SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended March 31, 2019
| ¨ | 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)
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Nevada |
| 59-3733133 |
(State or other Jurisdiction of |
| (IRS Employer I.D. No.) |
Incorporation or Organization) |
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___________________________
3550 W. Teco Avenue
Las Vegas, Nevada 89118
Phone: (866) 721-0297
(Address and telephone number of
principal executive offices)
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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 þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ¨ No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant 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 30, 2018, was approximately $71.0 million.
The shares outstanding on July 15, 2019 were 246,252,769.
Documents Incorporated by Reference
None
GB SCIENCES, INC.
FORM 10-K
TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF BUSINESS4
ITEM 1B. UNRESOLVED STAFF COMMENTS22
ITEM 4. MINE SAFETY DISCLOSURES23
ITEM 6. SELECTED FINANCIAL DATA26
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION26
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK36
ITEM 8. FINANCIAL STATEMENTS36
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES66
ITEM 9A. CONTROLS AND PROCEDURES66
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE68
ITEM 11. EXECUTIVE COMPENSATION71
ITEM 13.CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE76
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES76
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES77
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 cannabis, (vii) agricultural risks of growing and harvesting medical 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) 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
The Company seeks to be an innovative technology and solution company that converts the cannabis plant into medicines, therapies and treatments for a variety of ailments. The Company is developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology, and plans to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies.
We seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and terpenes, which we intend to market in those states within the United States and in other countries where the sale of medical cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid-based drug discoveries on a world-wide basis.
We were incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name “Signature Exploration and Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
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Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000.
GB Sciences intends to operate as an intellectual property company that will conduct its business through its subsidiaries. GB Sciences intends to own all patents and related technologies developed by it and its subsidiaries. In addition, the Company owns and will seek to own majority interests in each of its existing and future operating subsidiaries.
Although we believe that maximum shareholder value will ultimately be achieved through the development, production and marketing of certified cannabinoid medicines, therapies and treatments, in order to generate cash flow and near-term profitability, we cultivate and dispense cannabis for medical and recreational purposes in Nevada and Louisiana. Additionally, we intend to cultivate and dispense cannabis in other states which permit such sales and in which we and our operating partners are able to obtain cultivation and dispensing licenses.
Drug Discovery and Development of Novel Cannabis-Based Therapies
Through its wholly-owned, Canadian subsidiary, GBS Global Biopharma, Inc. (GBSGB), the Company has conducted ground-breaking research embracing the complexity of the whole plant led by Dr. Andrea Small-Howard, the Company’s Chief Science Officer, and Dr. Helen Turner, Vice President of Innovation and Dean of the Science and Technology Department at Chaminade University. Small-Howard and Turner posited that complex mixtures of cannabinoids and terpenes that are derived from native mixtures in the cannabis plant, but with precise optimizations, would provide more targeted and effective treatments for specific disease conditions than either single cannabinoids or whole plant formulations. They developed a rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes in vitro against cell-based models of disease. This process identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery process combines: 1) HTS: high throughput screening of tens of thousands of combinations of compounds derived from specific chemovars of the cannabis plant in well-established cellular models of diseases, and 2) NPP: a proprietary Network Pharmacology Platform algorithm for the prediction of complex therapeutic mixtures that the Company spent two-and-a-half-years training and testing against cell assay data. This combined approach to drug discovery increases research efficiency and accuracy reducing the time from ideation to patenting from 7 years to 1.5 years. Screening of cannabis-based mixtures for drug discovery involves the testing of specific combinations of plant chemicals from many naturally occurring cannabis chemovars and the use of live models for these diseases that have been well established by other researchers. First, the Company finds chemovars that show some therapeutic activity, and then refines these natural mixtures to optimize their effectiveness in cellular assays by removing compounds that do not act synergistically with the others in the mixtures. The Company also use its internally-validated Network Pharmacology Platform to prioritize and eliminate some potential combinations, which reduces the time in the discovery period.
The U.S. Patent and Trademark Office allows complex mixtures to be claimed as Active Pharmaceutical Ingredients, and GBSGB has a series of patents containing cannabis-derived complex mixtures that act as therapeutic agents for specific disease categories, as described below. GBSGB’s 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.
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Executive Summary of Research & Development Progress by GBS Global Biopharma, Inc. (“GBSGB”)
GBS Global Biopharma, Inc. has made significant strides in the past year with respect to both discovery research and product development programs. Both lead Rx programs in Parkinson’s disease and chronic neuropathic pain are now in preclinical animal studies with Dr. Lee Ellis of the NRC in Halifax. For chronic neuropathic pain, GBSGB is testing its Myrcene-Containing Complex Mixtures (MCCM) both as encapsulated, time-released nanoparticles, as well as in non-encapsulated forms of these therapeutic mixtures. For Parkinson’s disease, the initial clinical prototypes of GBSGB Cannabinoid-Containing Complex Mixtures (CCCM) are being formulated by Catalent Pharma using Catalent’s Zydis® Orally Disintegrating Tablet technology. Catalent has reported that the prototypes passed the initial Feasibility Testing Phase, and Catalent is now working on the Proof of Concept Study with our GBS101.PD, GBS102.PD, and GBS103.PD formulations. Three new patent applications were filed, two new patent applications are being prepared for filings, and we have licensed another patented delivery method, oral thin films. We are also raising awareness of our work through six peer-reviewed journal articles and a dozen presentations at national and international meetings. Favorable Research Updates from our university collaborators reveal the promise in our discovery programs with Michigan State University (HIV-Associated Neurodegenerative Disorder), Chaminade University (Neuropathic Pain, Metabolic Syndrome), the University of Athens, Greece (Cannabis Metabolomics), and the University of Seville, Spain (Time-Released Nanoparticles). The University of Seville has completed functional testing on nanoparticles containing myrcene, nerolidol, and beta-caryophyllene. 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 are now entering the animal testing phase at the NRC in Halifax.
Intellectual Property Portfolio
GBSGB retained Fenwick & West, a Silicon Valley based law firm focusing on life sciences and high technology companies with a nationally top-ranked intellectual property practice, to develop strategies for the protection of the Company's intellectual property. The following patents have been filed to date:
Four USPTO & WIPO Patent Applications
Title:CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES
U.S. Patent Application No. 15/729,565; WIPO Application number: PCT/US17/SS989
Filed: October 10, 2017; Inventors: Andrea Small-Howard et al.
Claims benefit of U.S. Patent Application No. 62/406,764 filed October 11, 2016
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
U.S. Patent Application No.15/885,620;WIPO Application number: PCT/US18/016296
Filed: January 31, 2018; Inventors: Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application No. 62/453,161 filed February 1, 2017
Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1
U.S. Patent Application No. 15/986,316; WIPO Patent Application No. PCT/US2018/033956
Filed: May 22, 2018; Inventors: Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application No. 62/509,546 filed May 22, 2017
Title: TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR TERPENES
U.S. Patent Application No.: 16/420,004; WIPO Patent Application No.: PCT/US2019/033618
Filed: May 22, 2019; Inventors: Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application No. 62/674,843 filed May 22, 2018
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Two Provisional USPTO Patent Applications
Title: DIVERSE TRPV1 RESPONSES TO CANNABINOIDS
U.S. Patent Application No.: 62/849,719
Filed: May 17, 2019; Inventors: Andrea Small-Howard, et al.
Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING MYRCENE
U.S. Patent Application No.: 62/757,660
Filed: November 8, 2018; Inventors: Andrea Small-Howard, et al.
Three Licensed Patents for Intellectual Property Portfolio
Title: METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY.
Inventor: Alexander Stokes;Assignee: University of Hawai’i
Commercialization rights licensed to Makai Biotech, LLC
Sublicensed by Makai Biotech, LLC to GBS Global Biosciences, Inc.
Status: Granted in the following territories on the corresponding dates
U.S. Patent Number: 9,084,786;Issued: July 21, 2015
European Union Patent Number: 2,635,281;Granted: March 14, 2018
Hong Kong Patent Application Number: 14102182.8; Granted: March 14, 2018
IN Patent Application Number: 1404/KOLNP/2013; Continuation Application Serial No.: 16/181204
Title METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Inventors: Martin Banderas, Lucia; Fernandez Arevala, Mercedes; Berrocoso, Dominguez, Esther; and Mico Segura, Juan Antonio
Assignees: Universidad de Sevilla, Universidad de Cadiz, and Centro de Investigacion Biomedica En Red (CIBER)
Exclusive worldwide license held by GBS Global Biopharma, Inc.
WIPO/PCT Application: WO 2016/128591
Filed: August 18, 2016
Claims benefit of Spanish Patent Application no. ES 2582287
Filed: September 2, 2015
U.S. Patent Application 15/549,653
Europe Patent Application EP3257503
Canada Patent Application CA2976040
INGESTIBLE FILMS HAVING SUBSTANCES FROM HEMP OR CANNABIS
USPTO Patent Number: 10, 265,362;
Issued: April 23, 2019; Inventor: Scott Schaneville
Non-exclusive worldwide license held by GBS Global Biopharma, Inc. through GB Sciences, Inc.
Three Additional Near-Term Patent Applications:
GBS Global has data sets for three new provisional patent applications to be filed in Q3 and Q4 of 2019, as follows:
Title: POLY-PHARMACEUTICAL MIXTURES FOR CHRONIC PAIN BASED ON CLASSIFICATIONS OF CANNABINOIDS AND TERPENOIDS INTO COMPLEMENTS OR COMPETITORS BASED ON THEIR BINDING-SITES ON PAIN-SENSING RECEPTORS
Filing Date: July 1, 2019 (anticipated);Inventors: Andrea Small-Howard, et al.
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Title: METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES CONTAINING COMPLEX MIXTURES OF CANNABINOIDS AND TERPENOIDS FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Filing Date: August 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al.
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF HIV-ASSOCIATED NEURODEGENERATIVE DISORDERS (HAND)
Filing Date: December 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al.
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. 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 active and on-going research agreements with the following institutions covering the indicated areas of research:
· Chaminade University: Broad-based research program to support the drug discovery platform that has yielded most of GBSGB’s original patents to date in the areas of neurodegenerative diseases, heart disease, inflammatory diseases, neuropathic pain and chronic pain.
· 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 as an adjunctive therapy to anti-retroviral cocktails for HIV/AIDS patients and to define CCCM™s for use in the prevention of HIV-Associated Neurocognitive Disorders (HAND). The initial screens are producing positive results.
· 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.
· 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 a safety and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain (NP) formulas was initiated in Q1 of 2019.
· The University of Seville: Development and functional testing of time-released and disease-targeted nanoparticles of cannabis-based complex mixtures for oral administration.
· The University of Cadiz: Testing the safety and efficacy of the above-mentioned polymeric nanoparticles in rodent models.
· 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.
The Company also has consulting agreements with the following subject matter experts:
· Dr. Zoltan Mari, Section Head, Nevada Movement Disorders Program & Lee Pascal Parkinson's Disease Scholar at Cleveland Clinic, who will oversee the phase 0 human Parkinson’s disease trial and protocols.
· Dr. Ziva Cooper, UCLA, Research Director, UCLA Cannabis Research Initiative, will design GBSGB’s human neuropathic and chronic pain trials and provide strategic guidance on clinical development of these products. For nearly a decade, Dr. Cooper has been building on her training in preclinical models of drug dependence and developing an expertise in human laboratory studies on cannabis, cannabinoids, opioids, and cocaine while maintaining research projects in animal models of substance use. Her current research investigates the direct neurobiological effects of emerging drugs of abuse, including synthetic cannabinoids in laboratory animals and the direct physiological and behavioral effects of cannabinoids as they pertain to both their abuse potential and potential
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therapeutic effects in double-blind, placebo controlled human laboratory studies. Dr. Cooper’s research is funded by the National Institute on Drug Abuse.
Path to Market: Drug Development Stages and Proposed Clinical Trials
GBSGB has cannabis-based therapeutic products in the following stages of drug development: Discovery, Pre-Clinical, and entering the Clinical Phase. It has also licensed therapeutic products that the Company intends to develop through partners, labeled Partner Programs.
The completion of pre-clinical studies, clinical trials, and obtaining FDA-approvals for pharmaceutical products is traditionally a long and expensive process. However, GBSGB asserts that its drug development program, novel regulatory strategy, experienced development partners, and aggressive licensing of these products at early clinical stages can mitigate some of the risks. The Company uses a combination of in silico discovery methods and automated screening of cellular models of disease to decrease the time in Discovery prior to filing novel patent applications for disease-specific therapeutics. GBSGB’s original patent applications cover new chemical entities (“NCE”) based on complex combinations of plant-derived compounds. Its Exploratory IND/Phase 0 Program gets the Company to First-in-Man sooner than traditional programs, which reduces translational risks, and includes preliminary efficacy measures for responsible development decisions. In contrast, a traditional phased-development path would not provide any efficacy measures until Phase II. After the completion of our Phase 0 study, which compares the efficacies of multiple related cannabis-based formulations, the Company plans to advance the lead drug candidate using an adaptive trial design that is more efficient than the traditional phased-development pathway. GBSGB has entered into research contracts, partnerships, and/or joint ventures with several respected, independent contract research organizations, medical schools, universities, and other scientific researchers to increase developmental efficiencies. If and when one or more of GBSGB’s drugs, therapies or treatments are approved by the FDA, GBSGB will seek to market them under licensing arrangements with major biotechnology or pharmaceutical companies.
GBSGB plans to use a combination of FDA-registered human clinical trials, as described in detail above, and pilot human studies in the development of its therapeutic product portfolio. Early in product development, human pilot studies that are fully-compliant with state medical cannabis programs will be used to gather early data on safety and efficacy that can later be referenced in the next phase of product development. GBSGB may be able to produce and sell the early products that prove efficacious, through licensing agreements with cannabis companies in other US states and countries that have legalized cannabis programs. GBSGB believes that these pilot studies will provide significant value by reducing the cost of commercialization, more rapidly putting effective drugs in the hands of patients, and accelerating by years the monetization of research. GBSGB’s goal is to be the perfect partner to those companies with greater resources and experience in the marketing and distribution of medications worldwide.
There can be no assurance that we will ever be able to enter into any joint ventures or other arrangements with third parties to finance our drug development program or that if we are able to do so, that any of our projected therapies will ever be approved by the FDA. Even if we obtain FDA approval for a therapy, there can be no assurance that it could be successfully marketed or would not be superseded by another cannabis-based therapy produced by one or more of our competitors. It also may be anticipated that even if we enter into a joint venture development with a financially stable pharmaceutical or institutional partner, we will still be required to raise significant additional capital in the future to achieve the strategic goals of GBSGB. There can be no assurance that we will be able to obtain such additional capital on reasonable terms, if at all. If GBSGB fails to achieve its goal of producing one or more cannabis-based pharmaceuticals or therapies, it would have a material adverse effect on our future financial condition and business prospects.
Description of Operations
Our wholly owned subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. On January 4, 2017, GBSN received a State Registration Certificate (“Certificate”) for its 28,000-sq. ft. cannabis cultivation facility located in Las Vegas, NV. The receipt of the Certificate allows the Company to cultivate medical cannabis. Phase 1 of the GBSN cultivation facility opened with 200 grow lights. When all phases of construction are completed, the facility is expected to generate revenues of $10 million.
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Completion of all Phases of this facility is dependent upon the availability of capital to complete construction. The Company has made completion of all Phases of this facility its number one priority.
On October 4, 2016, we acquired a 60% interest in a Nevada Medical Marijuana Production License with an option of up to 80%. A production license enables us to convert cannabis plants into to oils and extracts that are suitable for creating medical compounds as well as consumer products. This license is critical and essential to our plan of producing cannabis-based medicines and must be integrated into our cultivation facility to ensure quality control standards and efficiency in our production of cannabis medicines. 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 Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. On February 21, 2018, the Company received its recreational production license and began full production operations in its Las Vegas facility.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the “EPA”) with The Happy Confections, L.L.C. (“THCLLC”) through the Company’s wholly owned subsidiary, GB Sciences Las Vegas, LLC (“GBSLV”). Dr. Andrea Small-Howard, a member of GB Science’s Board of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC is to produce cannabis-infused baked goods and other edibles in GBSLV’s production facility upon approval of GBSLV’s Nevada Medical Marijuana Production License. The Company will receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.
Contemporaneously with the EPA, the Company entered into a Non-Revolving Credit Line Agreement and Non-Revolving Credit Line Promissory Note (together, the “THC Note” or “Note”) to advance up to $300,000 to THCLLC for the purpose of expanding THCLLC’s operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 days of the sale of any product.
As of March 31, 2019, the Company has advanced $253,034 under the THC Note. On October 15, 2018, the Company gave notice to The Happy Confections, LLC (“THC LLC”) that Company would not provide any additional financing beyond the $300,000 Credit Line granted under the Non-Revolving Credit Line Agreement dated November 1, 2017. In this notice, the Company requested that THC LLC seek to find additional sources of financing to be able to fund the manufacture of edibles. The Company further notified THC LLC that the Company would terminate the Edibles Production Agreement and all other related agreements with THC LLC if it was unable to acquire additional funding by October 22, 2018. On October 19, 2018, the Company received a response from THC LLC that it was unable to acquire additional funding. Accordingly, the Company has terminated all of its agreements with THCLLC effective October 19, 2018 and took possession of all tangible assets owned by THCLLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory that will be used in the Company’s production operations at the Teco Facility.
The Company assessed the Fair Value of the machinery and equipment received at $139,411 and has capitalized that amount in fixed assets as of March 31, 2019. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility in December 2018. The Company also recorded $113,623 as other expense in its Consolidated Statement of Operations for the year ended March 31, 2019, which represents the remaining balance of the outstanding note receivable from THC LLC.
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences.
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The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter.
The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of March 31, 2019, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement.
On September 21, 2018, the Company formed a wholly owned subsidiary, GBS Global Biopharma, Inc., in the province of Ontario, Canada with plans to license and/or transfer some of Growblox Life Sciences LLC’s intellectual property to the newly formed entity. On March 15, 2019, the Company entered into the Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby all of the assets and certain liabilities held by Growblox Life Sciences, LLC, a wholly-owned subsidiary of GB Sciences, Inc., were transferred to GBS Global Biopharma, Inc. in exchange for a promissory note in the amount of $1,435,700. The assets transferred include all intellectual property and intangible assets owned by the Company, consisting primarily of patents in process and research contracts with universities and researchers. It is anticipated that GBS Global Biopharma Inc. will pursue clinical development of the intellectual property, including clinical trials.
Competition
The medical cannabis industry is subject to intense and increasing competition. Some of our competitors may have substantially greater capital resources, facilities and infrastructure then we have, which may enable them to compete more effectively in this market. These competitors include TerraTech Corp., Cannabis Science, Inc., Peak Pharmaceuticals, Inc., Cannabis-Rx, Inc. and Nemus Biosciences, Inc. In addition, the development of therapies and pharmaceutical products based on extracts from the cannabis plant is being undertaken by a number of medical and educational institutions, including the University of Mississippi, which is the only U.S. based entity authorized by the Federal government to cultivate cannabis for research. Such institutions have significantly greater financial resources and facilities than we have
Government Regulation and Federal Policy
Under the Controlled Substances Act (“CSA”), the policies and regulations of the Federal government and its agencies are that cannabis (marijuana) is a stage 1 narcotic that is addictive and has no medical benefit. Accordingly, and a range of activities including cultivation and the personal use of cannabis is prohibited and subject to prosecution and criminal penalties. Unless and until Congress amends the CSA with respect to medical cannabis, there is a risk that the federal authorities may enforce current federal law, and we may be deemed to be engaged in producing, cultivating, or dispensing cannabis in violation of federal law, or we may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of federal law with respect to our Company’s business operations. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our strategic goals, revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. See “Risk Factors” below.
The U.S. Supreme Court declined to hear a case brought by San Diego County, California that sought to establish federal preemption over state medical cannabis laws. The preemption claim was rejected by every court that reviewed the case. The California 4th District Court of Appeals wrote in its unanimous ruling, “Congress does not have the authority to compel the states to direct their law enforcement personnel to enforce federal laws.” However, in another case, the U.S. Supreme Court held that, as long as the CSA contains prohibitions against cannabis, under the Commerce Clause of the United States Constitution, the United States may criminalize the production and use of cannabis even where states approve its use for medical purposes.
In an effort to provide guidance to federal law enforcement, the Department of Justice (“DOJ”) has issued Guidance Regarding Cannabis Enforcement to all United States attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited
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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, there are currently thirty-three states and the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation.
Employees
As of March 31, 2019, we employed fifty-six employees consisting of management and support staff.
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.”
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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, 2019 and 2018 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, 2019 and 2018 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, 2019 and 2018, we incurred net losses of approximately $23.7 million and $23.0 million respectively, and we had an accumulated deficit of $84.7 million and $58.2 million 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 it will be able to raise the amount of capital needed for future growth plans.
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Even if financing is available, it may not be on terms that are acceptable. If unable to raise the necessary capital at the times required, the Company may have to materially change the business plan, including delaying implementation of aspects of the business plan or curtailing or abandoning the business plan. Even if we obtain financing for our near-term operations, we expect that we will require additional capital thereafter, especially if we are to develop our Science division and start to conduct, individually or with joint venture partners, pre-clinical and clinical trials for potential pharmaceutical, or nutraceutical products derived from cannabis. Our capital needs will depend on numerous factors including: (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment requirements for research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing stockholders will be reduced and our stockholders may experience significant dilution. In addition, new securities may contain rights, preferences or privileges that are senior to those of our common stock. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of common stock could limit our ability to obtain equity financing.
We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
Drug research and development programs typically involves huge expenditures, long periods to obtain FDA approvals and the potential that such prospective pharmaceutical products will not prove to be safe and effective.
The production of FDA-approved pharmaceutical products and related drug is typically a highly expensive a long and drawn out process, typically involving hundreds of millions of dollars and a decade or more to achieve. Although we believe that some, if not all, of our planned cannabinoid based pharmaceutical protocols can qualify for “orphan drug” status and be accelerated through the FDA approval process, there can be no assurance that this will be the case.
In addition, we do not now have, and do not expect in the foreseeable future to have, the capital resources to fund our drug discovery programs, nor do we have the infrastructure to conduct such program alone. For that reason, we intend to engage in joint ventures with third parties, including hospitals, clinics, foundations and other qualified sources. Although we are in preliminary discussions with various potential partners, to date, we have not entered into any definitive drug development joint venture or partnership agreement. Our failure or inability to enter into one or more drug development agreements will materially and adversely affect our ability to develop our Science division. Even if we are able to obtain such joint drug development agreements there can be no assurance that it will be on terms and conditions that will be favorable to us.
Although we believe that we can significantly reduce the costs of engaging in FDA certified pre-clinical and clinical trials, including traditional Phase IV human trials, by obtaining data from existing users of our medical cannabis protocols, there can be no assurance that such data will be available, or if it is, that the FDA will accept our data. There is the further risk that the anticipated costs of producing an FDA approved drug will not escalate to the point that will cause us and any of our prospective development partners to abandon such efforts.
Even if we do develop an FDA-approved pharmaceutical product, there is the risk that it will not be saleable to a major pharmaceutical company (either before or after completion of the FDA approval process), or that other competing drugs will not be produced providing the same medical benefits.
Accordingly, there is a significant risk that we will never be able to generate a return on our investment, and we could lose our entire investment in our Science division. Either of such events, would have a material adverse effect on our business prospects and equity value.
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Federal law prohibits the use of cannabis for the purposes in which the Company expects to engage.
Under the federal Controlled Substances Act (“CSA”), cannabis is deemed to be a Stage One narcotic that has no medical benefit. Therefore, a range of activities including cultivation and the personal use of cannabis is prohibited and is a criminal offense. Unless and until Congress amends the CSA with respect to medical cannabis, as to the timing or scope of any which amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain.
The current policy and regulations of the Federal government and its agencies, including the U.S. Drug Enforcement Agency and the FDA, are that cannabis has no medical benefit and a range of activities including cultivation and use of cannabis for personal use is prohibited on the basis of Federal law. Although 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.
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.
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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.
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We may not obtain the necessary permits and authorizations to operate the medical cannabis business.
We may not be able to obtain or maintain the necessary licenses, permits, authorizations, or accreditations, or may only be able to do so at great cost, to operate its medical cannabis business. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the medical cannabis industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations, or accreditations could result in restrictions on our ability to operate the medical cannabis business, which could have a material adverse effect on our business.
If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.
Our participation in the medical cannabis industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against these subsidiaries. Litigation, complaints, and enforcement actions involving these subsidiaries could consume considerable amounts of financial and other corporate resources, which could have a negative impact on our sales, revenue, profitability, and growth prospects.
We have difficulty accessing the service of banks, which may make it difficult for us to operate.
Since the use of cannabis is illegal under Federal law, there is an argument that banks should not accept for deposit funds from businesses involved with the cannabis industry. Consequently, such businesses often have difficulty finding a bank willing to accept their business.
On February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state licensed marijuana businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued guidelines to banks that “it is possible to provide financial services" to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. To date we are unaware if any banks have relied on the guidance and taken on legal marijuana companies as clients.
Notwithstanding the above federal guidelines and in addition to potential federal sanctions, regulators in the states in which we are able to conduct business may make it difficult for local banks to do business with companies considered to be engaged in cultivating and dispensing cannabis. 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.
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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.
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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.
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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, 2019, management assessed the effectiveness of our internal controls over financial reporting. Management concluded, as of the fiscal year ended March 31, 2019, 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.
Currently we have insurance coverage in place for business personal properties located at 3550 W. Teco Avenue, Las Vegas, Nevada 89118 and 183050 Petroleum Dr., Baton Rouge, LA 70809, as well as workers’ compensation insurance, directors’ and officers’ liability insurance, and general liability insurance.
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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
21
with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
We may issue additional shares of common stock in the future, which could cause significant dilution to all stockholders.
Our Certificate of Incorporation authorizes the issuance of up to 400,000,000 shares with a par value of $0.001 per share. As of July 15, 2019, we had 246.3 million 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
Our executive offices, Science and Cultivation divisions are located at 3550 W. Teco Avenue, Las Vegas, NV 89118 under a ten-year initial term with one option to extend the lease for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement were $42,436 through March 31, 2019. Commencing January 1, 2018, the monthly rent payments increase by 3% per annum through the expiration of the lease.
Our Louisiana facility is located at 18350 Petroleum Drive in Baton Rouge, LA 70809 under a five-year initial term with two options to extend the lease for five years, or until June 30, 2032. The monthly rent payments per the Amended Lease Agreement were $25,588 through March 31, 2019. Base rent increases to $28,147 for the first five year extension option and $30,966 for the second five year extension option.
Tara “Dee” Russell filed a Charge of Discrimination against the Company on April 2, 2019, alleging that she was subjected to sexual harassment and retaliatory discharge. The Company received the Notice of Charge of Discrimination on or about May 15, 2019. The Company’s response to the Notice of Discrimination Charge is currently due on or before July 26, 2019. Based upon a review of information to date, it does not appear that Ms.
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Russell was an employee of the Company, but rather an independent contractor. The Company intends to aggressively defend the charge.
We are currently not involved in any other material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
GB Sciences, Inc.’s common stock is quoted on the OTCQB under the symbol "GBLX".
For the periods indicated, the following table sets forth the high and low per share intra-day sales prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Fiscal Year 2019 |
| High ($) |
| Low ($) |
Fourth Quarter |
| 0.28 |
| 0.15 |
Third Quarter |
| 0.44 |
| 0.14 |
Second Quarter |
| 0.45 |
| 0.24 |
First Quarter |
| 0.82 |
| 0.41 |
|
|
|
|
|
Fiscal Year 2018 |
|
|
|
|
Fourth Quarter |
| 1.56 |
| 0.46 |
Third Quarter |
| 0.90 |
| 0.21 |
Second Quarter |
| 0.30 |
| 0.21 |
First Quarter |
| 0.37 |
| 0.21 |
As of June 28, 2019, there were 169 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
Sale of Common Stock and Warrants
Debt Conversions
During the year ended March 31, 2019, the Company received notice from convertible note holders of the conversion of a total of $4,470,000 in face value and $170,971 in accrued interest on the related convertible notes. Accordingly, the Company has issued 18,563,885 shares of its common stock based on a $0.25 per share conversion
23
price. In connection with the conversions, $3,464,187 in unamortized discount on the related notes was recognized as interest expense and the Company has reduced the carrying amount of convertible notes payable by $1,005,813.
During the year ended March 31, 2019, the Company issued 12,657,875 shares of its common stock for the exercise of warrants as follows:
In order to encourage the exercise of the 8,000,000 warrants issued to investors in the private offering of convertible notes dated March 2017 and the 28,804,000 warrants issued to investors in the private offering of convertible notes dated July 2017, the Company effected a temporary decrease in the exercise price of the warrants from $0.60 and $0.65, respectively, to $0.30 and $0.325 per share. As a result of the price reduction, the Company issued 12,332,750 shares of its common stock and received net proceeds of approximately $3.9 million. In connection with the induced exercise of the warrants, the Company recorded an inducement dividend of approximately $2.9 million.
The Company issued 325,125 shares of its common stock in connection with the exercise of compensation warrants at $0.01 per share.
Issuance of Stock for Services
The Company issued 4,032,407 shares in exchange for past and future consulting services and recorded a related expense of $0.9 million and prepaid expense of $0.3 million. The shares and services were valued at the closing price of the Company’s common stock on the dates granted under the related consulting agreements.
Issuance of Stock for Cash
During the year ended March 31, 2019, the Company issued 277,778 shares of its common stock to an investor for the cash purchase of shares at $0.36 per share.
Stock Issued in Private Placement
The Company issued 35,878,302 shares of its common stock in private placements:
On August 10, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 10,000,000 units at the price of $0.25 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of three years. On August 23, 2018, the Placement Agent’s Agreement was amended to increase the number of units offered by 10,000,000 to 20,000,000 in total, with no other changes to the agreement. Between August 10, 2018 and September 25, 2018, the Company received a total of $4.4 million in proceeds from the private placement, net of $0.6 million in brokerage fees and issued 20 million shares of its common stock and 20 million warrants to purchase one share of its common stock for a period of three years to the investors who participated in the private placement.
On December 4, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 15,000,000 units at the price of $0.20 per unit up to a total of $3 million. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of five years. On January 15, 2019, the Placement Agent’s Agreement was amended to decrease the unit price from $0.20 per unit to $0.15 per unit for a total of 20,000,000 units and decrease the exercise price of the warrants included in each unit from $0.60 to $0.30, applied retroactively to funds raised prior to the date of the amendment, with no other changes to the agreement. Between December 4, 2018 and March 31, 2019, the Company received a total of $2,072,125 in proceeds from the private placement, net of $309,620 in brokerage fees and issued 15,878,302 shares of its common stock and 15,878,302 warrants to purchase one share of its common stock at $0.30 per share.
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Issuance of Stock to Settle Pacific Leaf Royalty Agreement
In connection with the Pacific Leaf Amendment and Termination Agreement, the Company issued 600,000 shares of its common stock and recorded $131,000 in other expense related to those shares.
Options and Warrants
On December 1, 2018, the Company entered into an agreement with EMLL Group, LLC for business advisory and consulting services. In consideration for the services, the Company issued warrants to purchase 8 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $969,197 using the Black-Scholes valuation model. All services owed to the Company under the agreement were provided as of March 31, 2019, and the company recorded $969,197 in expense related to the warrants in its Consolidated Statement of Operations for the year ended March 31, 2019.
On December 6, 2018, the Company entered into an agreement with SylvaCap Media for business advisory and consulting services. In consideration for the services, the Company issued warrants to purchase 2 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $244,000 using the Black-Scholes valuation model. The fair value of the warrants will be recognized as consulting expense over the twelve-month term of the agreement. The company recorded $81,333 in expense related to the warrants in its Consolidated Statement of Operations for the year ended March 31, 2019.
In connection with the agreement with SylvaCap Media, the Company also agreed to pay a $10,000 monthly fee for 12 months and to issue 4 million restricted shares of the Company’s common stock, of which 2 million shares were due on the date of the contract and have been issued to the consultant. On June 6, 2019, the Company entered into a Cancellation and Settlement with SylvaCap Media and terminated the December 6, 2018 agreement. In consideration for termination of the agreement, the Company will pay $135,000 as a one-time cancellation fee and will not issue the remaining 2 million shares due under the agreement.
In connection with the Placement Agent’s Agreement dated August 10, 2018 and as amended August 23, 2018, the Company issued 2,000,000 compensation warrants to the brokers who participated in the offering and recorded a related expense of $0.6 million. Each compensation warrant is for the purchase of one share of the Company’s common stock at a price of $0.60 per share and expires on October 1, 2023.
During the year ended March 31, 2019, the Company issued 400,000 stock options under the 2014 Equity Incentive Plan to its employees. The options are exercisable upon vesting for a period of 10 years from issuance at an exercise price ranging from $0.37 to $0.60 per share. The Company has recognized total of $0.8 million in share-based compensation expense related to all outstanding options during the year ended March 31, 2019.
Sales of Unregistered Securities Subsequent to March 31, 2019
On June 5, 2019, the Company entered into an amendment to the December 4, 2018 Placement Agent’s Agreement. The amendment extends the offering period to July 31, 2019 and increases the maximum offering to $3.5 million from $3 million. All other terms of the December 4, 2018 Placement Agent’s Agreement remained the same. Subsequent to March 31, 2019, the Company received an additional $621,754 in proceeds from investors in the private placement, net of brokerage fees, and issued 3,668,167 shares of its common stock and 3,668,167 warrants to purchase one share of common stock at $0.30 for a period of five years.
In order to encourage the exercise of 70.5 million warrants issued to investors in private placements of convertible notes and common stock having exercise prices ranging between $0.65 and $0.30, the Company effected a temporary decrease in the exercise price of the warrants to $0.10 per share until July 11, 2019. As a result of the price reduction, the Company has received notice of the exercise of 1,957,500 warrants and received proceeds of $195,750.
25
On April 23, 2019, the Company entered into the Note Purchase Agreement with Iliad Research and Trading, L.P. and issued an 8% Convertible Promissory Note with a face value of $2,765,000. The Note was issued with an original issue discount of $265,000 and is convertible into shares of the Company’s common stock at a price of $0.17 per share at the option of the note holder at any time until the Note is repaid. The Note matures on April 22, 2020.
ITEM 6. SELECTED FINANCIAL DATA
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION
The following discussion of the plan of operation, financial condition and results of operations should be read in conjunction with the Company’s financial statements, and notes thereto, included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in this Annual Report.
Executive Overview
The Company seeks to be an innovative technology and solution company that converts the cannabis plant into medicines, therapies and treatments for a variety of ailments. The Company is developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology, and plans to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies.
We seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and terpenes, which we intend to market in those states within the United States and in other countries where the sale of medical cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid-based drug discoveries on a world-wide basis.
We were incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name “Signature Exploration and Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000.
Our wholly owned subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. On January 4, 2017, GBSN received a State Registration Certificate (“Certificate”) for its 28,000-sq. ft. cannabis cultivation facility located in Las Vegas, NV. The receipt of the Certificate allows the Company to cultivate medical cannabis. Phase 1 of the GBSN cultivation facility opened with 200 grow lights. When all phases of construction are completed, the facility is expected to generate revenues of $10 million.
26
Completion of all Phases of this facility is dependent upon the availability of capital to complete construction. The Company has made completion of all Phases of this facility its number one priority.
On October 4, 2016, we acquired a 60% interest in a Nevada Medical Marijuana Production License with an option of up to 80%. A production license enables us to convert cannabis plants into to oils and extracts that are suitable for creating medical compounds as well as consumer products. This license is critical and essential to our plan of producing cannabis-based medicines and must be integrated into our cultivation facility to ensure quality control standards and efficiency in our production of cannabis medicines. 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 Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. On February 21, 2018, the Company received its recreational production license and began full production operations in its Las Vegas facility.
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences.
The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter.
The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of March 31, 2019, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement.
On September 21, 2018, the Company formed a wholly owned subsidiary, GBS Global Biopharma, Inc., in the province of Ontario, Canada with plans to license and/or transfer some of Growblox Life Sciences LLC’s intellectual property to the newly formed entity. On March 15, 2019, the Company entered into the Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby all of the assets and certain liabilities held by Growblox Life Sciences, LLC, a wholly-owned subsidiary of GB Sciences, Inc., were transferred to GBS Global Biopharma, Inc. in exchange for a promissory note in the amount of $1,435,700. The assets transferred include all intellectual property and intangible assets owned by the Company, consisting primarily of patents in process and research contracts with universities and researchers. It is anticipated that GBS Global Biopharma Inc. will pursue clinical development of the intellectual property, including clinical trials.
27
Results of Operations
The following table sets forth selected data of our Statement of Operations:
|
| For the Twelve Months Ended | ||
|
| March 31, | ||
|
| 2019 |
| 2018 |
|
|
|
|
|
SALES REVENUE |
| $3,454,552 |
| $2,510,364 |
COST OF GOODS SOLD |
| (3,246,097) |
| (782,727) |
GROSS PROFIT |
| 208,455 |
| 1,727,637 |
GENERAL AND ADMINISTRATIVE EXPENSES |
| 15,802,783 |
| 19,552,288 |
LOSS FROM OPERATIONS |
| (15,594,328) |
| (17,824,651) |
OTHER EXPENSE |
| (8,559,814) |
| (5,334,574) |
NET LOSS BEFORE INCOME TAX EXPENSE |
| (24,154,142) |
| (23,159,225) |
INCOME TAX EXPENSE |
| (526,145) |
| - |
NET LOSS |
| (24,680,287) |
| (23,159,225) |
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST |
| (1,027,122) |
| (185,035) |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. |
| $(23,653,165) |
| $(22,974,190) |
Gross profit. The Company recorded gross profit of $0.2 million for the twelve months ended March 31, 2019 as compared to approximately $1.7 million for the same period in prior year. The decrease in gross profit was caused by increased cost of goods sold during the year ended March 31, 2019.
General and Administrative Expenses. General and administrative expense decreased $3.8 million to $15.8 million for the twelve months ended March 31, 2019 as compared to $19.6 million for the same period last year. The decrease is attributable to a company-wide initiative to reduce general and administrative costs.
Other Expense. Other expenses increased by $3.2 million to $8.6 million during the period compared to $5.3 million during the twelve months ended March 31, 2018. The increase is primarily due to $3.0 million in cash and noncash expense paid to Pacific Leaf in connection with the July 2018 Amendment and Termination Agreement.
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.
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The principal sources of liquidity to date have been cash generated from sales of debt and equity securities and loans.
At March 31, 2019, the Company had a cash balance of $0.2 million, other current assets excluding cash were $3.2 million and our working capital deficit was $3.2 million. Current liabilities were approximately $6.7 million, which consisted principally of $2.5 million in notes payable, $3.1 million in accounts payable, $0.5 million in accrued liabilities, and $0.5 million in income tax payable. At March 31, 2018, the Company had a cash balance of $3.6 million, other current assets excluding cash were $3.7 million and our working capital was $5.3 million. Current liabilities were approximately $1.9 million, which consisted principally of $1.1 million in notes payable, $0.4 million in accounts payable, $0.3 million in accrued liabilities, and $0.2 million in accrued interest.
Sources and Uses of Cash
Operating Activities
Cash flows used in operations were $9.2 million and $12.2 million for the fiscal years ended March 31, 2019 and 2018, respectively. We anticipate that cash flows from operations may be insufficient to fund business operations for the next twelve-month period. Accordingly, we will have to generate additional liquidity or cash flow to fund our current and anticipated operations. This will likely require the sale of additional common stock or other securities. There is no assurance that we will be able to realize any significant proceeds from such sales, if at all.
Investing Activities
During the twelve months ended March 31, 2019 and 2018, the Company used $11.6 million and $5.4 million, respectively, of cash in investing activities. The cash used in investing activities during the twelve months ended March 31, 2019 and March 31, 2018 were primarily for the purchase of property and equipment and payments under capital leases.
Financing Activities
During the twelve months ended March 31, 2019 and 2018 cash flows from financing activities were $17.5 million and $18.5 million, respectively. Cash flows from financing activities for the twelve months ended March 31, 2019 relate primarily to $10.4 million in proceeds from the issuance of common stock and warrants, $1.8 million in proceeds from the issuance of debt securities, and $7.0 million in proceeds from non-controlling interests, offset by $1.0 million paid in connection with the Pacific Leaf Royalty Agreement and $0.7 million of payments made on promissory notes. Cash flows from financing activities for the twelve months ended March 31, 2017 relate primarily to $7.2 million in proceeds from the issuance of common stock and warrants, $8.2 million in proceeds from the issuance of debt securities, and $3.1 million in proceeds from non-controlling interests.
Installment Loan Financing – Convertible Debenture
Pacific Leaf Ventures, LP
The Company entered into a Note Purchase Agreement, dated May 12, 2015 and effective as of June 8, 2015, with Pacific Leaf Ventures, LP (“Pacific Leaf”), pursuant to which Pacific Leaf has made installment loans (the “Loans”) to the Company in the aggregate amount of $1.75 million. The purpose of the financing is to provide for the acquisition and installation of an operating facility, equipment and other tangible assets by GB Sciences Nevada, LLC (“GBSN”). Such facility and equipment was dedicated to the cultivation of cannabis and the extraction of oils and other constituents present in cannabis, subject at all times to Nevada legal requirements. The note is convertible at the option of the holder into common shares at a conversion price of $0.50, subject to anti-dilution adjustments.
To evidence the Loans, the Company issued to Pacific Leaf a 6% senior secured convertible promissory note (the “Note”), bearing interest at the rate of 6% per annum, payable quarterly. All outstanding principal and interest due under the Note were due and payable on May 12, 2020. The Company was required to prepay the outstanding principal amount of the Note on a quarterly basis in an amount equal to 50% of the cash flow (accrued EBITDA) of
29
GBSN attributable to our percentage interest in GBSN no later than the earlier to occur of (a) the fifth (5th) business day following receipt of a distribution of the Company's Share of GBSN’s EBITDA for the calendar quarter in question, or (b) thirty (30) days following the end of the calendar quarter in question, with the first such prepayment to be made not later than July 31, 2015 with respect to the quarter ending June 30, 2015. In order to induce the Pacific Leaf to extend the loan to the Company and to secure the payment and performance of all of the Secured Obligations, the Company agreed to grant Pacific Leaf a security interest in certain of its assets and enter into the lending agreement.
On February 8, 2016, the Company entered into the Amended and Restated 6% Senior Convertible Promissory Note (“Amended Note”) with Pacific Leaf. The amended agreement modifies the 6% Senior Secure Convertible Promissory Note dated May 12, 2015 and effective as of June 8, 2015, in the principal amount of $1.75 million.
Per the terms of the amended agreement, Pacific Leaf may make up to $1.0 million in additional advances to the Company under the Amended Note bringing the total in the aggregate to $2.75 million. The note is convertible at the option of the holder into common shares at a conversion price of $0.25, subject to anti-dilution adjustments. The Company has an option to prepay the Amended Note, without premium or penalty, in whole or in part, with accrued interest to the date of such prepayment.
Until the payment in full of the Amended Note, Pacific Leaf or its designee have the option (the “Option”) to purchase up to a 20% membership interest in GBSN for a purchase price equal to $100,000 for each 2% of membership interest purchased (i.e., $1,000,000 if the Option is exercised in full), provided that the Option may not be exercised for less than a 1% membership interest in GBSN.
In connection with the Amended Note, the Company also entered into the Amended and Restated Royalty Agreement (“Pacific Leaf Royalty Agreement”) with Pacific Leaf dated and effective as of February 8, 2016. Per the terms of the Pacific Leaf Royalty Agreement, the royalty rate at any time shall equal to the sum of (i) 9.1%, and (ii) the percentage calculated by dividing the amount advanced in excess of $1.75 million by $1.0 million, multiplied by the gross revenues of GBSN. On the earlier of (i) the seventh anniversary of the royalty payment date, or (ii) the date that all amounts outstanding under the Amended Note have been paid in full, the royalty rate shall be reduced by 50%.
