Note 5 - Notes Payable and Line of Credit

12 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 5 – Notes Payable and Line of Credit

0% Note Payable dated October 23, 2017

On October 23, 2017, the Company amended the existing Nevada Medical Marijuana Production License Agreement (“Amended Production License Agreement”). Per the terms of the Amended Production License Agreement, GB Sciences purchased the remaining percentage of the production license resulting in the 100% ownership of the license. GB Sciences also received 100% ownership of the cultivation license included in the original Nevada Medical Marijuana Production License Agreement. In exchange, GB Sciences made one-time payment of $500,000 and issued a 0% Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. The present value of the note was $521,067 on the date of its issuance based on an imputed interest rate of 20.3% and the Company recorded a discount on notes payable of $178,933 related to the difference between the face value and present value of the note.

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 sale was closed December 31, 2021 after successful transfer of the Nevada Medical Marijuana Cultivation Facility Registration Certificate on December 14, 2021 (Note 13). At close, the principal balance of the note was reduced from $369,445 to $190,272 and accounts payable totaling $74,647 to an affiliate of the purchaser were extinguished.

On March 4, 2022, the Company entered into the Second Promissory Note Modification Agreement, which reduced the total outstanding balance of principal and interest from $201,532 (at the time of the agreement) to $179,127 and modified the terms of the note to provide that the Company would make an immediate payment of $75,000, with $5,000 monthly payments thereafter until the note is repaid in full. The modification also provided that the note would bear interest at 8.0% per annum. The Company made a $75,000 payment pursuant to the terms of the modification on March 4, 2022.

We evaluated the modification under the guidance in ASC 470-50 and determined that the modification represents an extinguishment because the change in the fair value of the note exceeded 10% of the carrying value of the note immediately prior to the modification. As a result, the Company recorded a gain on extinguishment for the year ended March 31, 2022, of $22,405 equal to the change in the carrying value of the note resulting from the modification.

During the year ended March 31, 2023, the Company made payments totaling $48,820. At March 31, 2023, the outstanding balance of the note was $55,307 and accrued interest was $691.

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 was 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. 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 would 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 would 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 were permitted to 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 reduced the amount of the note receivable that the Company was to 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 were to reduce the amount of cash received upon close of the sale of Teco one-for-one, i.e., such advances would be considered advance payments of the $4,000,000 cash purchase price. No interest would accrue after November 30, 2020. The Company also agreed that it would 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 during the year ended March 31, 2021. Prior to December 31, 2021, the Company received $50,000 in additional advances above $325,000 during the fiscal year ended March 31, 2021, bringing the total balance to $1,025,000, and accrued interest was $12,510. Upon close of the Teco sale on December 31, 2021, the note and accrued interest balances were forgiven and the Company has no further obligations related to the line of credit  (Note 13).

Summary of Notes Payable and Convertible Notes Payable

As of March 31, 2023, the following notes payable and convertible notes payable were recorded in the Company’s consolidated balance sheet:

	As of March 31, 2023
	Face Value		Discount			Carrying Value
0% Note Payable dated October 23, 2017 (as amended), current portion (Note 5)	$	-	$	-		$	-
6% Convertible promissory notes payable (Note 6)		560,000		-			560,000
6% Convertible notes payable due January 18, 2022 (Note 6)		325,000		-			325,000
6% Convertible note payable due July 1, 2022 (Note 6)		50,000		-			50,000
6% Convertible promissory notes payable due September 30, 2023 (Note 6)		197,000		(9,475	)		187,525
6% Convertible note payable due December 31, 2023 (Note 6)		250,000		(31,755	)		218,245
0% Note Payable dated October 23, 2017 (as amended), long term portion (Note 5)		55,307		-			55,307
Total short-term notes and convertible notes payable	$	1,437,307	$	(41,230	)	$	1,396,077

As of March 31, 2022, the following notes payable and convertible notes payable were recorded in the Company’s consolidated balance sheet:

	As of March 31, 2022
	Face Value		Discount			Carrying Value
0% Note Payable dated October 23, 2017 (as amended), current portion (Note 5)	$	54,330	$	-		$	54,330
6% Convertible promissory notes payable (Note 6)		560,000		-			560,000
6% Convertible notes payable due January 18, 2022 (Note 6)		325,000		-			325,000
6% Convertible note payable due July 1, 2022 (Note 6)		50,000		(1,765	)		48,235
Total short-term notes and convertible notes payable	$	989,330	$	(1,765	)	$	987,565
6% Convertible promissory notes payable due September 30, 2023 (Note 6)	$	197,000	$	(26,254	)	$	170,746
6% Convertible note payable due December 31, 2023 (Note 6)		250,000		(73,235	)		176,765
0% Note Payable dated October 23, 2017 (as amended), long term portion (Note 5)		49,797		-			49,797
Total long term convertible notes payable classified as continuing operations	$	496,797	$	(99,489	)	$	397,308