with the University of Athens, Greece
and GBSGB.
University of Athens: Broad-based metabolomics analysis of over 100
cannabis genotypes including both hemp and THC-producing cannabis
varieties, in combination with GBSGB’s bioassay data linking
genotypes and potential disease-remediations. This project has the
potential to define active ingredients from plant-derived mixtures
beyond the standard cannabinoids and terpenoids. The discovery
potential is huge, and novel agents have recently been
discovered.
Michigan State University: Discovery work using a cutting-edge,
multi-cellular model of the human immune system and a multi-cell
model of the brain to explore CCCM™s for use in the prevention of
HIV-Associated Neurocognitive Disorders (HAND). Although
combination antiretroviral therapy keeps symptoms for most
HIV-patients well controlled, between 40% and 70% of these
well-controlled HIV patients end up with HAND symptoms that range
from movement disorders to dementia-like symptoms. The results from
this work were included in a new patent application that will be
filed in Q3 of 2020. In addition, MSU has performed experiments
using their novel model of the human-immune system that have
allowed GBSGB to prepare cannabis-based formulas for the potential
treatment of virally-induced hyperinflammation/cytokine storm
syndrome that has led to the majority of COVID-19 deaths. The new
patent application for our novel, cannabinoid-containing complex
mixtures (CCCM™) for the treatment of hyperinflammation and
cytokine release syndrome in COVID-19 patients was filed August 18,
2020.
The University of Seville: Bringing their novel expertise to the
development and functional testing of time-released and
disease-targeted nanoparticles of cannabis-based complex mixtures
for oral administration. These specialized nanoparticles are being
used for the precise and time-released delivery of several of our
therapies, including GBSGB’s MCCM™ and CCCM™’s used in the
preclinical animal testing performed at the NRC Canada. The
University of Seville has completed functional testing on
nanoparticles containing myrcene, nerolidol, and beta-caryophyllene
for our Myrcene-Containing Complex Mixtures. In these cell-based
assays, the effectiveness and kinetics of the nanoparticle-forms of
these terpenes were compared with the “naked” terpenes both
individually and in mixtures. In all cases, the effectiveness of
the nanoparticles were superior to the naked terpenes, however, the
mixtures were dramatically more effective than the individuals.
These results from Seville are very promising as these
nanoparticles have entered the animal testing phase at the NRC in
Halifax.
The National Research Center (NRC) of Canada, Halifax, Nova Scotia:
Two animal-phase studies are being performed by Dr. Lee Ellis’
group at the NRC. An animal safety and efficacy study was initiated
in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the
NRC has demonstrated that the company’s PD formulations were able
to reduce behavioral changes associated with the loss of
dopamine-producing neurons, which underlies the pathology of
Parkinson’s disease in the animal model. Based on achieving the
statistically significant reduction in Parkinson’s disease
symptomology, GBSGB has signed an amendment to include a final
phase of testing, which will study the mechanism of action for
these promising formulations. In Q1 of 2019, GBSGB started a safety
and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain
(CNP) formulas. The midterm results for these preclinical pain
studies are promising.
The University of Cadiz: Testing the safety and efficacy of the
above-mentioned time-released nanoparticles in rodent models of
chronic pain. Proof of concept complete for one formulation.
University of Hawaii: Validating the efficacy of a complex
cannabis-based mixture for the treatment of cardiac hypertrophy and
cardiac disease in a rodent model. Proof of concept work is
complete.
Path to Market: Drug Development Stages and Proposed Clinical
Trials
GBSGB has plant-based therapeutic products in the following stages
of drug development: Discovery, Pre-Clinical, and entering the
Clinical Phase. It has also licensed therapeutic products that the
Company intends to develop through partners, labeled Partner
Programs.
The completion of pre-clinical studies, clinical trials, and
obtaining FDA-approvals for pharmaceutical products is
traditionally a long and expensive process. However, GBSGB asserts
that its plant-based drug discovery engine, lean development
program, novel regulatory strategy, experienced development
partners, and aggressive licensing of these products at early
clinical stages can mitigate some of the risks. The Company
uses a combination of in silico discovery methods and
automated screening of cellular models of disease to decrease the
time in Discovery prior to filing novel patent applications for
disease-specific therapeutics. GBSGB’s original patent applications
cover new chemical entities (“NCE”) based on complex combinations
of plant-derived compounds. Its Exploratory IND/Phase 0 Program
gets the Company to First-in-Man sooner than traditional programs,
which reduces translational risks, and includes preliminary
efficacy measures for responsible development decisions. In
contrast, a traditional phased-development path would not provide
any efficacy measures until Phase II. After the completion of our
Phase 0 study, which compares the efficacies of multiple related
cannabis-based formulations, the Company plans to advance the lead
drug candidate using an adaptive trial design that is more
efficient than the traditional phased-development pathway. GBSGB
has entered into research contracts, partnerships, and/or joint
ventures with several respected, independent contract research
organizations, medical schools, universities, and other scientific
researchers to increase developmental efficiencies. If and when one
or more of GBSGB’s drugs, therapies or treatments are approved by
the FDA, GBSGB will seek to market them under licensing
arrangements with major biotechnology or pharmaceutical
companies.
There can be no assurance that we will ever be able to enter into
any joint ventures or other arrangements with third parties to
finance our drug development program or that if we are able to do
so, that any of our projected therapies will ever be approved by
the FDA. It also may be anticipated that even if we enter into a
joint venture development with a financially stable pharmaceutical
or institutional partner, we will still be required to raise
significant additional capital in the future to achieve the
strategic goals of GBSGB. There can be no assurance that we will be
able to obtain such additional capital on reasonable terms, if at
all. If GBSGB fails to achieve its goal of producing one or more
plant-based pharmaceuticals or therapies, it would have a material
adverse effect on our future financial condition and business
prospects.
Other Operations
In addition to our biopharmaceutical research and development
activities described in detail above, the Company has operated in
the medical and adult-use cannabis markets under State-issued
cultivation and production licenses. Our wholly owned
subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse
facility at 3550 W. Teco Avenue, Las Vegas Nevada (the "Teco
Facility") and operates a cannabis cultivation facility under
Nevada licenses for the medical and adult-use markets. Our wholly
owned subsidiary GB Sciences Las Vegas, LLC ("GBLV") holds Nevada
certificates for medical and adult-use cannabis production and
produces extracts and concentrates for the wholesale market.
On November 15, 2019, we entered into a Binding Letter of Intent
(the "LOI") to sell the Company's membership interest interests in
GBSN and GBLV (together, the "Teco Subsidiaries"). In connection
with the LOI, we entered into a Management Agreement with the
purchaser whereby the facilities will be managed by an affiliate of
the purchaser until the close of the sale. On March 24, 2020, we
entered into the Membership Interest Purchase Agreement ("Teco
MIPA") which formalized the sale of the Teco Subsidiaries and
modified the terms of the sale. Pursuant to the Teco MIPA, the
Company will sell 100% of its membership interests in GBSN and GBLV
for $4,000,000 cash upon close and $4,000,000 in the form of an 8%
promissory note.
On November 27, 2019, we entered into a Binding Letter of Intent to
sell the Company's 100% interest in GB Sciences Nopah, LLC. On
August 10, 2020, the Company entered into the Membership Interest
Purchase Agreement ("Nopah MIPA") and Promissory Note Modification
Agreement with the purchaser of GB Sciences Nopah, LLC. The Company
will receive $300,000 upon closing, and the purchaser will pay all
expenses related to the upkeep and maintenance of the Nopah License
from the date of the agreement. The $300,000 purchase price will be
paid as a reduction to the balance of the 0% Note payable dated
October 23, 2017, which is held by an affiliate of the purchaser of
the Nopah license.
The sales of the Teco and Nopah Subsidiaries are expected to close
upon the successful transfer of the Nevada cannabis cultivation and
production licenses held by those subsidiaries. The transfer of
cannabis licenses in the State of Nevada has been subject to an
indefinite moratorium since October 2019. In a meeting held on July
21, 2020, the Nevada Cannabis Compliance Board lifted the
moratorium, however, the board has indicated that there were
initially 90 requests pending, and it will take up to several
months to process the entire backlog of pending license transfers.
Based on this information, we cannot provide any assurances as to
the timing of the close of the sale. In addition, the lifting of
the moratorium and processing of cannabis license transfers have
been delayed by the COVID-19 pandemic and could be further delayed
if the pandemic continues.
Sale of Membership Interest in GB Sciences Louisiana,
LLC
On November 15, 2019, the Company entered into a Membership
Interest Purchase Agreement (the “Agreement”) with Wellcana Plus,
LLC, a Louisiana limited liability company ("Wellcana"), whereby
Wellcana would acquire the Company’s 50.01% membership interest
(the “Membership Interest”) in GB Sciences Louisiana LLC, a
Louisiana limited liability company. Since entering into the
agreement, certain modifications of the Agreement were made. It was
ultimately agreed that Wellcana would pay the Company $4,900,000 in
cash for the Membership Interest. On December 16, 2020, Wellcana
made the final payment totaling $4,900,000 which completed the
disposition of the Membership Interest.
Competition
The biotech industry is subject to intense and increasing
competition. We face potential competition from many different
sources, including large pharmaceutical and biotechnology
companies, specialty pharmaceutical and generic drug companies, and
medical technology companies. Any product candidates that we
successfully develop and commercialize will compete with existing
therapies and new therapies that may become available in the
future. Some of our competitors may have substantially greater
capital resources, facilities and infrastructure then we have,
which may enable them to compete more effectively in this market.
These competitors include Cara Therapeutics Inc., Corbus
Pharmaceuticals Holdings Inc., Zynerba Pharmaceuticals Inc.,
Tetra Bio-Pharma, Inc., Revive Therapeutics, Inc., Axim
Biotechnologies, Inc., and Emerald BioScience, Inc., among
others.
There are several organizations that
may be developing or marketing therapies for the indications that
we are pursuing. Many of our competitors, including many of the
organizations named above, have substantially greater financial,
technical and human resources than we do and significantly greater
experience in the development of product candidates, obtaining FDA
and other regulatory approvals of products and the
commercialization of those products. Mergers and acquisitions in
the pharmaceutical and biotechnology industries may result in even
more resources being concentrated among a smaller number of
competitors.
We believe the key competitive factors
that will affect the development and commercial success of our
product candidates, if approved for marketing, are likely to be
their safety, efficacy and tolerability profile, reliability,
convenience of dosing, price and reimbursement from government and
third-party payers. Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market. In addition, our ability to compete may
be affected in many cases by insurers or other third-party payers
seeking to encourage the use of generic products. Generic products
that broadly address these indications are currently on the market
for the indications that we are pursuing, and additional products
are expected to become available on a generic basis over the
coming years. If our product candidates achieve marketing
approval, we expect that they will be priced at a significant
premium over competitive generic products.
Government Regulation and Federal Policy
Government authorities in the U.S. (including federal, state and
local authorities) and in other countries extensively regulate,
among other things, the manufacturing, research and clinical
development, marketing, labeling and packaging, storage,
distribution, post-approval monitoring and reporting, advertising
and promotion, export and import of pharmaceutical products, such
as those we are developing. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources. Moreover,
failure to comply with applicable regulatory requirements may
result in, among other things, warning letters, clinical holds,
civil or criminal penalties, recall or seizure of products,
injunction, disbarment, partial or total suspension of production
or withdrawal of the product from the market. Any agency or
judicial enforcement action could have a material adverse effect on
us.
FDA Regulation
In the U.S., the FDA regulates drugs under the Federal Food, Drug,
and Cosmetic Act (“FDCA”) and its implementing regulations. Drugs
are also subject to other federal, state and local statutes and
regulations. The process required by the FDA before product
candidates may be marketed in the U.S. generally involves the
following:
●completion of extensive preclinical laboratory tests and
preclinical animal studies, all performed in accordance with the
FDA’s Good Laboratory Practice (“GLP”) regulations. Preclinical
testing generally includes evaluation of our product candidates in
the laboratory or in animals to characterize the product and
determine safety and efficacy;
●submission to the FDA of an Investigational New Drug application
("IND"), which must become effective before human clinical trials
may begin and must be updated annually;
●performance of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the product candidate for
each proposed indication;
●submission to the FDA of a New Drug Application ("NDA") after
completion of all pivotal clinical trials;
●a determination by the FDA within 60 days of its receipt of an NDA
to file the NDA for review;
●satisfactory completion of an FDA pre-approval inspection of the
manufacturing facilities at which the active pharmaceutical
ingredient (“API”) and finished drug product are produced and
tested to assess compliance with cGMP regulations;
●satisfactory completion of an FDA pre-approval inspection of one
or more of the clinical sites at which the clinical trials were
conducted;
●at the discretion of the FDA, a public Advisory Committee Meeting
where the data is reviewed by experts who discuss the data and give
their opinion (which the FDA is not obliged to follow) of the
adequacy of the data to support an approval; and
●FDA review and approval of an NDA prior to any commercial
marketing or sale of the drug in the U.S.
We rely, and expect to continue to rely on third parties for the
production, distribution, shipping and storage of clinical and
commercial quantities of our product candidates. Future FDA and
state inspections may identify compliance issues at our facilities
or at the facilities of our contract manufacturers that may disrupt
production or distribution or require substantial resources to
correct. In addition, discovery of previously unknown problems with
a product or the failure to comply with applicable requirements may
result in restrictions on a product, manufacturer or holder of an
approved NDA, including withdrawal or recall of the product from
the market or other voluntary, FDA-initiated or judicial action
that could delay or prohibit further marketing. Newly discovered or
developed safety or effectiveness data may require changes to a
product’s approved labeling, including the addition of new warnings
and contraindications, and also may require the implementation of
other risk management measures. Also, new government requirements,
including those resulting from new legislation, may be established,
or the FDA’s policies may change, which could delay or prevent
regulatory approval of our product candidates under
development.
In addition to regulations in the U.S., we will be subject to a
variety of regulations in other jurisdictions governing, among
other things, clinical trials and any commercial sales and
distribution of our products. Whether or not we obtain FDA approval
for a product, we must obtain the requisite approvals from
regulatory authorities in foreign countries prior to the
commencement of clinical trials or marketing of the product in
those countries. Certain countries outside of the U.S. have a
similar process that requires the submission of a clinical trial
application much like the IND prior to the commencement of human
clinical trials. In Europe, for example, a clinical trial
application (“CTA”) must be submitted to each country’s national
health authority and an independent ethics committee, much like the
FDA and IRB, respectively. Once the CTA is approved in accordance
with a country’s requirements, clinical trial development may
proceed.
The requirements and process governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary from
country to country. In all cases, the clinical trials are conducted
in accordance with GCP and the applicable regulatory requirements
and the ethical principles that have their origin in the
Declaration of Helsinki.