On June 13, 2016, the Company received notice from the Pacific Leaf that it had elected to convert $500,000 of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory. Accordingly, the Company has issued 2,000,000 shares of its common stock ($500,000 converted at a price of $0.25 per share) to Pacific Leaf and the Company’s indebtedness pursuant to the Note was reduced by $500,000.
On August 4, 2016, the Company entered into the Second Omnibus Amendment ("Second Amendment") of its existing agreements with Pacific Leaf. The Second Amendment eliminates Pacific Leaf's option to purchase up to a 20% membership interest in GBSN and reduces Pacific Leaf's existing royalty rate to 16.4% of the gross sales revenue of GBSN. It also caps maximum aggregate royalty payments to be made to Pacific Leaf at $2,420,000 with respect to any calendar year. In consideration of the amended terms, Pacific Leaf and its designees received 1,000,000 shares of the Company's common stock and a five-year warrant to purchase 1,500,000 shares of the Company's common stock at $0.36 per share resulting in related expense of approximately $0.9 million.
On October 4, October 20, November 1, and November 10, 2016, the Company received notices from Pacific Leaf that it had elected to convert total of $1,776,750 of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory Note. Accordingly, the Company has issued 7,107,000 shares of its common stock ($1,776,750 converted at a price of $0.25 per share) to Pacific Leaf and the Company’s indebtedness pursuant to the Note was reduced by $1,776,750.
On January 24, and February 22, 2017, the Company received additional notices from Pacific Leaf that it had elected to convert $413,085 ($317,938 in principal and $95,145 in accrued interest) of the Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory Note. Accordingly, the Company has issued 1,652,332 shares of its common stock ($413,083 converted at a price of $0.25 per share) to Pacific Leaf and the Company’s indebtedness pursuant to the Note was reduced by $413,083.
30
On May 12, 2017, the Company received notice from Pacific Leaf that it had elected to convert $184,805 ($154,805 principal and $30,000 accrued interest) of the Company’s indebtedness to Pacific Leaf Note into common stock of the Company pursuant to the Amended and Restated 6% Senior Secured Convertible Promissory Note. Accordingly, the Note was reduced by $184,805.
February 2018 Agreement
On February 23, 2018, the Company and Pacific Leaf entered into the Agreement (“February 2018 Agreement”) whereby all rights and obligations between the parties pursuant to all prior agreements would terminate. Under the terms of the February 2018 Agreement, the Company paid Pacific Leaf $1,269,818 upon the signing of the agreement and was to pay Pacific Leaf an additional $1,500,000 on or before July 31, 2018. The Company would also issue Pacific Leaf 1,600,000 shares of restricted common stock on or before July 31, 2018. Thereafter, no business relationship would exist between the parties and no royalties would be owed.
If the Company were unable to make the $1.5 million payment to Pacific Leaf on or before July 31, 2018, the Royalty Agreement and all other agreements that would have been terminated under the terms of the February 2018 Agreement would have continued in full force and effect, and 75% of all payments made under the February 2018 Agreement would have been credited toward royalties owed under the Royalty Agreement.
In connection with the February 2018 Agreement, the Company recorded royalty expense of $269,818 in fiscal year 2018 for accrued royalties paid, $250,000 in other expense which represents 25% of the $1 million payment made on February 26, 2018, and $750,000 in prepaid expenses which represents the 75% portion of the $1 million payment which would have been credited toward future royalties in the event the $1.5 million payment were not made on or before July 31, 2018.
The market value of the 1.6 million shares issued relating to the February 2018 Agreement was $1,040,000, valued as of the date of the agreement. The Company recorded $260,000 in other expense related to the issuance of those shares, which represents 25% of the market value of those shares. The Company recorded $780,000 in prepaid expenses, representing the 75% portion of the fair market value of those shares which would have been credited toward future royalties in the event that the final $1.5 million payment were not made on or before July 31, 2018.
July 2018 Amendment and Termination Agreement
On July 28, 2018, the Company entered into the Amendment and Termination Agreement (“Amendment and Termination Agreement”) with Pacific Leaf. Pursuant to that agreement, the Pacific Leaf Royalty Agreement and all other agreements with Pacific Leaf were terminated in their entirety, and the Company would make payments totaling $1 million of the $1.5 million balance due to Pacific Leaf by August 31, 2018.
Because the Amendment and Termination Agreement irrevocably terminated the Pacific Leaf Royalty Agreement, the Company recorded an expense of $1,530,000 in the year ended March 31, 2019 related to the prepaid royalties previously recorded on the Consolidated Balance Sheet in connection with the February 2018 Agreement. The expense is included in the Other Expense caption of the Company’s Consolidated Statement of Operations for the year ended March 31, 2019.
Contemporaneously with the Amendment and Termination Agreement, the Company issued a Promissory Note (“Promissory Note”) for the remaining $0.5 million due to Pacific Leaf. The Promissory Note accrued interest at a rate of 6% per annum and matured on November 30, 2018.
In consideration for deferring the payment of the amounts due to Pacific Leaf, the Company issued 100,000 shares of its common stock to Pacific Leaf on July 31, 2018, having a fair market value of $36,000. The Company made cash payments totaling $1.0 million to Pacific Leaf in August 2018 related to the Amendment and Termination Agreement. Both the $36,000 fair value of shares issued to Pacific Leaf and the $1,000,000 in cash payments made to Pacific Leaf in August 2018 are recorded in the Company’s Consolidated Statement of Operations for the year ended March 31, 2019, under the other expense caption.
31
On December 21, 2018, the company made a $100,000 payment on the promissory note. The payment was applied to interest accrued to date of $12,164 and the remaining $87,836 was applied to the principal balance of the Note.
On December 21, 2018, the Company also issued 500,000 shares of its common stock to Pacific Leaf in consideration for further deferral of repayment of the Note. The Company recognized $95,000 in expense related to the shares issued, which is recorded in the Company’s Consolidated Statement of Operations for the year ended March 31, 2019, under the other expense caption.
In total, the Company recorded $3.1 million related to the Amendment and Termination Agreement in Other Expense in its Consolidated Statement of Operations for the year ended March 31, 2019.
The Company made additional payments on the promissory note of $100,000 on January 16, 2019, $100,000 on February 6, 2019, and a final payment of $210,000 on March 4, 2019 which paid the note off in full. The company recorded and paid a total of $15,929 in interest expense related to the promissory note during the year ended March 31, 2019.
Note due to BCM MED, LLC
On December 20, 2018, GB Sciences Louisiana, LLC (“GBSLA") entered into a $300,000 Loan Agreement with BCM MED, LLC (“BCM MED”). BCM MED is a related party to Wellcana Group, LLC, the minority member in GBSLA. The purpose of the financing is to fund operating expenses incurred by or on behalf of medical marijuana operations of GBSLA.
Pursuant to the Loan Agreement, GBSLA will make eight (8) monthly installment payments in the amount of $33,333 on or before the 10th business day of each month and began making payments in April 2019. GBSLA will make the 9th and final installment payment in the amount of $33,333 on or before the 10th business day of December 2019. The aggregate amount of the installment payments from GBSLA to BCM MED shall be equal to the loan amount. GBSLA has the option to defer one monthly installment payment to the first day of the following calendar month.
Convertible Notes and Warrants
March 2017 Convertible Note Offering
In March 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $965,500. The Notes are payable within three years of issuance and are convertible into 3,862,000 shares of the Company’s common stock and 3,862,000 common stock purchase warrants 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 beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $416,733 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $548,767 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended June 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $1,034,500. The Notes are payable within three years of issuance and are convertible into 4,138,000 shares of the Company’s common stock. The Company also issued 4,138,000 common stock warrants to the Note holders. 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 beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $487,957 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the
32
beneficial conversion feature, an additional discount of $480,236 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
The Notes and Warrants were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 of Regulation D under the Securities Act, as amended.
July 2017 Convertible Note Offering
In July, 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.65 per share for the period of three years.
During the three months ended September 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $3,085,000. The Notes are payable within three years of issuance and are convertible into 12,340,000 shares of the Company’s common stock. The Company also issued 12,340,000 common stock warrants to the Note holders. 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 $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,541,797 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $1,532,335 recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended December 31, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $4,116,000. The Notes are payable within three years of issuance and are convertible into 16,464,000 shares of the Company’s common stock. The Company also issued 16,464,000 common stock warrants to the Note holders. 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 $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,600,808 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $2,417,856 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
The Notes and Warrants were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 of Regulation D under the Securities Act, as amended.
Convertible Note Payable to CSW Ventures, LP
On February 28, 2019, the Company issued a $1,500,000 8% Senior Secured Convertible Promissory Note and entered into the Note Purchase Agreement and Security Agreement with CSW Ventures, LP (together, “CSW Note”). The note matures on August 28, 2020, and is convertible at any time until maturity into 8,823,529 shares of the Company’s common stock at $0.17 per share. The CSW Note is secured by the Company’s interest in the equity and assets of GB Sciences, Nevada, LLC, and GB Sciences Las Vegas, LLC.
The intrinsic value of the beneficial conversion feature resulting from the market price of the Company’s common stock in excess of the conversion price was $176,471 on the date of issuance, and the Company recorded a discount on the CSW Note in that amount. During the year ended March 31, 2019, the company recorded accrued interest on the CSW Note of $8,329 and recorded an additional $7,336 in interest expense as the result of amortization of the note discount.
33
The Notes were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 of Regulation D under the Securities Act, as amended.
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
General
The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of the financial statements are reasonable. Policies involving the most significant judgments and estimates are summarized below.
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 stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact the financial statements for each respective reporting period.
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
34
disposition of property and equipment are prepared. If the projections indicate that the carrying value of the property and equipment are not recoverable, we reduce the carrying values to fair value. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available. No indicators of impairment were identified by management as of March 31, 2019.
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 note 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.
Recent Accounting Pronouncements
Standards Effective in Future Years
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019.
The Company reviewed the terms of its existing lease and has recorded a right of asset and related lease liability of approximately $213,000 upon adoption.
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019. The Company determined that all share-based payments were settled as of the date of the adoption, so there was no impact on the Company's financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
35
Recently Adopted Standards
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance.
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.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of GB Sciences, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GB Sciences, Inc. and Subsidiaries (the Company) as of March 31, 2019 and 2018, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financials have been prepared assuming the Company will continue as a going concern. As of March 31, 2019, the Company had accumulated losses of approximately $84.7 Million, has generated limited revenue, and may experiences losses in the near term. These factors and the need for additional financing in order for the Company to meet its business plan, raise substantial doubt about its ability to continue as a going concern. Management's plan to continue as a going concern is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Soles, Heyn & Company, LLP Soles, Heyn & Company, LLP | |
|
|
We have served as the Company’s auditor since the year ended March 31, 2014. | |
West Palm Beach, Florida | |
July 15, 2019 |
|
38
| |||
As of March 31, | |||
| 2019 |
| 2018 |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents | $227,758 |
| $3,579,700 |
Accounts receivable, net of allowance for doubtful | 488,329 |
| 667,073 |
Inventory | 2,136,506 |
| 1,049,372 |
Prepaid expenses | 614,178 |
| 1,956,734 |
TOTAL CURRENT ASSETS | 3,466,771 |
| 7,252,879 |
Property and equipment, Net | 23,504,702 |
| 13,759,157 |
Intangible assets, net of accumulated amortization of $3,745 and $4,140 at March 31, 2019 and March 31, 2018, respectively | 1,818,802 |
| 1,404,366 |
Deposits and prepayments | 1,224,265 |
| 1,464,457 |
Other assets | 8,762 |
| 168,895 |
TOTAL ASSETS | $30,023,302 |
| $24,049,754 |
CURRENT LIABILITIES: |
|
|
|
Accounts payable | $3,070,756 |
| $371,925 |
Accrued interest | 142,112 |
| 175,878 |
Accrued liabilities | 463,356 |
| 316,090 |
Notes payable, net of unamortized discount of $799,410 and $5.0 million at March 31, 2019 and March 31, 2018, respectively | 2,529,811 |
| 1,056,301 |
Income tax payable | 506,145 |
| - |
TOTAL CURRENT LIABILITIES | 6,712,180 |
| 1,920,194 |
Note payable, net of unamortized discount of $13,929 and $73,052 at March 31, 2019 and March 31, 2018, respectively | 161,072 |
| 355,233 |
Capital lease obligations | 5,994,051 |
| 6,142,606 |
TOTAL LIABILITIES | 12,867,303 |
| 8,418,033 |
Commitments and contingencies |
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
Common Stock, $0.0001 par value, 400,000,000 and 250,000,000 shares authorized, 240,627,102 and 168,616,855 shares issued and outstanding at March 31, 2019 and March 31, 2018, respectively | 24,063 |
| 16,862 |
Additional paid-in capital | 93,020,015 |
| 70,961,104 |
Accumulated deficit | (84,743,836) |
| (58,229,235) |
TOTAL GB SCIENCES, INC. STOCKHOLDERS' EQUITY | 8,300,242 |
| 12,748,731 |
Non-controlling interest | 8,855,757 |
| 2,882,990 |
TOTAL EQUITY | 17,155,999 |
| 15,631,721 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $30,023,302 |
| $24,049,754 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements |
39
GB SCIENCES, INC. | |||||
| |||||
|
|
|
|
| |
|
| For the Twelve Months Ended | |||
|
| 2019 |
| 2018 | |
|
|
|
|
| |
SALES REVENUE |
| $3,454,552 |
| $2,510,364 | |
COST OF GOODS SOLD |
| (3,246,097) |
| (782,727) | |
GROSS PROFIT |
| 208,455 |
| 1,727,637 | |
GENERAL AND ADMINISTRATIVE EXPENSES |
| 15,802,783 |
| 19,552,288 | |
LOSS FROM OPERATIONS |
| (15,594,328) |
| (17,824,651) | |
OTHER INCOME (EXPENSE) |
|
|
|
| |
Interest expense |
| (5,191,259) |
| (5,176,361) | |
Other expense |
| (3,368,555) |
| (158,213) | |
Total other expense |
| (8,559,814) |
| (5,334,574) | |
NET LOSS BEFORE INCOME TAX EXPENSE |
| (24,154,142) |
| (23,159,225) | |
Income tax expense |
| (526,145) |
| - | |
NET LOSS |
| (24,680,287) |
| (23,159,225) | |
Net loss attributable to non-controlling interest |
| (1,027,122) |
| (185,035) | |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. |
| $(23,653,165) |
| $(22,974,190) | |
Net loss attributable to common stockholders |
| $(26,514,601) |
| $(22,974,190) | |
Net loss per share - basic and diluted |
| $(0.13) |
| $(0.17) | |
Weighted average common shares outstanding - basic and diluted |
| 209,537,769 |
| 132,934,141 | |
The accompanying notes are an integral part of these consolidated financial statements |
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GB SCIENCES, INC. | |||||||||||||||||||
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|
|
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| |||||||
|
| Shares |
| Amount |
| Additional Paid-In Capital |
| Accumulated Deficit |
| Non-Controlling Interest |
| Total | |||||||
Balance at March 31, 2017 |
| 124,406,818 |
| $12,441 |
| $43,569,864 |
| $(35,255,045) |
| $77,421 |
| $8,404,681 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of stock for debt conversion |
| 15,231,828 |
| 1,523 |
| 3,804,711 |
| - |
| - |
| 3,806,234 | |||||||
Exercise of warrants for stock |
| 4,168,940 |
| 417 |
| 3,783 |
| - |
| - |
| 4,200 | |||||||
Issuance of stock for services |
| 1,928,845 |
| 192 |
| 667,386 |
| - |
| - |
| 667,578 | |||||||
Share based compensation expense |
| - |
| - |
| 1,821,294 |
| - |
| - |
| 1,821,294 | |||||||
Issuance of stock for cash, net of issuance costs |
| 18,000,000 |
| 1,800 |
| 7,198,200 |
| - |
| - |
| 7,200,000 | |||||||
Beneficial conversion feature on notes payable |
| - |
| - |
| 8,120,988 |
| - |
| - |
| 8,120,988 | |||||||
Contributions from non-controlling interest |
| - |
| - |
| - |
| - |
| 3,120,000 |
| 3,120,000 | |||||||
Deconsolidation of GB Sciences Puerto Rico, LLC | - |
| - |
| - |
| - |
| (129,396) |
| (129,396) | ||||||||
Stock issued to settle Pacific Leaf royalty agreement | 1,600,000 |
| 160 |
| 1,039,840 |
| - |
| - |
| 1,040,000 | ||||||||
Stock issued to employees |
| 195,140 |
| 20 |
| 33,466 |
| - |
| - |
| 33,486 | |||||||
Compensation Warrants |
| 3,085,284 |
| 309 |
| 4,701,572 |
| - |
| - |
| 4,701,881 | |||||||
Net Loss |
| - |
| - |
| - |
| (22,974,190) |
| - |
| (22,974,190) | |||||||
Loss attributable to non-controlling interest |
| - |
| - |
| - |
| - |
| (185,035) |
| (185,035) | |||||||
Balance at March 31, 2018 |
| 168,616,855 |
| 16,862 |
| 70,961,104 |
| (58,229,235) |
| 2,882,990 |
| 15,631,721 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of stock for debt conversion |
| 18,563,885 |
| 1,856 |
| 4,639,115 |
| - |
| - |
| 4,640,971 | |||||||
Exercise of warrants for stock |
| 12,657,875 |
| 1,266 |
| 3,919,454 |
| - |
| - |
| 3,920,720 | |||||||
Issuance of stock for services |
| 4,032,407 |
| 403 |
| 1,253,960 |
| - |
| - |
| 1,254,363 | |||||||
Share based compensation expense |
| - |
| - |
| 1,966,388 |
| - |
| - |
| 1,966,388 | |||||||
Issuance of stock for cash, net of issuance costs |
| 36,156,080 |
| 3,616 |
| 6,518,509 |
| - |
| - |
| 6,522,125 | |||||||
Beneficial conversion feature on notes payable |
| - |
| - |
| 176,471 |
| - |
| - |
| 176,471 | |||||||
Contributions from non-controlling interest |
| - |
| - |
| - |
| - |
| 6,999,889 |
| 6,999,889 | |||||||
Stock issued to settle Pacific Leaf royalty agreement | 600,000 |
| 60 |
| 130,940 |
| - |
| - |
| 131,000 | ||||||||
Compensation Warrants |
| - |
| - |
| 592,638 |
| - |
| - |
| 592,638 | |||||||
Inducement dividend from warrant exercises |
| - |
| - |
| 2,861,436 |
| (2,861,436) |
| - |
| - | |||||||
Net Loss |
| - |
| - |
| - |
| (23,653,165) |
| - |
| (23,653,165) | |||||||
Loss attributable to non-controlling interest |
| - |
| - |
| - |
| - |
| (1,027,122) |
| (1,027,122) | |||||||
Balance at March 31, 2019 |
| 240,627,102 |
| $24,063 |
| $93,020,015 |
| $(84,743,836) |
| $8,855,757 |
| $17,155,999 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
The accompanying notes are an integral part of these consolidated financial statements |
41
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
| |||
| Year Ended March 31, | ||
| 2019 |
| 2018 |
OPERATING ACTIVITIES: |
|
|
|
Net loss | $(24,680,287) |
| $(23,159,225) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
Depreciation and amortization | 622,968 |
| 804,788 |
Stock-based compensation | 3,813,390 |
| 7,224,239 |
Bad debt expense | 5,849 |
| 74,706 |
Amortization of debt discount and beneficial conversion feature | 793,820 |
| 1,620,709 |
Interest expense on conversion of notes payable | 3,464,187 |
| 2,647,445 |
Stock issued for settlement of Pacific Leaf royalty agreement | 2,140,925 |
| (1,269,818) |
Loss on disposition of THC LLC Note | 113,623 |
| - |
Loss/(gain) on sale of assets | 16,169 |
| (357,968) |
Changes in operating assets and liabilities: |
|
|
|
Accounts Receivable | 172,895 |
| (741,779) |
Prepaid expenses and other assets | 812,557 |
| (260,356) |
Inventory | (749,451) |
| (960,335) |
Accounts payable | 2,698,831 |
| 975,591 |
Accrued expenses | 1,028,503 |
| 1,154,009 |
Income taxes payable | 506,145 |
| - |
Net cash used in operating activities | (9,239,876) |
| (12,247,994) |
INVESTING ACTIVITIES: |
|
|
|
Cash deconsolidated-GB Sciences Puerto Rico ,LLC | - |
| (19,417) |
Payments on capital lease obligations | (780,812) |
| (740,680) |
Purchase of property and equipment | (10,583,349) |
| (3,429,751) |
Change in deposits and other assets | (266,750) |
| (1,213,671) |
Net cash used in investing activities | (11,630,911) |
| (5,403,519) |
FINANCING ACTIVITIES: |
|
|
|
Proceeds from issuance of common stock and warrants | 10,442,845 |
| 7,200,000 |
Proceeds from issuance of debt | 300,000 |
| - |
Proceeds from non-controlling interest | 6,999,889 |
| 3,120,000 |
Proceeds from convertible notes payable | 1,500,000 |
| 8,235,500 |
Repayment of promissory notes | (723,889) |
| (21,440) |
Payments made to settle Pacific Leaf Royalty Agreement | (1,000,000) |
| - |
Other financing activities | - |
| 4,200 |
Net cash provided by financing activities | 17,518,845 |
| 18,538,260 |
Net change in cash and cash equivalents | (3,351,942) |
| 886,747 |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 3,579,700 |
| 2,692,953 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $227,758 |
| $3,579,700 |
Non-cash transactions: |
|
|
|
Stock issued upon conversion of long-term note payable | $4,640,971 |
| $3,806,234 |
Stock issued to settle Pacific Leaf Royalty Agreement | $131,000 |
| $1,040,000 |
Capital lease obligation | $- |
| $2,525,000 |
Induced dividend from warrant exercises | $2,861,436 |
| $- |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements |
42
Note 1 - Background and Basis of Presentation
Background
GB Sciences, Inc. (“We,” or “the Company”) seeks to be an innovative technology and solution company that converts the cannabis plant into medicines, therapies and treatments for a variety of ailments. The Company is developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology, and plans to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies.
We seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and terpenes, which we intend to market in those states within the United States and in other countries where the sale of medical cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid-based drug discoveries on a world-wide basis.
We were incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name “Signature Exploration and Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000.
Recent Developments
On October 4, 2016, we acquired a 60% interest in a Nevada Medical Marijuana Production License with an option to own up to 80%. A production license enables us to convert cannabis plants into to oils and extracts that are suitable for creating medical compounds as well as consumer products. This license is critical and essential to our plan of producing cannabis-based medicines and must be integrated into our cultivation facility to ensure quality control standards and efficiency in our production of cannabis medicines. 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 Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. On February 21, 2018, the Company received its recreational production license and began full production operations in its Las Vegas facility.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the “EPA”) with The Happy Confections, L.L.C. (“THCLLC”) through the Company’s wholly owned subsidiary, GB Sciences Las Vegas, LLC (“GBSLV”). Dr. Andrea Small-Howard, a member of GB Science’s Board of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC is to produce cannabis-infused baked goods and other edibles in GBSLV’s production facility upon approval of GBSLV’s Nevada Medical Marijuana Production License. The Company will receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.
43
Contemporaneously with the EPA, the Company entered into a Non-Revolving Credit Line Agreement and Non-Revolving Credit Line Promissory Note (together, the “THC Note” or “Note”) to advance up to $300,000 to THCLLC for the purpose of expanding THCLLC’s operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 days of the sale of any product.
As of March 31, 2019, the Company has advanced $253,034 under the THC Note. On October 15, 2018, the Company gave notice to The Happy Confections, LLC (“THC LLC”) that Company would not provide any additional financing beyond the $300,000 Credit Line granted under the Non-Revolving Credit Line Agreement dated November 1, 2017. In this notice, the Company requested that THC LLC seek to find additional sources of financing to be able to fund the manufacture of edibles. The Company further notified THC LLC that the Company would terminate the Edibles Production Agreement and all other related agreements with THC LLC if it was unable to acquire additional funding by October 22, 2018. On October 19, 2018, the Company received a response from THC LLC that it was unable to acquire additional funding. Accordingly, the Company has terminated all of its agreements with THCLLC effective October 19, 2018 and took possession of all tangible assets owned by THCLLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory that is used in the Company’s production operations at the Teco Facility.
The historical cost of the machinery and equipment received was $139,411 and the Company has capitalized that amount in fixed assets as of March 31, 2019. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility in December 2018. The Company also recorded $113,623 as other expense in its Consolidated Statement of Operations for the year ended March 31, 2019, which represents the remaining balance of the outstanding note receivable from THC LLC.
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences.
The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter.
The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of March 31, 2019, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement.
On September 21, 2018, the Company formed a wholly owned subsidiary, GBS Global Biopharma, Inc., in the province of Ontario, Canada with plans to license and/or transfer some of Growblox Life Sciences LLC’s intellectual property to the newly formed entity. On March 15, 2019, the Company entered into the Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby all of the assets and certain liabilities held by Growblox Life Sciences, LLC, a wholly-owned subsidiary of GB Sciences, Inc., were transferred to GBS Global Biopharma, Inc. in exchange for a promissory note in the amount of $1,435,700. The assets transferred include all intellectual property and intangible assets owned by the Company, consisting primarily of patents in process and research contracts with universities and researchers. It is anticipated that GBS Global Biopharma Inc. will pursue clinical development of the intellectual property, including clinical trials.
On January 31, 2018 the Company entered into a Contract Farming Agreement with Colorado Hemp Project Limited (“CHP”) for the development and cultivation of boutique help genetics and new strains of hemp which will provide the key ingredient in proprietary CBD formulations. Per the terms of the agreement, the Company leased 8 acres of land on which CHP planted 2000 seeds per acre. CHP is responsible for providing genetics, land, water, planting, cultivation, any soil amendments needed, harvest, drying and stripping into whole plant composite for extraction, if desired. In return, GB Sciences is obligated to pay for all production expenses and delivery or shipping
44
for the total of $16,750 per acre of land farmed. On March 15, 2018, the Company leased additional 5 acres of land from CHP under the same terms as those included in the original agreement.
Intellectual Property
Our intellectual property includes:
Four USPTO & WIPO Patent Applications
Title:CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES
U.S. Patent Application No. 15/729,565; WIPO Application number: PCT/US17/SS989
Filed: October 10, 2017; Inventors: Andrea Small-Howard et al.
Claims benefit of U.S. Patent Application No. 62/406,764 filed October 11, 2016
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
U.S. Patent Application No.15/885,620;WIPO Application number: PCT/US18/016296
Filed: January 31, 2018; Inventors: Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application No. 62/453,161 filed February 1, 2017
Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1
U.S. Patent Application No. 15/986,316; WIPO Patent Application No. PCT/US2018/033956
Filed: May 22, 2018; Inventors: Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application No. 62/509,546 filed May 22, 2017
Title: TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR TERPENES
U.S. Patent Application No.: 16/420,004; WIPO Patent Application No.: PCT/US2019/033618
Filed: May 22, 2019; Inventors: Andrea Small-Howard, et al.
Claims benefit of U.S. Patent Application No. 62/674,843 filed May 22, 2018
Two Provisional USPTO Patent Applications
Title: DIVERSE TRPV1 RESPONSES TO CANNABINOIDS
U.S. Patent Application No.: 62/849,719
Filed: May 17, 2019; Inventors: Andrea Small-Howard, et al.
Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING MYRCENE
U.S. Patent Application No.: 62/757,660
Filed: November 8, 2018; Inventors: Andrea Small-Howard, et al.
Three Licensed Patents for Intellectual Property Portfolio
Title: METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY.
Inventor: Alexander Stokes;Assignee: University of Hawai’i
Commercialization rights licensed to Makai Biotech, LLC
Sublicensed by Makai Biotech, LLC to GBS Global Biosciences, Inc.
Status: Granted in the following territories on the corresponding dates
U.S. Patent Number: 9,084,786;Issued: July 21, 2015
European Union Patent Number: 2,635,281;Granted: March 14, 2018
Hong Kong Patent Application Number: 14102182.8; Granted: March 14, 2018
IN Patent Application Number: 1404/KOLNP/2013; Continuation Application Serial No.: 16/181204
45
Title METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Inventors: Martin Banderas, Lucia; Fernandez Arevala, Mercedes; Berrocoso, Dominguez, Esther; and Mico Segura, Juan Antonio
Assignees: Universidad de Sevilla, Universidad de Cadiz, and Centro de Investigacion Biomedica En Red (CIBER)
Exclusive worldwide license held by GBS Global Biopharma, Inc.
WIPO/PCT Application: WO 2016/128591
Filed: August 18, 2016
Claims benefit of Spanish Patent Application no. ES 2582287
Filed: September 2, 2015
U.S. Patent Application 15/549,653
Europe Patent Application EP3257503
Canada Patent Application CA2976040
INGESTIBLE FILMS HAVING SUBSTANCES FROM HEMP OR CANNABIS
USPTO Patent Number: 10, 265,362;
Issued: April 23, 2019; Inventor: Scott Schaneville
Non-exclusive worldwide license held by GBS Global Biopharma, Inc. through GB Sciences, Inc.
Three Additional Near-Term Patent Applications:
GBS Global has data sets for three new provisional patent applications to be filed in Q3 and Q4 of 2019, as follows:
Title: POLY-PHARMACEUTICAL MIXTURES FOR CHRONIC PAIN BASED ON CLASSIFICATIONS OF CANNABINOIDS AND TERPENOIDS INTO COMPLEMENTS OR COMPETITORS BASED ON THEIR BINDING-SITES ON PAIN-SENSING RECEPTORS
Filing Date: July 1, 2019 (anticipated);Inventors: Andrea Small-Howard, et al.
Title: METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES CONTAINING COMPLEX MIXTURES OF CANNABINOIDS AND TERPENOIDS FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Filing Date: August 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al.
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF HIV-ASSOCIATED NEURODEGENERATIVE DISORDERS (HAND)
Filing Date: December 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al.
Note 2 - Going Concern
The Company’s financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained net losses since inception. For the years ended March 31, 2019 and 2018, the Company sustained net losses of approximately $23.7 million and $23.0 million respectively and had an accumulated deficit of approximately $84.7 million and $58.2 million respectively. As of March 31, 2019, the Company had a working capital deficit of $3.2 million. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a
46
going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is unable to continue as a going concern.
Note 3 - 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. Intercompany accounts and transactions have been eliminated in consolidation. In our opinion, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included.
Certain reclassifications have been made to the comparative year amounts in order to conform to the current period presentation. These reclassifications had no effect on the reported financial position, results of operations or cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 payables 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.
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability.
Inventory
47
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.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the value of our patents pending. Upon issuance of the patents, the indefinite-lived intangible assets will have finite lives. We amortize our finite-lived intangible assets over their estimated useful lives using the straight-line method, and we periodically evaluate the remaining useful lives of our finite-lived intangible assets to determine whether events or circumstances warrant a revision to the remaining period of amortization.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements are amortized over the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend the useful lives of related assets are expensed as incurred.
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. No indicators of impairment were identified by the Company as of March 31, 2019.
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.
48
Other Assets
Other assets primarily include employee advances.
Revenue Recognition
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance.
Research and Development Costs
Research and development costs are expensed as incurred.
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.
49
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 128,608,852 and 104,207,396 potentially dilutive common shares at March 31, 2019 and 2018, 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
.
Net loss attributable to common stockholders for the year ended March 31, 2019 includes and adjustment for a deemed dividend from induced warrant exercises. The following table sets forth the computation of basic and diluted EPS:
|
| For the Year Ended March 31, 2019 | ||||
|
| Income |
| Shares |
| Per-Share |
|
|
|
|
|
|
|
Net loss attributable to GB Sciences, Inc. |
| $ (23,653,165) |
|
|
|
|
Less: Inducement dividend from warrant exercises |
| (2,861,436) |
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS |
|
|
|
|
|
|
Net loss attributable to common stockholders |
| $ (26,514,601) |
| 209,537,769 |
| $ (0.13) |
Recent Accounting Pronouncements
Standards Effective in Future Years
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019.
The Company reviewed the terms of its existing lease and has recorded a right of asset and related lease liability of approximately $213,000 upon adoption.
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019. The Company determined that all share-based payments were settled as of the date of the adoption, so there was no impact on the Company's financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
Recently Adopted Standards
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
50
each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance.
51
Note 4 – Capital Lease
In July, 2016, an entity associated with Pacific Leaf Partners, LLC completed the purchase of the building housing the Company’s cultivation facility at 3550 W. Teco Ave., Las Vegas, NV. In connection with the purchase, the Company entered into the Amended Lease Agreement for an initial term of ten and a half years with one option to extend the lease for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement were $40,000 through December 31, 2017. Commencing January 1, 2018, the monthly rent payments increased by 3% and will increase by 3% per annum through the expiration of the lease. The Company analyzed the transaction in accordance with the applicable accounting guidance determining that the aggregate amount of $3.9 million met the requirements for capitalization. The building has been capitalized and is included in property and equipment, net balance, with related obligations included as part of current and non-current liabilities. The obligation recorded is based upon the present value of the future minimum lease payment discounted at 11.6% interest rate.
On August 4, 2017, the Company entered into a Lease Agreement for the building located at 18350 Petroleum Drive in Baton Rouge, Louisiana, which will be used for the Company’s medical marijuana operations in the State of Louisiana. The Lease is for an initial term of five years beginning on July 1, 2018, with two options to extend the lease for five years, or until June 30, 2032. The monthly rent payments per the Lease Agreement are $25,588 through June 30, 2022. If the Company chooses to exercise its first option to extend the Lease term, the monthly rent payments will increase to $28,147 per month for the period from July 1, 2022 through June 30, 2027. If the Company chooses to exercise its second option to extend the Lease term, the monthly rent payments will increase to $30,966 per month for the period from July 1, 2027 through June 30, 2032.The Company analyzed the transaction in accordance with the applicable accounting guidance determining that the aggregate amount of $2.5 million met the requirements for capitalization. The building has been capitalized and is included in property and equipment, net balance, with related obligations included as part of current and non-current liabilities. The obligation recorded is based upon the present value of the future minimum lease payment discounted at a 10.3% interest rate.
Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the net present value of the minimum lease payments as of March 31, 2019, are as follows:
| Year Ending March 31, |
| Total |
|
|
|
|
| 2020 |
| 777,671 |
| 2021 |
| 835,499 |
| 2022 |
| 851,352 |
| 2023 |
| 890,712 |
| 2024 |
| 915,208 |
| Thereafter |
| 7,331,562 |
Total minimum lease payments |
|
| 11,602,004 |
Less: Amount representing interest |
|
| (5,465,943) |
Present value of minimum lease payments |
|
| 6,136,061 |
Less: Current maturities of capital lease obligations |
|
| (142,010) |
Long-term capital lease obligations |
|
| 5,994,051 |
Note 5 – Notes Payable
On February 23, 2018, the Company entered into the Agreement with Pacific Leaf (“February 2018 Agreement”) whereby all rights and obligations between the parties pursuant to all prior agreements would terminate. Under the
52
terms of the February 2018 Agreement, the Company paid Pacific Leaf $1,269,818 upon the signing of the agreement and was to pay Pacific Leaf an additional $1,500,000 on or before July 31, 2018. The Company would also issue Pacific Leaf 1,600,000 shares of restricted common stock on or before July 31, 2018. Thereafter, no business relationship would exist between the parties and no royalties would be owed.
If the Company were unable to make the $1.5 million payment to Pacific Leaf on or before July 31, 2018, the Royalty Agreement and all other agreements that would have been terminated under the terms of the February 2018 Agreement would have continued in full force and effect, and 75% of all payments made under the February 2018 Agreement would have been credited toward royalties owed under the Royalty Agreement.
In connection with the February 2018 Agreement, the Company recorded royalty expense of $269,818 in fiscal year 2018 for accrued royalties paid, $250,000 in other expense which represents 25% of the $1 million payment made on February 26, 2018, and $750,000 in prepaid expenses which represents the 75% portion of the $1 million payment which would have been credited toward future royalties in the event the $1.5 million payment were not made on or before July 31, 2018.
The market value of the 1.6 million shares issued relating to the February 2018 Agreement was $1,040,000, valued as of the date of the agreement. The Company recorded $260,000 in other expense related to the issuance of those shares, which represents 25% of the market value of those shares. The Company recorded $780,000 in prepaid expenses, representing the 75% portion of the fair market value of those shares which would have been credited toward future royalties in the event that the final $1.5 million payment were not made on or before July 31, 2018.
All amounts related to the February 2018 Agreement recorded in the Company’s Consolidated Balance Sheet and Statement of Operations for the year ended March 31, 2018, are summarized below:
| Year Ended |
| As of March 31, 2018 |
|
| |
Pacific Leaf Ventures LP | Royalty | Other |
| Prepaid |
| Total |
Payment made on February 26, 2018 | $269,818 | $250,000 |
| $750,000 |
| $1,269,818 |
1,600,000 shares common stock issued in connection with the February 2018 Agreement | - | 260,000 |
| 780,000 |
| 1,040,000 |
Total recorded in Fiscal Year 2018 related to the February 2018 Agreement | $269,818 | $510,000 |
| $1,530,000 |
| $2,309,818 |
July 2018 Amendment and Termination Agreement
On July 28, 2018, the Company entered into the Amendment and Termination Agreement (“Amendment and Termination Agreement”) with Pacific Leaf. Pursuant to that agreement, the Pacific Leaf Royalty Agreement and all other agreements with Pacific Leaf were terminated in their entirety, and the Company would make payments totaling $1 million of the $1.5 million balance due to Pacific Leaf by August 31, 2018.
Because the Amendment and Termination Agreement irrevocably terminated the Pacific Leaf Royalty Agreement, the Company recorded an expense of $1,530,000 in the quarter ended September 30, 2018 related to the prepaid royalties previously recorded on the Consolidated Balance Sheet in connection with the February 2018 Agreement. The expense is included in the Other Expense caption of the Company’s Consolidated Statement of Operations for the year ended March 31, 2019.
Contemporaneously with the Amendment and Termination Agreement, the Company issued a Promissory Note (“Promissory Note”) for the remaining $0.5 million due to Pacific Leaf. The Promissory Note accrued interest at a rate of 6% per annum and matured on November 30, 2018.
In consideration for deferring the payment of the amounts due to Pacific Leaf, the Company issued 100,000 shares of its common stock to Pacific Leaf on July 31, 2018 having a fair market value of $36,000. The Company made
53
cash payments totaling $1.0 million to Pacific Leaf in August 2018 related to the Amendment and Termination Agreement. Both the $36,000 fair value of shares issued to Pacific Leaf and the $1,000,000 in cash payments made to Pacific Leaf in August 2018 are recorded in the Company’s Consolidated Statement of Operations for the year March 31, 2019, under the other expense caption.
On December 21, 2018, the company made a $100,000 payment on the promissory note. The payment was applied to interest accrued to date of $12,164 and the remaining $87,836 was applied to the principal balance of the Note.
On December 21, 2018, the Company also issued 500,000 shares of its common stock to Pacific Leaf in consideration for further deferral of repayment of the Note. The Company recognized $95,000 in expense related to the shares issued, which is recorded in the Company’s Consolidated Statement of Operations for the year ended March 31, 2019, under the other expense caption.
In total, the Company recorded $3.1 million related to the Amendment and Termination Agreement in Other Expense in its Consolidated Statement of Operations for the year ended March 31, 2019, as summarized in the table below:
Amendment and Termination Agreement - |
|
| Year Ended |
Amounts Recorded in Other Expense |
|
| March 31, 2019 |
|
|
|
|
Prepaid royalties recorded in February 2018 |
| $1,530,000 | |
Cash payments made in August 2018 |
| 1,000,000 | |
Promissory note issued to Pacific Leaf, due on or before November 30, 2018 |
| 500,000 | |
100,000 shares common stock issued to Pacific Leaf |
| 36,000 | |
Settlement of convertible note payable and related accrued interest |
| (20,075) | |
500,000 shares common stock issued to Pacific Leaf on December 21, 2018 |
| 95,000 | |
Total |
| $3,140,925 |
The Company made additional payments on the promissory note of $100,000 on January 16, 2019, $100,000 on February 6, 2019, and a final payment of $210,000 on March 4, 2019. The company recorded and paid a total of $15,929 in interest expense related to the promissory note during the year ended March 31, 2019.
Note payable to BCM MED, LLC
On December 20, 2018, GB Sciences Louisiana, LLC (“GBSLA") entered into a $300,000 Loan Agreement with BCM MED, LLC (“BCM MED”). BCM MED is a related party to Wellcana Group, LLC, the minority member in GBSLA. The purpose of the financing is to fund operating expenses incurred by or on behalf of medical marijuana operations of GBSLA.
Pursuant to the Loan Agreement, GBSLA will make eight (8) monthly installment payments in the amount of $33,333 on or before the 10th business day of each month and began making payments in April 2019. GBSLA will make the 9th and final installment payment in the amount of $33,333 on or before the 10th business day of December 2019. The aggregate amount of the installment payments from GBSLA to BCM MED shall be equal to the loan amount. GBSLA has the option to defer one monthly installment payment to the first day of the following calendar month.
Note Payable to 483 Management, LLC
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
54
payment of $500,000 and issued a 0% unsecured 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. During the year ended March 31, 2019, the Company recorded $85,981 in interest expense related to amortization of the note discount.
Summary of Notes Payable
As of March 31, 2019, the following notes payable were recorded in the Company’s Consolidated Balance Sheet:
| As of March 31, 2019 | ||||
Short-Term Notes Payable | Face Value |
| Discount |
| Carrying Value |
Convertible Notes Payable to various investors | $1,257,000 |
| $(564,929) |
| $692,071 |
Convertible Promissory Note due to CSW Ventures | 1,500,000 |
| (169,134) |
| 1,330,866 |
Note Payable to 483 Management, LLC, current portion | 272,221 |
| (65,347) |
| 206,874 |
Note Payable - BCM Med | 300,000 |
| - |
| 300,000 |
Total Short-Term Notes Payable | $3,329,221 |
| $(799,410) |
| $2,529,811 |
|
|
|
|
|
|
Long-Term Notes Payable |
|
|
|
|
|
Note Payable to 483 Management, LLC, long-term | $175,000 |
| $(13,928) |
| $161,072 |
Total Long-Term Notes Payable | $175,000 |
| $(13,928) |
| $161,072 |
Note 6 – Convertible Notes
March 2017 Convertible Note Offering
In March 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $965,500. The Notes are payable within three years of issuance and are convertible into 3,862,000 shares of the Company’s common stock and 3,862,000 common stock purchase warrants 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 beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $416,733 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $548,767 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended June 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $1,034,500. The Notes are payable within three years of issuance and are convertible into 4,138,000 shares of the Company’s common stock. The Company also issued 4,138,000 common stock warrants to the Note holders. 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 beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $487,957 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the
55
beneficial conversion feature, an additional discount of $480,236 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
July 2017 Convertible Note Offering
In July, 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.65 per share for the period of three years.
During the three months ended September 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $3,085,000. The Notes are payable within three years of issuance and are convertible into 12,340,000 shares of the Company’s common stock. The Company also issued 12,340,000 common stock warrants to the Note holders. 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 $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,541,797 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $1,532,335 recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended December 31, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $4,116,000. The Notes are payable within three years of issuance and are convertible into 16,464,000 shares of the Company’s common stock. The Company also issued 16,464,000 common stock warrants to the Note holders. 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 $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,600,808 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $2,417,856 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
As of March 31, 2019, convertible notes having a carrying value of $692,071, net of unamortized discount of $564,929 remained outstanding from the March 2017 and July 2017 note offerings, and accrued interest on the notes is $121,558. Discount amortization was $786,484 for the year ended March 31, 2019.
Convertible Note Payable to CSW Ventures, LP
On February 28, 2019, the Company issued a $1,500,000 8% Senior Secured Convertible Promissory Note and entered into the Note Purchase Agreement and Security Agreement with CSW Ventures, LP (together, “CSW Note”). The note matures on August 28, 2020 and is convertible at any time until maturity into 8,823,529 shares of the Company’s common stock at $0.17 per share. Collateral pledged as security for the note includes all of the Company’s 100% membership interests in GB Sciences, Nevada, LLC and GB Sciences Las Vegas, LLC, which together represent substantially all of the Company’s cannabis cultivation and production operations and assets located at its Teco facility in Las Vegas, Nevada.
The intrinsic value of the beneficial conversion feature resulting from the market price of the Company’s common stock in excess of the conversion price was $176,471 on the date of issuance, and the Company recorded a discount on the CSW Note in that amount. During the year ended March 31, 2019, the company recorded accrued interest on the CSW Note of $8,329 and recorded an additional $7,336 in interest expense as the result of amortization of the note discount.
56
Note 7 - Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset or, in the case of leasehold improvements amortized over the lesser of the useful life of the asset or the underlying lease term. We recorded depreciation expense of $0.6 million and $0.8 million for the fiscal years ended March 31, 2019 and March 31, 2018, respectively. Property and equipment is comprised of the following:
|
| March 31, | ||||
|
| 2019 |
| 2018 | ||
Furniture and fixtures |
| $ | 20,883 |
| $ | - |
Computer and software |
|
| 201,304 |
|
| 151,748 |
Machinery and equipment |
|
| 1,633,004 |
|
| 1,094,472 |
Leaseholds |
|
| 15,734,980 |
|
| 4,357,779 |
Construction in progress |
|
| 1,852,839 |
|
| 3,193,767 |
Capital lease - building |
|
| 6,425,000 |
|
| 6,425,000 |
|
|
| 25,868,010 |
|
| 15,222,766 |
Less accumulated depreciation and amortization |
|
| (2,363,308) |
|
| (1,463,609) |
Property and Equipment, Net |
| $ | 23,504,702 |
| $ | 13,759,157 |
The Company files income tax returns in the U.S. federal jurisdiction. The Company operates in the state of Nevada which does not levy an income tax. The Company has analyzed filing positions for all open tax years in the federal jurisdiction where it is required to file income tax returns. The Company identified its federal tax return as its “major” tax jurisdiction, as defined under generally accepted accounting principles.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into United States tax law. The Company has adjusted its deferred tax assets and liabilities at December 31, 2017 to reflect the Act’s reduction of corporate income tax rates.
The Company’s effective tax rate was -2.4% and 0% for the years ended March 31, 2019 and 2018, respectively.
Income tax expense was $526,145 for the year ended March 31, 2019. This amount includes a $510,647 tax liability and tax penalties of $15,498 attributable to the tax year ended March 31, 2018. Income tax expense was $0 for the year ended March 31, 2018.
The Company’s income tax payable was $506,145 as of March 31, 2019, and $0 as of March 31, 2018. The increase in income taxes payable is based on a tax liability attributable to the March 31, 2018 tax year, less $20,000 in tax payments made during the current year.
At March 31, 2019 and 2018 respectively, the Company had net operating loss carryforwards (“NOLs”) for income tax purposes of $47,430,184 and $34,481,122. The net operating loss carryforwards are expected to expire at various times from 2025 through 2039. These NOLs have the potential to be used to offset future ordinary taxable income and reduce future cash tax liabilities. Utilization of the Company’s net operating losses may be subject to substantial annual limitation if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and similar state provisions. Such an ownership change would substantially increase the possibility of net operating losses expiring before complete utilization.
Because the Company operates in the legal 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
57
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.
The provision for income taxes is different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the following reconciliation:
|
| 2019 |
| 2018 |
Tax benefit computed at U.S. statutory rates |
| $(4,424,959) |
| $(4,824,580) |
Increases (decreases) in taxes resulting from: |
|
|
|
|
IRC Section 280E |
| 968,870 |
| 159,188 |
Other permanent items |
| 35,590 |
| 5,604 |
Change in valuation allowance |
| 3,420,499 |
| 4,659,788 |
Prior year tax expense |
| 510,647 |
| - |
Total provision for income taxes |
| $510,647 |
| $- |
The tax effects of the primary temporary differences giving rise to the Company’s deferred tax assets and liabilities are as follows for the year ended March 31, 2019 and 2018:
|
| 2019 |
| 2018 |
Deferred tax assets: |
|
|
|
|
Stock based compensation |
| $2,883,491 |
| $752,617 |
Net operating loss carryforward |
| 9,960,339 |
| 9,190,629 |
Depreciation and Amortization expense |
| (416,944) |
| (286,240) |
Other temporary items |
| 68,520 |
| - |
Total deferred tax assets |
| 12,495,406 |
| 9,657,006 |
Less valuation allowance |
| (12,495,406) |
| (9,657,006) |
Net deferred tax asset |
| $- |
| $- |
Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies. The Company continues to evaluate its deferred tax asset valuation allowance on a quarterly basis. The Company concluded that, as of March 31, 2019, it is more likely than not that the Company will not have sufficient taxable income within the applicable net operating loss carry-forward period to realize any portion of its deferred tax assets.
The Company believes that the tax positions taken in its tax returns would be sustained upon examination by taxing authorities. The Company files income tax returns in the U.S. federal jurisdiction and other required state jurisdictions. The Company's periodic tax returns filed in 2016 and, thereafter, are subject to examination by taxing authorities under the normal statutes of limitations in the applicable jurisdictions.
Note 9 – Capital Transactions
Sale of Common Stock and Warrants
Debt Conversions
During the year ended March 31, 2019, the Company received notice from convertible note holders of the conversion of a total of $4,470,000 in face value and $170,971 in accrued interest on the related convertible notes.
58
Accordingly, the Company has issued 18,563,885 shares of its common stock based on a $0.25 per share conversion price. In connection with the conversions, $3,464,187 in unamortized discount on the related notes was recognized as interest expense and the Company has reduced the carrying amount of convertible notes payable by $1,005,813.
Exercise of Warrants for Stock
During the year ended March 31, 2019, the Company issued 12,657,875 shares of its common stock for the exercise of warrants as follows:
In order to encourage the exercise of the 8,000,000 warrants issued to investors in the private offering of convertible notes dated March 2017 and the 28,804,000 warrants issued to investors in the private offering of convertible notes dated July 2017, the Company effected a temporary decrease in the exercise price of the warrants from $0.60 and $0.65, respectively, to $0.30 and $0.325 per share. As a result of the price reduction, the Company issued 12,332,750 shares of its common stock and received net proceeds of approximately $3.9 million. In connection with the induced exercise of the warrants, the Company recorded an inducement dividend of approximately $2.9 million.
The Company issued 325,125 shares of its common stock in connection with the exercise of compensation warrants at $0.01 per share.
Issuance of Stock for Services
The Company issued 4,032,407 shares in exchange for past and future consulting services and recorded a related expense of $0.9 million and prepaid expense of $0.3 million. The shares and services were valued at the closing price of the Company’s common stock on the dates granted under the related consulting agreements.
Issuance of Stock for Cash
During the year ended March 31, 2019, the Company issued 277,778 shares of its common stock to an investor for the cash purchase of shares at $0.36 per share.
Stock Issued in Private Placement
The Company issued 35,878,302 shares of its common stock in private placements:
On August 10, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 10,000,000 units at the price of $0.25 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of three years. On August 23, 2018, the Placement Agent’s Agreement was amended to increase the number of units offered by 10,000,000 to 20,000,000 in total, with no other changes to the agreement. Between August 10, 2018 and September 25, 2018, the Company received a total of $4.4 million in proceeds from the private placement, net of $0.6 million in brokerage fees and issued 20 million shares of its common stock and 20 million warrants to purchase one share of its common stock for a period of three years to the investors who participated in the private placement.
On December 4, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 15,000,000 units at the price of $0.20 per unit up to a total of $3 million. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of five years. On January 15, 2019, the Placement Agent’s Agreement was amended to decrease the unit price from $0.20 per unit to $0.15 per unit for a total of 20,000,000 units and decrease the exercise price of the warrants included in each unit from $0.60 to $0.30, applied retroactively to funds raised prior to the date of the amendment, with no other changes to the agreement. Between December 4, 2018 and March 31, 2019, the Company received a total of $2,072,125 in proceeds from the
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private placement, net of $309,620 in brokerage fees and issued 15,878,302 shares of its common stock and 15,878,302 warrants to purchase one share of its common stock at $0.30 per share.
Issuance of Stock to Settle Pacific Leaf Royalty Agreement
In connection with the Pacific Leaf Amendment and Termination Agreement, the Company issued 600,000 shares of its common stock and recorded $131,000 in other expense related to those shares.
Options and Warrants
On December 1, 2018, the Company entered into an agreement with EMLL Group, LLC for business advisory and consulting services. In consideration for the services, the Company issued warrants to purchase 8 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $969,197 using the Black-Scholes valuation model. All services owed to the Company under the agreement were provided as of March 31, 2019, and the company recorded $969,197 in expense related to the warrants in its Consolidated Statement of Operations for the year ended March 31, 2019.
On December 6, 2018, the Company entered into an agreement with SylvaCap Media for business advisory and consulting services. In consideration for the services, the Company issued warrants to purchase 2 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $244,000 using the Black-Scholes valuation model. The fair value of the warrants will be recognized as consulting expense over the twelve-month term of the agreement. The company recorded $81,333 in expense related to the warrants in its Consolidated Statement of Operations for the year ended March 31, 2019.
In connection with the agreement with SylvaCap Media, the Company also agreed to pay a $10,000 monthly fee for 12 months and to issue 4 million restricted shares of the Company’s common stock, of which 2 million shares were due on the date of the contract and have been issued to the consultant. On June 6, 2019, the Company entered into a Cancellation and Settlement with SylvaCap Media and terminated the December 6, 2018 agreement. In consideration for termination of the agreement, the Company will pay $135,000 as a one-time cancellation fee and will not issue the remaining 2 million shares due under the agreement.
In connection with the Placement Agent’s Agreement dated August 10, 2018 and as amended August 23, 2018, the Company issued 2,000,000 compensation warrants to the brokers who participated in the offering and recorded a related expense of $0.6 million. Each compensation warrant is for the purchase of one share of the Company’s common stock at a price of $0.60 per share and expires on October 1, 2023.
During the year ended March 31, 2019, the Company issued 400,000 stock options under the 2014 Equity Incentive Plan to its employees. The options are exercisable upon vesting for a period of 10 years from issuance at an exercise price ranging from $0.37 to $0.60 per share. The Company has recognized total of $0.8 million in share-based compensation expense related to all outstanding options during the year ended March 31, 2019.
Warrants Outstanding
Presented below is a summary of the Company’s warrant activity for the years ended March 31, 2019 and 2018:
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| Warrants Outstanding | ||
| Number of Shares |
| Exercise Price |
|
|
|
|
Outstanding at March 31, 2017 | 32,932,413 |
|
|
Warrants issued | 51,284,000 |
| $0.60-$1.00 |
Warrants exercised | (9,838,375) |
| $0.01-$0.20 |
Warrants expired/cancelled | (8,494,976) |
| $1.00 |
Outstanding at March 31, 2018 | 65,883,062 |
|
|
Warrants issued | 47,878,302 |
| $0.30-$0.60 |
Warrants exercised | (12,657,875) |
| $0.30-$0.325 |
Warrants expired/cancelled | (1,312,500) |
| $0.50-$2.00 |
Outstanding at March 31, 2019 | 99,790,989 |
|
|
Note 10 – Employee Benefit Plan
Share-Based Employee Compensation
On February 6, 2008, the Board of Directors adopted the GB Sciences, Inc. 2007 Amended Stock Option Plan (“2007 Plan”). Under the 2007 Plan, 8,000,000 shares of the Company’s restricted common stock may be issuable upon the exercise of options issued to employees, advisors and consultants. The Company revised the plan and the Board of Directors adopted the new 2014 Equity Compensation Plan. On June 30, 2015, GB Sciences filed a Form S-8 Registration Statement with the SEC to register 8,500,000 shares of common stock issuable under stock options to grant to employees and consultants. At the Company’s special meeting of the shareholders held on April 6, 2018, the adoption by the Board of Directors of the 2014 Equity Compensation Plan was ratified by a majority of shareholders present at the meeting, either in person or by proxy.
Compensation Expense
For the years ended March 31, 2019 and 2018, the Company recorded compensation expense of $0.8 million and $1.8 million respectively, related to employee stock options and restricted stock.
The unrecognized compensation cost, and weighted-average period over which the cost is expected to be recognized for non-vested awards as of March 31, 2019, are presented below:
Unrecognized Compensation Cost ($) |
| Weighted Average Period (years) | |
Stock Options | $193,559 |
| 0.40 |
Total | $193,559 |
| 0.40 |
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Fair Value
The closing price of the Company's stock on the date of grant is used as the fair value for the issuances of restricted stock. The fair value of stock options granted is estimated as of the grant date using the Black-Scholes option pricing model.
The following range of assumptions in the Black-Scholes option pricing model was used to determine fair value at the years ended below:
| Twelve months ended | ||
March 31, 2019 |
| March 31, 2018 | |
Weighted-average volatility | 181.00% |
| 183.55% |
Expected term (in years) | 10 |
| 10 |
Risk-free interest rate | 2.74% |
| 2.02% |
Expected volatilities used for award valuation in 2019 and 2018 are based on the peer group volatility.
The risk-free interest rate for periods equal to the expected term of an award is based on a blended historical rate using Federal Reserve rates for U.S. Treasury securities.
Stock Options
A summary of option activity as of March 31, 2019 and 2018, and changes during the years then ended, is presented below:
| Options | Weighted Average Exercise Price $ | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value ($) |
Outstanding at April 1, 2017 | 6,950,000 | $0.26 | 8.05 | $627,890 |
Granted | 6,400,000 | $0.28 |
|
|
Exercised | (83,333) | $0.32 |
|
|
Forfeited | (233,333) | $0.28 |
|
|
Outstanding at March 31, 2018 | 13,033,334 | $0.28 | 8.21 | $2,646,723 |
Granted | 400,000 | $0.41 |
|
|
Exercised | - | $- |
|
|
Forfeited | (850,000) | $0.24 |
|
|
OutstandingatMarch31,2019 | 12,583,334 | $0.28 | 7.18 | $43,000 |
FullyvestedandexpectedtovestatMarch31,2019 | 10,500,006 | $0.28 |
| $43,000 |
ExercisableatMarch31,2019 | 10,500,006 | $0.28 |
| $43,000 |
|
|
|
|
|
Restricted stock awards
No restricted stock awards were granted or outstanding during the years ended March 31, 2019 and 2018.
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Note 11 – Commitments and Contingencies
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences.
The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter.
The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of March 31, 2019, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement.
From time to time, the Company may become involved in certain legal proceedings and claims which arise in the ordinary course of business. In management’s opinion, based on consultations with outside counsel, the results of any of these ordinary course matters, individually and in the aggregate, are not expected to have a material effect on our results of operations, financial condition, or cash flows. As more information becomes available, if management should determine that an unfavorable outcome is probable on such a claim and that the amount of such probable loss that it will incur on that claim is reasonably estimable, the Company would record a reserve for the claim in question. If and when the Company records such a reserve, it could be material and could adversely impact its results of operations, financial condition, and cash flows.
Note 12 – Deposits and Prepayments
Deposits and prepayments were $1.2 million and $1.5 million at March 31, 2019 and March 31, 2018, respectively. The decrease in deposits and prepayments is primarily due to a $0.3 million escrow deposit related to our Letter of Intent regarding potential acquisition of 100% interest in NevadaPURE, LLC (“NVPURE LOI”) entered into on March 22, 2018. On May 9, 2019, the NVPURE LOI was terminated and the Company received a refund of its $0.3 million deposit.
Note 13 - Related Party Transactions
During the fiscal year ended March 31, 2017, the Company entered into a consulting contract with Quantum Shop, a Company owned by a relative of one of the Company’s executives. Per the terms of the agreement, Quantum Shop is to provide GB Sciences with research, design, development, fabrication, and production services. During the years ended March 31, 2019, and March 31, 2018, the Company made payments totaling $1.1 million and $1.3 million, respectively, to Quantum Shop primarily related to the build-out of the Company’s cultivation and production facility in Baton Rouge, Louisiana.
During the year ended March 31, 2017, the Company entered into an advisory agreement with Electrum Partners, LLC, (“Electrum Partners”) a company whose President resides on GB Sciences’ Board of Directors and serves as a Chair of the Audit Committee. Per the terms of the agreement, Electrum Partners shall be compensated $5,000 monthly with the initial payment due upon the execution of the consulting agreement. Electrum Partners is also to receive an additional $10,000 each month in restricted stock. The agreement has a term of one year and is renewable for a successive one-year period. The agreement was renewed for its second one-year period in March 2018.
During the year ended March 31, 2018, the Company made payments totaling $75,562 to Electrum Partners and issued 499,102 shares of its restricted stock. During the year ended March 31, 2019, the Company made payments totaling $153,329 to Electrum Partners, LLC and issued 432,407 shares of its restricted stock at an expense of $122,363. On January 29, 2019, the Company provided Electrum Partners with notice of the agreement’s termination effective February 28, 2019.
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On November 1, 2017, the Company entered into an Edibles Production Agreement (the “EPA”) with The Happy Confections, L.L.C. (“THCLLC”) through the Company’s wholly-owned subsidiary, GB Sciences Las Vegas, LLC (“GBSLV”). Dr. Andrea Small-Howard, a member of GB Science’s Board of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC was to produce cannabis-infused baked goods and other edibles in GBSLV’s production facility upon approval of GBSLV’s Nevada Medical Marijuana Production License. The Company would receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.
Contemporaneously with the EPA, the Company entered into a Non-Revolving Credit Line Agreement and Non-Revolving Credit Line Promissory Note (together, the “THC Note” or “Note”) to advance up to $300,000 to THCLLC for the purpose of expanding THCLLC’s operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC was to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment was due within 10 days of the sale of any product.
As of March 31, 2019, the Company advanced $253,034 under the THC Note. On October 15, 2018, the Company gave notice to THC LLC that Company would not provide any additional financing beyond the $300,000 Credit Line granted under the Non-Revolving Credit Line Agreement dated November 1, 2017. In this notice, the Company requested that THC LLC seek to find additional sources of financing to be able to fund the manufacture of edibles. The Company further notified THC LLC that the Company would terminate the Edibles Production Agreement and all other related agreements with THC LLC if it was unable to acquire additional funding by October 22, 2018. On October 19, 2018, the Company received a response from THC LLC that it was unable to acquire additional funding. Accordingly, the Company has terminated all of its agreements with THC LLC effective October 19, 2018 and has taken possession of all tangible assets owned by THC LLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory that will be used in the Company’s production operations at the Teco Facility.
The Company assessed the Fair Value of the machinery and equipment received at $139,411 and has capitalized that amount in fixed assets during the year ended March 31, 2019. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility during December 2018. The Company also recorded $113,623 as other expense in its Consolidated Statement of Operations for the year ended March 31, 2019, which represents the remaining balance of the outstanding note receivable from THC LLC.
Note 14 – Concentrations
For the year ended March 31, 2019, there were two customers that accounted for 10.1% each of total revenue. Two customers accounted for 21.4% and 11.1% of total accounts receivable.
Note 15 – Subsequent Events
Capital Transactions
On June 5, 2019, the Company entered into an amendment to the December 4, 2018 Placement Agent’s Agreement. The amendment extends the offering period to July 31, 2019 and increases the maximum offering to $3.5 million from $3 million. All other terms of the December 4, 2018 Placement Agent’s Agreement remained the same. Subsequent to March 31, 2019, the Company received an additional $621,754 in proceeds from investors in the private placement, net of brokerage fees, and issued 3,668,167 shares of its common stock and 3,668,167 warrants to purchase one share of common stock at $0.30 for a period of five years.
In order to encourage the exercise of 70.5 million warrants issued to investors in private placements of convertible notes and common stock having exercise prices ranging between $0.65 and $0.30, the Company effected a temporary decrease in the exercise price of the warrants to $0.10 per share until July 11, 2019. As a result of the price reduction, the Company has received notice of the exercise of 1,957,500 warrants and received proceeds of $195,750.
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On July 12, 2019, The Company entered into an amendment to the 8% Senior Secured Convertible Promissory Note payable to CSW Ventures, L.P. The amendment increases the balance owed under the note by $141,863 to reflect an additional $100,000 loan made to the Company and $41,863 of interest accrued on the note through July 12, 2019, which was added to the principal balance of the note.
Convertible Promissory Note Payable to Iliad Research and Trading, L.P.
On April 23, 2019, the Company entered into the Note Purchase Agreement with Iliad Research and Trading, L.P. and issued an 8% Convertible Promissory Note with a face value of $2,765,000. The Note was issued with an original issue discount of $265,000 and is convertible into shares of the Company’s common stock at a price of $0.17 per share at the option of the note holder at any time until the Note is repaid. The Note matures on April 22, 2020.
Cancellation of Agreement with SylvaCap Media
On June 6, 2019, the Company entered into a Cancellation and Settlement with SylvaCap Media and terminated the December 6, 2018 agreement. In consideration for termination of the agreement, the Company will pay $135,000 as a one-time cancellation fee and will not issue the remaining 2 million shares due under the agreement.
Note 16 – Non-Controlling Interest
On February 12, 2018, the Company entered into the Operating Agreement for its wholly-owned subsidiary, GB Sciences Louisiana, LLC (“GBSLA"). Pursuant to the Operating Agreement, Wellcana Group, LLC (“Wellcana”) purchased 15% of the membership interest in GBSLA for the price of $3 million. Under the operating agreement, Wellcana has the option to make additional capital contributions for the purchase of up to an additional 35% membership interest in GBSLA, at the rate of 5% membership interest per $1 million contributed.
During the year ended March 31, 2019, Wellcana made additional cash contributions of $7.0 million and its non-controlling interest in GBSLA increased to 49.99%. The capital contributions have been used to fund the buildout of the Petroleum Drive facility and to pay for the operating costs of GBSLA.
The Company maintains a majority interest in GBSLA and continues to exercise control over the management and operations of GBSLA. Accordingly, the Company has consolidated GBSLA in its consolidated financial statements for the year ended March 31, 2019.
Note 17 – Formation of GBS Global Biopharma, Inc.
On September 21, 2018, the Company formed a wholly-owned subsidiary, GBS Global Biopharma, Inc., in the province of Ontario, Canada with plans to license and/or transfer some of Growblox Life Sciences LLC’s intellectual property to the newly formed entity. On March 15, 2019, the Company entered into the Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby all of the assets and certain liabilities held by Growblox Life Sciences, LLC, a wholly-owned subsidiary of GB Sciences, Inc., were transferred to GBS Global Biopharma, Inc. in exchange for a promissory note in the amount of $1,435,700. It is anticipated that GBS Global Biopharma Inc. will pursue clinical development of the intellectual property, including clinical trials.
The assets transferred include all intellectual property and intangible assets owned by the Company, consisting primarily of patents in process and research contracts with universities and researchers. GBS Global Biopharma, Inc. also assumed $475,586 of liabilities associated with the development of the transferred intellectual property. With the assistance of a third-party valuation specialist, The Company valued the assets transferred, net of liabilities assumed, at $1,435,700.
Because the transaction consisted of an intercompany transfer of assets between wholly owned subsidiaries of GB Sciences, Inc., the promissory note and any gain or loss resulting from the Asset Purchase Agreement have been eliminated from the Company’s Consolidated Financial Statements for the year ended March 31, 2019.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On June 21, 2017, the Company retained Soles, Heyn & Company, LLP, as its principal independent registered public accounting firm. This changed engagement was necessary due to the recent merger of our former registered public accounting firm, Patrick D. Heyn, CPA, P.A. with Soles, Heyn & Company, LLP. During the Company’s two most recent fiscal years and to the date of this report, the Company has not consulted with Soles, Heyn & Company, LLP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements and either a written report was provided to the Company or oral advice was provided to the Company that Soles, Heyn & Company, LLP, concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement and required to be reported under Item 304(a)(1)(iv) of Regulation S-K and the related instructions thereto. Item 401(a) is not applicable since there was no resignation or dismissal of the registrant’s certifying accountant involved in this merger of accounting firms.
There were no other changes in or disagreements with and no other changes in the accountants on accounting and financial disclosure during the last two fiscal years.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded as of March 31, 2019 that disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in internal controls over financial reporting discussed below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as define in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of the control environment. The internal controls for the Company are provided by executive management’s review and approval of all transactions. Internal control over financial reporting also includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;
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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with the authorization of management; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting as of March 31, 2019. This annual report does not include an attestation report of registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.
Identified Material Weaknesses
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. The matters involving internal controls over financial reporting that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were ineffective controls over period end financial disclosure and reporting processes as no member of our board of directors qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
Management’s Remediation Initiatives
As a result of findings, we have begun to remediate the deficiencies. In an effort to remediate the identified material weaknesses and enhance internal controls, we have been evaluating possible candidates meeting definition of an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act. We anticipate our initiative will be at least partially implemented by March 31, 2020. Additionally, we plan to test the updated controls in order to remediate the deficiencies by March 31, 2020.
Conclusion
As a result of management's assessment of the effectiveness of internal control over financial reporting as of March 31, 2019, and the identification of the material weakness set forth above, management has concluded that the internal control over financial reporting is not effective. It is reasonably possible that, if not remediated, the material weaknesses noted above, could result in a material misstatement in the reported financial statements that might result in a material misstatement in a future annual or interim period. In light of the identified material weakness and the conclusion that the internal controls over financial reporting are not effective, management will take the remediation initiatives set forth above. In addition, management performed (1) additional review of the area described above, and (2) performed additional analyses, including but not limited to a detailed balance sheet and statement of operations analytical review. These procedures were completed so management could gain assurance that the financial statements and schedules included in this Form 10-K fairly present, in all material respects, the financial position, results of operations and cash flows for the periods presented.
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Changes in Internal Control over Financial Reporting
There were no changes made during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, internal control over financial reporting, as required by Rules 13a-15(d) and 15d-15(d) under the exchange Act.
None.
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The names of the executive officers and directors of GB Sciences, their ages as of July 15, 2019, and the positions currently held by each are as follows:
Name |
| Age |
| Position |
John Poss |
| 71 |
| Chief Executive Officer and Chairman of the Board of Directors |
Dr. Andrea Small-Howard |
| 50 |
| Chief Science Officer and Director |
Ksenia Griswold |
| 36 |
| Chief Financial Officer and Chief Operations Officer |
Leslie Bocskor |
| 54 |
| Chairman of the Audit and Compensation Committees and Vice Chairman of the Board of Directors |
Shane Terry |
| 40 |
| Member of the Audit and Compensation Committees and Director |
Biographies
Set forth below are brief accounts of the business experience of each director an executive officer of the Company.
John Poss, Chief Executive Officer and Chairman of the Board
Effective April 29, 2016, The Board of Directors elected John Poss to serve as Chief Executive Officer. Mr. Poss served as the CFO of the Company beginning in August 2015, and its COO since December 31, 2015. He resigned his position as CFO on August 4, 2016 and his position as COO on November 10, 2017.
Effective May 8, 2017, following the retirement of Craig Ellins, our Chief Innovation Officer and Chairman of the Board, Mr. Poss, replaced Mr. Ellins as Chairman of the Board.
Mr. Poss has over 30 years of experience working as a consultant to companies facing major transitions and transformations. Mr. Poss began his career in the Washington, D.C. office of Arthur Andersen & Co. and has served as Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Technology Officer of both public and private companies in such diverse industries as homebuilding, mining, telecommunications, manufacturing, logistics, construction lending and mortgage banking. For the past twenty months prior to joining Growblox, Mr. Poss served as Chief Executive Officer of Experiential Teaching Online Corp., an educational content developer and for four years prior thereto owned and operated his own consulting firm. Mr. Poss has also worked extensively internationally, successfully negotiating agreements in countries throughout Asia, Europe and the Americas. Mr. Poss graduated from the University of Texas in 1974 with a degree in accounting.
Dr. Andrea Small-Howard, PhD, MBA, Chief Science Officer and Director
Dr. Small-Howard was appointed as our Chief Science Officer and as a member of our board of directors on June 10, 2014 and has served continuously in both positions since that time. As the Chief Science Officer, her goal is to create and maintain a novel cannabinoid therapy pipeline based on the Company's proprietary technology suite, direct research & development efforts, facilitate clinical research partnerships, guide product commercialization
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strategies, develop corporate cannabis education programming, and create corporate messaging around our novel drug discovery process.
From January, 2012 to present, she has served as a Director on the Board of Directors at The Center for Healthcare Innovation, "CHI". CHI is a non-profit, non-partisan, and independent organization committed to serving as a catalyst for stimulating ideas, people, companies, and institutions to collaborate and achieve excellence in healthcare innovation, particularly in the biotechnology, medical device, nanotechnology, and pharmaceutical sectors. Her board level responsibilities at CHI have included shaping and supporting the evolving mission of this dynamic group. She has also been on the planning committee for their annual "Emerging Markets in the Life Sciences" seminar series, which is now in its 5th consecutive year.
From July 2011 to June 2014, Dr. Small-Howard was the Founder and President of International Biotechnology Solutions, a management consulting firm that created customized, cost-effective commercialization solutions for viable yet abandoned biopharmaceutical products. International Biotechnology Solutions provided management consulting with a focus on assisting US biotech companies with products that could be commercialized within the Asia-Pacific region. Dr. Small-Howard she successfully completed projects within the areas of business development, corporate alliance building, product commercialization, due diligence reporting on medical marijuana companies, corporate restructuring, and management of successful fund-raising campaigns.
From June 2011 to March 2013, she served as a Director on the Board of Directors (President for part of that time), for the Ceremax Investment Corporation. The Ceremax Investment Group was established by members of the USC EMBA Class XXV to pool its financial and intellectual resources to identify investment opportunities. During her tenure at Ceremax, Dr. Small Howard reviewed and approved capital and resource investments in promising start-up or scale-up phase private companies.
From November, 2008 to July, 2011, she served as the Vice President of Scientific Oversight for the Radient Pharmaceutical Corporation, a vertically-integrated biopharmaceutical research, development and manufacturing corporation with operations in both the US and China. Dr. Small-Howard provided oversight for global product development in multiple international business divisions. She authored and/or attained 12 patents & 3 trademarks on proprietary cancer tests, cancer (gene) therapies, cosmeceuticals, and animal models. She achieved numerous regulatory approvals for cancer tests, cancer therapies, pharmaceuticals, and cosmeceutical products with the United States FDA, Health Canada and other foreign ministries of health. She initiated and/or nurtured five international, collaborative, cancer research trial programs with universities and that yielded 7 publications supporting cancer products and supervised the Quality Management Systems for an ISO 13485/cGMP compliant medical device manufacturing facility in the US; as well as the regulated manufacturing facilities in China. She also led and participated in internal and US FDA, CDPH, CE Mark/ISO 13485, and CMDR audits of Radient’s Quality Management System.
Ksenia Griswold, Vice President, Chief Financial Officer and Chief Operations Officer
Ms. Griswold has been serving as the controller of the Company since November 2015 and was appointed Chief Financial Officer on August 4, 2016. For the five years prior to November 2015, beginning in October 2010, she worked in the Las Vegas, Nevada office of Ernst & Young, LLP. At the time of her departure from Ernst & Young, she was audit manager.
Leslie Bocskor, Vice Chairman of the Board and Chairman of the Audit and Compensation Committees
Effective May 8, 2017, Mr. Bocskor was appointed as Vice Chairman of the Board.
In the burgeoning cannabis economy, Leslie Bocskor has emerged as one of the most influential and respected global advisors for business, policy and social reform, using his unique lens and understanding of what is, what will be, and what is needed -- based on decades of success in the trenches of investment banking and entrepreneurship in disruptive industries. With his rare combination of financial market experience and business sensibilities, he is
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beloved by policy makers and growers, technologists and scientists, doctors and patients alike, curating the unrivaled network necessary to shepherd them all into achieving goals and prosperity.
The advisory firm he founded, Electrum Partners, works with leading companies around the globe in the hemp, legal medical cannabis, recreational cannabis, cannabis-based pharmaceuticals, cannabis-based nutraceuticals and supplements, technology, retails sales, processing, cultivation, ecommerce, unique brands, edibles manufacturing, intellectual property, finance and banking. The firm is sought after to deliver high-level strategies for profitability and shareholder value, and to bring together critical partnerships and solutions that contribute positively to further develop the cannabis business ecosystem. The company maintains relationships with key industry groups including MPP, DPA, NCIA, The ArcView Group, Red Estatal de Mujeres Antiprohibicionistas and Women Grow.
In position to provide perspective and guidance as to how the dots will be connected as the industry takes shape, Mr. Bocskor's contributions have already had substantial impact. He was bestowed with the 2015 ArcView Group Outstanding Member Award and was named 2015 CEO of the Year by The Weed Blog, one of the industry's most-trafficked media sites. Bocskor is the founding chairman of the Nevada Cannabis Industry Association and in November 2014, Mr. Bocskor was ranked 58th of 100 Most Influential People in the Cannabis industry by Cannabis Business Executive Magazine and was soon after the subject of a Newsweek's Special Edition Weed 2.0. Magazine feature article, "A Future Gold Mine," and featured on CNBC's special coverage of the Marijuana business economy among hundreds of news features and commentaries.
Share Terry, Director and Member of Audit and Compensation Committees
Mr. Terry is an independent consultant providing advisory services to Medical Marijuana Establishments (MME's) in Nevada and other states. He served as a CEO of NuVeda NMS, LLC, a company that operates marijuana dispensaries in Nevada, from 2013 until 2016. He is also a former President of the Nevada Dispensary Association Mr. Terry is a decorated veteran of the United States Air Force, whose 15-year career as an Officer and F-16 fighter pilot included earning two Air Medals for combat action over Iraq and Afghanistan while leading his team to three Air Force Outstanding Unit awards from 2006-2009.
During the past five years none of our directors, executive officers, promoters or control persons was:
| 1) | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
2) | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
3) | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
4) | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
Family Relationships
None.
Audit Committee
On July 6, 2016, the Board established the Audit Committee and approved and adopted a charter (the "Audit Committee Charter") to govern the Audit Committee. The audit committee is comprised of Leslie Bocskor and Shane Terry, each of whom is independent under the rules governing OTC Market. Leslie Bocskor is designated the chairperson of the committee. In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee Charter, the primary function of the Audit Committee is to assist the Board in its general oversight of our accounting and financial reporting processes, audits of our financial statements, and internal control and audit functions. The Audit Committee Charter is filed herewith as Exhibit 10.25.
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Audit Committee Financial Expert
As of the date of filling of this Form 10-K, 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.
Compensation Committee
On July 6, 2016, the Board established the Compensation Committee and approved and adopted a charter (the "Compensation Committee Charter"). The compensation committee is comprised of Leslie Bocskor and Shane Terry, each of whom is independent under the rules of the Securities and Exchange Commission standards. Leslie Bocskor is designated the chairperson of the committee. In addition to the enumerated responsibilities of the Compensation Committee in the Compensation Committee Charter, the primary function of the Compensation Committee is to oversee the compensation of our executives, produce an annual report on executive compensation for inclusion in our proxy statement, if and when required by applicable laws or regulations, and advise the Board on the adoption of policies that govern our compensation programs. The Compensation Committee Charter is filed herewith as Exhibit 10.26.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who directly or indirectly beneficially own more than 10% of our equity securities to file reports of ownerships on Forms 3, 4 and 5 with the SEC. Executive officers, directors and 10% stockholders are required by the SEC to furnish us with copies of all Forms 3, 4 and 5 they file. Based solely on our review of the copies of such forms we have received, we believe that each of our officers and directors is under a current obligation to file a Form 3.
Code of Ethics
We adopted the GB Sciences, Inc. Code of Ethics for the CEO and Senior Financial Officers (the “finance code of ethics”), a code of ethics that applies to Chief Executive Officer, Chief Financial Officer, Chief Science Officer and other finance organization employees. A copy of the finance code of ethics may be obtained from the Company, free of charge, upon written request delivered to GB Sciences, Inc. 3550 W. Teco Avenue, Las Vegas, NV 89118. If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to the Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment or waiver in a report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table reflects all compensation awarded to, earned by, or paid to the Chief Executive Officer, Chief Science Officer, Chief Financial Officer, and Chief Operating Officer for all services rendered to us in all capacities during each of the years ended March 31, 2019 and 2018.
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Summary Compensation Table
Name and Position |
| Year |
| Salary |
| Bonus |
| Stock Awards (1) |
| Option Awards (2) |
| Total |
John Poss, CEO and Chairman of the Board |
| 2019 |
| $120,000 |
| $137,375 |
| $- |
| $- |
| $257,375 |
|
| 2018 |
| 120,000 |
| 221,028 |
| - |
| 351,217 |
| 692,245 |
Dr. Andrea Small-Howard, CSO and Director |
| 2019 |
| 160,000 |
| - |
| - |
| - |
| 160,000 |
|
| 2018 |
| 125,385 |
| 10,000 |
| - |
| 117,072 |
| 252,457 |
Ksenia Griswold, CFO and COO |
| 2019 |
| 206,154 |
| 30,000 |
| - |
| - |
| 236,154 |
|
| 2018 |
| 156,154 |
| 70,000 |
| - |
| 105,365 |
| 331,519 |
(1) Represents the grant date fair value of restricted stock awards granted, as calculated in accordance with stock-based compensation accounting standards. The fair value of each of these awards is based on the closing share price of our stock on the grant date. Although the table above indicates the full grant date value of the awards in the year which the compensation is considered, the restricted stock granted vests over a three-year period.
(2) Represents the grant date fair value of option awards granted, as calculated in accordance with stock-based compensation accounting standards. The fair value of these awards is determined under the Black-Scholes option pricing model. For the assumptions used for purposes of determining the value of the awards included in each year's compensation, please refer to Note 10. Although the table above indicates the full grant date value of the awards in the year which the compensation is considered, the options granted vest over a three-year period.
Employment Agreements
John Poss, Chief Executive Officer and Chairman of the Board of Directors
On August 10, 2015, Mr. Poss, entered into an employment agreement with the Company. The term of employment is one-year subject to automatic extensions for additional one-year periods unless either party chooses to terminate such employment. The Company may terminate the Employment Agreement at any time with or without cause. If the Company terminates the Employment Agreement without cause, Mr. Poss is entitled to three months' severance if the termination takes place during the first year of employment, four months' severance if the termination takes place during the second year of employment and six months' severance if the termination takes place during the third year or a subsequent year of employment. No severance payments are due in the case of a termination for cause. Similar severance provisions apply to a termination by Mr. Poss for good reason but not to a termination by Mr. Poss without good reason. Mr. Poss receives a monthly salary of $10,000 per month. In addition, in August 2015, the Company issued 600,000 options to Mr. Poss under our 2014 Equity Incentive Plan. The options are exercisable upon vesting for a period of 10 years from issuance for the purchase of shares of our common stock at a price of $0.30 per share. The options vest ratably on a monthly basis in equal installments over the course of 30 months commencing on the seventh month of the employment period. In the event that Mr. Poss' employment is terminated for cause or by Mr. Poss without good reason, all unvested options at the time of termination will be cancelled. In the event of a Change of Control, as such term is defined in the 2014 Equity Incentive Plan, all of the options issued to Mr. Poss shall vest immediately. The number of options issuable to Mr. Poss is subject to increase within 6 months of the commencement of Mr. Poss' employment at the discretion of our Board of Directors. At the end of the third year of employment, the compensation payable to Mr. Poss shall be renegotiated in good faith by the parties.
Pursuant to the appointment of Mr. Poss as the Company's President, Chief Executive Officer and Board Member, the Company entered into an Amended and Restated Employment Agreement, effective June 1, 2016. The agreement will end on May 1, 2017, which end date can be extended upon the mutual agreement of the
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parties. Under the agreement Mr. Poss will receive an annual salary of not less than $120,000 and quarterly bonuses equal to the value of 125,000 shares of the Company’s common stock. Bonuses are payable in S-8 stock or cash in the discretion of the Company. Under the agreement, Mr. Poss will also receive options to acquire 1.4 million shares of the Company's common stock subject to certain vesting requirements. The option strike price is the market value of the stock on the date the options were granted.
Effective May 8, 2017, following the retirement of Craig Ellins, our Chief Innovation Officer and Chairman of the Board, Mr. Poss, replaced Mr. Ellins as Chairman of the Board.
Dr. Andrea Small-Howard, PhD, MBA, Chief Science Officer and Director
On June 19, 2014, Dr. Andrea Small-Howard, Chief Science Officer, entered into a three-year employment agreement with the Company. Dr. Small-Howard received a salary at the annual rate of $78,000 and 450,000 shares of restricted common stock that vests over the three-year term of employment. The stock is restricted as defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended. The Company may terminate the Employment Agreement at any time with or without cause. If the Company terminates the Employment Agreement without cause, Dr. Small-Howard is entitled any unpaid base salary accrued through the effective date of termination notice and pay in a lump sum of an amount equal to the product of the sum of the executive’s-based salary plus the amount of the highest annual bonus or other incentive compensation payment therefore made by the Company to the executive, multiplied by one. In the event of a Change of Control, as such term is defined in the 2014 Equity Incentive Plan, all of the restricted stock granted to Dr. Small-Howard shall vest immediately. Dr. Small-Howard also received 500,000 of stock options not in connection with her employment agreement, of which 100,000 vested immediately and the remainder vest over three years.
Effective on June 1, 2016, the Company amended its employment agreement with Dr. Small-Howard. Pursuant to the amendment, Ms. Small-Howard surrendered a stock award for 450,000 shares of common stock in exchange for warrants to purchase 1.2 million common shares at the strike price of $0.30 per share.
Ksenia Griswold, Chief Financial Officer
On August 5, 2016, the Company's Board of Directors accepted the resignation of John Poss as Chief Financial Officer of the Company and appointed Ksenia Griswold as the Company's Vice President and Chief Financial Officer. Pursuant to the appointment of Ms. Griswold as the Company's Vice President and Chief Financial Officer, the Company entered into an Amended and Restated Employment Agreement, effective October 7, 2016. The agreement will end on November 1, 2017, which end date can be extended upon the mutual agreement of the parties. Under the agreement Ms. Griswold will receive an annual salary of not less than $110,000 and options to acquire 350,000 shares of the Company's common stock subject to certain vesting requirements. The option strike price is the market value of the stock on the date the options were granted.
Effective April 24, 2017, the Company amended its employment agreement with Ms. Griswold. Pursuant to the amendment, Ms. Griswold will receive a base salary at the annual rate no less than $160,000 and a quarterly bonus equivalent to $15,000.
Leslie Bocskor, Director
Effective June 1, 2016, the Board of Directors established compensation for Mr. Bocskor to be $25,000 annually with an additional $1,000 for each meeting attended. The compensation is payable in cash or stock at the election of the Company. Mr. Bocskor also received options to purchase 450,000 shares of stock which vest over 24 months. The strike price of the options is $0.16 per share, the market value of the Company's common stock on the date the Mr. Bocskor was elected to the Board.
Effective May 8, 2017, Mr. Bocskor was appointed as Vice Chairman of the Board.
Effective on December 1, 2017, the Company amended Mr. Bocskor’s compensation. Pursuant to the amendment, Ms. Bocskor will receive $75,000 annually with an additional $1,000 for each meeting attended. Mr. Bocskor also
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received additional options to purchase 450,000 shares of stock which vest over 24 months. The strike price of the options is $0.24 per share, the market value of the Company's common stock on the date the Mr. Bocskor was elected to the Board.