To obtain regulatory approval of an investigational drug under
European Union regulatory systems, we must submit a marketing
authorization application. The application used to file the NDA in
the U.S. is similar to that required in Europe, with the exception
of, among other things, country-specific document requirements. For
other countries outside of the European Union, such as countries in
Eastern Europe, Latin America or Asia, the requirements governing
the conduct of clinical trials, product licensing, pricing and
reimbursement vary from country to country. In all cases, again,
the clinical trials are conducted in accordance with GCP and the
applicable regulatory requirements and the ethical principles that
have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory
requirements, we may be subject to, among other things, fines,
suspension or withdrawal of regulatory approvals, product recalls,
seizure of products, operating restrictions and criminal
prosecution.
Cannabis Regulation
Although the Company intends to completely divest of its cannabis
cultivation and production facilities, which will be complete upon
the close of the sale of its Teco and Nopah facilities located in
Las Vegas, Nevada, the Company has owned and operated and continues
to own subsidiaries that are involved in the manufacturing and
distribution of cannabis products under State law. These facilities
have been and continue to be subject to prohibition under United
States federal law.
Under the Controlled Substances Act (“CSA”), the policies and
regulations of the Federal government and its agencies are that
cannabis (marijuana) is a Schedule 1 narcotic that is addictive and
has no medical benefit. Accordingly, and a range of activities
including cultivation and the personal use of cannabis is
prohibited and subject to prosecution and criminal penalties.
Unless and until Congress amends the CSA with respect to medical
cannabis, there is a risk that the federal authorities may enforce
current federal law, and we may be deemed to be engaged in
producing, cultivating, or dispensing cannabis in violation of
federal law, or we may be deemed to be facilitating the sale or
distribution of drug paraphernalia in violation of federal law with
respect to our Company’s business operations. Active enforcement of
the current federal regulatory position on cannabis may thus
indirectly and adversely affect our strategic goals, revenues and
profits. The risk of strict enforcement of the CSA in light of
Congressional activity, judicial holdings, and stated federal
policy remains uncertain. See “Risk Factors” below. The
U.S. Supreme Court declined to hear a case brought by San Diego
County, California that sought to establish federal preemption over
state medical cannabis laws. The preemption claim was rejected by
every court that reviewed the case. The California 4th District
Court of Appeals wrote in its unanimous ruling, “Congress does not
have the authority to compel the states to direct their law
enforcement personnel to enforce federal laws.” However, in another
case, the U.S. Supreme Court held that, as long as the CSA contains
prohibitions against cannabis, under the Commerce Clause of the
United States Constitution, the United States may criminalize the
production and use of cannabis even where states approve its use
for medical purposes.
In an effort to provide guidance to federal law enforcement, the
Department of Justice (“DOJ”) has issued Guidance Regarding
Cannabis Enforcement to all United States attorneys in a memorandum
from Deputy Attorney General David Ogden on October 19, 2009, in a
memorandum from Deputy Attorney General James Cole on June 29, 2011
and in a memorandum from Deputy Attorney General James Cole on
August 29, 2013. Each memorandum provides that the DOJ is committed
to the enforcement of the CSA, but, the DOJ is also committed to
using its limited investigative and prosecutorial resources to
address the most significant threats in the most effective,
consistent and rational way.
The August 29, 2013 memorandum provides updated guidance to federal
prosecutors concerning cannabis enforcement in light of state laws
legalizing medical and recreational cannabis possession in small
amounts.
The memorandum sets forth certain enforcement priorities that are
important to the federal government:
|
•
|
Distribution of cannabis to children;
|
|
•
|
Revenue from the sale of cannabis going to criminals;
|
|
•
|
Diversion of medical cannabis from states where it is legal to
states where it is not;
|
|
•
|
Using state authorized cannabis activity as a pretext of another
illegal drug activity;
|
|
•
|
Preventing violence in the cultivation and distribution of
cannabis;
|
|
•
|
Preventing drugged driving;
|
|
•
|
Growing cannabis on federal property; and
|
|
•
|
Preventing possession or use of cannabis on federal property.
|
On January 4, 2018, Attorney General Jeff Sessions revoked the
Ogden Memo and the Cole Memos.
The DOJ has not historically devoted resources to prosecuting
individuals whose conduct is limited to possession of small amounts
of cannabis for use on private property but has relied on state and
local law enforcement to address cannabis activity. In the event
the DOJ reverses its stated policy and begins strict enforcement of
the CSA in states that have laws legalizing medical cannabis and
recreational cannabis in small amounts, there may be a direct and
adverse impact to our business and our revenue and profits.
Furthermore, H.R. 83, enacted by Congress on December 16, 2014,
provides that none of the funds made available to the DOJ pursuant
to the 2015 Consolidated and Further Continuing Appropriations Act
may be used to prevent certain states, including Nevada and
California, from implementing their own laws that authorized the
use, distribution, possession, or cultivation of medical
cannabis.
In contrast to federal policy, the majority of U.S. states, four
U.S. territories, and the District of Columbia have laws and/or
regulations that recognize, in one form or another, legitimate
medical uses for cannabis and adult recreational use of cannabis.
Many other states are considering similar legislation.
Employees
As of March 31,
2021, we had 30 employees, including 16 full-time
employees.
ITEM 1A. RISK FACTORS
You should carefully consider the risks, uncertainties and other
factors described below, in addition to the other information set
forth in this Annual Report on Form 10-K, including our financial
statements and the related notes thereto. Any of these risks,
uncertainties and other factors could materially and adversely
affect our business, financial condition, results of operation and
cash flows. In that case, the trading price of our common stock
could decline, and you may lose all or part of your investment. An
investment in our securities is speculative and involves a high
degree of risk. You should not invest in our securities if you
cannot bear the economic risk of your investment for an indefinite
period of time and cannot afford to lose your entire investment.
There may be additional risks that we do not presently know of or
that we currently believe are immaterial which could also impair
our business and financial position. See also “Cautionary Note
Regarding Forward-Looking Statements.”
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
We have a limited operating history, which may make it difficult
for investors to predict future performance based on current
operations.
We have a limited operating history upon which investors may base
an evaluation of our potential future performance. In particular,
we have not proven that we can supply growing equipment in a manner
that enables us to be profitable and meet customer requirements,
develop intellectual property to enhance our product lines, obtain
the necessary permits to develop medical grade cannabis, develop
and maintain relationships with key manufacturers and strategic
partners to extract value from our intellectual property, raise
sufficient capital in the public and/or private markets, or respond
effectively to competitive pressures. As a result, there can be no
assurance that we will be able to develop or maintain consistent
revenue sources, or that our operations will be profitable and/or
generate positive cash flows.
Any forecasts we make about our operations may prove to be
inaccurate. We must, among other things, determine appropriate
risks, rewards, and level of investment in our product lines,
respond to economic and market variables outside of our control,
respond to competitive developments and continue to attract, retain
and motivate qualified employees. There can be no assurance that we
will be successful in meeting these challenges and addressing such
risks and the failure to do so could have a materially adverse
effect on our business, results of operations and financial
condition. Our prospects must be considered in light of the risks,
expenses, and difficulties frequently encountered by companies in
the early stage of development. As a result of these risks,
challenges and uncertainties, the value of your investment could be
significantly reduced or completely lost.
Our independent auditors’ report for the fiscal years ended
March 31, 2021
and 2020 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, 2021
and 2020 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, 2021
and 2020, we incurred net losses of $3,725,027
and $12,373,579
respectively, and we had an accumulated deficit
of $103,886,232
and $97,387,205
respectively. Any losses in the future could cause the quoted price
of our common stock to decline or have a material adverse effect on
our financial condition, our ability to pay our debts as they
become due, and on our cash flows.
We will need additional capital to sustain our operations and
will need to seek further financing, which we may not be able to
obtain on acceptable terms or at all. If we fail to raise
additional capital, as needed, our ability to implement our
business plan could be compromised.
We have limited capital resources and operations. To date, our
operations have been funded primarily from the proceeds of debt and
equity financings. We expect to require substantial additional
capital in the near future to implement our strategies, develop our
intellectual property base, and establish our targeted levels of
commercial production. There is no assurance that 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.
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 GBS Global Biopharma, Inc.. Either of such
events, would have a material adverse effect on our business
prospects and equity value.
There has been limited study on the effects of cannabinoids and
future clinical research studies may lead to conclusions that
dispute or conflict with our understanding and belief regarding the
medical benefits, viability, safety, efficacy, dosing and social
acceptance of cannabinoid-based active ingredients.
Research regarding the medical benefits, viability, safety,
efficacy and dosing of cannabinoids (such as CBD) remains in
relatively early stages. There have been few clinical trials on the
benefits of cannabinoids conducted by us or by others, but the
number of trials is growing.
Future research and clinical trials may draw opposing conclusions
to statements contained in the articles, reports and studies we
have relied on or could reach different or negative conclusions
regarding the medical benefits, viability, safety, efficacy, dosing
or other facts and perceptions related to cannabinoid-containing
prescription medicines. However, our proprietary formulations will
have been through the rigorous premarket approval process of the US
FDA prior to marketing.
Federal law prohibits the use of cannabis for the purposes in
which the Company expects to engage.
Under the federal Controlled Substances Act (“CSA”), 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 Revenue Code Section 280E, which prohibits the
Company from deducting any ordinary and necessary business expenses
from taxable gross profit related to the sale of cannabis products.
Without the deduction of business expenses, it is possible that the
Company will owe income taxes while generating losses. If we are
unable to pay those taxes we may be subject to penalties and IRS
enforcement action.
FDA regulation of marijuana and the possible registration of
facilities where medical marijuana is grown could negatively affect
the cannabis industry which would directly affect our financial
condition.
Should the federal government legalize marijuana for medical use,
it is possible that the U.S. Food and Drug Administration (FDA)
would seek to regulate it under the Food, Drug and Cosmetics Act of
1938. Additionally, the FDA may issue rules and regulations
including cGMPs (current good manufacturing practices) related to
the growth, cultivation, harvesting and processing of medical
marijuana. Clinical trials may be needed to verify efficacy and
safety. It is also possible that the FDA would require that
facilities where medical marijuana is grown be registered with the
FDA and comply with certain federally prescribed regulations. In
the event that some or all of these regulations are imposed, we do
not know what the impact would be on the medical marijuana
industry, what costs, requirements and possible prohibitions may be
enforced.
If no additional states allow the medicinal use of cannabis, or
if one or more states that currently allow it reverse their
position, we may not be able to continue our growth, or the market
for our products and services may decline.
Currently, 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:
|
●
|
The need for continued development of our financial and information
management systems;
|
|
●
|
The need to manage strategic relationships and agreements with
manufacturers, customers and partners; and
|
|
●
|
Difficulties in hiring and retaining skilled management, technical,
and other personnel necessary to support and manage our
business.
|
Additionally, our strategy could produce a period of rapid growth
that may impose a significant burden on our administrative and
operational resources. Our ability to effectively manage growth
will require us to substantially expand the capabilities of our
administrative and operational resources and to attract, train,
manage, and retain qualified management and other personnel. There
can be no assurance that we will be successful in recruiting and
retaining new employees or retaining existing employees.
We cannot provide assurances that our management will be able to
manage this growth effectively. Our failure to successfully manage
growth could result in our sales not increasing commensurately with
capital investments or otherwise materially adversely affecting our
business, financial condition, or results of operations.
If we are unable to continually innovate and increase
efficiencies, our ability to attract new customers may be adversely
affected.
In the area of innovation, we must be able to develop new
technologies and products that appeal to our customers. This
depends, in part, on the technological and creative skills of our
personnel and on our ability to protect our intellectual property
rights. We may not be successful in the development, introduction,
marketing, and sourcing of new technologies or innovations, that
satisfy customer needs, achieve market acceptance, or generate
satisfactory financial returns.
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,
2021, management assessed the effectiveness of our internal
controls over financial reporting. Management concluded, as of
the fiscal year ended March 31,
2021, that our internal controls and procedures were not
effective to detect the inappropriate application of U.S. GAAP
rules. Management concluded that our internal controls were
adversely affected by deficiencies in the design or operation of
our internal controls, which management considered to be material
weakness; specifically, no member of our board of directors
qualifies as an “audit 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
July 2, 2021, we had 317,012,411 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
lease with ten-year initial term and one option to extend for five
years, or until December 31, 2030. The monthly rent payments per
the Amended Lease Agreement were $45,020 as of
March 31,
2021. Rent charges increase by 3% on January 1 of each year
through the expiration of the lease.
ITEM 3. LEGAL PROCEEDINGS
A nonemployee individual filed a Charge of Discrimination with the
Nevada Equal Rights Commission ("NERC") against the Company on
April 2, 2019, alleging sexual harassment and retaliatory
discharge. The matter was amicably resolved, and the charges
against the Company were dismissed on May 11, 2021.
On April 22, 2020, the Company failed to repay any of the
outstanding balance of the Convertible Promissory Note Payable to
Iliad Research and Trading, L.P., resulting in a default. On May
20, 2020, Iliad filed a lawsuit against the Company in the Third
Judicial District Court of Salt Lake County in the State of Utah
demanding repayment of the note. On July 14, 2020, the Court
entered judgment in favor of Iliad in the amount of $3,264,594. The
Company's obligation to Iliad was satisfied in full on December 16,
2020 upon payment of $3,006,014 pursuant to the Judgment Settlement
Agreement.
On April 22, 2020, the Company was served notice of a lawsuit filed
in the Eighth Judicial District Court in Clark County, Nevada,
filed by a contractor who had been hired to perform architectural
and design services. The lawsuit demanded payment of $73,050 for
the services provided. On September 17, 2020, the Company entered
into a Mutual Compromise, Settlement, and Release Agreement with
the contractor and made payment of $25,000 in full satisfaction of
the alleged debt, and the lawsuit was dismissed.
We are currently not involved in any other material legal
proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
GB Sciences, Inc.’s common stock is quoted on the OTCQB under the
symbol "GBLX".
For the periods indicated, the following table sets forth the high
and low per share intra-day sales prices per share of common stock.
These prices represent inter-dealer quotations without retail
markup, markdown, or commission and may not necessarily represent
actual transactions.
Fiscal Year 2021
|
|
High ($)
|
|
|
Low ($)
|
|
Fourth Quarter
|
|
$ |
0.04 |
|
|
$ |
0.13 |
|
Third Quarter
|
|
|
0.06 |
|
|
|
0.03 |
|
Second Quarter
|
|
|
0.03 |
|
|
|
0.03 |
|
First Quarter
|
|
|
0.04 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
Third Quarter
|
|
|
0.10 |
|
|
|
0.03 |
|
Second Quarter
|
|
|
0.15 |
|
|
|
0.08 |
|
First Quarter
|
|
|
0.19 |
|
|
|
0.12 |
|
As of June 29, 2021, there were 183 holders of record of our
common stock. Because many of our shares are held by brokers and
other institutions on behalf of shareholders, we are unable to
estimate the total number of beneficial holders.
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
On April 1, 2020, the Company entered into the Advisory Agreement
with its brokers and effected a temporary decrease in the exercise
price of the Company's outstanding warrants to $0.03-$.05 per
share. As a result of the price reduction, the Company received
notice of the exercise of 35,798,809 warrants during the year
ended March 31,
2021, and received proceeds of $968,023,
net of brokerage fees of $(107,373).