Share Terry, Director
Effective June 1, 2016, the Board of Directors established compensation for Mr. Terry to be $25,000 annually with an additional $1,000 for each meeting attended. The compensation is payable in cash or stock at the election of the Company. Mr. Terry also received options to purchase 450,000 shares of stock which vest over 24 months. The strike price of the options is $0.16 per share, the market value of the Company's common stock on the date the Mr. Terry was elected to the Board.
Outstanding Equity Awards
The following table summarizes the number of shares underlying outstanding equity incentive plan awards for each named executive officer as of March 31, 2019:
Name |
| Number of shares underlying exercisable options/warrants (2) |
| Number of shares underlying unexercisable options/warrants |
| Option exercise price ($) |
| Option expiration date |
| Market value of shares not vested ($) (1) |
Andrea Small-Howard |
| 500,000 |
| - |
| $0.17 |
| 3/27/2025 |
| $- |
|
| 1,200,000 | (3) | - |
| 0.30 |
| 6/1/2026 |
| - |
|
| 333,334 |
| 166,666 |
| 0.24 |
| 11/26/2027 |
| 31,667 |
John Poss |
| 600,000 |
| - |
| 0.30 |
| 8/10/2025 |
| - |
|
| 1,400,000 |
| - |
| 0.30 |
| 6/1/2023 |
| - |
|
| 1,000,000 |
| 500,000 |
| 0.24 |
| 11/26/2027 |
| 95,000 |
Ksenia Griswold |
| 100,000 |
| - |
| 0.29 |
| 11/4/2025 |
| - |
|
| - |
| 100,000 |
| 0.30 |
| 6/1/2023 |
| 19,000 |
|
| 350,000 |
| - |
| 0.32 |
| 10/7/2026 |
| - |
|
| 300,000 |
| 150,000 |
| 0.24 |
| 11/26/2027 |
| 28,500 |
Leslie Bocskor |
| 450,000 |
| - |
| 0.16 |
| 6/1/2023 |
| - |
|
| 300,000 |
| 150,000 |
| 0.24 |
| 11/26/2027 |
| 28,500 |
Shane Terry |
| 450,000 |
| - |
| 0.16 |
| 6/1/2023 |
| - |
(1) Based on our closing stock price of $0.19 on March 31, 2019.
(2) These options were vested at March 31, 2019.
(3) Represents a warrant to purchase 1,200,000 shares of common stock at an exercise price of $0.30 per share.
Directors’ Compensation
All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. Officers are appointed annually by the Board of Directors and each executive officer serves at the discretion of the Board of Directors. Directors are entitled to be reimbursed for reasonable and necessary expenses incurred on behalf of the Company. Outside directors are paid compensation fee annually with an additional $1,000 for each meeting attended. The compensation is payable in cash or stock at the election of the Company.
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ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table presents information known to us, as of June 19, 2019, relating to the beneficial ownership of common stock by:
·each person who is known by us to be the beneficial holder of more than 5% of outstanding common stock;
·each of named executive officers and directors; and
·directors and executive officers as a group.
We believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, except as noted.
Percentage ownership in the following table is based on 246,252,769 shares of common stock outstanding as of July 15, 2019. A person is deemed to be the beneficial owner of securities that can be acquired by that person within 60 days from the date of this Annual Report upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by dividing the number of shares beneficially owned by that person by the base number of outstanding shares, increased to reflect the shares underlying options, warrants or other convertible securities included in that person’s holdings, but not those underlying shares held by any other person.
Name of Beneficial Owner (1) |
| No. of Shares Owned |
| Percentage of Total Shares Owned |
Officers and Directors |
|
|
|
|
John Poss |
| 3,022,500 | (2) | 1.23% |
Dr. Andrea Small-Howard |
| 2,109,750 | (3) | *(11) |
Ksenia Griswold |
| 767,361 | (4) | *(11) |
Leslie Bocskor |
| 731,250 | (5) | *(11) |
Shane Terry |
| 450,000 | (6) | *(11) |
Directors and officers as a group (five) persons |
| 7,080,861 |
| 2.88% |
5% Holders: |
|
|
|
|
Lawrence D. Ordower |
| 20,501,560 | (7) | 8.33% |
Dave Ruggieri |
| 16,001,500 | (8) | 6.50% |
Robert Moody, Jr. |
| 20,005,000 | (9) | 8.12% |
Edward Pershing |
| 13,010,961 | (10) | 5.28% |
(1) Unless otherwise noted, the address of each person listed is GB Sciences, Inc. 3550 W. Teco Avenue, Las Vegas, NV 89118.
(2) Includes (a) 125,000 shares of common stock currently owned of record by Mr. Poss, (b) options to purchase 1,960,000 shares of common stock at $0.30 per share exercisable as of the Record Date or within 60 days thereafter, and (c) options to purchase 937,500 shares of common stock at $0.24 per share exercisable as of the Record Date or within 60 days thereafter.
(3) Includes (a) 116,000 shares of common stock currently owned of record by Dr. Small-Howard, (b) options to purchase 481,250 shares of common stock at $0.17 per share exercisable as of the Record Date or within 60 days thereafter, (c) 1,200,000 additional shares of common stock issuable upon exercise of stock warrant at an exercise price of $0.30 per share, and (d) 312,500 shares of common stock issuable upon exercise of stock options at an exercise price of $0.24 per share exercisable as of the Record Date or within 60 days thereafter.
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(4) Includes (a) 25,000 shares of common stock currently owned of record by Ms. Griswold, (b) options to purchase 83,333 shares of common stock at $0.29 per share exercisable as of the Record Date or within 60 days thereafter, (c) options to purchase 66,667 shares of common stock at $0.30 per share exercisable as of the Record Date or within 60 days thereafter, (d) options to purchase 311,111 shares of common stock at $0.32 per share exercisable as of the Record Date or within 60 days thereafter, and (e) options to purchase 281,250 shares of common stock at $0.24 per share exercisable as of the Record Date or within 60 days thereafter.
(5) Includes 450,000 options to purchase shares of common stock at $0.16 per share exercisable as of the Record Date or within 60 days thereafter and options to purchase 281,250 shares of common at $0.24 per share exercisable as of the Record Date or within 60 days thereafter.
(6) Includes 450,000 options to purchase shares of common stock at $0.16 per share exercisable as of the Record Date or within 60 days thereafter.
(7) Address is Lawrence B. Ordower, 25 East Washington Street, Suite 1400, Chicago, IL 60602. Of the total amount of 20,501,560, 6,858,000 of the shares may be acquired by Mr. Ordower upon the exercise of warrants, 3,570,000 are common shares held by Mr. Ordower, 2,375,560 are common shares held by ELGJO LLC, a limited liability company controlled by Mr. Ordower, 1,662,000 of the shares may be acquired by ELGJO LLC upon the exercise of warrants, 1,818,000 are common shares held by a trust over which Mr. Ordower has depository control, and 4,218,000 are common shares that may be acquired by a trust over which Mr. Ordower has depository control upon the exercise of warrants.
(8) Address is David Ruggieri 1107 West Marion Ave, Unit 116, Punta Gorda, FL 33950. The total consists of 5,576,000 common shares held by Mr. Ruggieri and 5,847,500 shares of common stock issuable upon exercise of warrants and conversion of Notes, and 10,425,500 that may be acquired by Mr. Ruggieri upon the conversion of notes.
(9) Address is Robert Moody Jr, 2302 Post Office Street, Suite 601, Galveston, TX 77550. The total consists of 7,762,500 common shares held by Mr. Moody, 8,002,500 shares that may be acquired upon the exercise of warrants, and 4,240,000 may be acquired upon the conversion of notes.
(10) Address is Edward Pershing, 2220 Southerland Ave, Knoxville, TN 37919. The total consists of 5,250,661 common shares held by Mr. Pershing and 7,760,300 shares that may be acquired upon the exercise of warrants.
(11) Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
At March 31, 2019, the Company had two independent directors serving on the Board of Directors. The definition the Company uses to determine whether a director is independent are the rules governing OTC market.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
| Fiscal 2019 |
| Fiscal 2018 |
Audit Fees(1) |
| $70,617 |
| $42,483 |
Audit-Related Fees(2) |
| - |
| - |
Tax Fees(3) |
| 46,710 |
| 10,350 |
Subtotal |
| $117,327 |
| $52,833 |
All other Fees(4) |
| - |
| - |
Total |
| $117,327 |
| $52,833 |
(1) Audit Fees – Audit fees billed to the Company in FY 2019 and 2018 include fees billed by Soles, Heyn & Company, LLP for auditing the Company's annual financial statements and reviewing the financial statements included in the Company's Quarterly Reports on Form 10-Q.
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(2) Audit-Related Fees – There were no other fees billed by Soles, Heyn & Company, LLP for the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company's financial statements and not reported under "Audit Fees" above.
(3) Tax Fees –Tax fees billed by Lavelle & Associates, CPAs and Milleret & Biordi, CPAs PLLC during the past fiscal year for professional services.
(4) All Other Fees – There were no other fees billed in FY 2019 and 2018 for products and services provided.
Pre-approval of Audit and Non-Audit Services
The Board of Director’s policy is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to 12 months from the date of pre-approval and any pre-approval is detailed as to the particular service or category of services. The Board of Directors may delegate pre-approval authority to one or more of its members when expedition of services is necessary.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1.GB Sciences, Inc. Consolidated Financial Statements (including related notes to Consolidated Financial Statements) filed in Part II of this report are listed below:
Report of Independent Registered Public Accounting Firm – Soles, Heyn & Company
Financial Statements:
Consolidated Balances Sheets as of March 31, 2019 and 2018
Consolidated Statements of Operations – Years ended March 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity (Deficit) – Years ended March 31, 2019 and 2018
Consolidated Statements of Cash Flows – Years ended March 31, 2019 and 2018
Notes to the Consolidated Financial Statements
2.All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions or are inapplicable and therefore have been omitted.
3.Exhibits
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No. |
| Description |
3.1 |
| |
3.2 |
| |
3.3 |
| |
10.1 |
| |
10.2 |
| |
10.3 |
| |
10.4 |
| |
10.5 |
| |
10.6 |
| |
10.7 |
| |
10.8 |
| |
10.9 |
| |
10.10 |
| |
10.11 |
| |
10.12 |
| |
10.13 |
| |
10.14 |
| |
10.15 |
| |
10.16 |
| |
10.17 |
| |
10.18 |
|
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10.19 |
| |
10.20 |
| |
10.21 |
| |
10.22 |
| |
10.23 |
| |
10.24 |
| |
10.25 |
| |
10.26 |
| |
10.27 |
| |
10.28 |
| |
10.29 |
| Agreement between Registrant and Pacific Leaf Ventures, LP dated February 28, 2018 |
10.30 |
| |
10.31 |
| Note Purchase Agreement between Registrant and CSW Ventures, LP dated February 28, 2019 |
10.32 |
| 8% Convertible Promissory Note between Registrant and CSW Ventures, LP dated February 28, 2019 |
10.33 |
| Security Agreement between Registrant and CSW Ventures, LP dated February 28, 2019 |
10.34 |
| Asset Purchase Agreement between Registrant and GBS Global Biopharma, Inc. dated March 15, 2019 |
10.35 |
| Note Purchase Agreement between Registrant and Iliad Research and Trading, LP dated April 23, 2019 |
10.36 |
| |
14.1 |
| |
21.1 |
| |
31.1 |
| |
31.2 |
| |
32.1 |
| 18 U.S.C. Section 1350 Certification of Chief Executive Officer |
32.2 |
| 18 U.S.C. Section 1350 Certification of Chief Financial Officer |
101 |
| XBRL Instant Documents |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Las Vegas, NV on July 15, 2019.
| GB Sciences, Inc. | |
|
|
|
| By: | /S/ John Poss |
| Name: | John Poss |
| Title: | Chief Executive Officer and President |
|
|
|
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WHEREAS, this Agreement (the “Agreement”) is made and entered into effective as of February 22, 2018, by and between GB SCIENCES, INC. (“GBS”), and any and all of its subsidiaries including, but not limited to, GB SCIENCES NEVADA, LLC, and GROWBLOX SCIENCES, INC., and PACIFIC LEAF VENTURES, LP (“Pacific Leaf”), and any and all of its subsidiaries.
WHEREAS, this Agreement along with any and all duly-authorized exhibits, appendices, addenda, schedules, and amendments hereto, encompasses the entire agreement of the parties and any and all of their subsidiaries, and supersedes and replaces any and all previous understandings and agreements between the parties and any and all of their subsidiaries, whether oral or written, including, but not limited to, superseding and replacing the following understandings and agreements:
A.“6% Senior Secured Convertible Promissory Note” dated June 8, 2015, by and between GrowBlox Sciences, Inc., and Pacific Leaf Ventures, LP;
B.“Amended and Restated 6% Senior Secured Convertible Promissory Note” dated February 8, 2016, by and between GrowBlox Sciences, Inc., and Pacific Leaf Ventures, LP;
C.“Note Purchase Agreement” dated May 12, 2015, by and between GrowBlox Sciences, Inc., and Pacific Leaf Ventures, LP;
D.“Royalty Agreement” dated June 8, 2015, by and between GrowBlox Sciences, Inc., and Pacific Leaf Ventures, LP (as amended to date, the “Royalty Agreement”);
E.“Security Agreement” dated June 8, 2015, by and between GrowBlox Sciences, Inc., GB Sciences Nevada, LLC, and Pacific Leaf Ventures, LP; and
F.“Second Omnibus Amendment” dated August 4, 2016, by and between GrowBlox Sciences, Inc., GB Sciences Nevada, LLC, and Pacific Leaf Ventures, LP.
WHEREAS, any and all other understandings and agreements between the parties and any and all of their subsidiaries, whether oral or written, are fully and completely terminated and rendered null and void, subject to the terms and conditions in this Agreement.
NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the parties and any and all of their subsidiaries hereto covenant and agree as follows:
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1.In consideration for the full and complete termination of any and all other understandings and agreements between the parties and any and all of their subsidiaries, whether oral or written, GBS agrees to pay and Pacific Leaf agrees to accept (A) the sum of $2,500,000.00 cash in installments by wire transfer to the account designated by Pacific Leaf as follows: (1) $1,000,000.00 cash payable upon complete execution of this Agreement; and (2) $1,500,000.00 cash payable on or before July 31, 2018; (B) $269,818.05 cash by wire transfer to the account designated by Pacific Leaf upon complete execution of this Agreement for royalties due to Pacific Leaf through December 31, 2017; and (C) the shares of Common Stock to be issued pursuant to Section 2 below.
2.Further, in consideration for the full and complete termination of any and all other understandings and agreements between the parties and any and all of their subsidiaries, whether oral or written, GBS agrees to pay and Pacific Leaf agrees to accept a payment of 1,600,000 shares (the “Shares”) of GBS’s Common Stock (“Common Stock”) issued on or before July 31, 2018, which shall be restricted under Rule 144 under the Securities Act of 1933, as amended (the “Act”). The number of Shares shall be equitably adjusted in the event GBS effects a stock split or stock dividend after the date hereof and prior to issuance of the Shares. In addition, GBS shall in no event issue the Shares later than immediately prior to (i) any reclassification or capital reorganization, including any consolidation or merger of GBS with or into another corporation, or (ii) any sale, lease or conveyance to another corporation of all or substantially all of the assets of GBS. For the purpose of clarity, the parties acknowledge and agree that an increase in the number of shares of Common Stock that GBS is authorized to issue, the potential issuance of said shares, or the use of said shares by GBS in the acquisition of other assets or companies shall not result in any change in the number of Shares issuable hereunder or accelerate the timing for the issuance of such Shares. The Shares, when issued and delivered to Pacific Leaf, shall be fully paid and non-assessable. The Shares, together with the payments under Section 1 above, constitute payment for Pacific Leaf’s agreement to fully and completely terminate any and all other understandings and agreements between the parties and any and all of their subsidiaries, whether oral or written, and are nonrefundable, non-apportionable, and non-ratable. Such Shares are not a prepayment for future services.
a.The Shares issued pursuant to this Agreement shall be issued in the name of Pacific Leaf Ventures, LP, Tax ID No. 47-3988708.
b.With the transfer of Shares, if required by applicable law or reasonably requested by Pacific Leaf, GBS shall cause to be issued a certificate representing the Shares and a written opinion of counsel for GBS stating that said shares are validly issued, fully paid and non-assessable and that the issuance and eventual transfer of them to Pacific Leaf has been duly authorized by GBS.
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c.Pacific Leaf acknowledges that the Shares to be issued pursuant to this Agreement have not been registered under the Act, and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless GBS has received an opinion of counsel reasonably satisfactory to GBS that such resale or transfer is exempt from the registration requirements of that Act. GBS agrees to take any and all action(s) necessary to clear the subject securities of restriction upon presentation of any Rule 144(d) application by Pacific Leaf or its broker, including, but not limited to: (1) Authorizing GBS’s transfer agent to remove the restrictive legend on the subject securities; (2) Expediting either the acquisition of a legal opinion from GBS’s counsel authorizing the removal of the restrictive legend, or accepting a third party legal opinion acknowledging same; and (3) Cooperating and communicating with Pacific Leaf and its broker in order to use GBS’s best efforts to clear the subject securities of restriction as soon as possible after presentation of a Rule 144(d) application by Pacific Leaf (or its broker) to either GBS and/or GBS’s transfer agent. Further, GBS agrees to not unreasonably withhold or delay approval of any application filed by Pacific Leaf under Rule 144(d) of the Act to clear the subject securities of restriction.
d.In connection with the acquisition of the Shares hereunder, Pacific Leaf represents and warrants to GBS, to the best of its knowledge, as follows:
i.Pacific Leaf acknowledges that it has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of GBS concerning an investment in the Shares, and any additional information which Pacific Leaf has requested.
ii.Pacific Leaf’s investment in the Shares is reasonable in relation to Pacific Leaf’s net worth. Pacific Leaf has had experience in investments in restricted and publicly traded securities, and Pacific Leaf has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Pacific Leaf acknowledges that an investment in the Shares is speculative and involves the risk of loss. Pacific Leaf has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Pacific Leaf can afford the risk of loss of his entire investment in the Shares.
iii.Pacific Leaf is acquiring the Shares for its own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.
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3.Termination of Agreement and Dispute Resolution
a.In the event GBS does not satisfy the agreement to pay Pacific Leaf (1) the sum of $1,269,818.05 cash payable upon complete execution of this Agreement, (2) the sum of $1,500,000.00 cash payable on or before July 31, 2018, or (3) the Shares on or before July 31, 2018:
i.The Royalty Agreement shall continue in full force and effect as if this Agreement had not been entered into;
ii.Any and all other understandings and agreements between the parties and any and all of their subsidiaries, whether oral or written, in effect at the time of the effective date of this Agreement that would have otherwise been terminated pursuant to this Agreement shall not be terminated and rendered null and void, and instead shall continue in full force and effect; and
iii.In the event of the foregoing, 75% (seventy-five percent) of any and all cash payments made by GBS to Pacific Life pursuant to this Agreement shall be credited against any royalties accrued or payable to Pacific Leaf.
b.Notwithstanding anything to the contrary, if either party materially breaches this Agreement, the non-breaching party may, at his or its election, immediately terminate the Agreement thereby relieving the non-breaching party of any obligation there under. Alternatively, the non-breaching party may proceed with performance without waiving any rights under the Agreement. A material breach will mean and refer to a party’s failure to comply with any covenants or obligations specified in this Agreement.
c.In the event of a dispute arising between parties, the dispute shall be submitted to mediation. The parties shall bear the costs of mediation equally. In the event that either party refuses to participate in mediation said party shall be prohibited from recovering attorney fees notwithstanding anything to the contrary in this agreement.
d.If mediation should fail to resolve the dispute between the parties, the matter shall be submitted to binding arbitration. The costs of arbitration shall be equally shared by the parties until the dispute is either settled or adjudicated, at which time the arbitration may award said fees and costs to the prevailing party.
4.Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.
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5.Attorney’s Fee. Subject to the Dispute Resolution terms contained in this Agreement, if any action is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs in connection with that action, in addition to any other relief to which it or they may be entitled as determined through the required mediation or arbitration.
6.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:
GB Sciences, Inc.
ATTN: John C. Poss
3550 West Teco Avenue
Las Vegas, Nevada 89118
PACIFIC LEAF VENTURES, LP
ATTN: David Weiner
12400 Ventura, #327
Studio City, California 91604
7.Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.
8.Severable Provisions. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provisions to the extent enforceable shall nevertheless be binding and enforceable.
9.Counterparts. This Agreement may be executed in two (2) or more counterparts, each and all of which shall be deemed an original and all of which together shall constitute but one and the same instrument. Faxed or emailed signatures on this Agreement or electronic signatures on this Agreement shall be as effective as original signatures on this Agreement.
By your signature below you acknowledge that you have read and understand the foregoing Agreement, have had the opportunity to consult legal and financial counsel, that you agree to comply with all of the terms of the Agreement, and that you have received a copy of the Agreement.
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This Agreement has been duly signed by the parties and any and all of their subsidiaries hereto:
AGREED TO:
GB SCIENCES, INC.
By:
Name:John C. Poss
Title:CEO and President
GB SCIENCES NEVADA LLC
By:
Name:
Title:
PACIFIC LEAF VENTURES, LP
By:
Name:David Weiner
Title:Manager of General Partner
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AMENDMENT AND TERMINATION AGREEMENT
THIS AMENDMENT AND TERMINATION AGREEMENT (this “Amendment”) is entered into as of July __, 2018, by and between GB Sciences, Inc., a Nevada corporation (the “Company”), GB Sciences Nevada LLC, a Nevada limited liability company (“GBS Nevada”) and Pacific Leaf Ventures, LP (“Pacific Leaf”).
R E C I T A L S
A.The Company, GBS Nevada and Pacific Leaf are parties to that certain Agreement dated as of February 22, 2018 (the “Agreement”), pursuant to which the Company agreed to make certain payments to Pacific Leaf in consideration of the termination of the Company’s obligations to Pacific Leaf under that certain Royalty Agreement (as defined in the Agreement) subject to the satisfaction of the Company’s obligations under the Agreement. Unless otherwise indicated herein, all capitalized terms used herein have the respective meanings set forth in the Agreement.
B.The Company, GBS Nevada and Pacific Leaf desire to amend the Agreement, fully and finally terminate the Royalty Agreement, and to enter into certain related agreements in connection therewith, as set forth in this Amendment.
NOW, THEREFORE, in consideration of these premises and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree, as follows:
1.Company Payments and Issuances. In lieu of the Company’s obligations to Pacific Leaf under Section 1 of the Agreement, the Company shall, no later than August 31, 2018:
(a)Pay to Pacific Leaf the amount of $1,000,000 by a wire transfer to an account designated by Pacific Leaf;
(b)Issue Pacific Leaf a promissory note in the principal amount of $1,000,000, which shall bear interest at the rate of 6% per annum and mature on November 30, 2018, substantially in the form of Exhibit A hereto; and
(c)Issue Pacific Leaf 100,000 shares (the “Shares”) of the Company’s common stock (“Common Stock”), which shall be restricted under Rule 144 under the Securities Act of 1933, as amended (the “Act”). The number of Shares shall be equitably adjusted in the event the Company effects a stock split or stock dividend after the date hereof and prior to issuance of the Shares. In addition, the Company shall in no event issue the Shares later than immediately prior to (i) any reclassification or capital reorganization, including any consolidation or merger of the Company with or into another corporation, or (ii) any sale, lease or conveyance to another corporation of all or substantially all of the assets of the Company. For the purpose of clarity, the parties acknowledge and agree that an increase in the number of shares of Common Stock that the Company is authorized to issue, the potential issuance of said shares, or the use of said shares by the Company in the acquisition of other assets or companies shall not result in any change in
the number of Shares issuable hereunder or accelerate the timing for the issuance of such Shares. The Shares, when issued and delivered to Pacific Leaf, shall be fully paid and non-assessable.
2.Termination of Royalty Agreement. In consideration of the Company’s obligations under Section 1 above, the parties hereby agree that Section 3 of the Agreement is hereby deleted in its entirety. For the purposes of clarity, the parties acknowledge and agree that the Royalty Agreement is hereby terminated and of no further force and effect, and in the event the Company defaults in its obligations under this Amendment, Pacific Leaf’s remedies shall be limited to the enforcement of its rights hereunder.
3.Agreements With Respect to the Shares.
(a)The Shares issued pursuant to this Amendment shall be issued in the name of Pacific Leaf Ventures, LP, Tax ID No. 47-3988708.
(b)Upon the transfer of the Shares, if required by applicable law or reasonably requested by Pacific Leaf, the Company shall cause to be issued a certificate representing the Shares and a written opinion of counsel for the Company stating that said shares are validly issued, fully paid and non-assessable and that the issuance to Pacific Leaf has been duly authorized by the Company.
(c)Pacific Leaf acknowledges that the Shares to be issued pursuant to this Amendment have not been registered under the Act, and accordingly are “restricted securities” within the meaning of Rule 144 of the Act. As such, the Shares may not be resold or transferred unless the Company has received an opinion of counsel reasonably satisfactory to the Company that such resale or transfer is exempt from the registration requirements of that Act. The Company agrees to take any and all actions necessary to clear the Shares of restriction upon presentation of any Rule 144(b)(1) application by Pacific Leaf or its broker, including, but not limited to: (1) authorizing the Company’s transfer agent to remove the restrictive legend on the subject securities; (2) expediting either the acquisition of a legal opinion from the Company’s counsel authorizing the removal of the restrictive legend, or accepting a third party legal opinion acknowledging same; and (3) cooperating and communicating with Pacific Leaf and its broker in order to use the Company’s best efforts to clear the subject securities of restriction as soon as possible after presentation of a Rule 144(b)(1) application by Pacific Leaf (or its broker) to either the Company and/or the Company’s transfer agent.
(d)In connection with the acquisition of the Shares hereunder, Pacific Leaf represents and warrants to the Company, to the best of its knowledge, as follows:
(1)Pacific Leaf acknowledges that it has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Shares, and any additional information which Pacific Leaf has requested.
(2)Pacific Leaf’s investment in the Shares is reasonable in relation to Pacific Leaf’s net worth. Pacific Leaf has had experience in investments in restricted and publicly traded securities, and Pacific Leaf has had experience in investments in speculative securities and other investments that involve the risk of loss of investment. Pacific Leaf acknowledges that an
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investment in the Shares is speculative and involves the risk of loss. Pacific Leaf has the requisite knowledge to assess the relative merits and risks of this investment without the necessity of relying upon other advisors, and Pacific Leaf can afford the risk of loss of his entire investment in the Shares.
(3)Pacific Leaf is acquiring the Shares for its own account for long-term investment and not with a view toward resale or distribution thereof except in accordance with applicable securities laws.
4.Piggyback Registration.
(a)Each time that the Company proposes for any reason to register any of its Common Stock under the Securities Act, either for its own account or for the account of a stockholder or stockholders, other than Registration Statements on Forms S-4 or S-8 (or similar or successor forms) (a “Proposed Registration”), the Company shall promptly give written notice of such Proposed Registration to Pacific Leaf (which notice shall be given in no event less than ten (10) days prior to the expected filing date of the Proposed Registration) and shall offer Pacific Leaf the right to request inclusion of any of the Shares (the “Registrable Securities”) in the Proposed Registration. The rights to piggyback registration may be exercised on an unlimited number of occasions.
(b)Pacific Leaf shall have twenty (20) days from the date of receipt of the Company’s notice referred to in Section 4(a) above to deliver to the Company a written request specifying the number of Registrable Securities the intends to sell and Pacific Leaf’s intended method of disposition. Pacific Leaf shall have the right to withdraw its request for inclusion of Registrable Securities in any Proposed Registration by giving written notice to the Company of such withdrawal; provided, however, that the Company may ignore a notice of withdrawal made within less than one full business day prior to the date the Proposed Registration is scheduled to become effective. Subject to Section 4(c) below, the Company shall use its reasonable best efforts to include in such Proposed Registration all such Registrable Securities so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such Proposed Registration if it shall at the same time withdraw or cease proceeding with the registration of all other shares of Common Stock originally proposed to be registered.
(c)Notwithstanding any other provision of this Section 4, if the managing underwriter of an underwritten public offering determines and advises the Company and Pacific Leaf in writing that the inclusion of all Registrable Securities proposed to be included by Pacific Leaf in the underwritten public offering would materially and adversely interfere with the successful marketing of the Company’s securities in the Proposed Registration, then Pacific Leaf shall not be permitted to include any Registrable Securities in excess of the amount, if any, of Registrable Securities which the managing underwriter of such underwritten public offering shall reasonably and in good faith agree in writing to include in such public offering in addition to the amount of securities to be registered for the Company. The Company will be obligated to include in such Proposed Registration, as to Pacific Leaf, only a portion of the Registrable Securities Pacific Leaf has requested be registered equal to the ratio which Pacific Leaf’s requested Registrable Securities bears to the total number of Registrable Securities requested to
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be included in such Proposed Registration by all other investors who have requested that their registrable securities be included in such Registration Statement.
(d)In the event that the Proposed Registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request under this Section 4 shall specify that the Registrable Securities be included in the underwriting on the same terms and conditions as the shares, if any, otherwise being sold through the underwriters under such registration.
(e)Pacific Leaf’s right to include Registrable Securities in a Proposed Registration shall terminate upon such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of the Shares without limitation during a three-month period without registration.
(f)All fees, costs and expenses of and incidental to a Proposed Registration shall be borne by the Company, provided, however, that the holders of the Registrable Securities shall bear their pro rata share of the underwriting discount and commissions and transfer taxes and the cost of their own counsel, as applicable.
(g)The Company will indemnify and hold harmless each holder of Registrable Securities which are included in a registration statement pursuant to the provisions of this Section 4, its directors and officers, and any underwriter (as defined in the Act) for such holder of Securities and each person, if any, who controls such holder of the Registrable Securities or such underwriter within the meaning of the Act (collectively the “Indemnified Holders”), from and against, and will reimburse such Indemnified Holder with respect to, any and all loss, damage, liability, cost and expense to which such Indemnified Holder may become subject under the Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by, arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or the omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, damage, liability, cost or expenses is caused by, arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of such Indemnified Holder in writing specifically for use in the preparation thereof.
5.Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:
If to the Company or GBS Nevada:
GB Sciences, Inc.
ATTN: John C. Poss
3550 West Teco Avenue
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Las Vegas, Nevada 89118
If to Pacific Leaf:
Pacific Leaf Ventures, LP
ATTN: David Weiner
12400 Ventura, #327
Studio City, California 91604
6.Complete Agreement. This Amendment contains the entire agreement of the parties relating to the subject matter hereof. This Amendment and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.
7.Miscellaneous.
(a)All of the terms and provisions of this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns.
(b)This Amendment may be executed in counterparts and by different parties hereto in separate counterparts each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. Delivery of photocopies of the signature pages to this Amendment by facsimile or electronic mail shall be effective as delivery of manually executed counterparts of this Amendment.
(c)The headings, captions and arrangements used in this Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Amendment, nor affect the meaning thereof.
(d)Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
(e)This Amendment shall be construed in accordance with and governed by the laws of the State of Nevada.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above.
GB SCIENCES, INC.
By:
Name: John Poss
Title: President
GB SCIENCES NEVADA LLC
By:
Name: John Poss
Title: President
PACIFIC LEAF VENTURES, LP
By:
Name: David Weiner
Title: Manager of the General Partner
Signature Page to Amendment
Exhibit A
Promissory Note
GB SCIENCES, INC.
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this “Agreement”), is entered into as of February 28, 2019 (the “Effective Date”), by and among GB Sciences, Inc., a Nevada corporation (the “Company”), and CSW Ventures, LP (the “Investor”).
WHEREAS, the Company wishes to issue and sell to the Investor and the Investor wishes to purchase from the Company a Senior Secured Convertible Promissory Note in the principal amount of $1,500,000, convertible into shares of the Company’s Common Stock, par value $.0001 per share, at a conversion price of $0.17 per share (the “Note”), subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, representations, warranties and the mutual covenants contained in this Agreement, the parties agree as follows:
1.AUTHORIZATION AND SALE OF NOTE
1.1Authorization of Shares. The Company has authorized (a) the sale and issuance to the Investor of the Note and (b) the issuance of such shares of Common Stock to be issued upon conversion of the Note (the “Conversion Shares”). The Note shall be in the form attached hereto as Exhibit A.
1.2Initial Advance. Subject to the terms and conditions hereof, at the Closing, the Company shall issue the Note to the Investor, and the Investor shall advance the Company a loan in the principal amount of $1,000,000 (the “Initial Advance”) which shall be evidenced by the Note.
1.3Closing. The closing of the sale and purchase of the Note under this Agreement and the Initial Advance thereunder (the “Closing”) shall take place on the Effective Date of this Agreement, at the offices of Fox Rothschild LLP, 101 Park Avenue, New York, NY 10178 or at such other time or place as the Company and the Investor may mutually agree (the date of the Closing is hereinafter referred to as the “Closing Date”). At the Closing, subject to the terms and conditions hereof, the Company will deliver to the Investor the Note to be purchased by the Investor, against receipt by the Company of the proceeds of the Initial Advance by check made payable to the order of, or wire transfer to, the Company in accordance with the wire instructions included as Exhibit B to this Agreement.
1.4Subsequent Advance Under the Note. Within 10 business days following the Effective Date, the Investor shall make one or more additional advances to the Company under the Note (“Additional Advances” and together with the Initial Advance, each, an “Advance”) in an amount of an additional $500,000 in the aggregate. All Additional Advances shall be made on the terms and conditions set forth in this Agreement, and the representations and warranties of the Company set forth in Section 2 hereof shall speak as of the Closing Date and the date of each Additional Advance. The obligation of the Investor to make an Additional Advance shall be subject to the satisfaction by the Company of all conditions to closing set forth in Section 4 as of the date of such Additional Advance.
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2.REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the Company to the Investor, the Company hereby represents and warrants to the Investor that:
2.1Organization and Standing; Qualifications. The Company is a corporation validly existing and in good standing under the laws of the State of Nevada. The Company has all requisite power and authority to own and operate its properties and assets, and to carry on its business as conducted and as proposed to be conducted. The Company is duly qualified to transact business in each jurisdiction in which the failure to so qualify could, singly or in the aggregate, have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means a material adverse effect on, or a material adverse change in (i) the business, operations, financial condition, results of operations, properties, prospects, assets or liabilities of GB Sciences Nevada LLC (“GBSN”), or GB Sciences Las Vegas LLC (“GBSLV”) or the Company and its Subsidiaries (defined below) taken as a whole, or (ii) on the authority or ability of the Company to perform its obligations under this Agreement, the Note, the Security Agreement in the form of Exhibit C, and the other agreements, instruments and documents contemplated hereby (collectively, the “Transaction Documents”). For the avoidance of doubt, a “Material Adverse Effect” shall include, without limitation, any such material adverse effect occurring as a result of (i) a change in any law or legal requirement or the enforcement thereof, (ii) any loss by GBSN or GBSLV of any license or permit necessary for the conduct by the Company, GBSN or GBSLV of its business or proposed business, or (iii) any failure by the Company, GBSN or GBSLV to comply in any material respect with all legal requirements of the State of Nevada, including, without limitation, by maintaining and complying with, all applicable licenses, permits and approvals of all governmental authorities in the State of Nevada (collectively, “Nevada Legal Requirements”).
2.2Corporate Power. The Company has all requisite power and authority to execute and deliver this Agreement, to sell and issue the Note hereunder, to issue the Conversion Shares and to carry out and perform its obligations under the terms of this Agreement and each of the Transaction Documents.
2.3Authorization.
2.3.1All corporate action on the part of the Company, its officers, directors and stockholders, necessary for (i) the authorization, execution and delivery of the Agreement by the Company, (ii) the authorization, sale, issuance and delivery of the Note and the Conversion Shares, and (iii) the performance of all of the Company’s obligations under the Transaction Documents, has been taken. This Agreement has been duly and validly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally.
2.3.2The Conversion Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Note, will be duly and validly issued, fully paid, and non-assessable and shall be free of any liens, preemptive or similar rights,
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encumbrances or restrictions on transfer; provided, however, that the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws.
2.4Capitalization. The capitalization of the Company is as follows:
2.4.1The authorized capital stock of the Company consists of 400,000,000 shares of Common Stock.
2.4.2As of the Effective Date, the issued and outstanding capital stock of the Company consisted of 222,001,839 shares of Common Stock. The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable and have not been issued in violation of or are not otherwise subject to any preemptive or other similar rights.
2.4.3As of the Effective Date, the Company had (a) 15,316,334 shares of Common Stock reserved for issuance upon exercise of outstanding options granted under the Company’s 2007 Amended Stock Option Plan, 2014 Equity Compensation Plan and 2018 Stock Plan (the “Option Plans”) and (b) 88,655,187 shares of Common Stock reserved for issuance upon exercise of outstanding warrants.
2.4.4As of the Effective Date, the Company had 5,683,666 shares of Common Stock available for future grant under the Option Plans.
2.4.5As of the Effective Date, the Company had outstanding convertible promissory notes convertible into 5,028,000 shares of Common Stock.
With the exception of the foregoing in this Section 2.4 and as set forth on Schedule 2.4, there are no outstanding subscriptions, options, warrants, convertible or exchangeable securities or other rights granted to or by the Company to purchase shares of Common Stock or other securities of the Company and there are no commitments, plans or arrangements to issue any shares of Common Stock or any security convertible into or exchangeable for Common Stock.
2.5Subsidiaries. Except for GBSN, GBSLV and the other subsidiaries of the Company (collectively, the “Subsidiaries”) set forth in the SEC Documents (as defined below), the Company does not have any subsidiaries, and the Company does not own any capital stock of, assets comprising the business of, obligations of, or any other interest (including any equity or partnership interest) in, any person or entity. Each of the Subsidiaries is duly organized, validly existing and in good standing under the laws of their respective jurisdiction of incorporation. Each Subsidiary has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and is in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would have a Material Adverse Effect.
2.6Non-Contravention. The execution, delivery and performance of this Agreement by the Company, and the consummation by the Company of the transactions contemplated hereby, do not (i) contravene or conflict with any certificate of incorporation, certificate of formation, any certificate of designations or other constituent documents of the Company or any Subsidiary, or the bylaws of the Company; (ii) assuming the accuracy of the
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representations and warranties made by the Investor in Section 3 hereof, constitute a violation in any respect of any provision of any federal, state, local or foreign law, rule, regulation, order, judgment or decree applicable to the Company or any Subsidiary; or (iii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) or require any consent under, give rise to any right of termination, amendment, cancellation or acceleration of, or to a loss of any material benefit to which the Company or any Subsidiary is entitled under, or result in the creation or imposition of any lien, claim or encumbrance on any assets of the Company or any Subsidiary under, any contract to which the Company or any Subsidiary is a party or any permit, license or similar right relating to the Company or any Subsidiary or by which the Company or any Subsidiary may be bound or affected.
2.7Compliance with Law and Charter Documents; Regulatory Permits. Neither the Company nor any Subsidiary is in violation or default of any provisions of its certificate of incorporation, bylaws or similar organizational document, as applicable. The Company and each Subsidiary have materially complied and are currently in material compliance with all applicable judgments, decrees, statutes, laws, rules, regulations and orders of the United States of America and all states thereof, foreign countries and other governmental bodies and agencies having jurisdiction over the Company’s or each Subsidiary’s business or property (“Laws”), and the neither Company nor any Subsidiary has received notice that it is in violation of any statute, rule or regulation of any governmental authority applicable to it, other than U.S. Federal Law governing the production and sale of cannabis. Neither the Company nor any Subsidiary is in default (and there exists no condition which, with or without the passage of time or giving of notice or both, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or by which the properties of the Company and any Subsidiary are bound, which default would be reasonably likely to have a Material Adverse Effect. The Company and each Subsidiary possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct its business as described in the SEC Documents (as defined below), except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
2.8SEC Documents.
2.8.1Reports. The Company has filed on the Securities and Exchange Commission’s (“SEC”) EDGAR system, prior to the date hereof, its Annual Report on Form 10-K for the fiscal year ended March 31, 2018 (the “Form 10-K”), its quarterly reports on Form 10-Q for the fiscal quarters ended September 30, 2018, June 30, 2018 and December 31, 2018 (the “Form 10-Qs”), and any Current Report on Form 8-K (“Form 8-Ks”) required to be filed by the Company with the SEC for events occurring during the two (2) years prior to the date hereof (the Form 10-K, Form 10-Qs and Form 8-Ks, together with all exhibits, schedules and other attachments that are filed with such documents, are collectively referred to herein as the “SEC Documents”). Each SEC Document, as of its date (or, if amended or superseded by a filing prior
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to the Closing Date, then on the date of such filing), did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each SEC Document, as it may have been subsequently amended by filings made by the Company with the SEC prior to the date hereof, complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Document. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form and substance in all material respects with applicable accounting requirements and published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied in the United States (“GAAP”), during the periods involved (except in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements), correspond to the books and records of the Company and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended. The Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date of this Agreement and to which the Company is a party or by which the Company is bound which has not been previously filed or incorporated by reference as an exhibit to the SEC Documents.
2.8.2Sarbanes-Oxley. The Chief Executive Officer and the Chief Financial Officer of the Company have signed, and the Company has furnished to the SEC, all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as of the date hereof. Such certifications contain no exceptions to the matters certified therein and have not been modified or withdrawn; and neither the Company nor any of its officers has received notice from any governmental entity questioning or challenging the accuracy of such certifications. The Company is otherwise in compliance with all applicable effective provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations issued thereunder by the SEC.
2.9Absence of Certain Changes. Except as set forth in the SEC Documents or Schedule 2.9, since March 31, 2018, the business and operations of the Company and each Subsidiary have been conducted in the ordinary course consistent with past practice, and there has not been:
2.9.1any declaration, setting aside or payment of any dividend or other distribution of the assets of the Company with respect to any shares of capital stock of the Company;
2.9.2any repurchase, redemption or other acquisition by the Company of any outstanding shares of the Company’s capital stock;
2.9.3any reduction in the Company’s ownership interest in, or distribution rights as a member of, GBSN;
2.9.4any damage, destruction or loss to the Company’s or any Subsidiary’s properties or assets, whether or not covered by insurance, except for such occurrences,
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individually and collectively, that have not had, and would not reasonably be expected to have, a Material Adverse Effect;
2.9.5any waiver by the Company or any Subsidiary of a valuable right or of a material debt owed to it, except for such waivers, individually and collectively, that have not had, and would not reasonably be expected to have, a Material Adverse Effect;
2.9.6any material change by the Company in its accounting principles, methods or practices or in the manner in which it keeps its accounting books and records, except any such change required by a change in GAAP or by the SEC;
2.9.7any material change or amendment to, or any waiver of any material right under a material contract or arrangement by which the Company, any Subsidiary or any of their assets or properties are bound or subject that could be expected to have a Material Adverse Effect;
2.9.8any other event or condition of any character, except for such events and conditions that have not resulted, and are not reasonably expected to result either individually or collectively, in a Material Adverse Effect;
2.9.9any sale of any assets, individually or in the aggregate, in excess of $10,000 outside of the ordinary course of business; or
2.9.10any capital expenditures, individually or in the aggregate, in excess of $10,000 outside of the ordinary course of business.
2.10Intellectual Property. To the Company’s knowledge, the Company and each Subsidiary own or possess sufficient rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, or other intellectual property (collectively, “Intellectual Property”), which are necessary to conduct their business as currently conducted, except where the failure to own or possess such rights would not reasonably be expected to result in a Material Adverse Effect. To the Company’s knowledge, neither the Company nor any Subsidiary has infringed any patents of others with respect to any Intellectual Property which, either individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect, and no patent owned or licensed by the Company or any Subsidiary is unenforceable or invalid. To the Company’s knowledge, there is no claim, action or proceeding against the Company or any Subsidiary with respect to any Intellectual Property. The Company has no actual knowledge of any infringement or improper use by any third party with respect to any Intellectual Property of the Company or any Subsidiary which would reasonably be expected to result in a Material Adverse Effect. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of such of its Intellectual Property as the Company is required to keep secret. None of the Company’s Intellectual Property has expired or terminated. All of the patent assignments concerning the Intellectual Property which are of record in the United States Patent and Trademark Office as to which the Company is the assignee are believed to be valid and binding obligations of the assignor(s).