The Company recorded inducement dividends totaling $1,591,080 as
the difference between the reduced exercise price of the warrants
and the stock price on the date of exercise.
During the year ended March 31,
2021, the Company issued a total of 788,000 warrants to
convertible note holders with a term of three years and an exercise
price of $0.10 per share in exchange for a three-year extension of
notes having an aggregate principal balance of $197,000. Using the
Black-Scholes model, the Company valued the warrants at
$13,396.
During the quarter ended March 31, 2021, the Company received
notice of the conversion of $160,000 total principal balance of the
note payable to CSW Ventures, L.P. at $0.04 per share and issued
4,000,000 shares of common stock to the note holder.
On February 8, 2021, the board of directors approved the issuance
of 42,705,809 replacement warrants to investors who had exercised
warrants at prices that were near or at-the-money beginning in
December of 2019 in order to provide working capital to the
Company. The replacement warrants expire three years from the date
of the initial warrant exercise and have a strike price of $0.10
per share. The Company valued the warrants at $1,182,920 using the
Black-Scholes model and recorded the value of the warrants as an
inducement dividend.
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
FINANCIAL 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
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or
“our”) is a phytomedical research and biopharmaceutical drug
development company whose goal is to create patented formulations
of plant-inspired, complex therapeutic mixtures for the
prescription drug market that target a variety of medical
conditions. The Company is engaged in the research and development
of plant-based medicines and plans to produce plant-inspired,
complex therapeutic mixtures based on its portfolio of intellectual
property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma,
Inc. (“GBSGB”), the Company is engaged in the research and
development of plant-based medicines, primarily cannabinoid
medicines, with virtual operations in North America and Europe.
GBSGB’s assets include a portfolio of intellectual property
containing both proprietary cannabinoid-containing formulations and
our AI-enabled drug discovery platform, as well as critical
research contracts and key supplier arrangements. GBSGB’s
intellectual property covers a range of medical conditions and
several programs are in the pre-clinical animal stage of
development including Parkinson’s disease, neuropathic pain, and
cardiovascular therapeutic programs. GBSGB runs a lean drug
development program and takes effort to minimize expenses,
including personnel, overhead, and fixed capital expenses through
strategic partnerships with Universities and Contract Research
Organizations (“CROs”). GBSGB’s intellectual property portfolio
includes five USPTO issued patents, nine USPTO nonprovisional
patent applications pending in the US, and one provisional patent
application in the US. In addition to the USPTO patents and patent
applications, the company has filed 35 patent applications
internationally to protect its proprietary technology. We recently
filed a provisional USPTO patent application to further protect
aspects of our proprietary drug discovery engine, “Phytomedical
Analytics for Research Optimization at Scale," or PhAROS™.
Recent Developments
Sale of Membership Interest in GB Sciences Louisiana,
LLC
On November 15, 2019, the Company entered into a Membership
Interest Purchase Agreement (the “Agreement”) with Wellcana Plus,
LLC, a Louisiana limited liability company ("Wellcana"), whereby
Wellcana would acquire the Company’s 50.01% membership interest
(the “Membership Interest”) in GB Sciences Louisiana LLC, a
Louisiana limited liability company. Since entering into the
agreement, certain modifications of the Agreement were made. It was
ultimately agreed that Wellcana would pay the Company $4,900,000 in
cash for the Membership Interest. On December 16, 2020, Wellcana
made the final payment totaling $4,900,000 which completed the
disposition of the Membership Interest.
Convertible Note Payable to Iliad Research and Trading,
L.P.
On April 23, 2019, the Company issued an 8% Convertible Promissory
Note (the “Note”) in the face amount of $2,765,000 to Iliad
Research and Trading, L.P. (“Iliad”). On April 22, 2020, the
Company defaulted on its obligation to pay the Note by that date.
Based upon the default, Iliad filed a lawsuit against the Company
in the Third Judicial District Court of Salt Lake County, State of
Utah (the “Court”). On July 14, 2020, the Court issued a judgment
in favor of Iliad in the amount of $3,264,594 (the “Judgment”).
On November 20, 2020, the Company, Iliad, and Wellcana
entered into the Judgment Settlement Agreement (the Agreement), in
which the Company agreed to pay Iliad $3,006,015 on or before
December 8, 2020, in full satisfaction of the Judgment. In addition
to the Company and Iliad, the Agreement was signed by Wellcana Plus
LLC (“Wellcana”). By signing the Agreement, Wellcana agreed to pay
$3,006,015 of what it owed the Company, directly to Iliad to
satisfy the Company’s obligation to Iliad. Of the $4,150,000 paid
by Wellcana, $3,006,015 was sent directly by Wellcana to Iliad in
satisfaction of the Company’s obligation pursuant to the Settlement
Agreement.
Intellectual Property Portfolio
On October 14th, 2020, GB Sciences filed a provisional patent
application to protect its machine learning algorithm for the
prediction of novel active ingredients from traditional,
plant-based medical preparations. The new provisional patent
application is entitled “In Silico Meta-Pharmacopeia
Assembly from Non-Western Medical Systems Using Advanced Data
Analytic Techniques to Identify and Design Phytotherapeutic
Strategies”. GBSGB’s proprietary data analytics tool uses in
silico convergence analysis to deconvolve modes of action and
predict desirable components of plant-based formulations
established in traditional medical practice based on computational
consensus analysis across cultures and medical systems.
On September 23rd, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting their Cannabinoid Containing Complex Mixtures (CCCMs)
for the Treatment of Mast Cell Activation Syndrome (MCAS). The
patent is owned by the Company’s Canadian entity, GBS Global
Biopharma, Inc. MCAS is a severe immunological condition in which
mast cells inappropriately and excessively release inflammatory
mediators, resulting in a range of severe chronic hyperinflammatory
symptoms and life-threatening anaphylaxis attacks. There is no
single recommended treatment for MCAS patients. Instead, patients,
with their doctor’s guidance, attempt to manage MCAS symptoms
primarily by avoiding ‘triggers’ and using rescue medicines for
their severe hyperinflammatory attacks. Therefore, MCAS patients
need new therapeutic options to control their mast cell related
symptoms, and the Company’s CCCM™ were designed to simultaneously
control multiple inflammatory pathways within mast cells as a
comprehensive treatment option. The application, entitled
“Cannabinoid-Containing Complex Mixtures for the Treatment of Mast
Cell-Associated or Basophil-Mediated Inflammatory Disorders” was
originally filed on January 31, 2018 and describes CCCMs that
can be used for the treatment of Crohn's disease, Inflammatory
Bowel Disease (IBD), Irritable Bowel Syndrome (IBS), rheumatoid
arthritis, osteoarthritis, allergic asthma, Chronic Obstructive
Pulmonary Disease (COPD), psoriasis, eczema, urticarias,
dermatitis, mastocytosis, or anaphylactic sting. Claims for
these additional indications will be examined by the USPTO in the
future. On December 8, 2020, the patent was issued as United
States Patent 10,857,107.
On April 7th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Cannabinoid Containing Complex Mixtures ("CCCMs") for
the Treatment of Parkinson’s disease (PD), which is owned by the
Company’s Canadian entity, GBS Global Biopharma, Inc. 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. 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.
Planned Divestiture of Nevada Cannabis Operations
On November 15, 2019, we entered into a Binding Letter of Intent
(the "LOI") to sell the Company's membership interest interests in
GBSN and GBLV (together, the "Teco Subsidiaries"). In connection
with the LOI, we entered into a Management Agreement with the
purchaser whereby the facilities will be managed by an affiliate of
the purchaser until the close of the sale. On March 24, 2020, we
entered into the Membership Interest Purchase Agreement ("Teco
MIPA") which formalized the sale of the Teco Subsidiaries and
modified the terms of the sale. Pursuant to the Teco MIPA, the
Company will sell 100% of its membership interests in GBSN and GBLV
for $4,000,000 cash upon close and $4,000,000 in the form of an 8%
promissory note.
On November 27, 2019, we entered into a Binding Letter of Intent to
sell the Company's 100% interest in GB Sciences Nopah, LLC. On
August 10, 2020, the Company entered into the Membership Interest
Purchase Agreement ("Nopah MIPA") and Promissory Note Modification
Agreement with the purchaser of GB Sciences Nopah, LLC. The Company
will receive $300,000 upon closing, and the purchaser will pay all
expenses related to the upkeep and maintenance of the Nopah License
from the date of the agreement. The $300,000 purchase price will be
paid as a reduction to the balance of the 0% Note payable dated
October 23, 2017, which is held by an affiliate of the purchaser of
the Nopah license.
The sales of the Teco and Nopah Subsidiaries are expected to close
upon the successful transfer of the Nevada cannabis cultivation and
production licenses held by those subsidiaries. The transfer of
cannabis licenses in the State of Nevada had been subject to an
indefinite moratorium beginning in October 2019. In a meeting held
on July 21, 2020, the Nevada Cannabis Compliance Board lifted the
moratorium, however, the board has indicated that there were
initially 90 requests pending, and it will take up to several
months to process the entire backlog of pending license transfers.
Based on this information, we cannot provide any assurances as to
the timing of the close of the sale. In addition, the lifting of
the moratorium and processing of cannabis license transfers have
been delayed by the COVID-19 pandemic and could be further delayed
if the pandemic continues.
Results of Operations
The following table sets forth certain of our Statement of
Operations data from continuing operations:
|
|
For the Years Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
SALES REVENUE
|
|
$ |
- |
|
|
$ |
- |
|
COST OF GOODS SOLD
|
|
|
- |
|
|
|
- |
|
GROSS PROFIT (LOSS)
|
|
|
- |
|
|
|
- |
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
2,001,617 |
|
|
|
5,741,514 |
|
LOSS FROM OPERATIONS
|
|
|
(2,001,617 |
) |
|
|
(5,741,514 |
) |
OTHER INCOME
(EXPENSE)
|
|
|
|
|
|
|
|
|
Gain/(loss) on
extinguishment
|
|
|
467,872 |
|
|
|
(216,954 |
) |
Gain on settlement
of accounts payable
|
|
|
422,414 |
|
|
|
- |
|
Gain on
deconsolidation
|
|
|
- |
|
|
|
4,393,242 |
|
Interest expense
|
|
|
(1,285,460 |
) |
|
|
(1,109,031 |
) |
Loss on modification
of line of credit
|
|
|
(650,000 |
) |
|
|
- |
|
Loss on modification
of note receivable
|
|
|
- |
|
|
|
(1,895,434 |
) |
Debt default
penalty
|
|
|
(286,059 |
) |
|
|
- |
|
Other expense
|
|
|
- |
|
|
|
(179,368 |
) |
Total other income/(expense)
|
|
|
(1,331,233 |
) |
|
|
992,455 |
|
NET LOSS BEFORE INCOME TAX EXPENSE
|
|
|
(3,332,850 |
) |
|
|
(4,749,059 |
) |
INCOME TAX EXPENSE
|
|
|
0 |
|
|
|
0 |
|
LOSS FROM CONTINUING
OPERATIONS
|
|
|
(3,332,850 |
) |
|
|
(4,749,059 |
) |
LOSS FROM
DISCONTINUED OPERATIONS
|
|
|
(392,177 |
) |
|
|
(8,362,626 |
) |
NET LOSS
|
|
|
(3,725,027 |
) |
|
|
(13,111,685 |
) |
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
- |
|
|
|
(738,106 |
) |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC.
|
|
$ |
(3,725,027 |
) |
|
$ |
(12,373,579 |
) |
General and Administrative Expenses. General and
administrative expense decreased $(3,739,897)
to $2,001,617
for the year ended
March 31, 2021 as compared to $5,741,514
for the same period last year. The decrease is attributable to a
company-wide initiative to reduce general and administrative costs,
including a substantial reduction in the number of employees
involved in administrative functions and related salaries &
wages expense.
Gain/(Loss) on extinguishment. The gain on
extinguishment of $467,872
for the year ended March 31,
2021 relates to the Judgment Settlement Agreement with Iliad
Research & Trading, L.P. In order to settle the lawsuit brought
by Iliad, the Company paid $3,006,014 in full satisfaction of the
principal and accrued interest balance of $3,473,886. Prior year
losses on extinguishment of $216,954
relate to modifications of the note payable to CSW Ventures, LP,
which were accounted for as extinguishments.
Gain on settlement of accounts payable. During the
year ended March 31,
2021, the Company settled accounts payable at a discount in
exchange for immediate lump sum payments and recorded income from
cancellation of accounts payable totaling $422,414,
compared to $0 in the prior year.
Gain on deconsolidation. The Company recorded a gain
on deconsolidation of $4,393,242
related to the sale of its 50% membership interest in GB Sciences
Louisiana, LLC during the year ended March 31,
2020, compared to $0 in the current year.
Interest Expense. Interest for the year
ended March 31,
2021 was $1,285,460,
compared to $1,109,031
for the year ended March 31,
2020. The increase is primarily due to interest income of
$509,265 related to the Wellcana note receivable included in the
prior year amount as a net reduction, and offset by a decrease in
interest expense resulting from the amortization of note discounts.
Primarily as the result of the Company's largest outstanding notes
payable becoming fully amortized during the year, interest expense
from amortization of debt discounts decreased from $1,150,995
in the prior year to $776,122 in
the current year.
Loss on modification of line of credit. As a result
of the Omnibus Amendment dated December 29, 2020, the Company
accrued a modification expense of $650,000. The amount represents
an increase to the note balance to a total of $1,025,000, which
will reduce the note receivable issued to the Company at the
closing of the sale of the Teco Facility.
Loss on modification of note receivable. As the
result of the Company's August 24, 2020 letter agreement with
Wellcana, the Company determined that the amount of the note
receivable from Wellcana that was collectible as of March 31, 2020
was $5,224,423 and recorded a loss on modification of note
receivable in the amount of $1,895,434.
Debt default penalty. The Company recorded a default
penalty of $286,059
related to the Company's failure to timely repay the principal and
interest owed under the note payable to Iliad Research and Trading,
L.P. on April 1, 2020. The penalty is 10% of the principal and
accrued interest balances outstanding at the time of default.
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,
2021, the Company had a cash
balance of $793,040,
other current assets excluding cash
were $2,750,815,
current assets from discontinued operations were
$2,494,564,
and our working capital deficit was $5,054,593,
net of working capital of $439,979
from discontinued operations. Current
liabilities were $8,598,448,
which consisted principally of $3,594,804
in notes and convertible notes
payable, $1,412,459
in accounts
payable, $1,451,687
in accrued liabilities, and
$2,054,585
current liabilities from discontinued
operations. At March 31,
2020, the Company had a cash
balance of $2,406,
other current assets excluding cash were $6,998,474,
current assets from discontinued operations were
$1,755,275,
and our working capital deficit was $3,884,877,
including a working capital deficit of $243,787
from discontinued operations. Current
liabilities were $10,885,757,
which consisted principally of $5,054,728
in notes and convertible notes
payable, $1,913,049
in accounts
payable, $1,180,483
in accrued
liabilities,
and $1,999,062
from discontinued
operations.
Sources and Uses of Cash
Operating Activities
Cash used in operations was
$2,185,220
including $118,644
used in discontinued operations for
the year ended
March 31, 2021, compared to cash
used of $4,479,713
including $2,215,434
used in discontinued operations for
the year ended
March 31, 2020. We anticipate that
cash flows from operations will be insufficient to fund business
operations for the next twelve-month period. Accordingly, we will
have to generate additional liquidity or cash flow to fund our
current and anticipated operations. This will likely require the
sale of additional common stock or other securities. There is no
assurance that we will be able to realize any significant proceeds
from such sales, if at all.
Investing
Activities
Cash flows provided by investing
activities were $4,655,519,
net of $103,729
used in discontinued operations for
the year ended
March 31, 2021, compared to cash
used in investing activities of $538,784
including $446,922
used in discontinued operations for
the year ended
March 31, 2020. Cash provided by
investing activities of continuing operations for the year
ended March 31,
2021 relates to $5,051,923 proceeds of the Wellcana note
receivable, offset by $292,675 used to pay our attorneys and
researchers to draft and file patent applications. Cash used in
prior year investing activities was used to pay our attorneys
and researchers to draft and file patent applications.
Financing
Activities
During the year
ended March 31,
2021 cash used in financing
activities was $1,476,432
including $161,768
used in discontinued operations. For
the year ended March 31,
2020, cash provided by financing
activities was $4,988,208,
including $741,655
provided by discontinued operations,
respectively.
Cash flows from financing activities
of continuing operations for the year ended
March 31, 2021 relate primarily
to $3,156,014
used for principal payments of the
note payable to Iliad Research and Trading, L.P., principal
repayment of a related party note in the amount of
$151,923,
brokerage fees of $107,373,
and debt issuance fees of $74,750,
offset by $1,075,396
from warrant
exercises, $725,000
in proceeds from the issuance of
convertible notes, and $375,000
in proceeds from a line of
credit.
Cash flows from financing activities
of continuing operations for the year
ended March 31,
2020 consisted
of $790,225
proceeds from issuance of common
stock, $1,274,790
from warrant exercises, and
$2,630,000
proceeds from convertible notes,
offset by $188,593
in brokerage
fees, $175,000
in fees for convertible note
issuances, and $84,869
of principal payments on debt and
lease obligations.
Notes and Convertible Notes Payable
0% Note Payable dated October 23, 2017
On October 23, 2017, the Company amended the existing Nevada
Medical Marijuana Production License Agreement (“Amended Production
License Agreement”). Per the terms of the Amended Production
License Agreement, GB Sciences purchased the remaining percentage
of the production license resulting in the 100% ownership of the
license. GB Sciences also received 100% ownership of the
cultivation license included in the original Nevada Medical
Marijuana Production License Agreement. In exchange, GB Sciences
made one-time payment of $500,000 and issued a 0% Promissory
Note in the amount of $700,000 payable in equal monthly payments
over a three-year period commencing on January 1, 2018. The present
value of the note was $521,067 on the date of its issuance based on
an imputed interest rate of 20.3% and the Company recorded a
discount on notes payable of $178,933 related to the difference
between the face value and present value of the note.
To date, the Company has made principal payments totaling $330,555
and the principal balance of the note was $369,445 at
March 31,
2021. During the year ended March 31,
2021, the Company recorded interest expense of $13,929 related
to amortization of the note discount. The remaining unamortized
discount as of March 31,
2021 was $0.
On August 10, 2020, the Company entered into the Membership
Interest Purchase Agreement ("Nopah MIPA") for the sale of its
interest in GB Sciences Nopah, LLC. The Nopah MIPA will close
upon successful transfer of the Nevada Medical Marijuana
Cultivation Facility Registration Certificate. Upon close, the
principal balance of the note will be reduced to $190,272. The
maturity date of the note was extended to July 31, 2021, with no
payments of principal or interest due until maturity. In addition,
the note will no longer bear interest at the penalty rate of 15%
unless there is a new event of default.
8% Line of Credit dated November 27, 2019
In connection with the Binding Letter of Intent dated November 27,
2019, the Teco Subsidiaries entered into a promissory note and line
of credit for up to $470,000 from the purchaser of the membership
interests in the Teco Subsidiaries. The purpose of the line of
credit is to supply working capital for the Teco Subsidiaries, and
the note matures upon the close of the sale of the Teco
Subsidiaries. The principal and accrued interest balances
outstanding at the time of closing will be considered paid in full
upon closing and will not reduce the purchase price received by GB
Sciences. As of March 31,
2021, the Teco Subsidiaries have received $485,000 in advances
under the line of credit, reflecting an informal agreement with the
lender to increase the line of credit by $15,000. The Company
accrued interest of $38,767 on the line of credit for the year
ended March 31,
2021, and the balance of the line of credit was $485,000 at
March 31,
2021. The note and related interest expense are included in
current liabilities from discontinued operations and loss from
discontinued operations.
8% Note Payable dated May 7, 2020
On May 7, 2020, the Company received $135,000 cash from an
investor, net of $15,000 in brokerage fees, and issued a $150,000
promissory note. The note bears interest at a rate of 8.0% per
annum. The note was to be repaid upon the first proceeds received
from the $8,000,000 promissory note related to the sale of the
Company's membership interest in GB Sciences Louisiana, LLC, or
from the proceeds of the sale of the Teco Facility. As inducement
to enter into the note transaction, the Company repriced 8,002,500
preexisting warrants held by the investor to an exercise price of
$0.04. The repriced warrants were valued at $272,085 on the date of
the transaction using the Black-Scholes Model, which exceeded the
value of the warrants prior to the price reduction of $49,525 by
$222,560. As the result of the increase in the estimated fair value
of the warrants, the Company recorded a full discount on notes
payable of $150,000. During the year ended March 31,
2021, the Company recorded interest expense of $154,964 related
to the note consisting of accrued interest of $4,964 and $150,000
related to amortization of the note discount. The Company paid
$154,964 on October 5, 2020 in full satisfaction of the note.
8% Line of Credit dated July 24, 2020
On July 24, 2020, the Company entered into the Loan Agreement, 8%
Secured Promissory Note, and Security Agreement (together, the
"July 24 Note") with AJE Management, LLC, which established a
revolving loan of up to $500,000 that the Company may draw on from
time to time. The loan is collateralized by the Teco Facility,
subject to the pre-existing lien held by CSW Ventures, L.P. in
connection with the 8% Senior Secured Convertible Promissory Note
dated February 28, 2019. Any advances will be made at the sole
discretion of the lender following a written request made by the
Company. Contemporaneously with the Loan Agreement, the Company and
AJE Management entered into the Amendment to the Membership
Interest Purchase Agreement with AJE Management. The amendment
provides that any balances outstanding under the July 24 Note at
the time of the close of the sale of the Teco Facility will be
forgiven in exchange for a reduction to the $4,000,000 note
receivable that the Company will receive as consideration for the
sale of the Teco Facility. The reduction to the note receivable
will be equal to 3 times the balance outstanding under the July 24
Note on the date of the close of the sale of the Teco Facility. The
balance outstanding under the note plus accrued interest may be
repaid at any time prior to the close of the sale of the Teco
facility.
On December 29, 2020, the Company entered into the Omnibus
Amendment with the purchaser of the Teco Facility. The Omnibus
Amendment reduces the amount of the note receivable that the
Company will receive from the sale of the Teco Facility by $975,000
(three times $325,000 in advances made under the July 24 Note) to
$3,025,000. Any advances made to the Company under the July 24 Note
in excess of $325,000 will reduce the amount of cash received upon
close of the sale of Teco one-for-one, i.e. such advances will be
considered advance payments of the $4,000,000 cash purchase price.
The Company also agreed that it will not repay the balances
outstanding under the July 24 Note prior to the closing of the Teco
sale. As a result of the Omnibus Amendment, the Company accrued a
modification expense of $650,000 (two times $325,000 in addition to
$325,000 in advances already recorded under the July 24 Note). The
Company has received $50,000 in additional advances above $325,000
bringing the total balance to $1,025,000 at March 31,
2021. Interest expense was $12,510 for the year ended
March 31,
2021.
March 2017 and July 2017 Convertible Note Offerings
In March 2017, the Company entered into a Placement Agent’s
Agreement with a third-party brokerage firm to offer units
consisting of a $1,000 6% promissory note convertible into 4,000
shares of the Company’s common stock at $0.25 per share and 4,000
warrants to purchase shares of the Company’s’ common stock at an
exercise price of $0.60 per share for the period of three years.
Between March 2017 and May 2017, the Company issued short-term
Promissory Notes (“Notes”) to various holders with combined face
value of $2,000,000. The Notes are payable within three years of
issuance and are convertible into 8,000,000 shares of the Company’s
common stock. The Company also issued 8,000,000 common stock
warrants to the Noteholders. The warrants are exercisable at any
time and from time to time before maturity at the option of the
holder. Each warrant gives the Noteholder the right to purchase one
share of common stock of the Company at an exercise price of $0.60
per share for a period of three years. The Company recorded an
aggregate discount on convertible notes of $1,933,693, which
included $904,690 related to the relative fair value of beneficial
conversion features and $1,029,003 for the relative fair value of
the warrants issued with each note. The fair value of warrants was
derived using the Black-Scholes valuation model.
In July 2017, the Company entered into a Placement Agent’s
Agreement with a third-party brokerage firm to offer units
consisting of a $1,000 6% promissory note convertible into 4,000
shares of the Company’s common stock at $0.25 per share and 4,000
warrants to purchase shares of the Company’s’ common stock at an
exercise price of $0.65 per share for the period of three years.
Between July 2017 and December 2017, the Company issued short-term
Promissory Notes (“Notes”) to various holders with combined face
value of $7,201,000. The Notes are payable within three years of
issuance and are convertible into 28,804,000 shares of the
Company’s common stock. The Company also issued 28,804,000 common
stock warrants to the Noteholders. The warrants are exercisable at
any time and from time to time before maturity at the option of the
holder. Each warrant gives the Noteholder the right to purchase one
share of common stock of the Company at an exercise price of $0.60
per share for a period of three years. The Company recorded an
aggregate discount on convertible notes of $7,092,796, which
included $3,142,605 related to the relative fair value of
beneficial conversion features and $3,950,191 for the relative fair
value of the warrants issued with each note. The fair value of
warrants was derived using the Black-Scholes valuation model.
All notes from the March and July 2017 offerings have passed their
maturity dates. During the year ended March 31,
2021, the Company agreed to extensions with the holders of a
total of $197,000 of the $1,257,000 that remains outstanding. For
the $197,000 of extended notes, the Company agreed to reduce the
conversion price to $0.10 per share and issued a total of 788,000
additional warrants to the holders of the notes with a term of
three years and an exercise price of $0.10 per share. In exchange,
the maturity date of the notes was extended to September 30, 2023.
Using the Black-Scholes model, the Company valued the warrants at
$13,396 and the change in the fair value of the conversion feature
at $33,490. Because the change in the fair value of the conversion
feature exceeded 10% of the carrying amount of the notes, the
Company accounted for the modification of the notes as an
extinguishment and recorded a discount on the new convertible notes
of $46,886 related to the fair value of the new warrants issued and
the change in the fair value of the conversion feature. The Company
recorded interest expense of $28,306 on the new notes during the
year ended March 31,
2021, of which $22,412 represented amortization of the note
discounts. Accrued interest on the $197,000 extended notes is
$44,332 at March 31,
2021, which includes $38,438 accrued prior to the
extinguishments.
Three convertible notes totaling $1,060,000 held by the same
investor are past maturity and are currently in default. The
Company is negotiating the terms of an extension with the note
holder. The notes do not provide for a default penalty or penalty
interest rate. Interest expense during the year ended
March 31,
2021, was $208,779, of which $139,253 represents amortization
of the note discount. Accrued interest on the $1,060,000 notes was
$228,373 at March 31,
2021.
8% Senior Secured Convertible Promissory Note dated
February 28, 2019
On February 28, 2019, the Company issued a $1,500,000 8% Senior
Secured Convertible Promissory Note and entered into the Note
Purchase Agreement and Security Agreement with CSW Ventures, L.P.
(together, “CSW Note”). The note matured on August 28, 2020 and was
convertible at any time until maturity into 8,823,529 shares of the
Company’s common stock at $0.17 per share. Collateral pledged as
security for the note includes all of the Company’s 100% membership
interests in GB Sciences, Nevada, LLC and GB Sciences Las Vegas,
LLC, which together represent substantially all of the Company’s
cannabis cultivation and production operations and assets located
at the Teco facility in Las Vegas, Nevada. The intrinsic value of
the beneficial conversion feature resulting from the market price
of the Company’s common stock in excess of the conversion price was
$176,471 on the date of issuance, and the Company recorded a
discount on the CSW Note in that amount.
On May 28, 2019, the Company received notice from CSW Ventures,
L.P. of the conversion of a total of $170,000 of the principal
balance of the 8% Senior Secured Promissory Note dated February 28,
2019. Accordingly, the Company issued 1,000,000 shares of its
common stock based on a $0.17 per share conversion price. In
connection with the conversions, $17,225 in unamortized discount
was recorded as interest expense and the Company reduced the
carrying amount of convertible notes payable by $152,775. After
conversion, the remaining balance outstanding was $1,330,000.
On July 12, 2019, the Company entered into the Amendment to Note
Documents and the Amended and Restated 8% Senior Secured Promissory
Note (together, “Amended CSW Note”). The Amended CSW Note increased
the note balance by $100,000 to reflect an additional $100,000
advanced to the Company on July 12, 2019 and by $41,863 to add
accrued interest to date to the principal balance, and decreased
the conversion price to $0.11 per share, with the remaining terms
substantially unchanged from the original CSW Note.
The Company evaluated the modification under the guidance in ASC
470-50 and determined that the amendment represents an
extinguishment because the change in the fair value of the
conversion feature exceeded 10% of the carrying value of the CSW
Note on the amendment date. The carrying value of the amended note
on the date of extinguishment was $1,338,057, net of a beneficial
conversion feature discount of $133,806, and we recorded a loss on
extinguishment of $124,158.
On August 1, 2019, the Company received notice from CSW Ventures,
L.P. of the conversion of a total of $110,000 of the principal
balance of the Amended CSW Note at $0.11 per share. Accordingly,
the Company issued 1,000,000 shares of its common stock. In
connection with the conversions, $9,579 in unamortized discount was
recorded as interest expense and the Company has reduced the
carrying amount of convertible notes payable by $100,421. After
conversion, the remaining balance outstanding was $1,361,863.