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3.REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company as follows:
3.1Experience. The Investor understands that the Note and the Conversion Shares are “restricted securities” and have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any applicable state securities law and is acquiring the Note as principal for its own account and not with a view to or for distributing or reselling such Note or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Note in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Note in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Investor’s right to sell the Note pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws).
3.2Restricted Securities. The Investor understands that the Note and the Conversion Shares issuable upon conversion of the Note may only be sold pursuant to an effective registration statement or a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein. The Investor understands that the offering and sale of the Note is intended to be exempt from registration under the Securities Act, by virtue of Section 4(2) thereof and the provisions of Regulation D promulgated thereunder, based, in part, upon the representations, warranties and agreements of the Investor contained in this Agreement. The Investor further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Note, and on requirements relating to the Company which are outside of the Investor’s control, and which the Company is under no obligation and may not be able to satisfy.
3.3Investor Status. At the time such Investor was offered the Note, it was, and as of the date hereof it is, and on each date on which it converts the Note it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Investor is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
3.4Experience of Investor. The Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Note, and has so evaluated the merits and risks of such investment. Investor is able to bear the economic risk of an investment in the Note and, at the present time, is able to afford a complete loss of such investment. Investor represents and warrants that Investor has only relied on information set forth in the SEC Documents and this Agreement in connection with Investor’s investment in the Note.
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3.5Ability to Bear Risk. The Investor understands and agrees that purchase of the Note is a high risk investment and the Investor is able to afford an investment in a speculative venture having the risks and objectives of the Company, including a risk of total loss of such investment. The Investor has a sufficient net worth to sustain a loss of its entire investment in the Company in the event such a loss should occur. The Investor’s overall commitment to investments which are not readily marketable is not excessive in view of the Investor’s net worth and financial circumstances and the purchase of the Note will not cause such commitment to become excessive. This investment is a suitable one for the Investor. The Investor must bear the substantial economic risks of the investment in the Note indefinitely because neither the Note nor the Conversion Shares may be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration is available.
3.6Approval. The Purchaser understands that neither the SEC nor any state securities commission has approved or disapproved of the sale of the Note or Conversion Shares or passed upon or confirmed the accuracy or determined the accuracy of the Company’s representations and warranties set forth in this Agreement.
3.7Disclosure of Information. The Investor further represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of the offering of the Note and the business, prospects, properties and financial condition of the Company.
3.8Legends. It is understood that the certificates evidencing the Note and the Conversion Shares may bear one or all of the following legends:
“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”
3.9Authorization. The execution, delivery and performance by the Investor of the Agreement has been duly authorized by all requisite action of the Investor. The Agreement, when executed and delivered by the Investor, shall constitute valid and legally binding obligations of the Investor, enforceable in accordance with their terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.
4.INVESTOR’S CONDITIONS TO CLOSING
The Investor’s obligation to make the Initial Advance under the Note at the Closing, and to make Additional Advances under the Note is, at the option of the Investor, subject to the fulfillment of the following conditions:
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4.1Representations and Warranties True and Correct. The representations and warranties made by the Company in Section 2 hereof shall be true and correct as of the date of such Advance, with the same effect as if made as of such date.
4.2Board Approval. The Company shall have delivered to the Investor evidence of the approval of this Agreement and the transactions contemplated hereby by the Board of Directors of the Company, in form and substance satisfactory to the Investor and its counsel.
4.3Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to such date shall have been performed or complied with.
4.4Compliance with Nevada Legal Requirement. The business and operations of the Company, GBSN and GBSLV shall be in compliance with all Nevada Legal Requirements.
4.5No Material Adverse Effect. No Material Adverse Effect shall have occurred.
4.6Security Agreement. The Security Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the Company, GBSN and GBSLV and pursuant thereto the Investor shall have a valid, first priority, continuing security interest in the collateral described therein.
5.COMPANY’S CONDITIONS TO EACH CLOSING
The Company’s obligation to sell and issue the Note to the Investor at the Closing and to make additional borrowings under the Note, is, at the option of the Company, subject to the fulfillment of the following conditions:
5.1Representations and Warranties True and Correct. The representations and warranties made by the Investor in Section 3 hereof shall be true and correct when made, and shall be true and correct as of the date of such Advance, with the same effect as if made as of such date.
5.2Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Investor on or prior to such date shall have been performed or complied with.
6.COVENANTS.
6.1Reserve for Conversion Shares. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Note and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Note from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Note or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall
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be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or governmental authority that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Note.
6.2Relationship With GBSN and GBSLV. Until all amounts outstanding under the Note have been repaid in full, the Company shall not, without the written approval of Investor, allow any reduction of its membership interest or distribution rights in GBSN or GBSLV.
6.3Inspection Rights. Investor (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during usual business hours, to inspect the books and records of the Company and each Subsidiary and to make copies thereof, and the right to check, test, and inspect all equipment, materials, and facilities of the Company and each Subsidiary.
6.4Further Assurances. The Company shall cure promptly any defects in the creation and issuance of the Note and the Conversion Shares, and in the execution and delivery of the Transaction Documents. The Company, at its expense, shall execute and deliver promptly to the Investor upon request all such other and further documents, agreements and instruments as may be reasonably necessary to permit the Company to comply with its covenants and agreements herein, and shall make any recordings, file any notices and obtain any consents as may be necessary or appropriate in connection therewith.
6.5Registrations Rights.
6.5.1Required Registration. The Company shall, no later than ten calendar days following the Effective Date (the “Filing Deadline”), prepare and file with the SEC a registration statement under the Securities Act (the “Required Registration Statement”) covering the resale of the Conversion Shares, and use its best efforts to cause such registration statement to become effective as soon as practicable thereafter and to keep such registration statement effective until such time as the Conversion Shares have been sold or may be sold under Rule 144 without volume limitation. If (i) the Required Registration Statement is not filed with the SEC on or prior to the Filing Deadline, (ii) the Required Registration Statement is not declared effective by the SEC for any reason on or prior to the 90th day following the Effective Date, or (iii) at any time after it is declared effective, (A) the Required Registration Statement ceases for any reason to remain continuously effective or (B) the Investor is not otherwise permitted to utilize the prospectus therein to resell the Conversion Shares for any reason for more than an aggregate of twenty (20) consecutive trading days (any such event under clauses (i)-(iii) being a “Registration Default”), then in addition to any other rights the Investor may have hereunder, under the Note or under applicable law, upon such Registration Default and on each monthly anniversary thereof (until such Registration Default is cured or the Conversion Shares are eligible for resale pursuant to Rule 144 without volume limitation), the Company shall pay to the Investor, as partial liquidated damages and not as a penalty, an amount equal to two percent (2%) of the aggregate Advances that have been made under the Note with respect to Conversion Shares then held by the Investor or issuable under the Note.
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6.5.2Right to Include Conversion Shares. In addition, each time that the Company proposes for any reason to register any of its Common Stock under the Securities Act, either for its own account or for the account of a stockholder or stockholders, other than Registration Statements on Forms S-4 or S-8 (or similar or successor forms), other than pursuant to the Registration Statement on Form S-1 previously filed with the SEC (a “Proposed Registration”), and at such time the Conversion Shares are not subject to an effective registration statement under Section 6.5.1., the Company shall promptly give written notice of such Proposed Registration to the Investor (which notice shall be given in no event less than ten (10) days prior to the expected filing date of the Proposed Registration) and shall offer Investor the right to request inclusion of any of such Investor’s Conversion Shares in the Proposed Registration. The rights to piggyback registration may be exercised on an unlimited number of occasions.
6.5.3Piggyback Procedure. The Investor shall have twenty (20) days from the date of receipt of the Company’s notice referred to in Section 6.5.2 above to deliver to the Company a written request specifying the number of Conversion Shares such Investor intends to sell and such Investor’s intended method of disposition. The Investor shall have the right to withdraw such Investor’s request for inclusion of Investor’s Conversion Shares in any Proposed Registration pursuant to this Section 6.4 by giving written notice to the Company of such withdrawal; provided, however, that the Company may ignore a notice of withdrawal made within less than one full business day prior to the date the Proposed Registration is scheduled to become effective. Subject to Section 6.5.5 below, the Company shall use its reasonable best efforts to include in such Proposed Registration all such Conversion Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such Proposed Registration if it shall at the same time withdraw or cease proceeding with the registration of all other shares of Common Stock originally proposed to be registered.
6.5.4Selection of Underwriters. The managing underwriter for any Proposed Registration that involves an underwritten public offering shall be one or more reputable nationally recognized investment banks selected by the Company.
6.5.5Priority for Piggyback Registration.
6.5.5.1Notwithstanding any other provision of this Section 6.5, if the managing underwriter of an underwritten public offering determines and advises the Company and the Investor in writing that the inclusion of all Conversion Shares proposed to be included by the Investor in the underwritten public offering would materially and adversely interfere with the successful marketing of the Company’s securities in the Proposed Registration, then the Investor shall not be permitted to include any Conversion Shares in excess of the amount, if any, of Conversion Shares which the managing underwriter of such underwritten public offering shall reasonably and in good faith agree in writing to include in such public offering in addition to the amount of securities to be registered for the Company. The securities to be included in a Proposed Registration initiated by the Company shall be allocated: first, to the Company; second, to the Investor, and third, to any others requesting registration of securities of the Company.
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6.5.5.2Notwithstanding any portion of the foregoing to the contrary, in no event shall the shares to be sold by the Investor be reduced below twenty percent (20%) of the total amount of securities included in the Proposed Registration. No stockholder of the Company shall be granted piggyback registration rights which would reduce the number of shares to be included by the Investor in such registration without the consent of the Investor.
6.5.5.3If as a result of the provisions of this Section 6.5, the Investor shall not be entitled to include more than 50% of its Conversion Shares in a registration that such Investor has requested to be so included, such Investor may withdraw such Investor’s request to include Conversion Shares in such Proposed Registration.
6.5.6Underwritten Offering. In the event that the Proposed Registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request under this Section 6.5 shall specify that the Conversion Shares be included in the underwriting on the same terms and conditions as the shares, if any, otherwise being sold through the underwriters under such registration. Notwithstanding the foregoing, in the event that the managing underwriter in any underwritten public offering shall notify the Company that inclusion of all or any portion of the Conversion Shares in such Proposed Registration would, in its opinion, adversely affect the potential success of such public offering and the marketability of the securities offered for the account of the Company, the Company may, upon written notice to the Investor, exclude all or a portion of the Conversion Shares from such Proposed Registration, as requested by such managing underwriter; provided, that (a) if any other Common Stock or securities convertible into or exercisable for Common Stock are also intended to be offered for resale by any other selling stockholder(s) in such Proposed Registration (the “Other Registrable Securities”), such Other Registrable Securities shall similarly be excluded from such Proposed Registration, and (b) if the Company or such managing underwriter shall permit a portion of the Conversion Shares and Other Registrable Securities to be included in the Proposed Registration (collectively, the “Permitted Selling Shares”), then the Investor shall be entitled to include in the Proposed Registration a pro-rata portion of the Conversion Shares (determined by the amount by which the number of Conversion Shares to be included bears to the total number of all Permitted Selling Shares).
6.5.7Statutory Cutback. Notwithstanding the foregoing, if the Company determines and advises the Investor in writing that the inclusion of all securities proposed to be included by the Investor in any Proposed Registration would materially and adversely interfere with the potential effectiveness of such Proposed Registration, whether as a result of the interpretation of Rule 415 promulgated under the Securities Act, or otherwise, then the Investor shall not be permitted to include any securities in excess of its pro rata amount (vis-à-vis all other investors as a whole), if any, of securities which the Company shall reasonably and in good faith agree in writing to include in such offering.
7.INDEMNIFICATION.
The Company hereby agrees to indemnify, exonerate and hold harmless the Investor and each of its officers, directors, employees and agents (collectively herein called the “Indemnitees” and individually called an “Indemnitee”), from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including, without limitation, reasonable
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attorney’s fees and disbursements (collectively herein called the “Indemnified Liabilities”), incurred by the Indemnitees or any of them as a result of, or arising out of, any misrepresentation or breach of or default in connection with any of the representations, warranties, covenants and agreements given or made by the Company in this Agreement or any other Transaction Document, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
8.MISCELLANEOUS
8.1Governing Law. This Agreement shall be governed in all respects by the internal laws of the State of Nevada, without giving effect to principles of conflicts of law, as applied to agreements entered into among Nevada residents to be performed entirely within Nevada. Each party hereto irrevocably and unconditionally (i) agrees that any action, suit or claim brought hereunder must be brought in the courts of the United States in the State of Nevada or the state courts of the State of Nevada which shall serve as the exclusive jurisdiction and venue for any and all disputes arising out of and/or relating to this Agreement; (ii) consents to the jurisdiction of any such court in any such suit, action or proceeding; and (iii) waives any objection which such party may have to the laying of venue of any such suit, action or proceeding in any such court.
8.2Successors and Assigns. Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto (including to any transferee of the Note or Conversion Shares). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.3Amendment. Any provision of this Agreement may be amended, waived, modified, discharged or terminated only with the written consent of the Company and the Investor. Any amendment or waiver affected in accordance with this Section 8.3 shall be binding upon the Company and each holder of any securities subject to this Agreement (including securities into which such securities are convertible) and future holders of all such securities. The Investor may waive its rights or the Company’s obligations with respect to the Note hereunder without obtaining the consent of any other natural person or Person.
8.4Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given (a) upon personal delivery to the party to be notified, (b) five (5) days after deposit in the United States mail, by registered or certified mail, postage prepaid and properly addressed to the party to be notified as set forth in the Company records, or (c) when received if transmitted by telecopy (to be followed by U.S. mail), electronic or digital transmission method. In each case notice shall be sent to the addresses set forth on the Company’s records or at such other address as a party may designate by ten (10) days’ advance written notice to the other parties hereto.
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8.5Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one and the same instrument.
8.6Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
8.7Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
8.8Survival of Agreement. All covenants and agreements made in this Agreement shall survive the execution and delivery hereof and the issuance, sale and delivery of the Note, and the issuance and delivery of the Conversion Shares. For the avoidance of doubt, the representations and warranties made in this Agreement shall not survive the execution and delivery hereof.
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8.9Attorneys’ Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
8.10Facsimile/PDF Signatures. This Agreement may be executed and delivered by facsimile or PDF and, upon such delivery, the facsimile or PDF will be deemed to have the same effect as if the original signature had been delivered to the other party. The failure to deliver the original signature copy shall have no effect upon the binding and enforceable nature of this Agreement.
8.11Entire Agreement. This Agreement, together with the Exhibits hereto, the certificates, documents, instruments and writings that are delivered pursuant hereto and each of the other Agreements, constitutes the entire agreement and understanding of the parties hereto in respect of its subject matters and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Note Purchase Agreement on the day and year first set forth above.
GB SCIENCES, INC.
By:
Name: John C Poss
Title: CEO and Chairman
CSW VENTURES, LP
By:
Name: David Weiner
Title: General Partner
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EXHIBIT A
Form of Secured Convertible Promissory Note
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EXHIBIT B
Company Wire Instructions
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EXHIBIT C
Security Agreement
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Schedule 2.4
CAPITALIZATION
The Company intends to sell common stock and warrants from time to time for working capital needs of the Company. The Company is also planning on adopting a 2019 Equity Compensation Plan to replace the 2014 Equity Compensation Plan.
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Schedule 2.9
CHANGES
Subsequent to March 31, 2018, cannabis grown by the Company developed mold, which resulted a decrease in revenue.
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THIS NOTE AND THE UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
GB SCIENCES, INC.
8% Senior Secured Convertible Promissory Note
$1,500,000.00February 28, 2019 (the “Issue Date”)
FOR VALUE RECEIVED, GB SCIENCES, INC., a Nevada corporation (the “Company”) with its principal executive office at 3550 W. Teco Avenue, Las Vegas NV 89118, promises to pay to the order of CSW VENTURES, LP (the “Payee” or the “Holder of this Note”) or registered assigns, the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000) Dollars, or such lesser amount as shall equal the aggregate unpaid principal amount of the loans made by Payee to the Company hereunder (the “Principal Amount”), together with interest on such Principal Amount, on August 28, 2020 (the “Maturity Date”). Interest on this Senior Secured Convertible Promissory Note (this “Note”) shall accrue on the Principal Amount outstanding from time to time at a rate per annum computed in accordance with Section 2 hereof.
This Note represents an initial loan of One Million Dollars made on the Issue Date. Subject to the terms and conditions of the Note Purchase Agreement (defined below), an additional loan or loans under this Note in the aggregate amount of Five Hundred Thousand Dollars are to be made within 10 business days of the Issue Date. The date each such loan is made shall be endorsed by Payee on its books, and, prior to any transfer of this Note, endorsed by Payee on the schedule attached hereto or any continuation thereof. Any failure by Payee to so endorse shall in no way mitigate or discharge the obligation of the Company to repay any loan actually made.
Interest shall accrue on the Principal Amount outstanding from time to time commencing on the date hereof and shall be payable (i) quarterly in arrears commencing on April 1, 2019 and on the first day of each calendar quarter thereafter, (ii) upon maturity (whether at the Maturity Date, by acceleration or otherwise) and (iii) at any time after maturity until paid in full (after as
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well as before judgment), on demand. All computations of interest hereunder shall be made based on the actual number of days elapsed in a year of 365 days (including the first day but excluding the last day during which any such Principal Amount is outstanding). All payments by the Company hereunder shall be applied first to pay any interest which is due, but unpaid, and then to reduce the Principal Amount.
Each payment by the Company pursuant to this Note shall be made without set-off or counterclaim and in immediately available funds by wire or check only. THIS NOTE MAY NOT BE PAID OR PREPAID IN CASH. The Company (i) waives presentment, demand, protest or notice of any kind in connection with this Note and (ii) agrees to pay to the Holder of this Note, on demand, all costs and expenses (including reasonable and documented legal fees and expenses) incurred in connection with the enforcement and collection of this Note.
This Note has been issued to Payee pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) entered into between the Company and the Payee dated as of the date hereof, and is secured by a Security Agreement dated as of the date hereof (the “Security Agreement”) among the Company, GB Sciences Nevada LLC (“GBSN”), GB Sciences Las Vegas LLC (“GBSLV”) and Payee, covering certain collateral (the “Collateral”), all as more particularly described and provided therein, and is entitled to the benefits thereof. The Security Agreement and any and all other documents executed and delivered by the Company, GBSN or GBSLV (the “Grantors”) to Payee under which Payee is granted liens on assets of the Grantors in connection with the transactions contemplated by the Note Purchase Agreement are collectively referred to as the “Security Documents.”
Unless otherwise defined in this Note, capitalized terms used herein shall have the meanings set forth in the Note Purchase Agreement.
1.Principal Repayment
A.Optional Prepayment. Subject to 1B below, the Company may only prepay this Note,
(i)during such time as the Conversion Shares (as defined below) issuable upon conversion of this Note are then subject to an effective registration statement under the Securities Act of 1933, as amended, and the registration statement covering the Conversion Shares has been effective for a period of at least 90 days; or
(ii)if the Company provides the Payee with sixty (60) days prior written notice of such prepayment, during which time Payee may convert this Note in accordance with Section 5, and such prepayment is accompanied by a payment equal to 25% of the amount of the principal and interest being prepaid.
B.Notice of Prepayment. Before the Company shall be permitted to prepay this Note pursuant to 1A(i) hereof, the Company shall provide thirty (30) days prior notice to the
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Payee of its intent to make such prepayment, which notice shall state the date and amount of such prepayment (the “Prepayment Date”). The Payee shall have the option at any time prior to the Prepayment Date to elect to convert this Note pursuant to Section 5 below.
2.Computation of Interest.
A.Base Interest Rate. Subject to Sections 2B and 2C below, the outstanding Principal Amount shall bear interest at the rate of eight (8%) percent per annum.
B.Penalty Interest. Upon the occurrence and during the continuance of an Event of Default (as defined below), the rate of interest applicable to the unpaid Principal Amount shall be increased to ten (10%) percent per annum.
C.Maximum Rate. In the event that it is determined that, under the laws relating to usury applicable to the Company or the indebtedness evidenced by this Note (“Applicable Usury Laws”), the interest charges and fees payable by the Company in connection herewith or in connection with any other document or instrument executed and delivered in connection herewith cause the effective interest rate applicable to the indebtedness evidenced by this Note to exceed the maximum rate allowed by law (the “Maximum Rate”), then such interest shall be recalculated for the period in question and any excess over the Maximum Rate paid with respect to such period shall be credited, without further agreement or notice, to the Principal Amount outstanding hereunder to reduce said balance by such amount with the same force and effect as though the Company had specifically designated such extra sums to be so applied to principal and the Payee had agreed to accept such extra payment(s) as a premium-free prepayment. All such deemed prepayments shall be applied to the principal balance payable at maturity. In no event shall any agreed-to or actual exaction as consideration for this Note exceed the limits imposed or provided by Applicable Usury Laws in the jurisdiction in which the Company is resident applicable to the use or detention of money or to forbearance in seeking its collection in the jurisdiction in which the Company is resident.
3.Covenants of Company.
A.Affirmative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, unless it has otherwise obtained the prior written consent of the Payee, it will perform the obligations set forth in this Section 3A:
(i)Taxes and Levies. The Company (and each of its subsidiaries) will promptly pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings;
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(ii)Maintenance of Existence. The Company (and each of its subsidiaries) will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company;
(iii)Maintenance of Property. The Company (and each of its subsidiaries) will at all times reasonably maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition (ordinary wear and tear excepted), and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business;
(iv)Insurance. The Company (and each of its subsidiaries) will, to the extent necessary for the operation of its business, keep adequately insured by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations;
(v)Maintenance of Teco Facility. The Company will cause GBSN and GBSLV to hold and maintain all duly issued certificates and licenses necessary to operate its cannabis cultivation and production facility at 3550 W. Teco Avenue, Las Vegas, Nevada (the “Teco Facility”) in accordance with all Nevada Legal Requirements;
(vi)Books and Records. The Company (and each of its subsidiaries) will at all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP. Such books and records shall be open at reasonable times and upon reasonable notice to the inspection of the Payee or its agents;
(vii)Notice of Certain Events. The Company (and each of its subsidiaries) will give prompt written notice (with a description in reasonable detail) to the Payee of the occurrence of any Event of Default or any event which, with the giving of notice or the lapse of time, would constitute an Event of Default; and
(viii)Compliance with Laws. The Company will comply, and cause each subsidiary, including, without limitation, GBSN and GBSLV, to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (“Law”), other than U.S. Federal Law governing the production and sale of cannabis.
B.Negative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, unless it has otherwise obtained the prior written consent of the Payee, it will perform the obligations set forth in this Section 3B:
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(i)Liquidation, Dissolution. The Company will not (and will not permit any of its subsidiaries to) liquidate or dissolve, consolidate with, or merge into or with, any other corporation or other entity, except that any wholly-owned subsidiary may merge with another wholly-owned subsidiary or with the Company (so long as the Company is the surviving corporation and no Event of Default shall occur as a result thereof); provided, however, such prior written consent shall not be required in connection with the consummation of any merger or change of control transaction which results in prepayment of the Note pursuant to the terms of this Note;
(ii)Sales of Assets. The Company will not (nor permit any of its subsidiaries with respect to their assets and properties), other than in the ordinary course of business, sell, transfer, lease or otherwise dispose of, or grant options, warrants or other rights with respect to, all or a substantial part of its properties or assets material to the Company’s business to any person or entity other than a direct or indirect subsidiary of the Company; provided, however, such prior written consent shall not be required in connection with licenses or other rights granted by the Company to a strategic partner, licensee or distributor as approved by the Board of Directors of the Company (the “Board of Directors”);
(iii)Redemptions. The Company will not redeem or repurchase any outstanding equity and/or debt securities of the Company (or its subsidiaries), except for repurchases of unvested or restricted shares of Common Stock, at cost, from employees, consultants or members of the Board of Directors pursuant to repurchase options of the Company (1) currently outstanding or (2) hereafter entered into pursuant to a stock option plan or restricted stock plan approved by the Company’s Board of Directors;
(iv)Indebtedness. Company will hereafter not create, incur, assume or suffer to exist, contingently or otherwise, any indebtedness which is not expressly subordinate in all respects to this Note, provided, that this covenant shall not apply to (A) capitalized leases, purchase money indebtedness (secured solely by Liens on the equipment or assets leased or purchased), (B) accounts payable, (C) other accrued expenses incurred by the Company in the ordinary course of business; or (D) indebtedness set forth on Schedule 3B(iv);
(v)Negative Pledge. Other than with respect to this Note, the Company will not (nor will it permit its subsidiaries to) hereafter create, incur, assume or suffer to exist any mortgage, pledge, hypothecation, assignment, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any financing lease) (each, a “Lien”) upon any of its property, revenues or assets, whether now owned or hereafter acquired, except any of the following (collectively, “Permitted Liens”):
(a)Liens granted to secure indebtedness incurred (i) to finance the acquisition (whether by purchase or capitalized lease) of tangible assets or (ii) under
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equipment leases or purchase money indebtedness, but in each case, only on the assets acquired with the proceeds of such indebtedness;
(b)Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;
(c)Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;
(d)Liens incurred in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds;
(e)judgment Liens in existence less than 30 days after notice of the entry thereof is forwarded to the Company or with respect to which execution has been stayed; and
(f)Liens set forth set forth on Schedule 3B(v).
(vi)Transactions with Affiliates. The Company will not (and will not permit any of its subsidiaries to) enter into any transaction after the Issue Date, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, the purchase or sale of any security, the borrowing or lending of any money, or the rendering of any service, with any person or entity affiliated with the Company or any of its subsidiaries (including officers, directors and shareholders owning five (5%) percent or more of the Company’s outstanding capital stock), except in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms not less favorable than would be obtained in a comparable arms-length transaction with any other person or entity not affiliated with the Company as determined by the Board of Directors in good faith.
(vii)Dividends. The Company will not declare or pay any cash dividends or distributions on its outstanding capital stock.
(viii)GBSN. The Company shall not allow any reduction of its membership interest or distribution rights in GBSN.
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4.Events of Default.
If any of the following events shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation by law or otherwise) (each, an “Event of Default”):
(i)Non-Payment of Obligations. The Company shall default in the payment of the principal of this Note as and when the same shall become due and payable (whether by acceleration or otherwise) or shall fail to pay accrued interest on this Note within five (5) business days of when the same shall become due and payable (whether by acceleration or otherwise);
(ii)Non-Performance of Affirmative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 3A, which default shall continue uncured for ten (10) days;
(iii)Non-Performance of Negative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 3B, and, if capable of cure, such default shall not have been cured within ten (10) days;
(iv)Bankruptcy, Insolvency, Etc. The Company (or any of its subsidiaries) shall:
(a)in any legal document admit in writing its inability to pay its debts as they become due;
(b)apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors;
(c)in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property;
(d)permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; or
(e)take any corporate or other action authorizing, or in furtherance of, any of the foregoing;
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(v)Teco Facility. GBSN shall fail to hold any required provisional or permanent certificate (as applicable) under State or local law for the operation of the Teco Facility as an establishment to cultivate and sell cannabis;
(vi)Cross-Default. The Company shall default in the payment when due, after the expiration of any applicable grace period, of any amount payable under any other obligation of the Company for money borrowed in excess of $100,000;
(vii)Cross-Acceleration. Any other indebtedness for borrowed money of the Company (or any of its subsidiaries) in an aggregate principal amount exceeding $100,000 shall be duly declared to be or shall become due and payable prior to the stated maturity thereof or shall not be paid as and when the same becomes due and payable including any applicable grace period;
(viii)Registration Default. A Registration Default has occurred under the Note;
(ix)Other Breaches, Defaults. The Company or any of its subsidiaries (including, without limitation, GBSN) shall default or be in breach of any other term or provision of this Note, any other Transaction Document (as defined in the Note Purchase Agreement), in any material respect, for a period of ten (10) days, or any material representation or warranty made by the Company to the Payee in any Transaction Document shall be materially false or misleading; or
(x)Security Documents. The Security Documents shall cease to create a valid and perfected Lien in and to any material Collateral;
then, and in any such event, the Payee shall, by notice to the Company, take or cause to be taken any or all of the following actions, without prejudice to the rights of Payee to enforce its claims against the Company: (1) declare the principal of and any accrued interest and all other amounts payable under this Note to be due and payable, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, (2) proceed to enforce or cause to be enforced any remedies provided under the Security Agreement, and (3) exercise any other remedies available at law or in equity, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Note; provided, that upon the occurrence of any Event of Default referred to in Section 4(iv) then (without prejudice to the rights and remedies specified in clause (3) above) automatically, without notice, demand or any other act by any Holder, the principal of and any accrued interest and all other amounts payable under this Note shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company, anything contained in this Note to the contrary notwithstanding. No remedy conferred in this Note upon any Holder is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in
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addition to every other remedy conferred herein or now or hereinafter existing at law or in equity or by statute or otherwise.
5.Conversion of Note.
A.Optional Conversion. The Holder of this Note shall have the option, at any time and from time to time, prior to the date on which the Company makes payment in full of the Principal Amount of this Note in accordance herewith, all accrued interest thereon and all other amounts due and payable thereunder to convert all or any portion of the outstanding Principal Amount of this Note plus all accrued and unpaid interest thereon (such Principal Amount and accrued and unpaid interest to be so converted the “Conversion Amount”) into shares of common stock, par value $.0001 per share (“Common Stock”), of the Company at an initial conversion price per share equal to $0.17 per share (the “Conversion Price”), subject to adjustment as provided in subsection 5F below. The shares of Common Stock issuable upon conversion of this Note at the Conversion Price are referred to herein as the “Conversion Shares.”
B.Conversion Limitation. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would be convertible into that number of Conversion Shares which would exceed the difference between the number of shares of Common Stock beneficially owned by such Holder and 4.99% of the outstanding shares of Common Stock of the Company. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. The Holder may void the Conversion Share limitation described in this Section 5B upon 65 days prior notice to the Company or without any notice requirement upon an Event of Default.
C.Mechanics of Conversion.
(i)Before the Holder of this Note shall be entitled to convert this Note into shares of Common Stock pursuant to Section 5A, such holder shall give written notice to the Company in the form attached hereto as Annex A (“Conversion Notice”), at its principal corporate office, by email, facsimile or otherwise, of the election to convert the same and shall state therein the Conversion Amount and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. On or before the third (3rd) business day following the date of receipt of a Conversion Notice, the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Company’s transfer agent is participating in the Depository Trust Company's (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC, or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion
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Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144.
(ii)All Common Stock which may be issued upon conversion of the Note will, upon issuance, be duly issued, fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issuance thereof.
D.Authorized Shares. At all times the Company shall have authorized and shall have reserved a sufficient number of shares of Common Stock to provide for the conversion of the Principal Amount outstanding under this Note at the then effective Conversion Price. Without limiting the generality of the foregoing, if, at any time, the Conversion Price is decreased, the number of shares of Common Stock authorized and reserved for issuance upon the conversion of this Note shall be proportionately increased.
E.Failure to Timely Deliver Shares. If within five (5) business days after the Company’s receipt of the facsimile or email copy of a Conversion Notice, the Company shall fail to issue and deliver to the Holder the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of this Note (a “Conversion Failure”), the Company shall pay to the Holder $3,000 per day until the Company issues and delivers a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any portion of the Principal Amount of this Note. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular Conversion Notice attributable to the unsold shares.
F.Anti-Dilution Provisions. The Conversion Price in effect at any time and the number and kind of securities issuable upon the conversion of this Note shall be subject to adjustment from time to time upon the happening of certain events as follows:
(i)In case the Company shall hereafter (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Conversion Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur.
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(ii)Whenever the Conversion Price is adjusted pursuant to Subsection (i) above, the number of Conversion Shares issuable upon conversion of this Note shall simultaneously be adjusted by multiplying the number of Conversion Shares initially issuable upon conversion of this Note by the Conversion Price in effect on the date hereof and dividing the product so obtained by the Conversion Price, as adjusted.
(iii)In case of any reorganization, reclassification or change of the Common Stock (including any such reorganization, reclassification or change in connection with a consolidation or merger in which the Company is the continuing entity), or any consolidation of the Company with, or merger of the Company with or into, any other entity (other than a consolidation or merger in which the Company is the continuing entity), or of any sale of the properties and assets of the Company as, or substantially as, an entirety to any other person or entity, this Note shall thereafter be convertible into the kind and amount of stock or other securities or property receivable upon such reorganization, reclassification, change, consolidation, merger or sale by a Holder of the number of shares of Common Stock into which this Note would have been converted prior to such transaction. The provisions of this subsection (iii) shall similarly apply to successive reorganizations, reclassifications, changes, consolidations, mergers or sales immediately prior to such reorganization, reclassification, change, consolidation, merger or sale.
6.Amendments and Waivers.
A.The provisions of this Note may from time to time be amended, modified or supplemented, if such amendment, modification or supplement is in writing and consented to by the Company and the Payee.
B.No failure or delay on the part of the Payee in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Payee shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder.
C.To the extent that the Company makes a payment or payments to the Payee, and such payment or payments or any part thereof are subsequently for any reason invalidated, set aside and/or required to be repaid by the Payee to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made by the Payee or such enforcement or setoff had not occurred.
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7.Miscellaneous.
A.Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of its successors and permitted assigns of the Company and the Payee, respectively, whether so express or not.
B.Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to the conflicts of laws principles thereof.
C.Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE’S PURCHASING THIS NOTE.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company.
GB SCIENCES, INC.
By:
Name: John C Poss
Title: CEO and Chairman
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LOANS
Date Loan Made |
Amount of Loan |
Amount Paid | Unpaid Principal Amount | Notation |
Issue Date | $1,000,000 | -- | $1,000,000 | N/A |
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ANNEX A
CONVERSION NOTICE
The undersigned hereby elects to convert principal and/or interest under the 8% Senior Secured Convertible Promissory Note, issued as of February __, 2019 (the “Note”) of GB Sciences, Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof and the Note, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 5B of the Note, as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Note to be Converted:
Amount of Interest of Note to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account No:
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SCHEDULE 3B(iv)
INDEBTEDNESS
Short-Term Notes Payable | Face Value |
| Discount |
| Carrying Value |
Convertible Notes Payable to various investors | $ 1,257,000 |
| $ (665,648) |
| $ 591,352 |
6% Promissory Note due to Pacific Leaf Ventures, LP | 313,926 |
| - |
| 313,926 |
Note Payable to William Moore and Brian Moore, current portion | 233,333 |
| (59,068) |
| 174,265 |
Note Payable - BCM Med | 300,000 |
| - |
| 300,000 |
Total Short-Term Notes Payable | $ 2,104,259 |
| $ (724,716) |
| $ 1,379,543 |
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Long-Term Notes Payable |
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Note Payable to William Moore and Brian Moore, long-term | $ 213,889 |
| $ (20,208) |
| $ 193,681 |
Total Long-Term Notes Payable | $ 213,889 |
| $ (20,208) |
| $ 193,681 |
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Capital Lease Liability | Liability |
| Monthly Payment |
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Petroleum Drive | $ 2,414,263.76 |
| $ 25,588.00 |
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Teco | $ 3,739,699.29 |
| $ 42,436.00 |
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SCHEDULE 3B(v)
LIENS
Bob Bernhard & Associates Mechanical, LLC $666,651.03
Raygen Services, LLC $354,942.68
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SECURITY AGREEMENT
This Security Agreement (this “Agreement”) is made and entered into effective as of March 1, 2019, by GB SCIENCES, INC., a Nevada corporation (“Borrower”), GB SCIENCES NEVADA LLC, a Nevada limited liability company (“GBSN”) and GB SCIENCES LAS VEGAS LLC, a Nevada limited liability company (“GBSLV” and, together with Borrower and GBSN, each a “Grantor”), in favor of CSW VENTURES, LP (“Secured Party”).
RECITALS
Secured Party has agreed to make loans to the Borrower in an aggregate principal amount of up to $1,500,000.00 (the “Loans”), which Loans shall be evidenced by a Senior Secured Convertible Promissory Note of even date herewith made by Borrower in favor of Secured Party (the “Note”), which Note has been issued pursuant to that certain Note Purchase Agreement, dated as of the date hereof, among Borrower and Secured Party (the “Purchase Agreement”).
In order to induce Lender to extend the Loan to Borrower, the Grantors have agreed to grant Secured Party security and assurance in order to secure the payment and performance of all of the Secured Obligations (as defined below), and to that effect to grant Secured Party a security interest in certain of their assets and enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties agree as follows:
1.Grant of Security Interest. Each Grantor hereby grants to Secured Party, a security interest in and so pledges and assigns to the Secured Party, all of its right, title and interest in, to and under, the following properties, assets and rights of such Grantor, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof (all of the same being hereinafter called the “Collateral”): (i) all of GBSN’s and GBSLV’s assets and property, whether now existing or hereafter acquired, of every description, including, without limitation, all accounts, chattel paper (whether tangible or electronic), instruments, letter of credit rights, investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, commercial tort claims, and all general intangibles (including all payment intangibles), deposit accounts, documents and goods (including inventory, equipment and fixtures and embedded software, and all accessions to any goods), (ii) Borrower’s membership interests in GBSN and GBSLV, together with the right to receive all cash and other distributions from GBSN and GBSLV with respect to such membership interests (the “Membership Interests”); (iii) all licenses, authorizations, certificates and permits issued by any Nevada governmental authority (the “Cannabis Licenses”) to any of the Grantors with respect to the cannabis cultivation and production facility operated by the Grantors at 3550 W. Teco Avenue, Las Vegas, Nevada (the “Teco Facility”), to the extent (and only to the extent) that the grant of a security interest in any such Cannabis License is not prohibited as a matter of law (provided, that, (A) the foregoing exclusion shall in no way be construed to apply to the extent that (1) any such prohibition is unenforceable under Section 9-408 of the Uniform Commercial Code or other applicable law, or
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(2) any consent or waiver has been obtained that would permit the Secured Party’s security interest or lien notwithstanding the prohibition or restriction on the pledge of such Cannabis License); and (iv) all other inventory, equipment and fixtures located at the Teco Facility or used in connection with the operations of the Grantors at the Teco Facility. The security interest in the Collateral shall secure the payment in full of all obligations (the “Secured Obligations”) of Grantors to Secured Party under the Note, the Purchase Agreement and this Agreement. By their execution of this Agreement, each Grantor authorizes Secured Party at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral, and (b) contain any other information required by part 5 of Article 9 of the Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement or amendment, including whether the applicable Grantor is an organization, the type of organization and any organization identification number issued to such Grantor. Each Grantor agrees to furnish any such information to the Secured Party promptly upon request.
2.Representations and Warranties Concerning Grantors’ Legal Status. Each Grantor represents and warrants to the Secured Party as follows: (a) such Grantor’s exact legal name is that indicated on the signature page hereof, (b) Borrower is a corporation incorporated in the State of Nevada, and each of GBSN and GBSLV is a limited liability company organized in the State of Nevada, and (c) the chief executive office and mailing address of each Grantor is 3550 W. Teco Avenue, Las Vegas, Nevada 89118.
3.Covenants Concerning Grantors’ Legal Status. Each Grantor covenants with the Secured Party as follows: (a) without providing at least 30 days prior written notice to the Secured Party, such Grantor will not change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, and (b) such Grantor will not change its type of organization, jurisdiction of organization or other legal structure.
4.Representations and Warranties Concerning Collateral, Etc. Each Grantor further represents and warrants to the Secured Party as follows: (a) the applicable Grantor is the owner of the Collateral, free from any adverse lien, security interest or other encumbrance; (b) such Grantor’s execution, delivery and performance of this Agreement are within its corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene its certificate of incorporation or bylaws or certificate of formation or operating agreement, as applicable, (ii) contravene any contractual restriction or applicable law or (iii) result in, or require the creation or imposition of, any lien on its property, except the lien granted hereby; and (c) this Agreement constitutes the legal, valid and binding obligation of such Grantor enforceable against it in accordance with its terms.
5.Insurance. Grantors will maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with general practices of businesses engaged in similar activities in similar geographic areas. Such insurance shall be in such amounts, contain such terms, be in such forms and be for such periods as may be reasonably satisfactory to the Secured Party.
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6. Maintenance of Collateral. At all times that Secured Party has a security interest in the Collateral, the Grantors shall maintain the Collateral in good condition, normal wear and tear excepted.
7.Right to Inspect. At all times that Secured Party has a security interest in the Collateral under this Agreement, Secured Party shall have the right at reasonable times after prior written notice to the applicable Grantor, to inspect the Collateral wherever the Collateral is located. Upon request from Secured Party, each Grantor shall advise Secured Party as to the location(s) where the Collateral is kept or stored.
8.Default. There shall be a default (an “Event of Default”) for purposes of this Agreement if there shall occur and be continuing a default in the payment when due (after the expiry of any applicable grace period stated in the agreements with respect thereto) of any amount due of any of the Secured Obligations, or if any Grantor fails to perform a material obligation under this Agreement.
9.Secured Party’s Rights in Event of Default.
(a)In the event of an Event of Default, Secured Party shall have all rights of a secured party under the Uniform Commercial Code in each jurisdiction in which the Collateral is located, including, but not limited to, the right to take possession of such amounts of Collateral, and to dispose of such Collateral by public or private sale, as shall be reasonably necessary to assure to Secured Party payment of all of the Secured Obligations. Any notification of intended disposition of any of the Collateral required by law, shall be deemed reasonably and properly given if given to a Grantor at least ten (10) days before such disposition, provided that each Grantor agrees that Secured Party shall otherwise be subject to no obligation, express or implied, to give any notice as to collection or disposition of any of the Collateral which threatens to decline speedily in value. In the event Secured Party takes possession of and sells Collateral under this Section, Secured Party shall apply all proceeds from such sale in accordance with the provisions of the Uniform Commercial Code. Any proceeds of any collection or disposition by Secured Party of any of the Collateral may be applied by Secured Party in the following order: to the reasonable expenses of retaking, conserving, collecting (by suit or otherwise) or disposing of (by sale or otherwise) the Collateral, including reasonable attorneys’ fees and legal expenses incurred, and then to the satisfaction of all the Secured Obligations in such order and manner of application as Secured Party elects. Upon the occurrence of an Event of Default, and irrespective of whether Secured Party shall have pursued any other remedy provided herein, Secured Party shall be entitled to demand and receive all available financial information concerning the Grantors and their businesses, and shall be entitled at all reasonable times to inspect Grantors’ premises and have access to Grantors’ books and records.
(b)The Grantors shall use their best efforts, and take all actions necessary, appropriate or otherwise required under Nevada Legal Requirements, to effect the transfer of the Cannabis Licenses to the Secured Party or any other party designated by Secured Party (or its successor) that acquires the Membership Interests and/or the assets comprising the Teco Facility following an Event of Default.
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10.Expenses. Each Grantor shall, on demand, reimburse Secured Party for all costs and expenses, including without limitation reasonable attorneys’ fees and legal expenses, incurred by Secured Party in seeking to enforce any rights or remedies under this Agreement or in respect of the Collateral, and in case of an Event of Default, incurred by Secured Party in enforcing or attempting to enforce its rights and remedies hereunder.
11.Collection of Proceeds of Collateral. Upon the occurrence and during the continuance of an Event of Default, immediately upon notice to a Grantor by Secured Party, such Grantor agrees (i) to hold in trust for Secured Party all payments received in connection with the Collateral and from the sale, lease or other disposition of any Collateral, (ii) to collect and enforce payment of all Collateral until Secured Party shall direct such Grantor to the contrary, and from and after this direction, to fully and promptly cooperate and assist Secured Party (or any other person as Secured Party shall designate) in the collection and enforcement of all Collateral, (iii) to endorse to Secured Party and immediately deliver to Secured Party all payments received by such Grantor on Collateral or from the sale, lease or other disposition of any Collateral or arising from any other rights or interests of such Grantor in the Collateral, in the form received by such Grantor without commingling with any other funds, and (iv) immediately deliver to Secured Party all property in such Grantor’s possession or later coming into such Grantor’s possession through enforcement of such Grantor’s rights or interests in the Collateral. Upon the occurrence and during the continuance of an Event of Default, the Grantors irrevocably authorize Secured Party or any of Secured Party’s agents to endorse the name of the Grantors upon any Collateral or other items which are received in payment of any Collateral, and to do any and all things necessary in order to reduce these items to money.
12.Waivers. Each Grantor waives all defenses otherwise available to parties secondarily or in any other degree liable or whose property stands as security, including, without limitation, presentment, demand, protest and notice with respect to any of the Secured Obligations, the enforcement and preservation of any lien otherwise held by Secured Party and the enforcement and preservation of any of the Secured Obligations or any guaranty or other undertaking. Each Grantor agrees that Secured Party may release any Collateral (or any other security for any of the Secured Obligations) before or after maturity of any such Secured Obligations and may enforce its security interest and liens on any Collateral pledged hereby without being obligated first to enforce any other security whether pledged or owned by any other Grantor or any other person.
13.Secured Party Appointed Attorney-In-Fact and Performance by Secured Party. Upon the occurrence and during the continuance of an Event of Default, each Grantor hereby irrevocably constitutes and appoints Secured Party as such Grantor’s true and lawful attorney-in-fact, with full power of substitution, to execute, acknowledge and deliver any instruments and to do in such Grantor’s name, place and stead, all such acts, things and deeds for and on behalf of and in the name of such Grantor, which such Grantor could or might do or which Secured Party may deem necessary, desirable or convenient to accomplish the purposes of this Agreement, including, without limitation, to execute such instruments of assignment or transfer or orders and to register, convey or otherwise transfer title to the Collateral into Secured Party’s name or the name of any purchaser of the Collateral. Each Grantor hereby ratifies and
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confirms all that said attorney-in-fact may so do and hereby declares this power of attorney to be coupled with an interest and irrevocable as long as any Secured Obligations remain outstanding.
14.Entire Agreement. This Agreement sets forth the entire agreement of the parties with respect to the subject matter of this Agreement. This Agreement shall not be modified except by a writing signed by Secured Party and the Grantors.
15.Governing Law; Jurisdiction. This Agreement shall be construed and enforced under and in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. EACH GRANTOR IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN NEVADA FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT. EACH GRANTOR CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO SUCH GRANTOR AT ITS ADDRESS SET FORTH BELOW OR TO ANY OTHER ADDRESS FOR IT AS MAY HEREAFTER BE DESIGNATED IN ANY WRITTEN NOTICE BY IT TO SECURED PARTY.
16.Parties Bound; Assignment. This Agreement shall be binding on each Grantor and on each Grantor’s legal representatives, successors and assigns, and shall inure to the benefit of Secured Party, Secured Party’s successors and assigns and any subsequent holders of the any of the Note.
17.Notices. All notices required or permitted to be given under this Agreement shall be given in writing and shall be delivered to the party receiving the notice at the address for notices set forth at the end of this Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date and year first above written.
GB SCIENCES, INC.
By _________________________
Name: John C. Poss
Title: CEO and Chairman
GB SCIENCES NEVADA LLC
By _________________________
Name: John C. Poss
Title: CEO and Chairman
GB SCIENCES LAS VEGAS LLC
By _________________________
Name: John C. Poss
Title: CEO and Chairman
Address for notices for all Grantors:
3550 W. Teco Avenue
Las Vegas, Nevada 89118
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this “Agreement”) is made as of March 15, 2019, by and between GB Sciences, Inc., a Nevada Corporation (“GB Sciences”), Growblox Life Sciences LLC, a Nevada limited liability company and a wholly owned subsidiary of GB Sciences (“Growblox LLC”, together with GB Sciences, the “Selling Parties”) and GBS Global BioPharma, Inc., a Canadian corporation domiciled in Ottawa, Ontario and a wholly owned subsidiary of GB Sciences (“GBS Canada”).
WHEREAS, GBS Canada intends to purchase from the Selling Parties, and the Selling Parties intend to sell to GBS Canada, the Transferred Assets (as defined below) upon the terms and subject to the conditions set forth in this Agreement and the Ancillary Agreements (as defined below);
WHEREAS, GBS Canada intends to assume from the Selling Parties, and the Selling Parties intend to assign to GBS Canada, the Assumed Liabilities (as defined below) upon the terms and subject to the conditions of this Agreement and the Ancillary Agreements;
WHEREAS, in consideration for the sale of the Transferred Assets, GBS Canada intends to issue the Promissory Note (as defined below) to Growblox LLC and to enter into the Royalty Agreement (as defined below) with Growblox LLC; and
WHEREAS, GB Sciences directly owns all of Growblox LLC’s outstanding equity interests and will benefit substantially by GBS Canada’s issuance of the Promissory Note and execution of the Royalty Agreement.
NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, GB Sciences, Growblox LLC and GBS Canada hereby agree as follows:
1.Certain Definitions.
“Ancillary Agreements” collectively refers to the Bill of Sale, Patent Assignment Agreement, Instrument of Assumption, Promissory Note and Royalty Agreement, each in substantially the form attached hereto.
“GB Sciences Specified Contracts” means all contracts identified on Schedule 1 attached hereto.
“Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, representative office, branch, governmental authority or other similar entity.
“Promissory Note” means that certain promissory note issued by GBS Canada, in substantially the form attached hereto as Exhibit D, in the principal amount of $1,435,700.
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“Royalty Agreement” means that certain royalty agreement between GBS Canada and Growblox LLC, in substantially the form attached hereto as Exhibit E, pursuant to which Growblox LLC will receive a portion of GBS Canada revenue during a specified period following the Closing.
“Growblox LLC Specified Contracts” means all contracts identified on Schedule 2 attached hereto.
“Growblox LLC Transferred Assets” means all of Growblox LLC’s properties, assets, claims, rights, titles and interests of every kind and nature, whether tangible or intangible, real, personal or mixed, and wherever located and by whomever possessed, owned or used by Growblox LLC as of the date of the Closing, including the Growblox LLC Specified Contracts and the Specified Patents.
“Specified Contracts” means all GB Sciences Specified Contracts and all Growblox LLC Specified Contracts.
“Specified Patents” means all patents held by Growblox LLC, whether held directly or through assignments or licenses and as identified on Schedule 3 hereto.
2.The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place remotely via the exchange of documents and signatures on the date hereof.
3.Purchase and Delivery of the Transferred Assets. Subject to and upon the terms and conditions of this Agreement, at the Closing, the Selling Parties shall sell, contribute, transfer, convey, assign and deliver to GBS Canada, and GBS Canada shall acquire and accept from the Selling Parties, all right, title and interest of the Selling Parties in (i) the GB Sciences Specified Contracts, (ii) the Growblox LLC Transferred Assets and (iii) the Assumed Liabilities (as defined below) ((i) and (ii) collectively referred to herein as the “Transferred Assets”).
4.Assumption of Assumed Liabilities. Subject to and upon the terms and conditions of this Agreement, at the Closing, GBS Canada shall assume and agree to perform, pay and discharge when due, only the debts, liabilities, obligations or commitments of the Selling Parties set forth on Schedule 4 (the “Assumed Liabilities”).
5.Liabilities Not Assumed. Notwithstanding anything to the contrary in this Agreement, GBS Canada shall not assume or in any way become liable for any of the debts, liabilities, obligations or commitments of any nature or kind whatsoever of the Selling Parties, whether accrued, absolute, contingent or otherwise, whether known or unknown, whether due or to become due and regardless of when or by whom asserted, unless such liabilities or obligations are included in the Assumed Liabilities.
6.Deliveries at Closing. At the Closing, the following deliveries shall occur:
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(a)The Selling Parties shall deliver to GBS Canada a duly executed Bill of Sale and Assignment, substantially in the form attached hereto as Exhibit A, pursuant to which the Selling Parties shall convey to GBS Canada the Transferred Assets;
(b)Growblox LLC shall deliver to GBS Canada a duly executed Patent Assignment Agreement, substantially in the form attached hereto as Exhibit B, pursuant to which Growblox LLC shall assign the Specified Patents to GBS Canada;
(c)GBS Canada shall deliver a duly executed Instrument of Assumption, substantially in the form attached hereto as Exhibit C, pursuant to which GBS Canada shall assume the Assumed Liabilities;
(d)GBS Canada shall deliver a duly executed Promissory Note, substantially in the form attached hereto as Exhibit D, as partial consideration for the Transferred Assets;
(e)GBS Canada shall deliver a duly executed Royalty Agreement, substantially in the form attached hereto as Exhibit E, as partial consideration for the Transferred Assets; and
(f)any and all other agreements, contracts, instruments or other documents reasonably necessary to effectuate the transactions contemplated herein.
7.Further Assurances.
(a)At any time and from time to time after the Closing, at GBS Canada’s request and without further consideration, the Selling Parties shall promptly execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation, and take such other action, as GBS Canada may reasonably request to transfer, convey and assign to GBS Canada, and to confirm GBS Canada’s title to, all of the Transferred Assets, to put GBS Canada in actual possession and operating control thereof, to assist GBS Canada in exercising all rights with respect thereto and to carry out the purpose and intent of this Agreement.
(b)At any time and from time to time after the Closing, at GBS Canada’s request and without further consideration, the Selling Parties shall promptly execute and deliver such instruments of assumption, and take such other action, as GBS Canada may reasonably request for GBS Canada to assume the Assumed Liabilities, and to confirm such assumption and to carry out the purpose and intent of this Agreement. GBS Canada shall promptly reimburse the Selling Parties for all costs or other liabilities incurred by the Selling Parties after the Closing in respect of the Assumed Liabilities.
(c)It is the intention of the parties that the consideration paid by GBS Canada for the Transferred Assets be equal to the fair market value of the Transferred Assets as at the date hereof. If any taxing authority should assess or reassess GBS Canada on the basis of a determination that the consideration paid for the Transferred Assets was an amount other than the fair market value of the Transferred Assets, then the parties shall make such adjustments to the consideration paid by GBS Canada for the Transferred Assets as is necessary to ensure that the consideration paid for the Transferred Assets was an amount equal to the fair market value of the Transferred Assets as so determined. Any such adjustments shall be effective as of the date
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hereof and the parties will forthwith take all actions as are required as a result of the adjustment, and do all things necessary or desirable to give effect to any such adjustment.
8.GBS Canada Shareholder Approval by GB Sciences Board. The making of any of the following decisions or the taking of any of the following actions by GBS Canada shall require the prior written approval of GB Sciences:
(a)selling, transferring, leasing, exchanging, licensing or otherwise disposing of any of the patents held by GBS Canada or granting any right, option or privilege to do so;
(b)entering into a partnership, joint venture or other arrangement regarding the development of GBS Canada’s intellectual property and technology;
(c)allotting, reserving, setting aside or issuing any securities of GBS Canada or issuing any rights, warrants or options to purchase, acquire or otherwise obtain unissued securities of GBS Canada, except for issuances or grants under an employee stock option plan or between GBS Canada and GB Sciences;
(d)adding or removing a member of the board of directors, or changing the number of directors comprising the board of directors of GBS Canada;
(e)entering into any employment agreement for a term of longer than [one] year;
(f)proceeding with an initial public offering, whether on a treasury or secondary basis, resulting in the holding of equity of GBS Canada, directly or indirectly, by the public, or a transaction giving rise to a stock market listing or over-the-counter quotation of equity of GBS Canada, directly or indirectly (including an amalgamation, securities exchange take-over bid or other transaction having a similar result);
(g)making any expenditure in excess of $100,000 in any one transaction or series of related transactions;
(h)compensating any officer or director in addition to what has been approved by GB Sciences; or
(i)accepting any research and development collaboration funds from any arm’s length party, unless GB Sciences has previously approved a budget for the use of such funds (and for clarity the expenditure of such funds in accordance with such approved budget will not require further approval of GB Sciences).
Notwithstanding the foregoing, the Selling Parties acknowledge that GBS Canada plans to issue securities to new investors and that in connection with such financing GBS Canada intends to enter into a new shareholders agreement, such agreement subject to GB Sciences approval, which will replace the terms of this Section 8.
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9. Transfer and Sales Tax. Notwithstanding any provisions of law, Growblox LLC shall be responsible for and shall pay (a) all sales, use and transfer taxes, and (b) all governmental charges, if any, upon the sale of any of the Transferred Assets hereunder.
10.Bulk Sales Laws. Each of the parties hereto waives compliance by the other parties hereto with the provisions of the “bulk sales laws” of any jurisdiction which may be applicable to the transactions contemplated by this Agreement.
11.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the parties hereto may not assign their respective obligations hereunder without the prior written consent of each of the other parties hereto. Any purported assignment in violation of this Section 11 shall be void.
12.No Third Party Beneficiaries. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person other than GBS Canada and the Selling Parties and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement, such third parties specifically including employees and creditors of GBS Canada and the Selling Parties.
13.Entire Agreement; Amendments; Attachments.
(a)This Agreement, the Schedules and Exhibits hereto, and all agreements and instruments to be delivered by the parties pursuant hereto represent the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and supersede all prior oral and written and all contemporaneous oral negotiations, commitments and understandings between such parties. The parties hereto may amend or modify this Agreement, in such manner as may be agreed upon, by a written instrument executed by the parties hereto.
(b)If the provisions of any Schedule or Exhibit to this Agreement are inconsistent with the provisions of this Agreement, the provisions of the Agreement shall prevail. The Schedules and Exhibits attached hereto or to be attached hereafter are hereby incorporated as integral parts of this Agreement.
14.Governing Law. All issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Nevada, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nevada.
15.Section Headings. The section headings are for the convenience of the parties hereto and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties hereto.
16.Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any
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applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
17.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including .pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g. www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
* * * * *
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of and on the date first above written.
GB SCIENCES:
GB SCIENCES, INC.
By:
Name: John C. Poss
Title: Chairman and CEO
GROWBLOX LLC:
GROWBLOX LIFE SCIENCES LLC
By: GB Sciences, Inc.
Its: Sole Member
By:
Name: John C. Poss
Title: Chairman and CEO
GBS CANADA:
GBS GLOBAL BIOPHARMA INC.
By:
Name: John C. Poss
Title: Executive Chairman
Signature Page to Asset Purchase Agreement
Schedule 1
GB Sciences Specified Contracts
All right, title and interest of GB Sciences in the following specified contracts:
1.Services Agreement dated May 24, 2018 by and between GB Sciences and Michigan State University.
2.Consulting Services Agreement dated June 20, 2018 by and between GB Sciences and Ziva Cooper.
3.Consulting Services Agreement dated September 15, 2016 by and between GB Sciences and Carlos Rios-Bedoya.
4.Research and Assignment Agreement, dated September 1, 2016 between GB Sciences and Helen Turner.
5.Research and Assignment Agreement, dated September 1, 2016 between GB Sciences and Lori Shimoda.
Schedule 2
Growblox LLC Specified Contracts
All right, title and interest of Growblox LLC in the following specified contracts:
1.License Agreement dated November 1, 2016 by and between Growblox LLC and Makai Biotechnology, LLC.
2.License Agreement dated September 25, 2017 by and among Growblox LLC, University of Seville, Consorcio Centro de Investigaction Biomedica en Red and Universidad de Cadiz and Addendum No. 1 dated February 1, 2018.
3.Contract Research Project Agreement bearing a date of September 28, 2017 and effective November 15, 2017 by and between Growblox LLC and Fundacion de Investigacio de la Universidad de Sevilla, as amended by that Appendix No. 1 dated July 15, 2018.
4.Consulting Services Agreement, dated December 8, 2017 by and between Growblox LLC and Zoltan Mari.
5.Contract Research Project Agreement, dated August 30, 2018 by and between Growblox LLC and the Department of Pharmacognosy & Natural Products Chemistry at the National and Kapodistrian University of Athens.
6.Consulting Services Agreement, dated September 25, 2017 by and between Growblox LLC and Dra. Mercedes Fernandez Arevalo.
7.Consulting Services Agreement, dated September 25, 2017 by and between Growblox LLC and Dra. Lucia Martin Banderas.
Schedule 3
Specified Patents
App. No. | Date Filed | Title | Assignments (reel/frame) |
(002) Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | |||
10/11/16 | Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (043408/0895) | |
PCT/US2017/055989
| 10/10/17 | Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (Recorded 12/3/2018)
|
US 15/729,565 | 10/10/17 | Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (047039/0206)
|
(003) Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | |||
62/453,161 | 2/1/17 | Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (043408/0898) |
1/31/18 | Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (Recorded 12/3/2018)
| |
US 15/885,620 | 1/31/18 | Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (046688/0653)
|
(005) Myrcene-Containing Complex Mixtures Targeting TRPV1 |
62/509,546 | 5/22/17 | Myrcene-Containing Complex Mixtures Targeting TRPV1 | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (043408/0906)
|
5/22/18 | Myrcene-Containing Complex Mixtures Targeting TRPV1 | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (047004/0813)
| |
US 15/986,316 | 5/22/18 | Myrcene-Containing Complex Mixtures Targeting TRPV1 | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (046689/0060)
|
(006) TRPV1 Activation-Modulating Complex Mixtures of Cannabinoids and/or Terpenes | |||
62/674,843 | 5/22/18 | TRPV1 Activation-Modulating Complex Mixtures of Cannabinoids and/or Terpenes | Small Howard, Andrea, Turner Helen ----> GrowBlox Life Sciences LLC (46310/0764)
|
62/769,743 | 11/20/18 | TRPV1 Activation-Modulating Complex Mixtures of Cannabinoids and/or Terpenes | Recordation in process. |
(007) Therapeutic Nanoparticles Encapsulating Myrcene* | |||
62/757,660 | 11/8/18 | Therapeutic Nanoparticles Encapsulating Myrcene | Recordation in process. |
* This family is co-owned by Growblox and the University of Seville.
Schedule 4
Assumed Liabilities
1.All liabilities arising from the Specified Contracts listed on Schedule 1 and Schedule 2 hereto.
Exhibit A
Form of Bill of Sale
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment dated March 15, 2019 is executed and delivered by GB Sciences, Inc., a Nevada corporation (“GB Sciences”) and Growblox Life Sciences LLC, a Nevada limited liability company and a wholly owned subsidiary of GB Sciences (“Growblox LLC”, together with GB Sciences, the “Selling Parties”), to GBS Global BioPharma, Inc., a Canadian corporation domiciled in Ottawa, Ontario and a wholly owned subsidiary of GB Sciences (“GBS Canada”). All capitalized words and terms used in this Bill of Sale and Assignment and not defined herein shall have the respective meanings ascribed to them in that certain Asset Purchase Agreement, dated as of the date hereof, among GB Sciences, Growblox LLC and GBS Canada (the “Agreement”).
WHEREAS, pursuant to the Agreement, the Selling Parties have agreed to sell, contribute, transfer, convey, assign and deliver to GBS Canada the Transferred Assets, and GBS Canada has agreed to assume all of the Assumed Liabilities.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Selling Parties hereby agree as follows:
1.The Selling Parties hereby sell, contribute, transfer, convey, assign and deliver to GBS Canada, its successors and assigns, to have and to hold forever, all of the Transferred Assets.
2.The Selling Parties hereby covenant and agree that each will, at the request of GBS Canada and without further consideration, execute and deliver, and will cause its employees to execute and deliver, such other instruments of transfer, conveyance and assignment, and take such other action as may reasonably be necessary to more effectively transfer, convey, assign and deliver to, and vest in, GBS Canada, its successors and assigns, good, clear, record and marketable title to the Transferred Assets hereby transferred, conveyed, assigned and delivered, or intended so to be, and to put GBS Canada in actual possession and operating control thereof, to assist GBS Canada in exercising all rights with respect thereto and to carry out the purpose and intent of the Agreement.
3.This sale, contribution, transfer, conveyance and assignment has been executed and delivered by each Selling Party in accordance with the Agreement and is expressly made subject to those liabilities, obligations and commitments which GBS Canada has expressly assumed and agreed to pay, perform and discharge pursuant to a certain Instrument of Assumption executed by GBS Canada of even date herewith and any further obligations of GBS Canada set forth in the Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale and Assignment to be duly executed as of and on the date first above written.
GB SCIENCES:
GB SCIENCES, INC.
By:
Name: John C. Poss
Title: Chairman and CEO
GROWBLOX LLC:
GROWBLOX LIFE SCIENCES LLC
By: GB Sciences, Inc.
Its: Sole Member
By:
Name: John C. Poss
Title: Chairman and CEO
GBS CANADA:
GBS GLOBAL BIOPHARMA INC.
By:
Name: John C. Poss
Title: Executive Chairman
Exhibit B
Form of Patent Assignment Agreement
Exhibit C
Form of Instrument of Assumption
INSTRUMENT OF ASSUMPTION
This Instrument of Assumption dated March 15, 2019, is executed and delivered by GBS Global BioPharma Inc., a Canadian corporation domiciled in Ottawa, Ontario and a wholly owned subsidiary of GB Sciences (“GBS Canada”), to GB Sciences, Inc., a Nevada corporation (“GB Sciences”) and Growblox Life Sciences LLC, a Nevada limited liability company and a wholly owned subsidiary of GB Sciences (“Growblox LLC”, together with GB Sciences, the “Selling Parties”). All capitalized words and terms used in this Instrument of Assumption and not defined herein shall have the respective meanings ascribed to them in that certain Asset Purchase Agreement, dated as of the date hereof, among GB Sciences, Growblox LLC and GBS Canada (the “Agreement”).
WHEREAS, pursuant to the Agreement, the Selling Parties have agreed to sell, contribute, transfer, convey, assign and deliver to GBS Canada all of the Specified Contracts; and
WHEREAS, pursuant to the Agreement, GBS Canada has agreed to assume all of the Assumed Liabilities.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, GBS Canada hereby agrees as follows:
1.The Selling Parties hereby assign, sell, transfer and set over to GBS Canada, and GBS Canada hereby accepts, assumes and agrees to observe, perform, pay and discharge, all of the Assumed Liabilities.
2.Nothing contained herein shall require GBS Canada to perform, pay or discharge any debt, liability, obligation or commitment expressly assumed by GBS Canada herein so long as GBS Canada in good faith contests or causes to be contested the amount or validity thereof, subject, however, to the provisions of Section 3 below.
3.Nothing herein shall be deemed to deprive GBS Canada of any defenses, set-offs or counterclaims which the Selling Parties may have had or which GBS Canada shall have with respect to any of the debts, obligations, liabilities and commitments hereby assumed (the “Defenses and Claims”). The Selling Parties acknowledge that all Defenses and Claims have been assigned to GBS Canada pursuant to the Agreement, and agree to cooperate with GBS Canada to maintain, secure, perfect and enforce such Defenses and Claims, including the signing of any documents, the giving of any testimony or the taking of any such other action as is reasonably requested by GBS Canada in connection with such Defenses and Claims.
IN WITNESS WHEREOF, the parties hereto have caused this Instrument of Assumption to be duly executed as of and on the date first above written.
GB SCIENCES:
GB SCIENCES, INC.
By:
Name: John C. Poss
Title: Chairman and CEO
GROWBLOX LLC:
GROWBLOX LIFE SCIENCES LLC
By: GB Sciences, Inc.
Its: Sole Member
By:
Name: John C. Poss
Title: Chairman and CEO
GBS CANADA:
GBS GLOBAL BIOPHARMA INC.
By:
Name: John C. Poss
Title: Executive Chairman
Exhibit D
Form of Promissory Note
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31464/00600/DOCS/4117910.2
Exhibit E
Form of Royalty Agreement
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31464/00600/DOCS/4117910.2
Growblox Life Sciences, LLC
Patent Assignment Agreement
In the United States Patent and Trademark Office
Assignment
WHEREAS, Growblox Life Sciences LLC, a Nevada limited liability company, with an address at 3550 W. Teco Avenue, Las Vegas, NV 89118 (“ASSIGNOR”) owns certain patent applications and/or registrations and inventions described and/or claimed therein, as set forth in Attachment 1 attached hereto and incorporated herein by this reference (“PATENTS”); and
WHEREAS, GBS Global BioPharma, Inc., a Canadian corporation domiciled in Ottawa, Ontario, with an address at 900 Morrison Drive, Suite 200, Ottawa, Ontario, Canada K2H 8K7 (“ASSIGNEE”), desires to acquire all of the right, title and interest of ASSIGNOR in, to and under the PATENTS;
WHEREAS, ASSIGNOR and ASSIGNEE have entered into a certain Asset Purchase Agreement, dated March 15, 2019, assigning, among other things, all right, title and interest in and to the PATENTS from ASSIGNOR to ASSIGNEE;
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration paid by ASSIGNEE to ASSIGNOR, the receipt and sufficiency of which hereby is acknowledged, ASSIGNOR does hereby sell, assign, transfer and convey unto ASSIGNEE its entire worldwide right, title and interest, including undivided partial interests, in and to the PATENTS, including all divisions, continuations, continuations-in-part, reexaminations, substitutions, reissues, extensions and renewals of the applications and registrations for the PATENTS (and the right to apply for any of the foregoing); all rights to causes of action and remedies related thereto (including, without limitation, the right to sue for past, present or future infringement, misappropriation or violation of rights related to the foregoing); all rights of priority or to claim priority, and any and all other rights and interests arising out of, in connection with or in relation to the PATENTS.
[SIGNATURE PAGE FOLLOWS]
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31464/00600/DOCS/4117910.2
IN WITNESS WHEREOF, ASSIGNOR has caused this Assignment to be duly executed by an authorized officer on this 15th day of March, 2019.
GROWBLOX LIFE SCIENCES LLC
By: GB Sciences, Inc.
Its: Sole Member
By:
Name: John C. Poss
Title: Chairman and CEO
ACKNOWLEDGED AND ACCEPTED:
GBS GLOBAL BIOPHARMA, INC.
By:
Name: John C. Poss
Title: Executive Chairman
STATE OF _______________)
) ss.
COUNTY OF _____________)
On _______________________, 20__, before me, the undersigned notary public in and for said County and State, personally appeared _____________________________________________ ____________________________________________________________________________,
____personally known to me [or]
____proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) __________________ subscribed to the within instrument and acknowledged to me that __________________ executed the same in ____________________ authorized capacity(ies) and that, by _______________ signature(s) on the instrument, the person(s) or the entity(ies) upon behalf of which the person(s) acted executed the instrument.
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31464/00600/DOCS/4117910.2
WITNESS my hand and official seal.
________________________________
My commission expires on
__________________________
Attachment 1
Patents
App. No. | Date Filed | Title | Assignments (USPTO recordation reel/frame) |
(002) Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | |||
62/406,764 | 10/11/16 | Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (043408/0895) |
PCT/US2017/055989
| 10/10/17 | Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (047663/0481)
|
US 15/729,565 | 10/10/17 | Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (047039/0206)
|
(003) Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | |||
62/453,161 | 2/1/17 | Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (043408/0898)
|
PCT/US2018/016296 | 1/31/18 | Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (047663/0517)
|
US 15/885,620 | 1/31/18 | Cannabinoid-Containing Complex Mixtures for the Treatment of Mast Cell-Associated or Basophil-Mediated Inflammatory Disorders | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (046688/0653)
|
(005) Myrcene-Containing Complex Mixtures Targeting TRPV1 | |||
62/509,546 | 5/22/17 | Myrcene-Containing Complex Mixtures Targeting TRPV1 | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (043408/0906)
|
PCT/US2018/033956 | 5/22/18 | Myrcene-Containing Complex Mixtures Targeting TRPV1 | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC
|
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31464/00600/DOCS/4117910.2
US 15/986,316 | 5/22/18 | Myrcene-Containing Complex Mixtures Targeting TRPV1 | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (046689/0060)
|
(006) TRPV1 Activation-Modulating Complex Mixtures of Cannabinoids and/or Terpenes | |||
62/674,843 | 5/22/18 | TRPV1 Activation-Modulating Complex Mixtures of Cannabinoids and/or Terpenes | Small Howard, Andrea ----> GrowBlox Life Sciences LLC (46310/0764)
|
62/769,743 | 11/20/18 | TRPV1 Activation-Modulating Complex Mixtures of Cannabinoids and/or Terpenes | Small Howard, Andrea Turner, Helen ----> GrowBlox Life Sciences LLC (047988/0294)
|
(007) Therapeutic Nanoparticles Encapsulating Myrcene* | |||
62/757,660 | 11/8/18 | Therapeutic Nanoparticles Encapsulating Myrcene | Small Howard, Andrea ----> GrowBlox Life Sciences LLC (047920/0501)
|
* This family is co-owned by Assignor and the University of Seville.
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31464/00600/DOCS/4117910.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR A VALID EXEMPTION THEREFROM.
PROMISSORY NOTE
USD$1,435,700.00March 15, 2019
FOR VALUE RECEIVED, GBS Global BioPharma, Inc., a corporation organized under the laws of Ontario, Canada (“Borrower”), hereby promises to pay to the order of Growblox Life Sciences LLC or its successors or assigns (“Lender”) the principal sum of USD$1,435,700.00, or such lesser amount as shall then equal the outstanding principal amount hereunder. No interest shall accrue on this Note. The principal shall be due and payable on the later to occur of (i) March 15, 2029 and (ii) that date Borrower receives written a demand notice from Lender (the “Maturity Date”). This Note may be prepaid in whole or in part without penalty prior to the Maturity Date.
In the event Borrower (or any subsidiaries or successors of Borrower) issues any Securities prior to the repayment in full of this Note, Borrower (or such subsidiary or successor, as applicable) shall promptly, and in any event no later than five business days following the date of such issuance, pay to Lender an amount equal to the lesser of (x) the then-outstanding unpaid principal under this Note and (y) 10% of the gross proceeds to Borrower (or such subsidiary or successor, as applicable) from the issuance of such Securities. Any payment made pursuant to the preceding sentence shall constitute a prepayment without penalty under this Note. For purposes of this Note, “Securities” means any debt securities, equity securities or securities convertible into or exchangeable for equity securities of Borrower, its subsidiaries or successors, as applicable (excluding in each case trade receivables and unsecured short-term obligations incurred in the ordinary course of business and other than for capital raising purposes).
All payments shall be made in lawful money of the United States of America at the principal office of Borrower, or at such other place as the holder hereof may from time to time designate in writing to Borrower.
Lender is hereby authorized to record all loans and advances made by it to the Borrower (all of which shall be evidenced by this Note), and all repayments or prepayments thereof, in its books and records, such books and records constituting prima facie evidence of the accuracy of the information contained therein.
The parties hereby expressly waive presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other formality.
This Note shall be governed by and construed in accordance with the laws of the State of Nevada as applied to agreements among Nevada residents entered into and to be performed entirely within Nevada.
This Note shall be binding upon Borrower and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of Lender and its successors and assigns, including subsequent holders hereof. Borrower’s obligations under this Note may not be assigned without the
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31464/00600/DOCS/4117910.2
consent of Lender. Lender may assign its rights and obligations under this Note at any time and from time to time in its sole discretion.
[SIGNATURE PAGE FOLLOWS]
26
31464/00600/DOCS/4117910.2
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note effective as of the date first set forth above.
GBS GLOBAL BIOPHARMA, INC.
By: |
|
Name: | John Poss |
Title: | Executive Chairman |
ROYALTY AGREEMENT
This ROYALTY AGREEMENT (the “Agreement”) is made as of March 15, 2019 (the “Effective Date”), by and between Growblox Life Sciences LLC, a Nevada limited liability company (together with its assignees, “Growblox LLC”) and GBS Global BioPharma, Inc., a Canadian corporation domiciled in Ottawa, Ontario (“GBS Canada”).
WHEREAS, concurrently with the execution of this Agreement, Growblox LLC is transferring certain patent rights, contracts and other assets (collectively, the “Transferred Assets”) pursuant to that certain Asset Purchase Agreement by and among Growblox LLC, GBS Canada and GB Sciences, Inc., a Nevada corporation (“GB Sciences”).
WHEREAS, in partial consideration for the sale of the Transferred Assets, GBS Canada desires to enter into this Agreement with Growblox LLC, pursuant to which GBS Canada will pay a royalty to Growblox LLC on the terms and subject to the conditions of this Agreement;
NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, GB Sciences, Growblox LLC and GBS Canada hereby agree as follows:
1.Royalty.
1.1Royalty. GBS Canada shall pay to Growblox LLC the royalty set forth in Exhibit A to this Agreement, as may be modified by the parties from time to time.
1.2Quarterly Payments and Reports.
(a)GBS Canada shall pay the royalty due under Section 1.1 in each calendar quarter within 60 days after the end of such calendar quarter. At the same time, GBS Canada shall provide Growblox LLC with a written report for such period specifying the amount of royalty due, if any, along with such other information as Growblox LLC may request. All payments shall be denominated in U.S. Dollars and shall be transferred in such manner as the parties may mutually agree.
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(b)Any sum required under the laws of any governmental authority to be withheld by GBS Canada from payment for the account of Growblox LLC shall be promptly paid by GBS Canada for and on behalf of Growblox LLC to the appropriate tax or other governmental authorities and GBS Canada shall furnish Growblox LLC with copies of official tax receipts or other appropriate evidence issued by the appropriate tax or other governmental authorities to enable Growblox LLC to support a claim for tax or other credit or refund in respect of any sum so withheld.
(c)GBS Canada shall keep or cause to be kept complete and accurate records appropriate to determine royalties payable under Section 1.1 of this Agreement. The parties shall make such records available to the other party as may be reasonably requested.
2.Term and Termination. The Term of this Agreement expire on January 16, 2029, unless terminated by the mutual written agreement of the parties.
3.General.
3.1Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada as applied to agreements among Nevada residents entered into and to be performed entirely within Nevada.
3.2Assignment. GBS Canada’s obligations under this Agreement may not be assigned without the consent of Growblox LLC. Growblox LLC may assign its rights and obligations under this Agreement at any time and from time to time in its sole discretion.
3.3Waiver. Failure by either party, at any time, to require performance by the other party or to claim a breach of any provision of this Agreement will not be construed as a waiver of any right accruing under this Agreement, nor will it affect subsequent breach or the effectiveness of this Agreement or any part hereof, or prejudice either party with respect to any subsequent action.
3.4Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if
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such invalid, illegal or unenforceable provision had never been contained herein.
3.5Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused the Agreement to be executed by their duly authorized representatives.
GROWBLOX LLC:
GROWBLOX LIFE SCIENCES LLC
By: GB Sciences, Inc.
Its: Sole Member
By:
Name: John Poss
Title: Chairman and CEO
GBS CANADA:
GBS GLOBAL BIOPHARMA INC.
By:
Name: John Poss
Title: Executive Chairman
EXHIBIT A
The royalty payable by GBS Canada under Section 1.1 shall be 5% of GBS Canada’s Revenue during the Term, including the Revenue of any Subsidiary of GBS Canada, any permitted assignee of GBS Canada hereunder and any successor of GBS Canada by operation of law.
Definitions:
“Person” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.
“Revenue” means the gross receipts from the sale, lease, license, provision or other disposition of all products and services that are based upon or related to the Transferred Assets, less returns, refunds and credits. Revenues shall exclude taxes and interest and shall not be reduced by any costs. Revenues shall be determined in accordance with U.S. generally accepted accounting principles.
“Subsidiary” means, with respect to any Person now existing or hereafter organized, any entity of which securities (or other ownership interests having ordinary voting power) sufficient to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person.
GB SCIENCES, INC.
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (this “Agreement”), is entered into as of April 23, 2019 (the “Effective Date”), by and between GB Sciences, Inc., a Nevada corporation (the “Company”), and Iliad Research and Trading, L.P., a Utah limited partnership (the “Investor”).
WHEREAS, the Company wishes to issue and sell to the Investor and the Investor wishes to purchase from the Company an 8% Convertible Promissory Note in the principal amount of $2,765,000.00, convertible into shares of the Company’s Common Stock, par value $.0001 per share, at a conversion price of $0.17 per share (the “Note”), subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, representations, warranties and the mutual covenants contained in this Agreement, the parties agree as follows:
1.AUTHORIZATION AND SALE OF NOTE
1.1Authorization of Shares. The Company has authorized (a) the sale and issuance to the Investor of the Note and (b) the issuance of such shares of Common Stock to be issued upon conversion of the Note (the “Conversion Shares”). The Note shall be in the form attached hereto as Exhibit A.
1.2Advance. Subject to the terms and conditions hereof, at the Closing, the Company shall issue the Note to the Investor, and the Investor shall advance the Company a loan in the principal amount of $2,500,000 (the “Advance”) which shall be evidenced by the Note. The Note carries an original issue discount of $250,000.00 (the “OID”) and $15,000.00 to pay for the Investor’s legal fees, accounting costs, and other expenses incurred in performing due diligence for this transaction (the “Transaction Expenses”). The original principal amount of the Note shall be $2,765,000.00 (the Advance plus the OID plus the Transaction Expenses).
1.3Closing. The closing of the sale and purchase of the Note under this Agreement and the Advance thereunder (the “Closing”) shall take place on the Effective Date of this Agreement, at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah or at such other time or place as the Company and the Investor may mutually agree (the date of the Closing is hereinafter referred to as the “Closing Date”). At the Closing, subject to the terms and conditions hereof, the Company will deliver to the Investor the Note to be purchased by the Investor, against receipt by the Company of the proceeds of the Advance by check made payable to the order of, or wire transfer to, the Company in accordance with the wire instructions included as Exhibit B to this Agreement.
2.REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on a Schedule of Exceptions delivered by the Company to the Investor, the Company hereby represents and warrants to the Investor that:
2.1Organization and Standing; Qualifications. The Company is a corporation validly existing and in good standing under the laws of the State of Nevada. The Company has all requisite power and authority to own and operate its properties and assets, and to carry on its business as conducted and as proposed to be conducted. The Company is duly qualified to transact business in each jurisdiction in which the failure to so qualify could, singly or in the aggregate, have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means a material adverse effect on, or a material adverse change in (i) the business, operations, financial condition, results of operations, properties, prospects, assets or liabilities of the Company and its Subsidiaries (defined below) taken as a whole, or (ii) on the authority or ability of the Company to perform its obligations under this Agreement, the Note, and the other agreements, instruments and documents contemplated hereby (collectively, the “Transaction Documents”). For the avoidance of doubt, a “Material Adverse Effect” shall include, without limitation, any such material adverse effect occurring as a result of (i) a change in any law or legal requirement or the enforcement thereof, (ii) any loss by any applicable subsidiary of any license or permit necessary for the conduct by the Company of its business or proposed business, or (iii) any failure by the Company or any applicable subsidiary to comply in any material respect with all legal requirements of the State of Nevada, including, without limitation, by maintaining and complying with, all applicable licenses, permits and approvals of all governmental authorities in the State of Nevada (collectively, “Nevada Legal Requirements”).
2.2Corporate Power. The Company has all requisite power and authority to execute and deliver this Agreement, to sell and issue the Note hereunder, to issue the Conversion Shares and to carry out and perform its obligations under the terms of this Agreement and each of the Transaction Documents.
2.3Authorization.
2.3.1All corporate action on the part of the Company, its officers, directors and stockholders, necessary for (i) the authorization, execution and delivery of the Agreement by the Company, (ii) the authorization, sale, issuance and delivery of the Note and the Conversion Shares, and (iii) the performance of all of the Company’s obligations under the Transaction Documents, has been taken. This Agreement has been duly and validly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally.
2.3.2The Conversion Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Note, will be duly and validly issued, fully paid, and non-assessable and shall be free of any liens, preemptive or similar rights, encumbrances or restrictions on transfer; provided, however, that the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws.
2.4Capitalization. The capitalization of the Company is as follows:
2.4.1The authorized capital stock of the Company consists of 400,000,000 shares of Common Stock.
2.4.2As of April 12, 2019, the issued and outstanding capital stock of the Company consisted of 243,508,616 shares of Common Stock. The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable and have not been issued in violation of or are not otherwise subject to any preemptive or other similar rights.
2.4.3As of April 12, 2019, the Company had (a) 14,616,334 shares of Common Stock reserved for issuance upon exercise of outstanding options granted under the Company’s 2007 Amended Stock Option Plan, 2014 Equity Compensation Plan and 2018 Stock Plan (the “Option Plans”) and (b) 94,433,113 shares of Common Stock reserved for issuance upon exercise of outstanding warrants.
2.4.4As of April 12, 2019, the Company had 6,300,333 shares of Common Stock available for future grant under the Option Plans.
2.4.5As of April 12, 2019, the Company had outstanding convertible promissory notes convertible into 13,851,529 shares of Common Stock.
With the exception of the foregoing in this Section 2.4 and as set forth on Schedule 2.4, there are no outstanding subscriptions, options, warrants, convertible or exchangeable securities or other rights granted to or by the Company to purchase shares of Common Stock or other securities of the Company and there are no commitments, plans or arrangements to issue any shares of Common Stock or any security convertible into or exchangeable for Common Stock.
2.5Subsidiaries. Except for the subsidiaries of the Company (collectively, the “Subsidiaries”) set forth in the SEC Documents (as defined below), the Company does not have any subsidiaries, and the Company does not own any capital stock of, assets comprising the business of, obligations of, or any other interest (including any equity or partnership interest) in, any person or entity. Each of the Subsidiaries is duly organized, validly existing and in good standing under the laws of their respective jurisdiction of incorporation. Each Subsidiary has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and is registered or qualified to do business and is in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would have a Material Adverse Effect.
2.6Non-Contravention. The execution, delivery and performance of this Agreement by the Company, and the consummation by the Company of the transactions contemplated hereby, do not (i) contravene or conflict with any certificate of incorporation, certificate of formation, any certificate of designations or other constituent documents of the Company or any Subsidiary, or the bylaws of the Company; (ii) assuming the accuracy of the representations and warranties made by the Investor in Section 3 hereof, constitute a violation in any respect of any provision of any federal, state, local or foreign law, rule, regulation, order, judgment or decree applicable to the Company or any Subsidiary; or (iii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) or require any consent under, give rise to any right of termination, amendment, cancellation or acceleration of, or to a loss of any material benefit to which the Company or any Subsidiary is entitled under, or result in the creation or imposition of any lien, claim or
encumbrance on any assets of the Company or any Subsidiary under, any contract to which the Company or any Subsidiary is a party or any permit, license or similar right relating to the Company or any Subsidiary or by which the Company or any Subsidiary may be bound or affected.
2.7Compliance with Law and Charter Documents; Regulatory Permits. Neither the Company nor any Subsidiary is in violation or default of any provisions of its certificate of incorporation, bylaws or similar organizational document, as applicable. The Company and each Subsidiary have materially complied and are currently in material compliance with all applicable judgments, decrees, statutes, laws, rules, regulations and orders of the United States of America and all states thereof, foreign countries and other governmental bodies and agencies having jurisdiction over the Company’s or each Subsidiary’s business or property (“Laws”), and neither the Company nor any Subsidiary has received notice that it is in violation of any statute, rule or regulation of any governmental authority applicable to it, other than U.S. Federal Law governing the production and sale of cannabis. Except as provided on Schedule 2.7 attached hereto, neither the Company nor any Subsidiary is in default (and there exists no condition which, with or without the passage of time or giving of notice or both, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or by which the properties of the Company and any Subsidiary are bound, which default would be reasonably likely to have a Material Adverse Effect. The Company and each Subsidiary possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct its business as described in the SEC Documents (as defined below), except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
2.8SEC Documents.