On October 23, 2019, the Company entered into the Amendment to
Promissory Note. The October 23, 2019 amendment decreased the
conversion price to $0.08 per share, with the remaining terms
substantially unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and
determined that the amendment represents an extinguishment because
the change in the fair value of the conversion feature exceeded 10%
of the carrying value of the Amended CSW Note immediately prior to
the 2nd Amended CSW Note. The carrying value of the Amended CSW
Note on the date of extinguishment was $1,269,067, net of a
beneficial conversion feature discount of $92,796, and we recorded
a loss on extinguishment of $92,796 during the year ended March 31,
2020.
On November 27, 2019, the Company entered into the Second Amendment
to Note Documents and the Second Amended and Restated 8% Senior
Secured Promissory Note (together, “2nd Amended CSW Note”). The 2nd
Amended CSW Note decreased the conversion price to $0.04 per share
and increased the note balance by $30,000 to reflect an advance
received on that date, with the remaining terms substantially
unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and
determined that the 2nd Amended CSW Note represents an
extinguishment because the change in the fair value of the
conversion feature exceeded 10% of the carrying value of the
Amended CSW Note immediately prior to the 2nd Amended CSW Note;
however, no loss on extinguishment was recorded because the net
consideration paid for the 2nd Amended CSW Note was equal to the
extinguished carrying value of the Amended CSW Note. The carrying
value of the Amended CSW Note on the date of extinguishment was
$1,361,863.
On December 16, 2019, the Company received notice from CSW
Ventures, L.P. of the conversion of a total of $120,000 of the
principal balance of the Amended CSW Note at $0.04 per share and we
issued 3,000,000 shares of common stock. In connection with the
conversions, $57,551 in unamortized discount was recorded as
interest expense, and the Company has reduced the carrying amount
of convertible notes payable by $62,449. After conversion, the
remaining balance outstanding was $1,271,863 and the carrying
amount of the note was $687,021, net of $584,842 in unamortized
discount from the beneficial conversion feature.
On December 29, 2020, the Company entered into the Omnibus
Amendment, and the note holder agreed to cease interest accrual on
the CSW Note after November 30, 2020.
During the quarter ended March 31, 2021, the Company received
notice of the conversion of $160,000 total principal balance at
$0.04 per share and issued 4,000,000 shares of common stock to the
note holder. After the conversions, the remaining principal balance
and carrying amount of the note is $1,111,863 as of March 31,
2021.
During the year ended March 31,
2021, we recorded interest expense of $477,500 related to the
CSW Note and its amendments consisting of $68,019 in stated
interest and $409,481 related to amortization of the note
discount. The total outstanding balance of principal and accrued
interest totaling $1,256,857 will reduce the $4,000,000 cash
payment received by the Company upon the close of the sale of the
Teco Facility, and no further interest expense will be accrued on
the note.
8% Convertible Promissory Note dated April 23, 2019
On April 23, 2019, the Company entered into the Note Purchase
Agreement with Iliad Research and Trading, L.P. ("Iliad") and
issued an 8% Convertible Promissory Note with a face value of
$2,765,000. The Note was issued with original issue discount of
$265,000 and is convertible into shares of the Company’s common
stock at a price of $0.17 per share at the option of the note
holder at any time until the Note is repaid. The Note matured on
April 22, 2020. A total discount of $440,000 was recorded on the
note, which includes $265,000 of original issue discount and
$175,000 in fees paid to brokers.
During the year ended March 31, 2020, the Company honored the
conversion of a total of a total of $125,000 of accrued interest on
the Iliad Note at reduced conversion rates. On October 30, 2019,
the Company received notice of the conversion of $75,000 at $0.06
per share and issued 1,250,000 shares of its common stock. The fair
value of the shares issued exceeded the fair value of the shares
issuable under the original terms of the Note by $64,706, and the
Company recorded an induced conversion expense. On November 18,
2019, the Company received notice of the conversion of $50,000 of
the note balance at $0.0375 per share and issued 1,333,333 shares
of its common stock.
On April 22, 2020, the Company failed to make payment of the
principal and accrued interest due under the Iliad Note, resulting
in a default. Upon the occurrence of the default, the principal and
accrued interest balances outstanding increased by 10%. As the
result of the default, Company recorded an expense of $9,559
related to a 10% increase in the accrued interest balance, which is
recorded in interest expense, and $276,500 related to the 10%
increase in the principal balance, which is recorded in debt
default penalty and other expense.
On May 20, 2020, Iliad filed a lawsuit against the Company in the
Third Judicial District Court of Salt Lake County in the State of
Utah demanding repayment of the note. The lawsuit further sought to
compel the Company to participate in arbitration pursuant to the
arbitration provisions contained within the Note Purchase Agreement
and to prohibit the Company to raise funds through the issuance of
its common stock unless the note is paid in full simultaneously
with such issuance. On July 14, 2020, the Court entered judgment in
favor of Iliad in the amount of $3,264,594 plus reasonable
attorney's fees and costs and accrued post-judgment interest at the
default rate of 15% per annum.
On November 20, 2020, the Company, Iliad, and Wellcana Plus, LLC
entered into the Judgment Settlement Agreement, whereby Iliad
agreed to discharge all amounts owed to it by the Company upon
receipt of payment totaling $3,006,014 directly from the proceeds
of the Wellcana Note Receivable on or before December 8, 2020. On
December 8, 2020, Wellcana failed to make payment to the Company.
On December 9, 2020, the Company entered into a letter agreement
with Iliad extending the Judgment Settlement agreement in exchange
for payment of $25,000 plus $25,000 per week until the payment
totaling $3,006,014 is received by Iliad, with such payments not
reducing the amount owed under the Judgment Settlement Agreement.
On December 16, 2020, Wellcana made payment of the full amount owed
to the Company, of which $3,006,014 was paid directly to Iliad in
full satisfaction of the Judgment Settlement Agreement. On December
18, 2020, Iliad filed a Satisfaction of Judgment in the Third
Judicial District Court of Salt Lake County in the State of Utah,
and the lawsuit was dismissed. The Company has no further
obligations to Iliad.
During the year ended March 31,
2021, interest expense related to the Iliad Note was $379,956,
of which $29,831 relates to amortization of the note discount,
$140,833 relates to accrued interest prior to the judgment, and
$209,292 was accrued post-judgment interest. The Company also
recorded $25,000 in other expense as the result of the letter
agreement to extend the Judgment Settlement Agreement. As of the
date of final payment, the outstanding judgment balance of
$3,264,594 plus accrued post-judgment interest of $209,292 totaled
$3,473,886, and the Company recorded a gain on extinguishment of
$467,872.
Variables and Trends
We have limited operating history with respect to the current
business plan. In the event we are able to obtain the necessary
financing to move forward with the business plan, we expect
business expenses to increase significantly as we go operational.
Accordingly, the comparison of the financial data for the periods
presented may not be a meaningful indicator of future performance
and must be considered in light these circumstances.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to allowances
for doubtful accounts, inventory valuation, valuation of initial
right-of-use assets and corresponding lease liabilities, valuation
of beneficial conversion features in convertible debt, valuation of
the assets and liabilities of discontinued operations, stock-based
compensation expense, purchased intangible asset valuations,
deferred income tax asset valuation allowances, uncertain tax
positions, litigation and other loss contingencies. These estimates
and assumptions are based on current facts, historical experience
and various other factors that the Company believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities and the recording of costs and expenses that are not
readily apparent from other sources. The actual results the Company
experiences may differ materially and adversely from these
estimates.
Discontinued Operations
Discontinued operations comprise those activities that were
disposed of during the period or which were classified as held for
sale at the end of the period and represent a separate major line
of business or geographical area that can be clearly distinguished
for operational and financial reporting purposes. The Company has
included its subsidiaries GB Sciences Louisiana, LLC, GB Sciences
Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC
in discontinued operations due to the sale of the Company's
Louisiana cultivation and extraction facility and the pending sale
of the Company's Nevada cultivation and extraction facilities.
Inventory
We value our inventory at the lower of the actual cost of our
inventory, as determined using the first-in, first-out method, or
its current estimated market value. We periodically review our
physical inventory for excess, obsolete, and potentially impaired
items and reserve accordingly. Our reserve estimate for excess and
obsolete inventory is based on expected future use. Indirect costs,
which primarily relate to the lease and operation costs of the Teco
Facility, are allocated based on square footage of the facility
used in the production of inventory.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the
value of our patents pending and includes the costs paid to draft
and file patent applications. Upon issuance of the patents, the
indefinite-lived intangible assets will have finite lives.
Intangible assets also include the acquisition cost of a cannabis
production license with an indefinite life. We amortize our
finite-lived intangible assets over their estimated useful lives
using the straight-line method, and we periodically evaluate the
remaining useful lives of our finite-lived intangible assets to
determine whether events or circumstances warrant a revision to the
remaining period of amortization. During the year ended March 31,
2020, the Company entered into the Membership Interest Purchase
Agreement ("Teco MIPA") to sell 100% of the membership interests in
the Teco Facility. As a result of this agreement, the Company
determined that the long-lived assets of the Teco Facility
including a production license acquired through purchase might be
impaired due to the current expectation that the asset group will
more likely than not be disposed of by sale significantly before
the end of its previously estimated useful life. The Company
recorded an impairment loss of $449,801 related to the license for
the year ended March 31, 2020, and reduced the carrying value of
the related intangible asset from $1,021,067 to $571,264. The
license asset and the impairment loss are included in discontinued
operations in the accompanying financial statements.
Long-Lived Assets
Property and equipment comprise a significant portion of our total
assets. We evaluate the carrying value of property and equipment if
impairment indicators are present or if other circumstances
indicate that impairment may exist under authoritative guidance.
The annual testing date is March 31. When management believes
impairment indicators may exist, projections of the undiscounted
future cash flows associated with the use of and eventual
disposition of property and equipment are prepared. If the
projections indicate that the carrying value of the property and
equipment are not recoverable, we reduce the carrying values to
fair value. These impairment tests are heavily influenced by
assumptions and estimates that are subject to change as additional
information becomes available.
During the year ended March 31, 2020, the Company entered into the
Membership Interest Purchase Agreement ("Teco MIPA") to sell 100%
of the membership interests in the Teco Facility. As a result of
this agreement, the Company determined that the long-lived assets
of the Teco Facility might be impaired due to the current
expectation that the asset group will more likely than not be
disposed of by sale significantly before the end of its previously
estimated useful life. The Company estimated future undiscounted
cash flows related to the Teco Facility to be $8.0 million, which
was less than the carrying amount of the Teco Facility asset group
of $11.9 million. Using a discounted cash flow approach, the
Company estimated the fair value of the asset group to be
approximately $7.3 million, resulting in a write-down of $4,645,054
related to the Teco Facility asset group. Fair value was based on
expected future cash flows using level 3 inputs under ASC 820. The
cash flows are the proceeds expected to be generated from the sale
of the assets under the Teco MIPA, discounted to present value at a
rate of 17%. The impairment loss and the related long-lived assets
are included in discontinued operations in the accompanying
financial statements.
Beneficial Conversion Feature of Convertible Notes
Payable
The Company accounts for convertible notes payable in accordance
with the guidelines established by the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) Topic 470-20, Debt with Conversion and Other
Options and Emerging Issues Task Force (“EITF”)
00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments”. A beneficial conversion feature
(“BCF”) exists on the date a convertible note is issued when the
fair value of the underlying common stock to which the note is
convertible into is in excess of the remaining unallocated proceeds
of the note after first considering the allocation of a portion of
the note proceeds to the fair value of any attached equity
instruments, if any related equity instruments were granted with
the debt. In accordance with this guidance, the BCF of a
convertible note is measured by allocating a portion of the note's
proceeds to the warrants, if applicable, and as a reduction of the
carrying amount of the convertible note equal to the intrinsic
value of the conversion feature, both of which are credited to
additional paid-in-capital. The Company calculates the fair value
of warrants issued with the convertible notes using the
Black-Scholes valuation model and uses the same assumptions for
valuing any employee options in accordance with ASC Topic 718
Compensation – Stock Compensation. The only difference
is that the contractual life of the warrants is used.
The value of the proceeds received from a convertible note is then
allocated between the conversion features and warrants on a
relative fair value basis. The allocated fair value is recorded in
the financial statements as a debt discount (premium) from the face
amount of the note and such discount is amortized over the expected
term of the convertible note (or to the conversion date of the
note, if sooner) and is charged to interest expense.
Equity-Based Compensation
The Company accounts for equity instruments issued to employees in
accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC
505-50 (ASC 505-50). The computation of the expense associated with
stock-based compensation requires the use of a valuation model. The
FASB-issued accounting guidance requires significant judgment and
the use of estimates, particularly surrounding Black-Scholes
assumptions such as stock price volatility, expected option lives,
and expected option forfeiture rates, to value equity-based
compensation. We currently use a Black-Scholes option pricing model
to calculate the fair value of our stock options. We primarily use
historical data to determine the assumptions to be used in the
Black-Scholes model and have no reason to believe that future data
is likely to differ materially from historical data. However,
changes in the assumptions to reflect future stock price volatility
and future stock award exercise experience could result in a change
in the assumptions used to value awards in the future and may
result in a material change to the fair value calculation of
stock-based awards. This accounting guidance requires the
recognition of the fair value of stock compensation in net income.
Although every effort is made to ensure the accuracy of our
estimates and assumptions, significant unanticipated changes in
those estimates, interpretations and assumptions may result in
recording stock option expense that may materially impact our
financial statements for each respective reporting period.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included
in financial statements or tax returns. Deferred tax items are
reflected at the enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected
reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Due to the uncertainty regarding the success of future operations,
management has valued the deferred tax asset allowance at 100% of
the related deferred tax assets.
Recent Accounting Pronouncements
Recently Adopted Standards
In August 2018, the Financial Accounting Standards Board ("FASB")
issued ASU No. 2018-13, Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. This ASU
eliminates, adds and modifies certain disclosure requirements for
fair value measurements as part of its disclosure framework
project. The standard is effective for all entities for financial
statements issued for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. The Company
adopted the standard on April 1, 2020 and it did not have a
material impact on the Company’s financial statements.
Standards Not Yet Adopted
In May 2021, the FASB issued ASU No. 2021-04, Issuer's Accounting
for Certain Modifications or Exchanges of Freestanding
Equity-Classified Written Call Options. This guidance clarifies and
reduces diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options
due to a lack of explicit guidance in the FASB Codification. The
ASU 2021-04 is effective for The Company's fiscal year beginning
April 1, 2022. Early adoption is permitted. The Company is
currently evaluating the impact of adopting ASU 2021-04 on its
consolidated financial statements.
On June 16, 2016, the FASB issued ASU No. 2016-13, Measurement of
Credit Losses on Financial Instruments. The standard requires the
use of an “expected loss” model on certain types of financial
instruments. The standard also amends the impairment model for
available-for-sale debt securities and requires estimated credit
losses to be recorded as allowances instead of reductions to
amortized cost of the securities. The amendments in this ASU are
effective for the Company's fiscal year beginning April 1, 2023.
The Company is currently evaluating the impact of ASU 2016-13 on
its financial statements.