2.8.1Reports. The Company has filed on the Securities and Exchange Commission’s (“SEC”) EDGAR system, prior to the date hereof, its Annual Report on Form 10-K for the fiscal year ended March 31, 2018 (the “Form 10-K”), its quarterly reports on Form 10-Q for the fiscal quarters ended September 30, 2018, June 30, 2018 and December 31, 2018 (the “Form 10-Qs”), and any Current Report on Form 8-K (“Form 8-Ks”) required to be filed by the Company with the SEC for events occurring during the two (2) years prior to the date hereof (the Form 10-K, Form 10-Qs and Form 8-Ks, together with all exhibits, schedules and other attachments that are filed with such documents, are collectively referred to herein as the “SEC Documents”). Each SEC Document, as of its date (or, if amended or superseded by a filing prior to the Closing Date, then on the date of such filing), did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each SEC Document, as it may have been subsequently amended by filings made by the Company with the SEC prior to the date hereof, complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Document. As of their
respective dates, the financial statements of the Company included in the SEC Documents complied as to form and substance in all material respects with applicable accounting requirements and published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied in the United States (“GAAP”), during the periods involved (except in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements), correspond to the books and records of the Company and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended. The Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date of this Agreement and to which the Company is a party or by which the Company is bound which has not been previously filed or incorporated by reference as an exhibit to the SEC Documents.
2.8.2Sarbanes-Oxley. The Chief Executive Officer and the Chief Financial Officer of the Company have signed, and the Company has furnished to the SEC, all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as of the date hereof. Such certifications contain no exceptions to the matters certified therein and have not been modified or withdrawn; and neither the Company nor any of its officers has received notice from any governmental entity questioning or challenging the accuracy of such certifications. The Company is otherwise in compliance with all applicable effective provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations issued thereunder by the SEC.
2.9Absence of Certain Changes. Except as set forth in the SEC Documents or Schedule 2.9, since March 31, 2018, the business and operations of the Company and each Subsidiary have been conducted in the ordinary course consistent with past practice, and there has not been:
2.9.1any declaration, setting aside or payment of any dividend or other distribution of the assets of the Company with respect to any shares of capital stock of the Company;
2.9.2any repurchase, redemption or other acquisition by the Company of any outstanding shares of the Company’s capital stock;
2.9.3any reduction in the Company’s ownership interest in, or distribution rights as a member of any Subsidiary;
2.9.4any damage, destruction or loss to the Company’s or any Subsidiary’s properties or assets, whether or not covered by insurance, except for such occurrences, individually and collectively, that have not had, and would not reasonably be expected to have, a Material Adverse Effect;
2.9.5any waiver by the Company or any Subsidiary of a valuable right or of a material debt owed to it, except for such waivers, individually and collectively, that have not had, and would not reasonably be expected to have, a Material Adverse Effect;
2.9.6any material change by the Company in its accounting principles, methods or practices or in the manner in which it keeps its accounting books and records, except any such change required by a change in GAAP or by the SEC;
2.9.7any material change or amendment to, or any waiver of any material right under a material contract or arrangement by which the Company, any Subsidiary or any of their assets or properties are bound or subject that could be expected to have a Material Adverse Effect;
2.9.8any other event or condition of any character, except for such events and conditions that have not resulted, and are not reasonably expected to result either individually or collectively, in a Material Adverse Effect;
2.9.9any sale of any assets, individually or in the aggregate, in excess of $10,000 outside of the ordinary course of business; or
2.9.10any capital expenditures, individually or in the aggregate, in excess of $10,000 outside of the ordinary course of business.
2.10Intellectual Property. To the Company’s knowledge, the Company and each Subsidiary own or possess sufficient rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, or other intellectual property (collectively, “Intellectual Property”), which are necessary to conduct their business as currently conducted, except where the failure to own or possess such rights would not reasonably be expected to result in a Material Adverse Effect. To the Company’s knowledge, neither the Company nor any Subsidiary has infringed any patents of others with respect to any Intellectual Property which, either individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect, and no patent owned or licensed by the Company or any Subsidiary is unenforceable or invalid. To the Company’s knowledge, there is no claim, action or proceeding against the Company or any Subsidiary with respect to any Intellectual Property. The Company has no actual knowledge of any infringement or improper use by any third party with respect to any Intellectual Property of the Company or any Subsidiary which would reasonably be expected to result in a Material Adverse Effect. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of such of its Intellectual Property as the Company is required to keep secret. None of the Company’s Intellectual Property has expired or terminated. All of the patent assignments concerning the Intellectual Property which are of record in the United States Patent and Trademark Office as to which the Company is the assignee are believed to be valid and binding obligations of the assignor(s).
3.REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company as follows:
3.1Experience. The Investor understands that the Note and the Conversion Shares are “restricted securities” and have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any applicable state securities law and is acquiring the Note as principal for its own account and not with a view to or for distributing or reselling such Note
or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Note in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Note in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Investor’s right to sell the Note pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws).
3.2Restricted Securities. The Investor understands that the Note and the Conversion Shares issuable upon conversion of the Note may only be sold pursuant to an effective registration statement or a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein. The Investor understands that the offering and sale of the Note is intended to be exempt from registration under the Securities Act, by virtue of Section 4(2) thereof and the provisions of Regulation D promulgated thereunder, based, in part, upon the representations, warranties and agreements of the Investor contained in this Agreement. The Investor further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Note, and on requirements relating to the Company which are outside of the Investor’s control, and which the Company is under no obligation and may not be able to satisfy.
3.3Investor Status. At the time such Investor was offered the Note, it was, and as of the date hereof it is, and on each date on which it converts the Note it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Investor is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
3.4Experience of Investor. The Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Note, and has so evaluated the merits and risks of such investment. Investor represents and warrants that Investor has only relied on information set forth in the SEC Documents and this Agreement in connection with Investor’s investment in the Note.
3.5Ability to Bear Risk. The Investor understands and agrees that purchase of the Note is a high risk investment and the Investor is able to afford an investment in a speculative venture having the risks and objectives of the Company. The Investor’s overall commitment to investments which are not readily marketable is not excessive in view of the Investor’s net worth and financial circumstances and the purchase of the Note will not cause such commitment to become excessive. This investment is a suitable one for the Investor. The Investor must bear the substantial economic risks of the investment in the Note indefinitely because neither the Note nor the Conversion Shares may be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration is available.
3.6Approval. The Purchaser understands that neither the SEC nor any state securities commission has approved or disapproved of the sale of the Note or Conversion Shares or passed upon or confirmed the accuracy or determined the accuracy of the Company’s representations and warranties set forth in this Agreement.
3.7Disclosure of Information. The Investor further represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of the offering of the Note and the business, prospects, properties and financial condition of the Company.
3.8Legends. It is understood that the certificates evidencing the Note and the Conversion Shares may bear one or all of the following legends:
“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”
3.9Authorization. The execution, delivery and performance by the Investor of the Agreement has been duly authorized by all requisite action of the Investor. The Agreement, when executed and delivered by the Investor, shall constitute valid and legally binding obligations of the Investor, enforceable in accordance with their terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.
4.INVESTOR’S CONDITIONS TO CLOSING
The Investor’s obligation to make the Advance under the Note at the Closing is, at the option of the Investor, subject to the fulfillment of the following conditions:
4.1Representations and Warranties True and Correct. The representations and warranties made by the Company in Section 2 hereof shall be true and correct as of the date of such Advance, with the same effect as if made as of such date.
4.2Board Approval. The Company shall have delivered to the Investor evidence of the approval of this Agreement and the transactions contemplated hereby by the Board of Directors of the Company, in form and substance satisfactory to the Investor and its counsel.
4.3Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to such date shall have been performed or complied with.
4.4Compliance with Nevada Legal Requirement. The business and operations of the Company and all applicable Subsidiaries shall be in compliance with all Nevada Legal Requirements.
4.5No Material Adverse Effect. No Material Adverse Effect shall have occurred.
4.6Additional Documentation. The Company shall have executed and delivered to the Investor a Secretary’s Certificate in substantially the form attached hereto as Exhibit C, and a Share Issuance Resolution in substantially the form attached hereto as Exhibit D.
5.COMPANY’S CONDITIONS TO CLOSING
The Company’s obligation to sell and issue the Note to the Investor at the Closing and to make additional borrowings under the Note, is, at the option of the Company, subject to the fulfillment of the following conditions:
5.1Representations and Warranties True and Correct. The representations and warranties made by the Investor in Section 3 hereof shall be true and correct when made, and shall be true and correct as of the date of such Advance, with the same effect as if made as of such date.
5.2Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Investor on or prior to such date shall have been performed or complied with.
6.COVENANTS.
6.1Reserve for Conversion Shares. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Note and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Note from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Note or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or governmental authority that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Note.
6.2Inspection Rights. Investor (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during usual business hours, to inspect the books and records of the Company and each Subsidiary and to make copies thereof, and the right to check, test, and inspect all equipment, materials, and facilities of the Company and each Subsidiary.
6.3Further Assurances. The Company shall cure promptly any defects in the creation and issuance of the Note and the Conversion Shares, and in the execution and delivery of the Transaction Documents. The Company, at its expense, shall execute and deliver promptly to the Investor upon request all such other and further documents, agreements and instruments as may be reasonably necessary to permit the Company to comply with its covenants and agreements herein, and shall make any recordings, file any notices and obtain any consents as may be necessary or appropriate in connection therewith.
6.4Registrations Rights.
6.4.1Required Registration. The Company shall, no later than thirty calendar days following the Effective Date (the “Filing Deadline”), prepare and file with the SEC a registration statement under the Securities Act (the “Required Registration Statement”) covering the resale of the Conversion Shares, and use its best efforts to cause such registration statement to become effective as soon as practicable thereafter and to keep such registration statement effective until such time as the Conversion Shares have been sold or may be sold under Rule 144 without volume limitation. If (i) the Required Registration Statement is not filed with the SEC on or prior to the Filing Deadline, (ii) the Required Registration Statement is not declared effective by the SEC for any reason on or prior to the 120th day following the Effective Date, or (iii) at any time after it is declared effective, (A) the Required Registration Statement ceases for any reason to remain continuously effective or (B) the Investor is not otherwise permitted to utilize the prospectus therein to resell the Conversion Shares for any reason for more than an aggregate of twenty (20) consecutive trading days (any such event under clauses (i)-(iii) being a “Registration Default”), then in addition to any other rights the Investor may have hereunder, under the Note or under applicable law, upon such Registration Default and on each monthly anniversary thereof (until such Registration Default is cured or the Conversion Shares are eligible for resale pursuant to Rule 144 without volume limitation), the Company shall pay to the Investor, as partial liquidated damages and not as a penalty, an amount equal to two percent (2%) of the aggregate Advances that have been made under the Note with respect to Conversion Shares then held by the Investor or issuable under the Note.
6.4.2Right to Include Conversion Shares. In addition, each time that the Company proposes for any reason to register any of its Common Stock under the Securities Act, either for its own account or for the account of a stockholder or stockholders, other than Registration Statements on Forms S-4 or S-8 (or similar or successor forms), other than pursuant to the Registration Statement on Form S-1 previously filed with the SEC (a “Proposed Registration”), and at such time the Conversion Shares are not subject to an effective registration statement under Section 6.5.1., the Company shall promptly give written notice of such Proposed Registration to the Investor (which notice shall be given in no event less than ten (10) days prior to the expected filing date of the Proposed Registration) and shall offer Investor the right to request inclusion of any of such Investor’s Conversion Shares in the Proposed Registration. The rights to piggyback registration may be exercised on an unlimited number of occasions.
6.4.3Piggyback Procedure. The Investor shall have twenty (20) days from the date of receipt of the Company’s notice referred to in Section 6.5.2 above to deliver to the
Company a written request specifying the number of Conversion Shares such Investor intends to sell and such Investor’s intended method of disposition. The Investor shall have the right to withdraw such Investor’s request for inclusion of Investor’s Conversion Shares in any Proposed Registration pursuant to this Section 6.4 by giving written notice to the Company of such withdrawal; provided, however, that the Company may ignore a notice of withdrawal made within less than one full business day prior to the date the Proposed Registration is scheduled to become effective. Subject to Section 6.5.5 below, the Company shall use its reasonable best efforts to include in such Proposed Registration all such Conversion Shares so requested to be included therein; provided, however, that the Company may at any time withdraw or cease proceeding with any such Proposed Registration if it shall at the same time withdraw or cease proceeding with the registration of all other shares of Common Stock originally proposed to be registered.
6.4.4Selection of Underwriters. The managing underwriter for any Proposed Registration that involves an underwritten public offering shall be one or more reputable nationally recognized investment banks selected by the Company.
6.4.5Priority for Piggyback Registration.
6.4.5.1Notwithstanding any other provision of this Section 6.5, if the managing underwriter of an underwritten public offering determines and advises the Company and the Investor in writing that the inclusion of all Conversion Shares proposed to be included by the Investor in the underwritten public offering would materially and adversely interfere with the successful marketing of the Company’s securities in the Proposed Registration, then the Investor shall not be permitted to include any Conversion Shares in excess of the amount, if any, of Conversion Shares which the managing underwriter of such underwritten public offering shall reasonably and in good faith agree in writing to include in such public offering in addition to the amount of securities to be registered for the Company. The securities to be included in a Proposed Registration initiated by the Company shall be allocated: first, to the Company; second, to the Investor, and third, to any others requesting registration of securities of the Company.
6.4.5.2Notwithstanding any portion of the foregoing to the contrary, in no event shall the shares to be sold by the Investor be reduced below twenty percent (20%) of the total amount of securities included in the Proposed Registration. No stockholder of the Company shall be granted piggyback registration rights which would reduce the number of shares to be included by the Investor in such registration without the consent of the Investor.
6.4.5.3If as a result of the provisions of this Section 6.5, the Investor shall not be entitled to include more than 50% of its Conversion Shares in a registration that such Investor has requested to be so included, such Investor may withdraw such Investor’s request to include Conversion Shares in such Proposed Registration.
6.4.6Underwritten Offering. In the event that the Proposed Registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request under this Section 6.5 shall specify that the Conversion Shares be included in the underwriting on the same terms and conditions as the shares, if any, otherwise
being sold through the underwriters under such registration. Notwithstanding the foregoing, in the event that the managing underwriter in any underwritten public offering shall notify the Company that inclusion of all or any portion of the Conversion Shares in such Proposed Registration would, in its opinion, adversely affect the potential success of such public offering and the marketability of the securities offered for the account of the Company, the Company may, upon written notice to the Investor, exclude all or a portion of the Conversion Shares from such Proposed Registration, as requested by such managing underwriter; provided, that (a) if any other Common Stock or securities convertible into or exercisable for Common Stock are also intended to be offered for resale by any other selling stockholder(s) in such Proposed Registration (the “Other Registrable Securities”), such Other Registrable Securities shall similarly be excluded from such Proposed Registration, and (b) if the Company or such managing underwriter shall permit a portion of the Conversion Shares and Other Registrable Securities to be included in the Proposed Registration (collectively, the “Permitted Selling Shares”), then the Investor shall be entitled to include in the Proposed Registration a pro-rata portion of the Conversion Shares (determined by the amount by which the number of Conversion Shares to be included bears to the total number of all Permitted Selling Shares).
6.4.7Statutory Cutback. Notwithstanding the foregoing, if the Company determines and advises the Investor in writing that the inclusion of all securities proposed to be included by the Investor in any Proposed Registration would materially and adversely interfere with the potential effectiveness of such Proposed Registration, whether as a result of the interpretation of Rule 415 promulgated under the Securities Act, or otherwise, then the Investor shall not be permitted to include any securities in excess of its pro rata amount (vis-à-vis all other investors as a whole), if any, of securities which the Company shall reasonably and in good faith agree in writing to include in such offering.
6.4.8Additional Covenants. Until all of the Company’s obligations under all of the Transaction Documents are paid and performed in full, or within the timeframes otherwise specifically set forth below, the Company will at all times comply with the following covenants: (i) so long as the Investor beneficially owns the Note or any Conversion Shares, the Company will timely file on the applicable deadline all reports required to be filed with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act, and will take all reasonable action under its control to ensure that adequate current public information with respect to Company, as required in accordance with Rule 144 of the Securities Act, is publicly available, and will not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination; (ii) when issued, the Conversion Shares will be duly authorized, validly issued, fully paid for and non-assessable, free and clear of all liens, claims, charges and encumbrances; (iii) the Common Stock shall be listed or quoted for trading on any of (a) NYSE, (b) NASDAQ, (c) OTCQX, or (d) OTCQB; and (iv) trading in Company’s Common Stock will not be suspended, halted, chilled, frozen, reach zero bid or otherwise cease trading on Company’s principal trading market.
7.INDEMNIFICATION.
The Company hereby agrees to indemnify, exonerate and hold harmless the Investor and each of its officers, directors, employees and agents (collectively herein called the “Indemnitees” and individually called an “Indemnitee”), from and against any and all actions, causes of action,
suits, losses, liabilities, damages and expenses, including, without limitation, reasonable attorney’s fees and disbursements (collectively herein called the “Indemnified Liabilities”), incurred by the Indemnitees or any of them as a result of, or arising out of, any misrepresentation or breach of or default in connection with any of the representations, warranties, covenants and agreements given or made by the Company in this Agreement or any other Transaction Document, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
8.MISCELLANEOUS
8.1Arbitration of Claims. The parties shall submit all Claims (as defined in Exhibit E) arising under this Agreement or any other Transaction Document or any other agreement between the parties and their affiliates or any Claim relating to the relationship of the parties to binding arbitration pursuant to the arbitration provisions set forth in Exhibit E attached hereto (the “Arbitration Provisions”). The parties hereby acknowledge and agree that the Arbitration Provisions are unconditionally binding on the parties hereto and are severable from all other provisions of this Agreement. By executing this Agreement, the Company represents, warrants and covenants that the Company has reviewed the Arbitration Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to the terms and limitations set forth in the Arbitration Provisions, and that the Company will not take a position contrary to the foregoing representations. The Company acknowledges and agrees that the Investor may rely upon the foregoing representations and covenants of the Company regarding the Arbitration Provisions.
8.2Governing Law; Venue. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. Each party consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out of or relating to any Transaction Document or the relationship of the parties or their affiliates shall be in Salt Lake County, Utah. Without modifying the parties’ obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, for any litigation arising in connection with any of the Transaction Documents (and notwithstanding the terms (specifically including any governing law and venue terms) of any transfer agent services agreement or other agreement between the Company’s transfer agent and the Company, such litigation specifically includes, without limitation any action between or involving the Company and the transfer agent or otherwise related to the Investor in any way (specifically including, without limitation, any action where the Company seeks to obtain an injunction, temporary restraining order, or otherwise prohibit the Transfer Agent from issuing shares of Common Stock to the Investor for any reason)), each party hereto hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of any state or federal court sitting in Salt Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, (iii) agrees to not bring any such action (specifically including, without limitation, any action where the Company seeks to obtain an injunction,
temporary restraining order, or otherwise prohibit the Transfer Agent from issuing shares of Common Stock to the Investor for any reason) outside of any state or federal court sitting in Salt Lake County, Utah, and (iv) waives any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim, defense or objection to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or proceeding is improper. Finally, the Company covenants and agrees to name the Investor as a party in interest in, and provide written notice to the Investor in accordance with Section 8.6 below prior to bringing or filing, any action (including without limitation any filing or action against any person or entity that is not a party to this Agreement, including without limitation the Transfer Agent) that is related in any way to the Transaction Documents or any transaction contemplated herein or therein, including without limitation any action brought by the Company to enjoin or prevent the issuance of any shares of Common Stock to the Investor by the Transfer Agent, and further agrees to timely name the Investor as a party to any such action. The Company acknowledges that the governing law and venue provisions set forth in this Section 8.2 are material terms to induce the Investor to enter into the Transaction Documents and that but for the Company’s agreements set forth in this Section 8.2 the Investor would not have entered into the Transaction Documents.
8.3Specific Performance. The Company acknowledges and agrees that the Investor may suffer irreparable harm in the event that the Company fails to perform any material provision of this Agreement or any of the other Transaction Documents in accordance with its specific terms. It is accordingly agreed that the Investor shall be entitled to one or more injunctions to prevent or cure breaches of the provisions of this Agreement or such other Transaction Document and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which the Investor may be entitled under the Transaction Documents, at law or in equity. The Company specifically agrees that following an Event of Default (as defined in the Note) under the Note, the Investor shall have the right to seek and receive injunctive relief from a court or an arbitrator prohibiting the Company from issuing any of its common or preferred stock to any party unless the Note is being paid in full simultaneously with such issuance. The Company specifically acknowledges that the Investor’s right to obtain specific performance constitutes bargained for leverage and that the loss of such leverage would result in irreparable harm to Lender. For the avoidance of doubt, in the event the Investor seeks to obtain an injunction from a court or an arbitrator against the Company or specific performance of any provision of any Transaction Document, such action shall not be a waiver of any right of the Investor under any Transaction Document, at law, or in equity, including without limitation its rights to arbitrate any Claim pursuant to the terms of the Transaction Documents, nor shall the Investor’s pursuit of an injunction prevent the Investor, under the doctrines of claim preclusion, issues preclusion, res judicata or other similar legal doctrines, from pursuing other Claims in the future in a separate arbitration.
8.4Successors and Assigns. Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto (including to any transferee of the Note or Conversion Shares). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.5Amendment. Any provision of this Agreement may be amended, waived, modified, discharged or terminated only with the written consent of the Company and the Investor. Any amendment or waiver affected in accordance with this Section 8.5 shall be binding upon the Company and each holder of any securities subject to this Agreement (including securities into which such securities are convertible) and future holders of all such securities. The Investor may waive its rights or the Company’s obligations with respect to the Note hereunder without obtaining the consent of any other natural person or Person.
8.6Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given (a) upon personal delivery to the party to be notified, (b) five (5) days after deposit in the United States mail, by registered or certified mail, postage prepaid and properly addressed to the party to be notified as set forth in the Company records, or (c) when received if transmitted by telecopy (to be followed by U.S. mail), electronic or digital transmission method. In each case notice shall be sent to the addresses set forth on the Company’s records or at such other address as a party may designate by ten (10) days’ advance written notice to the other parties hereto.
8.7Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one and the same instrument.
8.8Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
8.9Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
8.10Survival of Agreement. All covenants and agreements made in this Agreement shall survive the execution and delivery hereof and the issuance, sale and delivery of the Note, and the issuance and delivery of the Conversion Shares. For the avoidance of doubt, the representations and warranties made in this Agreement shall survive the execution and delivery hereof.
8.11Attorneys’ Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
8.12Facsimile/PDF Signatures. This Agreement may be executed and delivered by facsimile or PDF and, upon such delivery, the facsimile or PDF will be deemed to have the same effect as if the original signature had been delivered to the other party. The failure to deliver the original signature copy shall have no effect upon the binding and enforceable nature of this Agreement.
8.13Entire Agreement. This Agreement, together with the Exhibits hereto, the certificates, documents, instruments and writings that are delivered pursuant hereto and each of
the other Agreements, constitutes the entire agreement and understanding of the parties hereto in respect of its subject matters and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby.
8.14Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
[Signature page follows]
IN WITNESS WHEREOF, the parties have executed this Note Purchase Agreement on the day and year first set forth above.
GB SCIENCES, INC.
By:
Name: John C. Poss
Title: CEO and Chairman
ILIAD RESEARCH AND TRADING, L.P.
By: Iliad Management, LLC, its General Partner
By:Fife Trading, Inc., its Manager
By:
John M. Fife, President
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EXHIBIT A
Form of Convertible Promissory Note
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EXHIBIT B
Company Wire Instructions
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EXHIBIT C
Secretary’s Certificate
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EXHIBIT D
Share Issuance Resolution
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EXHIBIT E
Arbitration Provisions
1.Dispute Resolution. For purposes of this Exhibit F, the term “Claims” means any disputes, claims, demands, causes of action, requests for injunctive relief, requests for specific performance, liabilities, damages, losses, or controversies whatsoever arising from, related to, or connected with the transactions contemplated in the Transaction Documents and any communications between the parties related thereto, including without limitation any claims of mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure of consideration, promissory estoppel, unconscionability, failure of condition precedent, rescission, and any statutory claims, tort claims, contract claims, or claims to void, invalidate or terminate the Agreement (or these Arbitration Provisions (defined below)) or any of the other Transaction Documents. For the avoidance of doubt, the Investor’s pursuit of an injunction or other Claim pursuant to these Arbitration Provisions or with a court will not later prevent the Investor under the doctrines of claim preclusion, issue preclusion, res judicata or other similar legal doctrines from pursuing other Claims in a separate arbitration in the future. The parties to this Agreement (the “parties”) hereby agree that the Claims may be arbitrated in one or more Arbitrations pursuant to these Arbitration Provisions (one for an injunction or injunctions and a separate one for all other Claims). The term “Claims” specifically excludes a dispute over Calculations. The parties to the Agreement hereby agree that the arbitration provisions set forth in this Exhibit F (“Arbitration Provisions”) are binding on each of them. As a result, any attempt to rescind the Agreement (or these Arbitration Provisions) or declare the Agreement (or these Arbitration Provisions) or any other Transaction Document invalid or unenforceable for any reason is subject to these Arbitration Provisions. These Arbitration Provisions shall also survive any termination or expiration of the Agreement. Any capitalized term not defined in these Arbitration Provisions shall have the meaning set forth in the Agreement.
2.Arbitration. Except as otherwise provided herein, all Claims must be submitted to arbitration (“Arbitration”) to be conducted exclusively in Salt Lake County, Utah and pursuant to the terms set forth in these Arbitration Provisions. Subject to the arbitration appeal right provided for in Paragraph 5 below (the “Appeal Right”), the parties agree that the award of the arbitrator rendered pursuant to Paragraph 4 below (the “Arbitration Award”) shall be (a) final and binding upon the parties, (b) the sole and exclusive remedy between them regarding any Claims, counterclaims, issues, or accountings presented or pleaded to the arbitrator, and (c) promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Subject to the Appeal Right, any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Arbitration Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Arbitration Award shall include default interest (as defined or otherwise provided for in the Note, “Default Interest”) (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Arbitration Award will be entered and enforced by any state or federal court sitting in Salt Lake County, Utah.
3.The Arbitration Act. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration Act, U.C.A. § 78B-11-101 et seq. (as amended or superseded from time to time, the “Arbitration Act”). Notwithstanding the foregoing, pursuant to, and to the maximum extent permitted by, Section 105 of the Arbitration Act, in the event of conflict or variation between the terms of these Arbitration Provisions and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall control and the parties hereby waive or otherwise agree to vary the effect of all requirements of the Arbitration Act that may conflict with or vary from these Arbitration Provisions.
4.Arbitration Proceedings. Arbitration between the parties will be subject to the following:
4.1Initiation of Arbitration. Pursuant to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by giving written notice to the other party (“Arbitration Notice”) in the same manner that notice is permitted under Section 8.6 of the Agreement; provided, however, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as of the date that the Arbitration Notice is deemed delivered to such other party under Section 8.6 of the Agreement (the “Service Date”). After the Service Date, information may be delivered, and notices may be given, by email or fax pursuant to Section 8.6 of the Agreement or any other method permitted thereunder. The Arbitration Notice must describe the nature of the controversy, the remedies
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sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded consistent with the Utah Rules of Civil Procedure.
4.2Selection and Payment of Arbitrator.
(a) Within ten (10) calendar days after the Service Date, Investor and Company shall each select and submit to the other the name of one (1) arbitrator that is designated as “neutral” or qualified arbitrator by Utah ADR Services (http://www.utahadrservices.com) (such two (2) designated persons hereunder are referred to herein as the “Initial Arbitrators”). For the avoidance of doubt, each Initial Arbitrator must be qualified as a “neutral” with Utah ADR Services. Within five (5) calendar days after the Initial Arbitrators have been selected, the Initial Arbitrators must shall mutually select, by written notice to the parties, a third neutral arbitrator (the “Final Arbitrator”) to act as the arbitrator for the parties under these Arbitration Provisions.
(b) If either party fails to select an Initial Arbitrator, the other party shall give written notice to the dilatory party of such failure upon which the dilatory shall have an additional three (3) days to select an Initial Arbitrator. If the dilatory party still fails to select an Initial Arbitrator, the other party shall select the Final Arbitrator.
(c) If an Initial Arbitrator chosen declines or is otherwise unable to choose a Final Arbitrator, then the party that selected such Initial Arbitrator may select one (1) other Initial Arbitrator within three (3) calendar days of the date the chosen Initial Arbitrator declines or notifies the parties he or she is unable to serve as arbitrator.
(d) The date that the Final Arbitrator selected pursuant to this Paragraph 4.2 agrees in writing (including via email) delivered to both parties to serve as the arbitrator hereunder is referred to herein as the “Arbitration Commencement Date”. If an arbitrator resigns or is unable to act during the Arbitration, a replacement arbitrator shall be chosen in accordance with this Paragraph 4.2 to continue the Arbitration. If Utah ADR Services ceases to exist or to provide a list of neutrals and there is no successor thereto, then the arbitrator shall be selected under the then prevailing rules of the American Arbitration Association.
(e) Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid equally by both parties. Subject to Paragraph 4.10 below, if one party refuses or fails to pay its portion of the arbitrator fee, then the other party can advance such unpaid amount (subject to the accrual of Default Interest thereupon), with such amount being added to or subtracted from, as applicable, the Arbitration Award.
4.3Applicability of Certain Utah Rules. The parties agree that the Arbitration shall be conducted generally in accordance with the Utah Rules of Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah Rules of Civil Procedure shall apply, without limitation, to the filing of any pleadings, motions or memoranda, the conducting of discovery, and the taking of any depositions. The Utah Rules of Evidence shall apply to any hearings, whether telephonic or in person, held by the arbitrator. Notwithstanding the foregoing, it is the parties’ intent that the incorporation of such rules will in no event supersede these Arbitration Provisions. In the event of any conflict between the Utah Rules of Civil Procedure or the Utah Rules of Evidence and these Arbitration Provisions, these Arbitration Provisions shall control.
4.4Answer and Default. An answer and any counterclaims to the Arbitration Notice shall be required to be delivered to the party initiating the Arbitration within twenty (20) calendar days after the Arbitration Commencement Date. If an answer is not delivered by the required deadline, the arbitrator must provide written notice to the defaulting party stating that the arbitrator will enter a default award against such party if such party does not file an answer within five (5) calendar days of receipt of such notice. If an answer is not filed within the five (5) day extension period, the arbitrator must render a default award, consistent with the relief requested in the Arbitration Notice, against a party that fails to submit an answer within such time period.
4.5Related Litigation. The party that delivers the Arbitration Notice to the other party shall have the option to also commence concurrent legal proceedings with any state or federal court sitting in Salt Lake County, Utah (“Litigation Proceedings”), subject to the following: (a) the complaint in the Litigation Proceedings is to be substantially similar to the claims set forth in the Arbitration Notice, provided that an additional cause of action to compel arbitration will also be included therein, (b) so long as the other party files an answer to the complaint in the Litigation Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings will be stayed pending an Arbitration Award (or Appeal Panel Award (defined below), as applicable) hereunder, (c) if the other party fails to file an answer in the Litigation Proceedings or an answer in the Arbitration proceedings, then the party initiating Arbitration shall be entitled to a default judgment consistent with the relief requested, to be entered in the Litigation Proceedings, and (d) any legal or procedural issue arising under the Arbitration Act that requires a decision of a court of competent jurisdiction may be determined in the Litigation Proceedings. Any award of the arbitrator (or of the Appeal Panel (defined below)) may be entered in such Litigation Proceedings pursuant to the Arbitration Act.
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4.6Discovery. Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted as follows:
(a) Written discovery will only be allowed if the likely benefits of the proposed written discovery outweigh the burden or expense thereof, and the written discovery sought is likely to reveal information that will satisfy a specific element of a claim or defense already pleaded in the Arbitration. The party seeking written discovery shall always have the burden of showing that all of the standards and limitations set forth in these Arbitration Provisions are satisfied. The scope of discovery in the Arbitration proceedings shall also be limited as follows:
(i)To facts directly connected with the transactions contemplated by the Agreement.
(ii)To facts and information that cannot be obtained from another source or in another manner that is more convenient, less burdensome or less expensive than in the manner requested.
(b) No party shall be allowed (i) more than fifteen (15) interrogatories (including discrete subparts), (ii) more than fifteen (15) requests for admission (including discrete subparts), (iii) more than ten (10) document requests (including discrete subparts), or (iv) more than three (3) depositions (excluding expert depositions) for a maximum of seven (7) hours per deposition. The costs associated with depositions will be borne by the party taking the deposition. The party defending the deposition will submit a notice to the party taking the deposition of the estimated attorneys’ fees that such party expects to incur in connection with defending the deposition. If the party defending the deposition fails to submit an estimate of attorneys’ fees within five (5) calendar days of its receipt of a deposition notice, then such party shall be deemed to have waived its right to the estimated attorneys’ fees. The party taking the deposition must pay the party defending the deposition the estimated attorneys’ fees prior to taking the deposition, unless such obligation is deemed to be waived as set forth in the immediately preceding sentence. If the party taking the deposition believes that the estimated attorneys’ fees are unreasonable, such party may submit the issue to the arbitrator for a decision. All depositions will be taken in Utah.
(c) All discovery requests (including document production requests included in deposition notices) must be submitted in writing to the arbitrator and the other party. The party submitting the written discovery requests must include with such discovery requests a detailed explanation of how the proposed discovery requests satisfy the requirements of these Arbitration Provisions and the Utah Rules of Civil Procedure. The receiving party will then be allowed, within five (5) calendar days of receiving the proposed discovery requests, to submit to the arbitrator an estimate of the attorneys’ fees and costs associated with responding to such written discovery requests and a written challenge to each applicable discovery request. After receipt of an estimate of attorneys’ fees and costs and/or challenge(s) to one or more discovery requests, consistent with subparagraph (c) above, the arbitrator will within three (3) calendar days make a finding as to the likely attorneys’ fees and costs associated with responding to the discovery requests and issue an order that (i) requires the requesting party to prepay the attorneys’ fees and costs associated with responding to the discovery requests, and (ii) requires the responding party to respond to the discovery requests as limited by the arbitrator within twenty-five (25) calendar days of the arbitrator’s finding with respect to such discovery requests. If a party entitled to submit an estimate of attorneys’ fees and costs and/or a challenge to discovery requests fails to do so within such 5-day period, the arbitrator will make a finding that (A) there are no attorneys’ fees or costs associated with responding to such discovery requests, and (B) the responding party must respond to such discovery requests (as may be limited by the arbitrator) within twenty-five (25) calendar days of the arbitrator’s finding with respect to such discovery requests. Any party submitting any written discovery requests, including without limitation interrogatories, requests for production subpoenas to a party or a third party, or requests for admissions, must prepay the estimated attorneys’ fees and costs, before the responding party has any obligation to produce or respond to the same, unless such obligation is deemed waived as set forth above.
(d) In order to allow a written discovery request, the arbitrator must find that the discovery request satisfies the standards set forth in these Arbitration Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly enforce these standards. If a discovery request does not satisfy any of the standards set forth in these Arbitration Provisions or the Utah Rules of Civil Procedure, the arbitrator may modify such discovery request to satisfy the applicable standards, or strike such discovery request in whole or in part.
(e) Each party may submit expert reports (and rebuttals thereto), provided that such reports must be submitted within sixty (60) days of the Arbitration Commencement Date. Each party will be allowed a maximum of two (2) experts. Expert reports must contain the following: (i) a complete statement of all opinions the expert will offer at trial and the basis and reasons for them; (ii) the expert’s name and qualifications, including a list of all the expert’s publications within the preceding ten (10) years, and a list of any other cases in which the expert has testified at trial or in a deposition or prepared a report within the preceding ten (10) years; and (iii) the compensation
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to be paid for the expert’s report and testimony. The parties are entitled to depose any other party’s expert witness one (1) time for no more than four (4) hours. An expert may not testify in a party’s case-in-chief concerning any matter not fairly disclosed in the expert report.
4.6Dispositive Motions. Each party shall have the right to submit dispositive motions pursuant Rule 12 or Rule 56 of the Utah Rules of Civil Procedure (a “Dispositive Motion”). The party submitting the Dispositive Motion may, but is not required to, deliver to the arbitrator and to the other party a memorandum in support (the “Memorandum in Support”) of the Dispositive Motion. Within seven (7) calendar days of delivery of the Memorandum in Support, the other party shall deliver to the arbitrator and to the other party a memorandum in opposition to the Memorandum in Support (the “Memorandum in Opposition”). Within seven (7) calendar days of delivery of the Memorandum in Opposition, as applicable, the party that submitted the Memorandum in Support shall deliver to the arbitrator and to the other party a reply memorandum to the Memorandum in Opposition (“Reply Memorandum”). If the applicable party shall fail to deliver the Memorandum in Opposition as required above, or if the other party fails to deliver the Reply Memorandum as required above, then the applicable party shall lose its right to so deliver the same, and the Dispositive Motion shall proceed regardless.
4.7Confidentiality. All information disclosed by either party (or such party’s agents) during the Arbitration process (including without limitation information disclosed during the discovery process or any Appeal (defined below)) shall be considered confidential in nature. Each party agrees not to disclose any confidential information received from the other party (or its agents) during the Arbitration process (including without limitation during the discovery process or any Appeal) unless (a) prior to or after the time of disclosure such information becomes public knowledge or part of the public domain, not as a result of any inaction or action of the receiving party or its agents, (b) such information is required by a court order, subpoena or similar legal duress to be disclosed if such receiving party has notified the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a court of competent jurisdiction prior to disclosure, or (c) such information is disclosed to the receiving party’s agents, representatives and legal counsel on a need to know basis who each agree in writing not to disclose such information to any third party. Pursuant to Section 118(5) of the Arbitration Act, the arbitrator is hereby authorized and directed to issue a protective order to prevent the disclosure of privileged information and confidential information upon the written request of either party.
4.8Authorization; Timing; Scheduling Order. Subject to all other portions of these Arbitration Provisions, the parties hereby authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out the parties’ intent for the Arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the parties hereby agree that an Arbitration Award must be made within one hundred twenty (120) calendar days after the Arbitration Commencement Date. The arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the Arbitration Commencement Date in order to establish a scheduling order with various binding deadlines for discovery, expert testimony, and the submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 120-day period.
4.9Relief. The arbitrator shall have the right to award or include in the Arbitration Award (or in a preliminary ruling) any relief which the arbitrator deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the arbitrator may not award exemplary or punitive damages.
4.10Fees and Costs. As part of the Arbitration Award, the arbitrator is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration, and (b) reimburse the prevailing party for all reasonable attorneys’ fees, arbitrator costs and fees, deposition costs, other discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration.
5.Arbitration Appeal.
5.1Initiation of Appeal. Following the entry of the Arbitration Award, either party (the “Appellant”) shall have a period of thirty (30) calendar days in which to notify the other party (the “Appellee”), in writing, that the Appellant elects to appeal (the “Appeal”) the Arbitration Award (such notice, an “Appeal Notice”) to a panel of arbitrators as provided in Paragraph 5.2 below. The date the Appellant delivers an Appeal Notice to the Appellee is referred to herein as the “Appeal Date”. The Appeal Notice must be delivered to the Appellee in accordance with the provisions of Paragraph 4.1 above with respect to delivery of an Arbitration Notice. In addition, together with delivery of the Appeal Notice to the Appellee, the Appellant must also pay for (and provide proof of such payment
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to the Appellee together with delivery of the Appeal Notice) a bond in the amount of 110% of the sum the Appellant owes to the Appellee as a result of the Arbitration Award the Appellant is appealing. In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of this Paragraph 5.1, the Appeal will occur as a matter of right and, except as specifically set forth herein, will not be further conditioned. In the event a party does not deliver an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline prescribed in this Paragraph 5.1, such party shall lose its right to appeal the Arbitration Award. If no party delivers an Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline described in this Paragraph 5.1, the Arbitration Award shall be final. The parties acknowledge and agree that any Appeal shall be deemed part of the parties’ agreement to arbitrate for purposes of these Arbitration Provisions and the Arbitration Act.
5.2Selection and Payment of Appeal Panel. In the event an Appellant delivers an Appeal Notice to the Appellee (together with proof of payment of the applicable bond) in compliance with the provisions of Paragraph 5.1 above, the Appeal will be heard by a three (3) person arbitration panel (the “Appeal Panel”).
(a) Within ten (10) calendar days after the Appeal Date, the Appellee shall select and submit to the Appellant the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such five (5) designated persons hereunder are referred to herein as the “Proposed Appeal Arbitrators”). For the avoidance of doubt, each Proposed Appeal Arbitrator must be qualified as a “neutral” with Utah ADR Services, and shall not be the arbitrator who rendered the Arbitration Award being appealed (the “Original Arbitrator”). Within five (5) calendar days after the Appellee has submitted to the Appellant the names of the Proposed Appeal Arbitrators, the Appellant must select, by written notice to the Appellee, three (3) of the Proposed Appeal Arbitrators to act as the members of the Appeal Panel. If the Appellant fails to select three (3) of the Proposed Appeal Arbitrators in writing within such 5-day period, then the Appellee may select such three (3) arbitrators from the Proposed Appeal Arbitrators by providing written notice of such selection to the Appellant.
(b) If the Appellee fails to submit to the Appellant the names of the Proposed Appeal Arbitrators within ten (10) calendar days after the Appeal Date pursuant to subparagraph (a) above, then the Appellant may at any time prior to the Appellee so designating the Proposed Appeal Arbitrators, identify the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service (none of whom may be the Original Arbitrator) by written notice to the Appellee. The Appellee may then, within five (5) calendar days after the Appellant has submitted notice of its selected arbitrators to the Appellee, select, by written notice to the Appellant, three (3) of such selected arbitrators to serve on the Appeal Panel. If the Appellee fails to select in writing within such 5-day period three (3) of the arbitrators selected by the Appellant to serve as the members of the Appeal Panel, then the Appellant may select the three (3) members of the Appeal Panel from the Appellant’s list of five (5) arbitrators by providing written notice of such selection to the Appellee.
(c) If a selected Proposed Appeal Arbitrator declines or is otherwise unable to serve, then the party that selected such Proposed Appeal Arbitrator may select one (1) of the other five (5) designated Proposed Appeal Arbitrators within three (3) calendar days of the date a chosen Proposed Appeal Arbitrator declines or notifies the parties he or she is unable to serve as an arbitrator. If at least three (3) of the five (5) designated Proposed Appeal Arbitrators decline or are otherwise unable to serve, then the Proposed Appeal Arbitrator selection process shall begin again in accordance with this Paragraph 5.2; provided, however, that any Proposed Appeal Arbitrators who have already agreed to serve shall remain on the Appeal Panel.
(d)The date that all three (3) Proposed Appeal Arbitrators selected pursuant to this Paragraph 5.2 agree in writing (including via email) delivered to both the Appellant and the Appellee to serve as members of the Appeal Panel hereunder is referred to herein as the “Appeal Commencement Date”. No later than five (5) calendar days after the Appeal Commencement Date, the Appellee shall designate in writing (including via email) to the Appellant and the Appeal Panel the name of one (1) of the three (3) members of the Appeal Panel to serve as the lead arbitrator in the Appeal proceedings. Each member of the Appeal Panel shall be deemed an arbitrator for purposes of these Arbitration Provisions and the Arbitration Act, provided that, in conducting the Appeal, the Appeal Panel may only act or make determinations upon the approval or vote of no less than the majority vote of its members, as announced or communicated by the lead arbitrator on the Appeal Panel. If an arbitrator on the Appeal Panel ceases or is unable to act during the Appeal proceedings, a replacement arbitrator shall be chosen in accordance with Paragraph 5.2 above to continue the Appeal as a member of the Appeal Panel. If Utah ADR Services ceases to exist or to provide a list of neutrals, then the arbitrators for the Appeal Panel shall be selected under the then prevailing rules of the American Arbitration Association.
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(d) Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be paid entirely by the Appellant.