In June 2020, the FASB issued ASU No. 2020-06, Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity.
The guidance simplifies the current guidance for convertible
instruments and the derivatives scope exception for contracts in an
entity’s own equity. Additionally, the amendments affect the
diluted EPS calculation for instruments that may be settled in cash
or shares and for convertible instruments. This ASU will be
effective for the Company's fiscal year beginning April 1, 2024.
Early adoption is permitted. The amendments in this update must be
applied on either full retrospective basis or modified
retrospective basis through a cumulative-effect adjustment to
retained earnings/(deficit) in the period of adoption. The Company
is currently evaluating the impact of ASU 2020-06 on its
consolidated financial statements and related disclosures, as well
as the timing of adoption.
All other newly issued accounting pronouncements have been deemed
either immaterial or not applicable.
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, 2021 and 2020, and the
related consolidated statements of operations, stockholders’
deficit and cash flows for each of the years in the two-year period
ended March 31, 2021 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,
2021 and 2020, and the results of its operations and its cash flows
for each of the years in the two-year period ended March 31, 2021,
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 3 to the financial statements, the
Company has suffered recurring losses for the year ended March 31,
2021. The Company had a net loss of $3,725,027, accumulated deficit
of $103,886,232, net cash used in operating activities of
$2,185,220 and had negative working capital of $5,054,593. These
factors raise substantial doubt about the Company’s ability to
continue as a going concern. Management’s plans in regard to these
matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’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 audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Inventory Costs
As summarized in Note 2 “Inventory” to the consolidated financial
statements, the Company’s inventory consists of three categories,
Raw materials, which consists of supplies, materials, and
consumables used in the cultivation and extraction processes;
work-in-progress which includes live plants and cannabis in the
drying, curing, and trimming processes and finished goods includes
completed cannabis flower, trim, and extracts in bulk and packaged
forms. The inventory, net of reserve was $1,689,304 as of March 31,
2021. Management records the cost of inventory on the consolidated
balance sheet based on the costs incurred throughout the year in
each category less the amounts transferred to cost of goods sold
for sales in the year. Labor costs and overhead costs comprise the
majority of overall inventory cost.
We identified the allocation of labor and overhead costs to
inventory as a critical audit matter because of the significant
estimates management used in the allocation of labor and overhead
costs to inventory. Auditing management’s allocations of internal
costs to the inventory was complex and involved a high degree of
subjectivity.
The primary procedures we performed to address this critical audit
matter included (a) Obtained an understanding of management’s
process for allocating labor and overhead costs, (b) Tested the
accuracy and completeness of allocated labor, including testing, on
a sample basis, total labor costs incurred, (c) Tested the accuracy
and completeness of overhead costs allocated, including testing, on
a sample basis, overhead costs incurred (d) Evaluated the
reasonableness of management’s significant assumptions used in such
allocation, (e) compared the Company’s inventory ratios and per
unit production costs to industry data, and (f) Recomputed the unit
cost and total inventory costs.
/s/
Assurance Dimensions |
|
|
We have served as the Company’s auditor since 2019.
|
|
|
Margate, Florida
July 6, 2021
|
GB SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
As of March 31,
|
|
|
|
2021
|
|
|
2020
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
793,040 |
|
|
$ |
2,406 |
|
Prepaid expenses and other current assets
|
|
|
256,251 |
|
|
|
18,776 |
|
Note receivable
|
|
|
- |
|
|
|
5,224,423 |
|
Current assets from discontinued operations
|
|
|
2,494,564 |
|
|
|
1,755,275 |
|
TOTAL CURRENT ASSETS
|
|
|
3,543,855 |
|
|
|
7,000,880 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
25,022 |
|
|
|
37,821 |
|
Intangible assets, net of accumulated amortization of $43,096 and
$12,287 at March 31, 2021 and 2020, respectively
|
|
|
1,706,762 |
|
|
|
1,128,702 |
|
Long term assets from discontinued operations
|
|
|
5,530,415 |
|
|
|
6,185,465 |
|
TOTAL ASSETS
|
|
$ |
10,806,054 |
|
|
$ |
14,352,868 |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,412,459 |
|
|
$ |
1,913,049 |
|
Accrued interest
|
|
|
493,741 |
|
|
|
366,865 |
|
Accrued liabilities
|
|
|
957,946 |
|
|
|
813,618 |
|
Notes and convertible notes payable, net of unamortized discount of
$296,504 and $608,580 at March 31, 2021 and 2020, respectively
|
|
|
3,594,804 |
|
|
|
5,054,728 |
|
Indebtedness to related parties
|
|
|
84,913 |
|
|
|
586,512 |
|
Note payable to related party
|
|
|
- |
|
|
|
151,923 |
|
Current liabilities from discontinued operations
|
|
|
2,054,585 |
|
|
|
1,999,062 |
|
TOTAL CURRENT LIABILITIES
|
|
|
8,598,448 |
|
|
|
10,885,757 |
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of unamortized discount of $154,590
and $0 at March 31, 2021 and 2020, respectively
|
|
|
292,410 |
|
|
|
- |
|
Long term liabilities from discontinued operations
|
|
|
3,389,124 |
|
|
|
3,555,605 |
|
TOTAL LIABILITIES
|
|
|
12,279,982 |
|
|
|
14,441,362 |
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY/(DEFICIT):
|
|
|
|
|
|
|
|
|
Common Stock, $0.0001 par value, 600,000,000 shares authorized,
315,340,411 and 275,541,602 outstanding at March 31, 2021 and 2020,
respectively
|
|
|
31,534 |
|
|
|
27,554 |
|
Additional paid-in capital
|
|
|
102,380,770 |
|
|
|
97,271,157 |
|
Accumulated deficit
|
|
|
(103,886,232 |
) |
|
|
(97,387,205 |
) |
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(1,473,928 |
) |
|
|
(88,494 |
) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
10,806,054 |
|
|
$ |
14,352,868 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
$ |
- |
|
|
$ |
- |
|
Cost of goods sold
|
|
|
- |
|
|
|
- |
|
Gross profit (loss)
|
|
|
- |
|
|
|
- |
|
General and administrative expenses
|
|
|
2,001,617 |
|
|
|
5,741,514 |
|
LOSS FROM OPERATIONS
|
|
|
(2,001,617 |
) |
|
|
(5,741,514 |
) |
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Gain/(loss) on extinguishment
|
|
|
467,872 |
|
|
|
(216,954 |
) |
Gain on settlement of accounts payable
|
|
|
422,414 |
|
|
|
- |
|
Gain on deconsolidation
|
|
|
- |
|
|
|
4,393,242 |
|
Interest expense
|
|
|
(1,285,460 |
) |
|
|
(1,109,031 |
) |
Loss on modification of line of credit
|
|
|
(650,000 |
) |
|
|
- |
|
Loss on modification of note receivable
|
|
|
- |
|
|
|
(1,895,434 |
) |
Debt default penalty
|
|
|
(286,059 |
) |
|
|
- |
|
Other expense
|
|
|
- |
|
|
|
(179,368 |
) |
Total other income/(expense)
|
|
|
(1,331,233 |
) |
|
|
992,455 |
|
LOSS BEFORE INCOME TAXES
|
|
|
(3,332,850 |
) |
|
|
(4,749,059 |
) |
Income tax expense (Note 8)
|
|
|
- |
|
|
|
- |
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(3,332,850 |
) |
|
|
(4,749,059 |
) |
Net loss from discontinued operations (Note 4)
|
|
|
(392,177 |
) |
|
|
(8,362,626 |
) |
NET LOSS
|
|
|
(3,725,027 |
) |
|
|
(13,111,685 |
) |
Net loss attributable to non-controlling interest
|
|
|
- |
|
|
|
(738,106 |
) |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC.
|
|
$ |
(3,725,027 |
) |
|
$ |
(12,373,579 |
) |
|
|
|
|
|
|
|
|
|
Net loss
attributable to common stockholders of GB Sciences, Inc.
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(3,332,850 |
) |
|
$ |
(4,749,059 |
) |
Discontinued
operations
|
|
|
(392,177 |
) |
|
|
(7,624,520 |
) |
Net loss
|
|
$ |
(3,725,027 |
) |
|
$ |
(12,373,579 |
) |
|
|
|
|
|
|
|
|
|
Net loss per common
share – basic and diluted
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
Discontinued
operations
|
|
$ |
(0.00 |
) |
|
$ |
(0.03 |
) |
Net loss
|
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding - basic and diluted
|
|
|
285,190,729 |
|
|
|
258,450,641 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
|
|
Additional Paid-
|
|
|
Accumulated
|
|
|
Non-Controlling
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
In Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
Balance at March 31, 2019
|
|
|
240,627,102 |
|
|
$ |
24,063 |
|
|
$ |
93,020,015 |
|
|
$ |
(84,743,836 |
) |
|
$ |
8,855,757 |
|
|
$ |
17,155,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for debt conversion
|
|
|
7,583,333 |
|
|
|
758 |
|
|
|
524,242 |
|
|
|
- |
|
|
|
- |
|
|
|
525,000 |
|
Exercise of warrants
for stock, 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock
for debt conversion
|
|
|
4,000,000 |
|
|
|
400 |
|
|
|
159,600 |
|
|
|
- |
|
|
|
- |
|
|
|
160,000 |
|
Exercise of warrants
for stock, net of issuance costs
|
|
|
35,798,809 |
|
|
|
3,580 |
|
|
|
964,443 |
|
|
|
- |
|
|
|
- |
|
|
|
968,023 |
|
Share based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
436,349 |
|
|
|
- |
|
|
|
- |
|
|
|
436,349 |
|
Beneficial
conversion feature on notes payable
|
|
|
- |
|
|
|
- |
|
|
|
543,886 |
|
|
|
- |
|
|
|
- |
|
|
|
543,886 |
|
Compensation
warrants
|
|
|
- |
|
|
|
- |
|
|
|
231,335 |
|
|
|
- |
|
|
|
- |
|
|
|
231,335 |
|
Inducement dividend
from warrant exercises
|
|
|
- |
|
|
|
- |
|
|
|
2,774,000 |
|
|
|
(2,774,000 |
) |
|
|
- |
|
|
|
- |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(3,725,027 |
) |
|
|
- |
|
|
|
(3,725,027 |
) |
Balance at March 31, 2021
|
|
|
315,340,411 |
|
|
$ |
31,534 |
|
|
$ |
102,380,770 |
|
|
$ |
(103,886,232 |
) |
|
$ |
- |
|
|
$ |
(1,473,928 |
) |
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,725,027 |
) |
|
$ |
(13,111,685 |
) |
Loss from
discontinued operations
|
|
|
(392,177 |
) |
|
|
(8,362,626 |
) |
Net loss from
continuing operations
|
|
|
(3,332,850 |
) |
|
|
(4,749,059 |
) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
47,353 |
|
|
|
125,502 |
|
Stock-based compensation
|
|
|
436,349 |
|
|
|
287,260 |
|
Stock issued for
services
|
|
|
- |
|
|
|
214,000 |
|
Compensation
warrants
|
|
|
231,335 |
|
|
|
132,914 |
|
Amortization of debt discount and beneficial conversion feature
|
|
|
776,122 |
|
|
|
1,150,995 |
|
Debt default penalty
|
|
|
286,059 |
|
|
|
- |
|
Interest expense on conversion of notes payable
|
|
|
- |
|
|
|
84,354 |
|
Loss on modification
of line of credit
|
|
|
650,000 |
|
|
|
- |
|
Loss/(gain) on extinguishment
|
|
|
(467,872 |
) |
|
|
216,954 |
|
Gain on settlement of accounts payable
|
|
|
(422,414 |
) |
|
|
- |
|
Loss on disposal of assets and termination of operating lease
|
|
|
- |
|
|
|
147,953 |
|
Loss on induced conversion of note payable
|
|
|
- |
|
|
|
127,059 |
|
Loss on note receivable modification
|
|
|
- |
|
|
|
1,895,434 |
|
Gain on deconsolidation
|
|
|
- |
|
|
|
(4,393,242 |
) |
Interest income
receivable and amortization of discount on note receivable
|
|
|
- |
|
|
|
(509,265 |
) |
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
- |
|
|
|
150,137 |
|
Prepaid expenses and other current assets
|
|
|
(237,475 |
) |
|
|
20,932 |
|
Decrease in deposits and other noncurrent assets
|
|
|
- |
|
|
|
110,485 |
|
Inventory
|
|
|
- |
|
|
|
83,750 |
|
Accounts payable
|
|
|
(248,115 |
) |
|
|
739,415 |
|
Accrued expenses
|
|
|
166,828 |
|
|
|
697,429 |
|
Accrued interest
|
|
|
549,703 |
|
|
|
464,279 |
|
Indebtedness to related parties
|
|
|
(501,599 |
) |
|
|
738,435 |
|
Net cash used in operating activities of continuing operations
|
|
|
(2,066,576 |
) |
|
|
(2,264,279 |
) |
Net cash used in operating activities of discontinued
operations
|
|
|
(118,644 |
) |
|
|
(2,215,434 |
) |
Net cash used in operating activities
|
|
|
(2,185,220 |
) |
|
|
(4,479,713 |
) |
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds of note receivable
|
|
|
5,051,923 |
|
|
|
- |
|
Acquisition of intangible assets
|
|
|
(292,675 |
) |
|
|
(91,862 |
) |
Net cash provided by/(used in) investing activities of continuing
operations
|
|
|
4,759,248 |
|
|
|
(91,862 |
) |
Net cash used in investing activities of discontinued
operations
|
|
|
(103,729 |
) |
|
|
(446,922 |
) |
Net cash provided by/(used in) investing activities
|
|
|
4,655,519 |
|
|
|
(538,784 |
) |
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
- |
|
|
|
790,225 |
|
Proceeds from warrant exercises
|
|
|
1,075,396 |
|
|
|
1,274,790 |
|
Proceeds from convertible notes payable
|
|
|
725,000 |
|
|
|
2,630,000 |
|
Proceeds from line of credit
|
|
|
375,000 |
|
|
|
- |
|
Principal payment on notes payable and operating lease
obligation
|
|
|
(3,156,014 |
) |
|
|
(84,869 |
) |
Principal payment on related party note
|
|
|
(151,923 |
) |
|
|
- |
|
Brokerage fees from warrant exercises and stock issuances
|
|
|
(107,373 |
) |
|
|
(188,593 |
) |
Fees for issuance of
convertible notes
|
|
|
(74,750 |
) |
|
|
(175,000 |
) |
Net cash provided by/(used in) financing activities of continuing
operations
|
|
|
(1,314,664 |
) |
|
|
4,246,553 |
|
Net cash provided by/(used in) financing activities of discontinued
operations
|
|
|
(161,768 |
) |
|
|
741,655 |
|
Net cash provided by/(used in) financing activities
|
|
|
(1,476,432 |
) |
|
|
4,988,208 |
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
|
|
993,867 |
|
|
|
(30,289 |
) |
CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
151,766 |
|
|
|
182,055 |
|
CASH AND CASH
EQUIVALENTS AT END OF YEAR
|
|
|
1,145,633 |
|
|
|
151,766 |
|
Less: cash and cash equivalents classified as discontinued
operations
|
|
|
(352,593 |
) |
|
|
(149,360 |
) |
CASH AND CASH
EQUIVALENTS AT END OF YEAR FROM CONTINUING OPERATIONS
|
|
$ |
793,040 |
|
|
$ |
2,406 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
Year Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
241,014 |
|
|
$ |
451,040 |
|
Cash paid for income tax
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Accrued liabilities
forgiven in connection with Wellcana Note settlement
|
|
$ |
172,500 |
|
|
$ |
- |
|
Depreciation capitalized in inventory (discontinued operations)
|
|
$ |
532,785 |
|
|
$ |
811,508 |
|
Accrued interest
capitalized in convertible note principal
|
|
$ |
223,094 |
|
|
$ |
- |
|
Property capitalized under operating leases
|
|
$ |
- |
|
|
$ |
182,624 |
|
Patent acquisition
costs capitalized in intangible assets
|
|
$ |
319,939 |
|
|
$ |
247,646 |
|
Stock options issued for preparing patent applications
|
|
$ |
168,000 |
|
|
$ |
- |
|
Stock issued upon conversion of notes payable
|
|
$ |
160,000 |
|
|
$ |
525,000 |
|
Inducement dividend from warrant exercises
|
|
$ |
2,774,000 |
|
|
$ |
262,240 |
|
Beneficial conversion feature on notes payable
|
|
$ |
543,886 |
|
|
$ |
829,737 |
|
Cumulative effect of the new lease standard
|
|
$ |
- |
|
|
$ |
7,550 |
|
The accompanying notes are an integral part of these consolidated
financial statements
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Background
and Nature of Operations
Business
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or
“our”) is a phytomedical research and biopharmaceutical drug
development company whose goal is to create patented formulations
of plant-inspired, complex therapeutic mixtures for the
prescription drug market that target a variety of medical
conditions. The Company is engaged in the research and development
of plant-based medicines and plans to produce plant-inspired,
complex therapeutic mixtures based on its portfolio of intellectual
property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma,
Inc. (“GBSGB”), the Company is engaged in the research and
development of plant-based medicines, primarily cannabinoid
medicines, with virtual operations in North America and Europe.
GBSGB’s assets include a portfolio of intellectual property
containing both proprietary cannabinoid-containing formulations and
our AI-enabled drug discovery platform, as well as critical
research contracts and key supplier arrangements. GBSGB’s
intellectual property covers a range of medical conditions and
several programs are in the pre-clinical animal stage of
development including Parkinson’s disease, neuropathic pain, and
cardiovascular therapeutic programs. GBSGB runs a lean drug
development program and takes effort to minimize expenses,
including personnel, overhead, and fixed capital expenses through
strategic partnerships with Universities and Contract Research
Organizations (“CROs”). GBSGB’s intellectual property portfolio
includes five USPTO issued patents, nine USPTO nonprovisional
patent applications pending in the US, and one provisional patent
application in the US. In addition to the USPTO patents and patent
applications, the company has filed 35 patent applications
internationally to protect its proprietary technology. We recently
filed a provisional USPTO patent application to further protect
aspects of our proprietary drug discovery engine, “Phytomedical
Analytics for Research Optimization at Scale," or PhAROS™.
We were incorporated in the State of Delaware on April 4, 2001,
under the name “Flagstick Venture, Inc.” On March 28, 2008,
stockholders owning a majority of our outstanding common stock
approved changing our then name “Signature Exploration and
Production Corp.” as our business model had changed.
On April 4, 2014, we changed our name from Signature Exploration
and Production Corporation to Growblox Sciences, Inc. Effective
December 12, 2016, the Company amended its Certificate of
Corporation pursuant to shareholder approval, and the Company’s
name was changed from Growblox Sciences, Inc. to GB Sciences,
Inc.
Effective April 8, 2018, Shareholders of the Company approved the
change in corporate domicile from the State of Delaware to the
State of Nevada and increase in the number of authorized capital
shares from 250,000,000 to 400,000,000. Effective August 15, 2019,
Shareholders of the Company approved an increase in authorized
capital shares from 400,000,000 to 600,000,000.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Developments
Sale of Membership Interest in GB Sciences Louisiana,
LLC
On November 15, 2019, the Company entered into a Membership
Interest Purchase Agreement (the “Agreement”) with Wellcana Plus,
LLC, a Louisiana limited liability company ("Wellcana"), whereby
Wellcana would acquire the Company’s 50.01% membership interest
(the “Membership Interest”) in GB Sciences Louisiana LLC, a
Louisiana limited liability company. Since entering into the
agreement, certain modifications of the Agreement were made. It was
ultimately agreed that Wellcana would pay the Company $4,900,000 in
cash for the Membership Interest. On December 16, 2020, Wellcana
made the final payment totaling $4,900,000 which completed the
disposition of the Membership Interest (Note
13).
Convertible Note Payable to Iliad Research and Trading,
L.P.
On April 23, 2019, the Company issued an 8% Convertible Promissory
Note (the “Note”) in the face amount of $2,765,000 to Iliad
Research and Trading, L.P. (“Iliad”). On April 22, 2020, the
Company defaulted on its obligation to pay the Note by that date.
Based upon the default, Iliad filed a lawsuit against the Company
in the Third Judicial District Court of Salt Lake County, State of
Utah (the “Court”). On July 14, 2020, the Court issued a judgment
in favor of Iliad in the amount of $3,264,594 (the “Judgment”).
On November 20, 2020, the Company, Iliad, and Wellcana
entered into the Judgment Settlement Agreement (the Agreement), in
which the Company agreed to pay Iliad $3,006,015 on or before
December 8, 2020, in full satisfaction of the Judgment. In addition
to the Company and Iliad, the Agreement was signed by Wellcana Plus
LLC (“Wellcana”). By signing the Agreement, Wellcana agreed to pay
$3,006,015 of what it owed the Company, directly to Iliad to
satisfy the Company’s obligation to Iliad. Of the $4,150,000 paid
by Wellcana, $3,006,015 was sent directly by Wellcana to Iliad in
satisfaction of the Company’s obligation pursuant to the Settlement
Agreement (Note
6).
Intellectual Property Portfolio
On October 14th, 2020, GB Sciences filed a provisional patent
application to protect its machine learning algorithm for the
prediction of novel active ingredients from traditional,
plant-based medical preparations. The new provisional patent
application is entitled “In Silico Meta-Pharmacopeia
Assembly from Non-Western Medical Systems Using Advanced Data
Analytic Techniques to Identify and Design Phytotherapeutic
Strategies”. GBSGB’s proprietary data analytics tool uses in
silico convergence analysis to deconvolve modes of action and
predict desirable components of plant-based formulations
established in traditional medical practice based on computational
consensus analysis across cultures and medical systems.
On September 23rd, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting their Cannabinoid Containing Complex Mixtures (CCCMs)
for the Treatment of Mast Cell Activation Syndrome (MCAS). The
patent is owned by GBSGB. MCAS is a severe immunological condition
in which mast cells inappropriately and excessively release
inflammatory mediators, resulting in a range of severe chronic
hyperinflammatory symptoms and life-threatening anaphylaxis
attacks. There is no single recommended treatment for MCAS
patients. Instead, patients, with their doctor’s guidance, attempt
to manage MCAS symptoms primarily by avoiding ‘triggers’ and using
rescue medicines for their severe hyperinflammatory attacks.
Therefore, MCAS patients need new therapeutic options to control
their mast cell related symptoms, and the Company’s CCCM™ were
designed to simultaneously control multiple inflammatory pathways
within mast cells as a comprehensive treatment option. The
application, entitled “Cannabinoid-Containing Complex Mixtures for
the Treatment of Mast Cell-Associated or Basophil-Mediated
Inflammatory Disorders” was originally filed on January 31, 2018
and describes CCCMs that can be used for the treatment of
Crohn's disease, Inflammatory Bowel Disease (IBD), Irritable Bowel
Syndrome (IBS), rheumatoid arthritis, osteoarthritis, allergic
asthma, Chronic Obstructive Pulmonary Disease (COPD), psoriasis,
eczema, urticarias, dermatitis, mastocytosis, or anaphylactic
sting. Claims for these additional indications will be
examined by the USPTO in the future. On December 8, 2020, the
patent was issued as United States Patent 10,857,107.
On April 7th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Cannabinoid Containing Complex Mixtures ("CCCMs") for
the Treatment of Parkinson’s disease (PD), which is owned by GBSGB.
On May 19, 2020, the patent was issued as United States Patent
10,653,640.
On May 12th, 2020, GB Sciences received a Notice of Allowance from
the United States Patent and Trademark Office (USPTO) for claims
protecting Myrcene Containing Complex Mixtures ("MCCMs") for the
Treatment of Neuropathic Pain. Intellectual property rights to this
application and the MCCM contained within it are owned by GBSGB.
The Company's MCCMs are protected for use in the treatment of pain
related to arthritis, shingles, irritable bowel syndrome, sickle
cell disease, and endometriosis. The patent was issued on July 14,
2020, as United States Patent 10,709,670.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Planned Divestiture of Nevada Cannabis Operations
On November 15, 2019, we entered into a Binding Letter of Intent
(the "LOI") to sell the Company's membership interest interests in
GBSN and GBLV (together, the "Teco Subsidiaries"). In connection
with the LOI, we entered into a Management Agreement with the
purchaser whereby the facilities will be managed by an affiliate of
the purchaser until the close of the sale. On March 24, 2020, we
entered into the Membership Interest Purchase Agreement ("Teco
MIPA") which formalized the sale of the Teco Subsidiaries and
modified the terms of the sale. Pursuant to the Teco MIPA, the
Company will sell 100% of its membership interests in GBSN and GBLV
for $4,000,000 cash upon close and $4,000,000 in the form of an 8%
promissory note (Note
14).
On November 27, 2019, we entered into a Binding Letter of Intent to
sell the Company's 100% interest in GB Sciences Nopah, LLC. On
August 10, 2020, the Company entered into the Membership Interest
Purchase Agreement ("Nopah MIPA") and Promissory Note Modification
Agreement with the purchaser of GB Sciences Nopah, LLC. The Company
will receive $300,000 upon closing, and the purchaser will pay all
expenses related to the upkeep and maintenance of the Nopah License
from the date of the agreement. The $300,000 purchase price will be
paid as a reduction to the balance of the 0% Note payable dated
October 23, 2017, which is held by an affiliate of the purchaser of
the Nopah license (Note
14).
The sales of the Teco and Nopah Subsidiaries are expected to close
upon the successful transfer of the Nevada cannabis cultivation and
production licenses held by those subsidiaries. The transfer of
cannabis licenses in the State of Nevada was subject to an
indefinite moratorium beginning in October 2019. In a meeting held
on July 21, 2020, the Nevada Cannabis Compliance Board lifted the
moratorium, however, the board has indicated that there were
initially 90 requests pending, and it will likely take several
months to process the entire backlog of pending license transfers.
Based on this information, we cannot provide any assurances as to
the timing of the close of the sale. In addition, the lifting of
the moratorium and the processing of cannabis license transfers
have been delayed by the COVID-19 pandemic and could be further
delayed if the pandemic continues.
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 $103,886,232
at March 31,
2021. The Company had a working capital deficit of
$5,054,593,
net of working capital of $439,979
from discontinued operations as of March 31,
2021, compared to a working capital deficit of $3,884,877,
including a working capital deficit of $243,787
from discontinued operations at March 31,
2020. In addition, the Company has consumed cash in its
operating activities of $2,185,220
including $118,644
used in discontinued operations for the year ended
March 31, 2021, compared to $4,479,713
including $2,215,434
used in discontinued operations for the year ended
March 31, 2020. These factors, among others, raise substantial
doubt about the Company’s ability to continue as a going
concern.
Management has been able, thus far, to finance the losses through a
public offering, private placements of debt and equity, and
obtaining operating funds from stockholders. The Company is
continuing to seek sources of financing. There are no
assurances that the Company will be successful in achieving its
goals.
Furthermore, Management believes the COVID-19 pandemic may have a
significant impact on the Company's business. The pandemic presents
a risk to the global economy, and it is possible that it could have
an impact on the operations of the Company in the near term that
could materially impact the Company’s financials and ability to
continue as a going concern. Management has not been able to
measure the potential financial impact on the Company and continues
to monitor the impact of the pandemic closely, although the extent
to which the COVID-19 outbreak will impact our operations,
financing ability or future financial results is uncertain.
In view of these conditions, the 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 consolidated
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.
GB SCIENCES, INC. AND SUBSIDIARIES
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:
Continuing Operations:
GBS Global Biopharma, Inc.
ECRX, Inc.
The PhAROS Institute, LLC
GB Sciences Texas, LLC
Discontinued Operations:
GB Sciences Nevada, LLC
GB Sciences Las Vegas, LLC
GB Sciences Nopah, LLC
Intercompany accounts and transactions have been eliminated in
consolidation. 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. In
particular, the assets, liabilities, income, and cash flows of GB
Sciences Nevada LLC, GB Sciences Las Vegas, LLC, and GB Sciences
Nopah, LLC, have been separated from the comparative period amounts
to conform to the current period presentation as discontinued
operations as the result of the pending sale of the Company's
Nevada operations. The reclassifications had no effect on the
reported financial position, results of operations or cash flows of
the Company.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations
See Note
4.
Fair Value of Financial Instruments
The Company adopted ASC 820, Fair Value Measurements and
Disclosures (ASC 820). ASC 820 defines fair value, establishes a
three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosure requirements for fair value
measures. The three levels are defined as follows:
-
|
Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
|
-
|
Level 2 inputs to the valuation methodology include quoted prices
for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial
instrument.
|
-
|
Level 3 inputs to valuation methodology are unobservable and
significant to the fair measurement.
|
The carrying value of cash, accounts receivable, accounts payable
and accrued expenses are estimated by management to approximate
fair value, primarily due to the short-term nature of the
instruments.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less when purchased to be cash
equivalents. The Company had no short-term investments classified
as cash equivalents at March 31,
2021 and 2020.
Accounts Receivable
Accounts receivable are carried at their estimated collectible
amounts. Trade accounts receivable are periodically evaluated for
collectability based on aging and subsequent collections.
Inventory
We value our inventory at the lower of the actual cost of our
inventory, as determined using the first-in, first-out method, or
its current estimated market value. We periodically review our
physical inventory for excess, obsolete, and potentially impaired
items and reserve accordingly. Our reserve estimate for excess and
obsolete inventory is based on expected future use. Indirect costs,
which primarily relate to the lease and operation costs of the Teco
Facility, are allocated based on square footage of the facility
used in the production of inventory.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the
value of our patents pending and includes the costs paid to draft
and file patent applications. Upon issuance of the patents, the
indefinite-lived intangible assets will have finite lives.
Intangible assets also include the acquisition cost of a cannabis
production license with an indefinite life. We amortize our
finite-lived intangible assets over their estimated useful lives
using the straight-line method, and we periodically evaluate the
remaining useful lives of our finite-lived intangible assets to
determine whether events or circumstances warrant a revision to the
remaining period of amortization. During the year ended March 31,
2020, the Company entered into the Membership Interest Purchase
Agreement ("Teco MIPA") to sell 100% of the membership interests in
the Teco Facility. As a result of this agreement, the Company
determined that the long-lived assets of the Teco Facility
including a production license acquired through purchase might be
impaired due to the current expectation that the asset group will
more likely than not be disposed of by sale significantly before
the end of its previously estimated useful life. The Company
recorded an impairment loss of $449,801 related to the license for
the year ended March 31, 2020, and reduced the carrying value of
the related intangible asset from $1,021,067 to $571,264. The
license asset and the impairment loss are included in discontinued
operations in the accompanying financial statements.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Lease Right-of-Use Asset and Liability
The Company determines if an arrangement is a lease at inception
and has lease agreements for office facilities, equipment, and
other space and assets with non-cancelable lease terms. Certain
real estate and property leases, and various other operating leases
are measured on the balance sheet with a lease liability and
right-of-use asset ("ROU").
ROU assets represent the Company's right to use an underlying asset
for the lease term, and lease liabilities represent the obligation
to make scheduled lease payments. ROU assets and liabilities are
recognized on the lease commencement date based on the present
value of lease payments over the lease term. The present value of
lease payments is calculated using the incremental borrowing rate
at lease commencement, which takes into consideration recent debt
issuances as well as other applicable market data available.
Lease payments include fixed payments, variable payments based on
an index or rate, reasonably certain purchase options, termination
penalties, and others as required by the New Lease Standard. Lease
payments do not include variable lease payments other than those
that depend on an index or rate, any guarantee by the lessee of the
lessor’s debt, or any amount allocated to non-lease components.
Lease terms include options to extend when it is reasonably certain
that the option will be exercised. Leases with a term of twelve
months or less are not recorded on the balance sheet. Additionally,
lease and non-lease components are accounted for as a single lease
component for real estate agreements.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets: 3-8 years for
machinery and equipment, and leasehold improvements are amortized
over the shorter of the estimated useful lives or the underlying
lease term. Property under finance leases and related obligations
are initially recorded at an amount equal to the present value of
future minimum lease payments computed on the basis of the
Company’s incremental borrowing rate, and depreciation is recorded
on a straight-line basis and is included within depreciation and
amortization expense. Repairs and maintenance expenditures which do
not extend the useful lives of related assets are expensed as
incurred.
Long-Lived Assets
Property and equipment comprise a significant portion of our total
assets from discontinued operations. 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 (Note
14). As a result of this agreement, the Company determined that
the long-lived assets of the Teco Facility might be impaired due to
the current expectation that the asset group will more likely than
not be disposed of by sale significantly before the end of its
previously estimated useful life. The Company estimated future
undiscounted cash flows related to the Teco Facility to be $8.0
million, which was less than the carrying amount of the Teco
Facility asset group of $11.9 million. Using a discounted
cash flow approach, the Company estimated the fair value of the
asset group to be approximately $7.3 million, resulting in a
write-down of $4,645,054 related to the Teco Facility asset group.
Fair value was based on expected future cash flows using level 3
inputs under ASC 820. The cash flows are the proceeds expected to
be generated from the sale of the assets under the Teco MIPA,
discounted to present value at a rate of 17%. The cash flow
projection includes the $4.0 million in cash flows that the Company
anticipates receiving from the Note Receivable that it will receive
from the sale of the Teco facility and the $4.0M payment that will
be received at the close of the sale. The impairment loss and the
related long-lived assets are included in discontinued operations
in the accompanying financial statements.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Beneficial Conversion Feature of Convertible Notes
Payable
The Company accounts for convertible notes payable in accordance
with the guidelines established by the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) Topic 470-20, Debt with Conversion and Other
Options and Emerging Issues Task Force (“EITF”)
00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments”. A beneficial conversion feature
(“BCF”) exists on the date a convertible note is issued when the
fair value of the underlying common stock to which the note is
convertible into is in excess of the remaining unallocated proceeds
of the note after first considering the allocation of a portion of
the note proceeds to the fair value of any attached equity
instruments, if any related equity instruments were granted with
the debt. In accordance with this guidance, the BCF of a
convertible note is measured by allocating a portion of the note's
proceeds to the warrants, if applicable, and as a reduction of the
carrying amount of the convertible note equal to the intrinsic
value of the conversion feature, both of which are credited to
additional paid-in-capital. The Company calculates the fair value
of warrants issued with the convertible notes using the
Black-Scholes valuation model and uses the same assumptions for
valuing any employee options in accordance with ASC Topic 718
Compensation – Stock Compensation. The only difference
is that the contractual life of the warrants is used.
The value of the proceeds received from a convertible note is then
allocated between the conversion features and warrants on a
relative fair value basis. The allocated fair value is recorded in
the financial statements as a debt discount (premium) from the face
amount of the note and such discount is amortized over the expected
term of the convertible note (or to the conversion date of the
note, if sooner) and is charged to interest expense.
Revenue Recognition
The FASB issued Accounting Standards Codification (“ASC”) 606 as
guidance on the recognition of revenue from contracts with
customers. Revenue recognition depicts the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The guidance also requires
disclosures regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers. The
guidance permits two methods of adoption: retrospectively to each
prior reporting period presented, or retrospectively with the
cumulative effect of initially applying the guidance recognized at
the date of initial application (the cumulative catch-up transition
method). The Company adopted the guidance on April 1, 2018 and
applied the cumulative catch-up transition method.
The Company’s only material revenue source is part of discontinued
operations and derives from sales of cannabis and cannabis
products, distinct physical goods. Under ASC 606, the Company is
required to separately identify each performance obligation
resulting from its contracts from customers, which may be a good or
a service. A contract may contain one or more performance
obligations. All of the Company’s contracts with customers, past
and present, contain only a single performance obligation, the
delivery of distinct physical goods. Because fulfillment of the
company’s performance obligation to the customer under ASC 606
results in the same timing of revenue recognition as under the
previous guidance (i.e. revenue is recognized upon delivery of
physical goods), the Company did not record any material adjustment
to report the cumulative effect of initial application of the
guidance.
Research and Development Costs
Research and development costs are expensed as incurred. During the
years ended
March 31, 2021 and 2020, the Company recorded $352,274 and
$1,543,397, respectively, in research and development expense,
which is included in general and administrative expense in the
Company's consolidated financial statements.
Equity-Based Compensation
The Company accounts for equity instruments issued to employees and
non-employees in accordance with the provisions of ASC 718 Stock
Compensation (ASC 718). 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.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included
in financial statements or tax returns. Deferred tax items are
reflected at the enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected
reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Due to the uncertainty regarding the success of future operations,
management has valued the deferred tax asset allowance at 100% of
the related deferred tax assets.
Because the Company operates in the State-licensed cannabis
industry, it is subject to the limitations of Internal Revenue Code
Section 280E (“280E”) for U.S. income tax purposes. Under 280E, the
Company is allowed to deduct expenses that are directly related to
the production of its products, i.e. cost of goods sold, but is
allowed no further deductions for ordinary and necessary
business expenses from its gross profit. The Company believes that
the deductions disallowed include the deduction of NOLs. The unused
NOLs will continue to carry forward and may be used by the Company
to offset future taxable income that is not subject to the
limitations of 280E.
Loss per Share
The Company’s basic loss per share has been calculated using the
weighted average number of common shares outstanding during the
period. The Company had 164,049,941 and 158,404,020
potentially dilutive common shares at March 31, 2021
and 2020, respectively. However, such common stock equivalents
were not included in the computation of diluted net loss per share
as their inclusion would have been anti-dilutive.
Recent Accounting Pronouncements
Recently Adopted Standards
In August 2018, the Financial Accounting Standards Board ("FASB")
issued ASU No. 2018-13, Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. This ASU
eliminates, adds and modifies certain disclosure requirements for
fair value measurements as part of its disclosure framework
project. The standard is effective for all entities for financial
statements issued for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. The Company
adopted the standard on April 1, 2020, and it did not have a
material impact on the Company’s financial statements.
Standards Not Yet Adopted
In May 2021, the FASB issued ASU No. 2021-04, Issuer's Accounting
for Certain Modifications or Exchanges of Freestanding
Equity-Classified Written Call Options. This guidance clarifies and
reduces diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options
due to a lack of explicit guidance in the FASB Codification. The
ASU 2021-04 is effective for The Company's fiscal year beginning
April 1, 2022. Early adoption is permitted. The Company is
currently evaluating the impact of adopting ASU 2021-04 on its
consolidated financial statements.
On June 16, 2016, the FASB issued ASU No. 2016-13, Measurement of
Credit Losses on Financial Instruments. The standard requires the
use of an “expected loss” model on certain types of financial
instruments. The standard also amends the impairment model for
available-for-sale debt securities and requires estimated credit
losses to be recorded as allowances instead of reductions to
amortized cost of the securities. The amendments in this ASU are
effective for the Company's fiscal year beginning April 1, 2023.
The Company is currently evaluating the impact of ASU 2016-13 on
its financial statements.
In June 2020, the FASB issued ASU No. 2020-06, Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity.
The guidance simplifies the current guidance for convertible
instruments and the derivatives scope exception for contracts in an
entity’s own equity. Additionally, the amendments affect the
diluted EPS calculation for instruments that may be settled in cash
or shares and for convertible instruments. This ASU will be
effective for the Company's fiscal year beginning April 1, 2024.
Early adoption is permitted. The amendments in this update must be
applied on either full retrospective basis or modified
retrospective basis through a cumulative-effect adjustment to
retained earnings/(deficit) in the period of adoption. The Company
is currently evaluating the impact of ASU 2020-06 on its
consolidated financial statements and related disclosures, as well
as the timing of adoption.
All other newly issued accounting pronouncements have been deemed
either immaterial or not applicable.
GB SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Discontinued Operations
Discontinued Operations
Discontinued operations comprise those activities that were
disposed of during the period, or which were classified as held for
sale at the end of the period and represent a separate major line
of business or geographical area that can be clearly distinguished
for operational and financial reporting purposes. The Company has
included its subsidiaries GB Sciences Louisiana, LLC, GB Sciences
Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC
in discontinued operations due to the sale of the Company's
Louisiana cultivation and extraction facility (Note 13)
and the pending sale of the Company's Nevada cultivation and
extraction facilities (Note
14).
There were no assets and liabilities from discontinued operations
attributable to GB Sciences Louisiana, LLC at March 31, 2021
and 2020. The assets and liabilities associated with
discontinued operations included in our consolidated balance sheets
as of March 31, 2021
and 2020 were as follows:
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
Continuing
|
|
|
Discontinued Nevada Subsidiaries
|
|
|
Total
|
|
|
Continuing
|
|
|
Discontinued Nevada Subsidiaries
|
|
|
Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
793,040 |
|
|
$ |
352,593 |
|
|
$ |
1,145,633 |
|
|
$ |
2,406 |
|
|
$ |
149,360 |
|
|
$ |
151,766 |
|
Accounts receivable, net
|
|
|
- |
|
|
|
400,175 |
|
|
|
400,175 |
|
|
|
- |
|
|
|
117,967 |
|
|
|
117,967 |
|
Inventory, net
|
|
|
- |
|
|
|
1,689,304 |
|
|
|
1,689,304 |
|
|
|
- |
|
|
|
1,445,839 |
|
|
|
1,445,839 |
|
Prepaid and other current assets
|
|
|
256,251 |
|
|
|
52,492 |
|
|
|
308,743 |
|
|
|
18,776 |
|
|
|
42,109 |
|
|
|
60,885 |
|
Note receivable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,224,423 |
|
|
|
- |
|
|
|
5,224,423 |
|
TOTAL CURRENT ASSETS
|
|
|
1,049,291 |
|
|
|
2,494,564 |
|
|
|
3,543,855 |
|
|
|
5,245,605 |
|
|
|
1,755,275 |
|
|
|
7,000,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
25,022 |
|
|
|
4,876,247 |
|
|
|
4,901,269 |
|
|
|
37,821 |
|
|
|
5,496,012 |
|
|
|
5,533,833 |
|
Intangible assets, net
|
|
|
1,706,762 |
|
|
|
571,264 |
|
|
|
2,278,026 |
|
|
|
1,128,702 |
|
|
|
571,264 |
|
|
|
1,699,966 |
|
Deposits and other noncurrent assets
|
|
|
- |
|
|
|
82,904 |
|
|
|
82,904 |
|
|
|
- |
|
|
|
91,504 |
|
|
|
91,504 |
|
Operating lease right-of-use assets, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,685 |
|
|
|
26,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
2,781,075 |
|
|
$ |
8,024,979 |
|
|
$ |
10,806,054 |
|
|
$ |
6,412,128 |
|
|
$ |
7,940,740 |
|
|
$ |
14,352,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,412,459 |
|
|
$ |
509,477 |
|
|
$ |
1,921,936 |
|
|
$ |
1,913,049 |
|
|
$ |
646,865 |
|
|
$ |
2,559,914 |
|
Accrued interest
|
|
|
493,741 |
|
|
|
49,211 |
|
|
|
542,952 |
|
|
|
366,865 |
|
|
|
30,787 |
|
|
|
397,652 |
|
Accrued expenses
|
|
|
957,946 |
|
|
|
105,421 |
|
|
|
1,063,367 |
|
|
|
813,618 |
|
|
|
74,394 |
|
|
|
888,012 |
|
Notes and convertible notes payable, net
|
|
|
3,594,804 |
|
|
|
485,000 |
|
|
|
4,079,804 |
|
|
|
5,054,728 |
|
|
|
480,000 |
|
|
|
5,534,728 |
|
Indebtedness to related parties
|
|
|
84,913 |
|
|
|
- |
|
|
|
84,913 |
|
|
|
586,512 |
|
|
|
- |
|
|
|
586,512 |
|
Note payable to
related party
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
151,923 |
|
|
|
- |
|
|
|
151,923 |
|
Income tax
payable
|
|
|
- |
|
|
|
761,509 |
|
|
|
761,509 |
|
|
|
- |
|
|
|
592,982 |
|
|
|
592,982 |
|
Finance lease obligations, current
|
|
|
- |
|
|
|
143,967 |
|
|
|
143,967 |
|
|
|
- |
|
|
|
166,769 |
|
|
|
166,769 |
|
Operating lease obligations, current
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,265 |
|
|
|
7,265 |
|
TOTAL CURRENT
LIABILITIES
|
|
|
6,543,863 |
|
|
|
2,054,585 |
|
|
|
8,598,448 |
|
|
|
8,886,695 |
|
|
|
1,999,062 |
|
|
|
10,885,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net
|
|
|
292,410 |
|
|
|
- |
|
|
|
292,410 |
|