5.3Appeal Procedure. The Appeal will be deemed an appeal of the entire Arbitration Award. In conducting the Appeal, the Appeal Panel shall conduct a de novo review of all Claims described or otherwise set forth in the Arbitration Notice. Subject to the foregoing and all other provisions of this Paragraph 5, the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers appropriate for a fair and expeditious disposition of the Appeal, may hold one or more hearings and permit oral argument, and may review all previous evidence and discovery, together with all briefs, pleadings and other documents filed with the Original Arbitrator (as well as any documents filed with the Appeal Panel pursuant to Paragraph 5.4(a) below). Notwithstanding the foregoing, in connection with the Appeal, the Appeal Panel shall not permit the parties to conduct any additional discovery or raise any new Claims to be arbitrated, shall not permit new witnesses or affidavits, and shall not base any of its findings or determinations on the Original Arbitrator’s findings or the Arbitration Award.
5.4Timing.
(a)Within seven (7) calendar days of the Appeal Commencement Date, the Appellant (i) shall deliver or cause to be delivered to the Appeal Panel copies of the Appeal Notice, all discovery conducted in connection with the Arbitration, and all briefs, pleadings and other documents filed with the Original Arbitrator (which material Appellee shall have the right to review and supplement if necessary), and (ii) may, but is not required to, deliver to the Appeal Panel and to the Appellee a Memorandum in Support of the Appellant’s arguments concerning or position with respect to all Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration. Within seven (7) calendar days of the Appellant’s delivery of the Memorandum in Support, as applicable, the Appellee shall deliver to the Appeal Panel and to the Appellant a Memorandum in Opposition to the Memorandum in Support. Within seven (7) calendar days of the Appellee’s delivery of the Memorandum in Opposition, as applicable, the Appellant shall deliver to the Appeal Panel and to the Appellee a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail to substantially comply with the requirements of clause (i) of this subparagraph (a), the Appellant shall lose its right to appeal the Arbitration Award, and the Arbitration Award shall be final. If the Appellee shall fail to deliver the Memorandum in Opposition as required above, or if the Appellant shall fail to deliver the Reply Memorandum as required above, then the Appellee or the Appellant, as the case may be, shall lose its right to so deliver the same, and the Appeal shall proceed regardless.
(b) Subject to subparagraph (a) above, the parties hereby agree that the Appeal must be heard by the Appeal Panel within thirty (30) calendar days of the Appeal Commencement Date, and that the Appeal Panel must render its decision within thirty (30) calendar days after the Appeal is heard (and in no event later than sixty (60) calendar days after the Appeal Commencement Date).
5.5Appeal Panel Award. The Appeal Panel shall issue its decision (the “Appeal Panel Award”) through the lead arbitrator on the Appeal Panel. Notwithstanding any other provision contained herein, the Appeal Panel Award shall (a) supersede in its entirety and make of no further force or effect the Arbitration Award (provided that any protective orders issued by the Original Arbitrator shall remain in full force and effect), (b) be final and binding upon the parties, with no further rights of appeal, (c) be the sole and exclusive remedy between the parties regarding any Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration, and (d) be promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Appeal Panel Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Appeal Panel Award shall include Default Interest (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Appeal Panel Award will be entered and enforced by a state or federal court sitting in Salt Lake County, Utah.
5.6Relief. The Appeal Panel shall have the right to award or include in the Appeal Panel Award any relief which the Appeal Panel deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the Appeal Panel may not award exemplary or punitive damages.
5.7Fees and Costs. As part of the Appeal Panel Award, the Appeal Panel is hereby directed to require the losing party (the party being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the Arbitration and the Appeal Panel, and (b) reimburse the prevailing party (the party being awarded the most amount of money by the Appeal Panel, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any part) the reasonable attorneys’ fees, arbitrator and Appeal Panel costs and fees, deposition costs, other discovery
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costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration (including without limitation in connection with the Appeal).
6. Miscellaneous.
6.1Severability. If any part of these Arbitration Provisions is found to violate or be illegal under applicable law, then such provision shall be modified to the minimum extent necessary to make such provision enforceable under applicable law, and the remainder of the Arbitration Provisions shall remain unaffected and in full force and effect.
6.2Governing Law. These Arbitration Provisions shall be governed by the laws of the State of Utah without regard to the conflict of laws principles therein.
6.3Interpretation. The headings of these Arbitration Provisions are for convenience of reference only and shall not form part of, or affect the interpretation of, these Arbitration Provisions.
6.4Waiver. No waiver of any provision of these Arbitration Provisions shall be effective unless it is in the form of a writing signed by the party granting the waiver.
6.5Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of these Arbitration Provisions.
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Schedule 2.4
CAPITALIZATION
The Company intends to sell common stock and warrants from time to time for working capital needs of the Company. The Company has reserved 10,000,000 warrants for consultant compensation. The Company is also planning on adopting a 2019 Equity Compensation Plan to replace the 2014 Equity Compensation Plan.
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Schedule 2.7
LIENS
Bob Bernhard & Associates Mechanical, LLC $666,651.03
Raygen Services, LLC $354,942.68
Less $500,000 paid in March 2019
Total $521,593.71 remaining
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Schedule 2.9
CHANGES
Subsequent to March 31, 2018, cannabis grown by the Company developed mold, which resulted a decrease in revenue.
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THIS NOTE AND THE UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE “ACT”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
GB SCIENCES, INC.
8% Convertible Promissory Note
$2,765,000.00April 23, 2019 (the “Issue Date”)
FOR VALUE RECEIVED, GB SCIENCES, INC., a Nevada corporation (the “Company”) with its principal executive office at 3550 W. Teco Avenue, Las Vegas NV 89118, promises to pay to the order of ILIAD RESEARCH AND TRADING, L.P., a Utah limited partnership (the “Payee” or the “Holder of this Note”) or registered assigns, the principal amount of Two Million Seven Hundred Sixty-Five Thousand Dollars ($2,765,000.00), together with all interest, fees and charges accrued hereunder (the “Outstanding Balance”), on April 22, 2020 (the “Maturity Date”).
This 8% Convertible Promissory Note (this “Note”) carries an original issue discount of $250,000.00. In addition, the Company agrees to pay $15,000.00 to the Payee to cover the Payee’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of this Note (the “Transaction Expense Amount”), all of which amount is fully earned and included in the initial principal balance of this Note. The purchase price for this Note shall be $2,500,000.00 (the “Purchase Price”), computed as follows: $2,765,000.00 original principal balance, less the original issue discount, less the Transaction Expense Amount. The Purchase Price shall be payable by delivery to the Company of a wire transfer of immediately available funds in the amount of the Purchase Price.
Each payment by the Company pursuant to this Note shall be made without set-off or counterclaim and in immediately available funds. The Company (i) waives presentment, demand, protest or notice of any kind in connection with this Note and (ii) agrees to pay to the Holder of this Note, on demand, all costs and expenses (including reasonable and documented legal fees and expenses) incurred in connection with the enforcement and collection of this Note.
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This Note has been issued to the Payee pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) entered into between the Company and the Payee dated as of the date hereof. Unless otherwise defined in this Note, capitalized terms used herein shall have the meanings set forth in the Note Purchase Agreement.
1.Principal Repayment
A.Optional Prepayment. Subject to 1B below, the Company may only prepay this Note:
(i)during such time as the Conversion Shares (as defined below) issuable upon conversion of this Note are then subject to an effective registration statement under the Securities Act of 1933, as amended, and the registration statement covering the Conversion Shares has been effective for a period of at least 90 days; or
(ii)if the Company provides the Payee with thirty (30) days prior written notice of such prepayment, during which time the Payee may convert this Note in accordance with Section 5, and such prepayment is accompanied by a payment equal to 10% of the amount of the principal and interest being prepaid.
B.Notice of Prepayment. Before the Company shall be permitted to prepay this Note pursuant to 1A(i) hereof, the Company shall provide thirty (30) days prior notice to the Payee of its intent to make such prepayment, which notice shall state the date and amount of such prepayment (the “Prepayment Date”). The Payee shall have the option at any time prior to the Prepayment Date to elect to convert this Note pursuant to Section 5 below.
2.Computation of Interest.
A.Base Interest Rate. Subject to Sections 2B and 2C below, the Outstanding Balance of this Note shall bear interest at the rate of eight (8%) percent per annum. All interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note.
B.Default Interest. Upon the occurrence and during the continuance of an Event of Default (as defined below), the rate of interest applicable to the Outstanding Balance shall be increased to fifteen percent (15%) per annum. In addition, upon the occurrence of an Event of Default, the Outstanding Balance shall automatically be increased by ten percent (10%).
C.Maximum Rate. In the event that it is determined that, under the laws relating to usury applicable to the Company or the indebtedness evidenced by this Note (“Applicable Usury Laws”), the interest charges and fees payable by the Company in connection herewith or in connection with any other document or instrument executed and delivered in connection herewith cause the effective interest rate applicable to the indebtedness evidenced by this Note to exceed the maximum rate allowed by law (the “Maximum Rate”),
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then such interest shall be recalculated for the period in question and any excess over the Maximum Rate paid with respect to such period shall be credited, without further agreement or notice, to the Outstanding Balance outstanding hereunder to reduce said balance by such amount with the same force and effect as though the Company had specifically designated such extra sums to be so applied to principal and the Payee had agreed to accept such extra payment(s) as a premium-free prepayment. All such deemed prepayments shall be applied to the principal balance payable at maturity. In no event shall any agreed-to or actual exaction as consideration for this Note exceed the limits imposed or provided by Applicable Usury Laws in the jurisdiction in which the Company is resident applicable to the use or detention of money or to forbearance in seeking its collection in the jurisdiction in which the Company is resident.
3.Covenants of Company.
A.Affirmative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, unless it has otherwise obtained the prior written consent of the Payee, it will perform the obligations set forth in this Section 3A:
(i)Taxes and Levies. The Company (and each of its subsidiaries) will promptly pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings;
(ii)Maintenance of Existence. The Company (and each of its subsidiaries) will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company;
(iii)Maintenance of Property. The Company (and each of its subsidiaries) will at all times reasonably maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition (ordinary wear and tear excepted), and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business;
(iv)Insurance. The Company (and each of its subsidiaries) will, to the extent necessary for the operation of its business, keep adequately insured by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations;
(v)Maintenance of Teco Facility. The Company will cause its subsidiaries as applicable, to hold and maintain all duly issued certificates and licenses necessary
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to operate its cannabis cultivation and production facility at 3550 W. Teco Avenue, Las Vegas, Nevada (the “Teco Facility”) in accordance with all Nevada Legal Requirements;
(vi)Books and Records. The Company (and each of its subsidiaries) will at all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP. Such books and records shall be open at reasonable times and upon reasonable notice to the inspection of the Payee or its agents;
(vii)Notice of Certain Events. The Company (and each of its subsidiaries) will give prompt written notice (with a description in reasonable detail) to the Payee of the occurrence of any Event of Default or any event which, with the giving of notice or the lapse of time, would constitute an Event of Default; and
(viii)Breach of Note Purchase Agreement Covenants. The Company shall comply with all of the covenants set forth in the Note Purchase Agreement.
(ix)Compliance with Laws. The Company will comply, and cause each subsidiary, to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (“Law”), other than U.S. Federal Law governing the production and sale of cannabis.
B.Negative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, unless it has otherwise obtained the prior written consent of the Payee, it will perform the obligations set forth in this Section 3B:
(i)Liquidation, Dissolution. The Company will not (and will not permit any of its subsidiaries to) liquidate or dissolve, consolidate with, or merge into or with, any other corporation or other entity, except that any wholly-owned subsidiary may merge with another wholly-owned subsidiary or with the Company (so long as the Company is the surviving corporation and no Event of Default shall occur as a result thereof); provided, however, such prior written consent shall not be required in connection with the consummation of any merger or change of control transaction which results in prepayment of the Note pursuant to the terms of this Note;
(ii)Redemptions. The Company will not redeem or repurchase any outstanding equity and/or debt securities of the Company (or its subsidiaries), except for repurchases of unvested or restricted shares of Common Stock, at cost, from employees, consultants or members of the Board of Directors of the Company (the “Board of Directors”) pursuant to repurchase options of the Company (1) currently outstanding or (2) hereafter entered into pursuant to a stock option plan or restricted stock plan approved by the Company’s Board of Directors;
(iii)Indebtedness. Company will hereafter not create, incur, assume or suffer to exist, contingently or otherwise, any indebtedness which is not expressly subordinate in all respects to this Note, provided, that this covenant shall not apply to (A) capitalized leases,
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purchase money indebtedness (secured solely by Liens on the equipment or assets leased or purchased), (B) accounts payable, (C) other accrued expenses incurred by the Company in the ordinary course of business; or (D) indebtedness set forth on Schedule 3B(iv) to which this Note is expressly subordinate;
(iv)Negative Pledge. Other than with respect to this Note, the Company will not (nor will it permit its subsidiaries to) hereafter create, incur, assume or suffer to exist any mortgage, pledge, hypothecation, assignment, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any financing lease) (each, a “Lien”) upon any of its property, revenues or assets, whether now owned or hereafter acquired, except any of the following (collectively, “Permitted Liens”):
(a)Liens granted to secure indebtedness incurred (i) to finance the acquisition (whether by purchase or capitalized lease) of tangible assets or (ii) under equipment leases or purchase money indebtedness, but in each case, only on the assets acquired with the proceeds of such indebtedness;
(b)Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;
(c)Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;
(d)Liens incurred in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds;
(e)judgment Liens in existence less than 30 days after notice of the entry thereof is forwarded to the Company or with respect to which execution has been stayed; and
(f)Liens set forth set forth on Schedule 3B(v).
(v)Transactions with Affiliates. The Company will not (and will not permit any of its subsidiaries to) enter into any transaction after the Issue Date, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, the purchase or sale of any security, the borrowing or lending of any money, or the rendering of any
5
service, with any person or entity affiliated with the Company or any of its subsidiaries (including officers, directors and shareholders owning five (5%) percent or more of the Company’s outstanding capital stock), except in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms not less favorable than would be obtained in a comparable arms-length transaction with any other person or entity not affiliated with the Company as determined by the Board of Directors in good faith.
(vi)Dividends. The Company will not declare or pay any cash dividends or distributions on its outstanding capital stock.
4.Events of Default.
If any of the following events shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation by law or otherwise) (each, an “Event of Default”):
(i)Non-Payment of Obligations. The Company shall fail to make any required payment hereunder as and when the same shall become due and payable (whether by acceleration or otherwise);
(ii)Non-Performance of Affirmative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 3A, which default shall continue uncured for ten (10) days;
(iii)Non-Performance of Negative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 3B, and, if capable of cure, such default shall not have been cured within ten (10) days;
(iv)Bankruptcy, Insolvency, Etc. The Company (or any of its subsidiaries) shall:
(a)in any legal document admit in writing its inability to pay its debts as they become due;
(b)apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors;
(c)in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property;
(d)permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the
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Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; or
(e)take any corporate or other action authorizing, or in furtherance of, any of the foregoing;
(v)Teco Facility. Any subsidiary as applicable shall fail to hold any required provisional or permanent certificate (as applicable) under state or local law for the operation of the Teco Facility as an establishment to cultivate and sell cannabis;
(vi)Cross-Default. The Company shall default in the payment when due, after the expiration of any applicable grace period, of any amount payable under any other obligation of the Company for money borrowed in excess of $100,000;
(vii)Cross-Acceleration. Any other indebtedness for borrowed money of the Company (or any of its subsidiaries) in an aggregate principal amount exceeding $100,000 shall be duly declared to be or shall become due and payable prior to the stated maturity thereof or shall not be paid as and when the same becomes due and payable including any applicable grace period;
(viii)Registration Default. A Registration Default has occurred under the Note; or
(ix)Other Breaches, Defaults. The Company or any of its subsidiaries shall default or be in breach of any other term or provision of this Note, any other Transaction Document (as defined in the Note Purchase Agreement), in any material respect, for a period of ten (10) days, or any material representation or warranty made by the Company to the Payee in any Transaction Document shall be materially false or misleading.
5.Conversion of Note.
A.Optional Conversion. The Holder of this Note shall have the option, at any time and from time to time, prior to the date on which the Company makes payment in full of the Outstanding Balance of this Note in accordance herewith, all accrued interest thereon and all other amounts due and payable thereunder to convert all or any portion of the Outstanding Balance of this Note plus all accrued and unpaid interest thereon (such Outstanding Balance and accrued and unpaid interest to be so converted the “Conversion Amount”) into shares of common stock, par value $0.0001 per share (“Common Stock”), of the Company at an initial conversion price per share equal to $0.17 per share (the “Conversion Price”), subject to adjustment as provided in subsection 5F below. The shares of Common Stock issuable upon conversion of this Note at the Conversion Price are referred to herein as the “Conversion Shares.”
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B.Conversion Limitation. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would be convertible into that number of Conversion Shares which would exceed the difference between the number of shares of Common Stock beneficially owned by such Holder and 4.99% of the outstanding shares of Common Stock of the Company. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. The Holder may void the Conversion Share limitation described in this Section 5B upon 65 days prior notice to the Company.
C.Mechanics of Conversion.
(i)Before the Holder of this Note shall be entitled to convert this Note into shares of Common Stock pursuant to Section 5A, such holder shall give written notice to the Company in the form attached hereto as Annex A (“Conversion Notice”), at its principal corporate office, by email, facsimile or otherwise, of the election to convert the same and shall state therein the Conversion Amount and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. On or before the third (3rd) business day following the date of receipt of a Conversion Notice, the Company shall (A) if legends are not required to be placed on certificates of Common Stock pursuant to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule 144”) and provided that the Company’s transfer agent is participating in the Depository Trust Company's (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC, or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant the Rule 144.
(ii)All Common Stock which may be issued upon conversion of the Note will, upon issuance, be duly issued, fully paid and non-assessable and free from all taxes, liens, and charges with respect to the issuance thereof.
D.Authorized Shares. At all times the Company shall have authorized and shall have reserved a sufficient number of shares of Common Stock to provide for the conversion of the Outstanding Balance of this Note at the then effective Conversion Price. Without limiting the generality of the foregoing, if, at any time, the Conversion Price is decreased, the number of shares of Common Stock authorized and reserved for issuance upon the conversion of this Note shall be proportionately increased.
E.Failure to Timely Deliver Shares. If within five (5) business days after the Company’s receipt of the facsimile or email copy of a Conversion Notice, the Company shall fail to issue and deliver to the Holder the number of shares of Common Stock to which the
8
Holder is entitled upon such Holder's conversion of this Note (a “Conversion Failure”), the Company shall pay to the Holder $1,000 per day until the Company issues and delivers a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any portion of the Outstanding Balance of this Note. If the Company fails to deliver shares in accordance with the timeframe stated in this Section, resulting in a Conversion Failure, the Holder, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular Conversion Notice attributable to the unsold shares.
F.Anti-Dilution Provisions. The Conversion Price in effect at any time and the number and kind of securities issuable upon the conversion of this Note shall be subject to adjustment from time to time upon the happening of certain events as follows:
(i)In case the Company shall hereafter (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Conversion Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur.
(ii)Whenever the Conversion Price is adjusted pursuant to Subsection (i) above, the number of Conversion Shares issuable upon conversion of this Note shall simultaneously be adjusted by multiplying the number of Conversion Shares initially issuable upon conversion of this Note by the Conversion Price in effect on the date hereof and dividing the product so obtained by the Conversion Price, as adjusted.
(iii)In case of any reorganization, reclassification or change of the Common Stock (including any such reorganization, reclassification or change in connection with a consolidation or merger in which the Company is the continuing entity), or any consolidation of the Company with, or merger of the Company with or into, any other entity (other than a consolidation or merger in which the Company is the continuing entity), or of any sale of the properties and assets of the Company as, or substantially as, an entirety to any other person or entity, this Note shall thereafter be convertible into the kind and amount of stock or other securities or property receivable upon such reorganization, reclassification, change, consolidation, merger or sale by a Holder of the number of shares of Common Stock into which this Note would have been converted prior to such transaction. The provisions of this subsection (iii) shall similarly apply to successive reorganizations, reclassifications, changes, consolidations, mergers or sales immediately prior to such reorganization, reclassification, change, consolidation, merger or sale.
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6.Amendments and Waivers.
A.The provisions of this Note may from time to time be amended, modified or supplemented, if such amendment, modification or supplement is in writing and consented to by the Company and the Payee.
B.No failure or delay on the part of the Payee in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Payee shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder.
C.To the extent that the Company makes a payment or payments to the Payee, and such payment or payments or any part thereof are subsequently for any reason invalidated, set aside and/or required to be repaid by the Payee to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made by the Payee or such enforcement or setoff had not occurred.
7.Miscellaneous.
A.Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of its successors and permitted assigns of the Company and the Payee, respectively, whether so express or not.
B.Governing Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Utah. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes are incorporated herein by this reference.
C. Arbitration of Disputes. By its issuance or acceptance of this Note, each party agrees to be bound by the Arbitration Provisions set forth as an exhibit to the Note Purchase Agreement.
D.Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
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HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE’S PURCHASING THIS NOTE.
[Signature Page Follows]
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IN WITNESS WHEREOF, this 8% Convertible Promissory Note has been executed and delivered on the date specified above by the duly authorized representative of the Company.
GB SCIENCES, INC.
By:
Name: John C. Poss
Title: CEO and Chairman
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ANNEX A
CONVERSION NOTICE
The undersigned hereby elects to convert principal and/or interest under the 8% Senior Secured Convertible Promissory Note, issued as of April 22, 2019 (the “Note”) of GB Sciences, Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof and the Note, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 5B of the Note, as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.
Conversion calculations:
Date to Effect Conversion:
Outstanding Balance of Note to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery of Common Stock Certificates:
Or
DWAC Instructions:
Broker No:
Account No:
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SCHEDULE 3B(iv)
INDEBTEDNESS
Short-Term Notes Payable | Face Value |
| Discount |
| Carrying Value |
Convertible Notes Payable to various investors | $ 1,257,000 |
| $ (564,929) |
| $ 692,071 |
Convertible Note Payable to CSW Ventures | 1,500,000 |
| TBD |
| TBD |
Note Payable to William Moore and Brian Moore, current portion | 233,333 |
| (56,120) |
| 177,213 |
Note Payable - BCM Med | 300,000 |
| - |
| 300,000 |
Total Short-Term Notes Payable | $ 3,290,333 |
| $ (621,049) |
| $ 1,169,284 |
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|
|
|
|
|
Long-Term Notes Payable |
|
|
|
|
|
Note Payable to William Moore and Brian Moore, long-term | $ 194,445 |
| $ (16,931) |
| $ 177,514 |
Total Long-Term Notes Payable | $ 194,445 |
| $ (16,931) |
| $ 177,514 |
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Capital Lease Liability | Liability |
| Monthly Payment |
|
|
Petroleum Drive | $ 2,404,470 |
| $25,588.00 |
|
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Teco | $ 3,726,673 |
| $42,436.00 |
|
|
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SCHEDULE 3B(v)
LIENS
Bob Bernhard & Associates Mechanical, LLC $666,651.03
Raygen Services, LLC $354,942.68
Less $500,000 paid in March 2019
Total $521,593.71 remaining
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Subsidiaries of GB Sciences, Inc.
GB Sciences, LLC
GB Sciences Nevada, LLC
GB Sciences Las Vegas, LLC
Growblox Life Sciences LLC
GB Sciences Louisiana, LLC
GB Sciences Texas LLC
GB Sciences Nopah LLC
GBS Global Biopharma, Inc.
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, John Poss, certify that:
1. | I have reviewed this annual report on Form 10-K for the year ended March 31, 2019 of GB Sciences, Inc.; |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 15, 2019 | By: | /s/ John Poss |
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Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Ksenia Griswold, certify that:
1. | I have reviewed this annual report on Form 10-K for the year ended March 31, 2019 of GB Sciences, Inc.; |
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2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 15, 2019 | By: | /s/ Ksenia Griswold |
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Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
In connection with the annual report of GB Sciences, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John Poss, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: July 15, 2019 | By: | /s/ John Poss |
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Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
In connection with the annual report of GB Sciences, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Ksenia Griswold, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: July 15, 2019 | By: | /s/ Ksenia Griswold |
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) |
Mar. 31, 2019 |
Mar. 31, 2018 |
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Text Block [Abstract] | ||
Common Stock, Par or Stated Value Per Share | $ 0.0001 | $ 0.0001 |
Common Stock, Shares Authorized | 400,000,000 | 250,000,000 |
Common Stock, Shares, Issued | 240,627,102 | 168,616,855 |
Common Stock, Shares, Outstanding | 240,627,102 | 168,616,855 |
Allowance for doubtful accounts | $ 66,748 | $ 74,706 |
Accumulated amortization | 3,745 | 4,140 |
Unamortized discount current | 799,410 | 5,000,000 |
Unamortized discount noncurrent | $ 13,929 | $ 73,052 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
12 Months Ended | |
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Mar. 31, 2019 |
Mar. 31, 2018 |
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Text Block [Abstract] | ||
SALES REVENUE | $ 3,454,552 | $ 2,510,364 |
COST OF GOODS SOLD | (3,246,097) | (782,727) |
GROSS PROFIT | 208,455 | 1,727,637 |
GENERAL AND ADMINISTRATIVE EXPENSES | 15,802,783 | 19,552,288 |
LOSS FROM OPERATIONS | (15,594,328) | (17,824,651) |
OTHER INCOME (EXPENSE) | ||
Interest Expense | (5,191,259) | (5,176,361) |
Other expense | (3,368,555) | (158,213) |
Total other expense | (8,559,814) | (5,334,574) |
NET LOSS BEFORE INCOME TAX EXPENSE | (24,154,142) | (23,159,225) |
Income tax expense | (526,145) | 0 |
NET LOSS | (24,680,287) | (23,159,225) |
Net loss attributable to non-controlling interest | (1,027,122) | (185,035) |
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. | (23,653,165) | (22,974,190) |
Net loss attributable to common stockholders | $ (26,514,601) | $ (22,974,190) |
Net loss per share - basic and diluted | $ (0.13) | $ (0.17) |
Weighted average common shares outstanding - basic and diluted | 209,537,769 | 132,934,141 |
Note 1 - Background and Basis of Presentation |
12 Months Ended |
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Mar. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Note 1 - Background and Basis of Presentation | Note 1 - Background and Basis of Presentation
Background
GB Sciences, Inc. (“We,” or “the Company”) seeks to be an innovative technology and solution company that converts the cannabis plant into medicines, therapies and treatments for a variety of ailments. The Company is developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology, and plans to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies.
We seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and terpenes, which we intend to market in those states within the United States and in other countries where the sale of medical cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid-based drug discoveries on a world-wide basis.
We were incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name “Signature Exploration and Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000.
Recent Developments
On October 4, 2016, we acquired a 60% interest in a Nevada Medical Marijuana Production License with an option to own up to 80%. A production license enables us to convert cannabis plants into to oils and extracts that are suitable for creating medical compounds as well as consumer products. This license is critical and essential to our plan of producing cannabis-based medicines and must be integrated into our cultivation facility to ensure quality control standards and efficiency in our production of cannabis medicines. 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 Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. On February 21, 2018, the Company received its recreational production license and began full production operations in its Las Vegas facility.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the “EPA”) with The Happy Confections, L.L.C. (“THCLLC”) through the Company’s wholly owned subsidiary, GB Sciences Las Vegas, LLC (“GBSLV”). Dr. Andrea Small-Howard, a member of GB Science’s Board of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC is to produce cannabis-infused baked goods and other edibles in GBSLV’s production facility upon approval of GBSLV’s Nevada Medical Marijuana Production License. The Company will receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC. Contemporaneously with the EPA, the Company entered into a Non-Revolving Credit Line Agreement and Non-Revolving Credit Line Promissory Note (together, the “THC Note” or “Note”) to advance up to $300,000 to THCLLC for the purpose of expanding THCLLC’s operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 days of the sale of any product. As of March 31, 2019, the Company has advanced $253,034 under the THC Note. On October 15, 2018, the Company gave notice to The Happy Confections, LLC (“THC LLC”) that Company would not provide any additional financing beyond the $300,000 Credit Line granted under the Non-Revolving Credit Line Agreement dated November 1, 2017. In this notice, the Company requested that THC LLC seek to find additional sources of financing to be able to fund the manufacture of edibles. The Company further notified THC LLC that the Company would terminate the Edibles Production Agreement and all other related agreements with THC LLC if it was unable to acquire additional funding by October 22, 2018. On October 19, 2018, the Company received a response from THC LLC that it was unable to acquire additional funding. Accordingly, the Company has terminated all of its agreements with THCLLC effective October 19, 2018 and took possession of all tangible assets owned by THCLLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory that is used in the Company’s production operations at the Teco Facility. The historical cost of the machinery and equipment received was $139,411 and the Company has capitalized that amount in fixed assets as of March 31, 2019. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility in December 2018. The Company also recorded $113,623 as other expense in its Consolidated Statement of Operations for the year ended March 31, 2019, which represents the remaining balance of the outstanding note receivable from THC LLC.
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences. The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter. The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of March 31, 2019, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement. On September 21, 2018, the Company formed a wholly owned subsidiary, GBS Global Biopharma, Inc., in the province of Ontario, Canada with plans to license and/or transfer some of Growblox Life Sciences LLC’s intellectual property to the newly formed entity. On March 15, 2019, the Company entered into the Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby all of the assets and certain liabilities held by Growblox Life Sciences, LLC, a wholly-owned subsidiary of GB Sciences, Inc., were transferred to GBS Global Biopharma, Inc. in exchange for a promissory note in the amount of $1,435,700. The assets transferred include all intellectual property and intangible assets owned by the Company, consisting primarily of patents in process and research contracts with universities and researchers. It is anticipated that GBS Global Biopharma Inc. will pursue clinical development of the intellectual property, including clinical trials.
On January 31, 2018 the Company entered into a Contract Farming Agreement with Colorado Hemp Project Limited (“CHP”) for the development and cultivation of boutique help genetics and new strains of hemp which will provide the key ingredient in proprietary CBD formulations. Per the terms of the agreement, the Company leased 8 acres of land on which CHP planted 2000 seeds per acre. CHP is responsible for providing genetics, land, water, planting, cultivation, any soil amendments needed, harvest, drying and stripping into whole plant composite for extraction, if desired. In return, GB Sciences is obligated to pay for all production expenses and delivery or shipping for the total of $16,750 per acre of land farmed. On March 15, 2018, the Company leased additional 5 acres of land from CHP under the same terms as those included in the original agreement.
Intellectual Property
Our intellectual property includes:
Four USPTO & WIPO Patent Applications
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES U.S. Patent Application No. 15/729,565; WIPO Application number: PCT/US17/SS989 Filed: October 10, 2017; Inventors: Andrea Small-Howard et al. Claims benefit of U.S. Patent Application No. 62/406,764 filed October 11, 2016
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS U.S. Patent Application No.15/885,620; WIPO Application number: PCT/US18/016296 Filed: January 31, 2018; Inventors: Andrea Small-Howard, et al. Claims benefit of U.S. Patent Application No. 62/453,161 filed February 1, 2017
Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1 U.S. Patent Application No. 15/986,316; WIPO Patent Application No. PCT/US2018/033956 Filed: May 22, 2018; Inventors: Andrea Small-Howard, et al. Claims benefit of U.S. Patent Application No. 62/509,546 filed May 22, 2017
Title: TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR TERPENES U.S. Patent Application No.: 16/420,004; WIPO Patent Application No.: PCT/US2019/033618 Filed: May 22, 2019; Inventors: Andrea Small-Howard, et al. Claims benefit of U.S. Patent Application No. 62/674,843 filed May 22, 2018
Two Provisional USPTO Patent Applications
Title: DIVERSE TRPV1 RESPONSES TO CANNABINOIDS U.S. Patent Application No.: 62/849,719 Filed: May 17, 2019; Inventors: Andrea Small-Howard, et al.
Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING MYRCENE U.S. Patent Application No.: 62/757,660 Filed: November 8, 2018; Inventors: Andrea Small-Howard, et al.
Three Licensed Patents for Intellectual Property Portfolio
Title: METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY. Inventor: Alexander Stokes; Assignee: University of Hawai’i Commercialization rights licensed to Makai Biotech, LLC Sublicensed by Makai Biotech, LLC to GBS Global Biosciences, Inc. Status: Granted in the following territories on the corresponding dates U.S. Patent Number: 9,084,786; Issued: July 21, 2015 European Union Patent Number: 2,635,281; Granted: March 14, 2018 Hong Kong Patent Application Number: 14102182.8; Granted: March 14, 2018 IN Patent Application Number: 1404/KOLNP/2013; Continuation Application Serial No.: 16/181204
Title METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION Inventors: Martin Banderas, Lucia; Fernandez Arevala, Mercedes; Berrocoso, Dominguez, Esther; and Mico Segura, Juan Antonio Assignees: Universidad de Sevilla, Universidad de Cadiz, and Centro de Investigacion Biomedica En Red (CIBER) Exclusive worldwide license held by GBS Global Biopharma, Inc. WIPO/PCT Application: WO 2016/128591 Filed: August 18, 2016 Claims benefit of Spanish Patent Application no. ES 2582287 Filed: September 2, 2015 U.S. Patent Application 15/549,653 Europe Patent Application EP3257503 Canada Patent Application CA2976040
INGESTIBLE FILMS HAVING SUBSTANCES FROM HEMP OR CANNABIS USPTO Patent Number: 10, 265,362; Issued: April 23, 2019; Inventor: Scott Schaneville Non-exclusive worldwide license held by GBS Global Biopharma, Inc. through GB Sciences, Inc.
Three Additional Near-Term Patent Applications:
GBS Global has data sets for three new provisional patent applications to be filed in Q3 and Q4 of 2019, as follows:
Title: POLY-PHARMACEUTICAL MIXTURES FOR CHRONIC PAIN BASED ON CLASSIFICATIONS OF CANNABINOIDS AND TERPENOIDS INTO COMPLEMENTS OR COMPETITORS BASED ON THEIR BINDING-SITES ON PAIN-SENSING RECEPTORS Filing Date: July 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al.
Title: METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES CONTAINING COMPLEX MIXTURES OF CANNABINOIDS AND TERPENOIDS FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION Filing Date: August 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al.
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF HIV-ASSOCIATED NEURODEGENERATIVE DISORDERS (HAND) Filing Date: December 1, 2019 (anticipated); Inventors: Andrea Small-Howard, et al. |
Note 2 - Going Concern |
12 Months Ended |
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Mar. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Note 2 - Going Concern | Note 2 - Going Concern
The Company’s financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained net losses since inception. For the years ended March 31, 2019 and 2018, the Company sustained net losses of approximately $23.7 million and $23.0 million respectively and had an accumulated deficit of approximately $84.7 million and $58.2 million respectively. As of March 31, 2019, the Company had a working capital deficit of $3.2 million. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is unable to continue as a going concern. |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies |
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Note 3 - Basis of Presentation and Summary of Significant Accounting Policies | 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. Intercompany accounts and transactions have been eliminated in consolidation. In our opinion, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included.
Certain reclassifications have been made to the comparative year amounts in order to conform to the current period presentation. These reclassifications had no effect on the reported financial position, results of operations or cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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:
The carrying value of cash, accounts receivable, accounts payables 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.
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability. 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.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the value of our patents pending. Upon issuance of the patents, the indefinite-lived intangible assets will have finite lives. We amortize our finite-lived intangible assets over their estimated useful lives using the straight-line method, and we periodically evaluate the remaining useful lives of our finite-lived intangible assets to determine whether events or circumstances warrant a revision to the remaining period of amortization.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements are amortized over the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend the useful lives of related assets are expensed as incurred.
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. No indicators of impairment were identified by the Company as of March 31, 2019.
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.
Other Assets
Other assets primarily include employee advances.
Revenue Recognition
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance.
Research and Development Costs
Research and development costs are expensed as incurred.
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. 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 128,608,852 and 104,207,396 potentially dilutive common shares at March 31, 2019 and 2018, 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
Net loss attributable to common stockholders for the year ended March 31, 2019 includes and adjustment for a deemed dividend from induced warrant exercises. The following table sets forth the computation of basic and diluted EPS:
Recent Accounting Pronouncements
Standards Effective in Future Years
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019. The Company reviewed the terms of its existing lease and has recorded a right of asset and related lease liability of approximately $213,000 upon adoption.
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019. The Company determined that all share-based payments were settled as of the date of the adoption, so there was no impact on the Company's financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
Recently Adopted Standards
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance. |
Note 4 - Capital Lease |
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Note 4 - Capital Lease | Note 4 – Capital Lease
In July, 2016, an entity associated with Pacific Leaf Partners, LLC completed the purchase of the building housing the Company’s cultivation facility at 3550 W. Teco Ave., Las Vegas, NV. In connection with the purchase, the Company entered into the Amended Lease Agreement for an initial term of ten and a half years with one option to extend the lease for five years, or until December 31, 2030. The monthly rent payments per the Amended Lease Agreement were $40,000 through December 31, 2017. Commencing January 1, 2018, the monthly rent payments increased by 3% and will increase by 3% per annum through the expiration of the lease. The Company analyzed the transaction in accordance with the applicable accounting guidance determining that the aggregate amount of $3.9 million met the requirements for capitalization. The building has been capitalized and is included in property and equipment, net balance, with related obligations included as part of current and non-current liabilities. The obligation recorded is based upon the present value of the future minimum lease payment discounted at 11.6% interest rate.
On August 4, 2017, the Company entered into a Lease Agreement for the building located at 18350 Petroleum Drive in Baton Rouge, Louisiana, which will be used for the Company’s medical marijuana operations in the State of Louisiana. The Lease is for an initial term of five years beginning on July 1, 2018, with two options to extend the lease for five years, or until June 30, 2032. The monthly rent payments per the Lease Agreement are $25,588 through June 30, 2022. If the Company chooses to exercise its first option to extend the Lease term, the monthly rent payments will increase to $28,147 per month for the period from July 1, 2022 through June 30, 2027. If the Company chooses to exercise its second option to extend the Lease term, the monthly rent payments will increase to $30,966 per month for the period from July 1, 2027 through June 30, 2032.The Company analyzed the transaction in accordance with the applicable accounting guidance determining that the aggregate amount of $2.5 million met the requirements for capitalization. The building has been capitalized and is included in property and equipment, net balance, with related obligations included as part of current and non-current liabilities. The obligation recorded is based upon the present value of the future minimum lease payment discounted at a 10.3% interest rate.
Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the net present value of the minimum lease payments as of March 31, 2019, are as follows:
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Note 5 - Notes Payable |
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Note 5 - Notes Payable | Note 5 – Notes Payable
February 2018 Agreement On February 23, 2018, the Company entered into the Agreement with Pacific Leaf (“February 2018 Agreement”) whereby all rights and obligations between the parties pursuant to all prior agreements would terminate. Under the terms of the February 2018 Agreement, the Company paid Pacific Leaf $1,269,818 upon the signing of the agreement and was to pay Pacific Leaf an additional $1,500,000 on or before July 31, 2018. The Company would also issue Pacific Leaf 1,600,000 shares of restricted common stock on or before July 31, 2018. Thereafter, no business relationship would exist between the parties and no royalties would be owed. If the Company were unable to make the $1.5 million payment to Pacific Leaf on or before July 31, 2018, the Royalty Agreement and all other agreements that would have been terminated under the terms of the February 2018 Agreement would have continued in full force and effect, and 75% of all payments made under the February 2018 Agreement would have been credited toward royalties owed under the Royalty Agreement. In connection with the February 2018 Agreement, the Company recorded royalty expense of $269,818 in fiscal year 2018 for accrued royalties paid, $250,000 in other expense which represents 25% of the $1 million payment made on February 26, 2018, and $750,000 in prepaid expenses which represents the 75% portion of the $1 million payment which would have been credited toward future royalties in the event the $1.5 million payment were not made on or before July 31, 2018. The market value of the 1.6 million shares issued relating to the February 2018 Agreement was $1,040,000, valued as of the date of the agreement. The Company recorded $260,000 in other expense related to the issuance of those shares, which represents 25% of the market value of those shares. The Company recorded $780,000 in prepaid expenses, representing the 75% portion of the fair market value of those shares which would have been credited toward future royalties in the event that the final $1.5 million payment were not made on or before July 31, 2018. All amounts related to the February 2018 Agreement recorded in the Company’s Consolidated Balance Sheet and Statement of Operations for the year ended March 31, 2018, are summarized below:
July 2018 Amendment and Termination Agreement On July 28, 2018, the Company entered into the Amendment and Termination Agreement (“Amendment and Termination Agreement”) with Pacific Leaf. Pursuant to that agreement, the Pacific Leaf Royalty Agreement and all other agreements with Pacific Leaf were terminated in their entirety, and the Company would make payments totaling $1 million of the $1.5 million balance due to Pacific Leaf by August 31, 2018. Because the Amendment and Termination Agreement irrevocably terminated the Pacific Leaf Royalty Agreement, the Company recorded an expense of $1,530,000 in the quarter ended September 30, 2018 related to the prepaid royalties previously recorded on the Consolidated Balance Sheet in connection with the February 2018 Agreement. The expense is included in the Other Expense caption of the Company’s Consolidated Statement of Operations for the year ended March 31, 2019. Contemporaneously with the Amendment and Termination Agreement, the Company issued a Promissory Note (“Promissory Note”) for the remaining $0.5 million due to Pacific Leaf. The Promissory Note accrued interest at a rate of 6% per annum and matured on November 30, 2018. In consideration for deferring the payment of the amounts due to Pacific Leaf, the Company issued 100,000 shares of its common stock to Pacific Leaf on July 31, 2018 having a fair market value of $36,000. The Company made cash payments totaling $1.0 million to Pacific Leaf in August 2018 related to the Amendment and Termination Agreement. Both the $36,000 fair value of shares issued to Pacific Leaf and the $1,000,000 in cash payments made to Pacific Leaf in August 2018 are recorded in the Company’s Consolidated Statement of Operations for the year March 31, 2019, under the other expense caption. On December 21, 2018, the company made a $100,000 payment on the promissory note. The payment was applied to interest accrued to date of $12,164 and the remaining $87,836 was applied to the principal balance of the Note. On December 21, 2018, the Company also issued 500,000 shares of its common stock to Pacific Leaf in consideration for further deferral of repayment of the Note. The Company recognized $95,000 in expense related to the shares issued, which is recorded in the Company’s Consolidated Statement of Operations for the year ended March 31, 2019, under the other expense caption. In total, the Company recorded $3.1 million related to the Amendment and Termination Agreement in Other Expense in its Consolidated Statement of Operations for the year ended March 31, 2019, as summarized in the table below:
The Company made additional payments on the promissory note of $100,000 on January 16, 2019, $100,000 on February 6, 2019, and a final payment of $210,000 on March 4, 2019. The company recorded and paid a total of $15,929 in interest expense related to the promissory note during the year ended March 31, 2019.
Note payable to BCM MED, LLC
On December 20, 2018, GB Sciences Louisiana, LLC (“GBSLA") entered into a $300,000 Loan Agreement with BCM MED, LLC (“BCM MED”). BCM MED is a related party to Wellcana Group, LLC, the minority member in GBSLA. The purpose of the financing is to fund operating expenses incurred by or on behalf of medical marijuana operations of GBSLA. Pursuant to the Loan Agreement, GBSLA will make eight (8) monthly installment payments in the amount of $33,333 on or before the 10th business day of each month and began making payments in April 2019. GBSLA will make the 9th and final installment payment in the amount of $33,333 on or before the 10th business day of December 2019. The aggregate amount of the installment payments from GBSLA to BCM MED shall be equal to the loan amount. GBSLA has the option to defer one monthly installment payment to the first day of the following calendar month. Note Payable to 483 Management, LLC 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% unsecured 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. During the year ended March 31, 2019, the Company recorded $85,981 in interest expense related to amortization of the note discount. Summary of Notes Payable
As of March 31, 2019, the following notes payable were recorded in the Company’s Consolidated Balance Sheet:
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Note 6 - Convertible Notes |
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Note 6 - Convertible Notes | Note 6 – Convertible Notes
March 2017 Convertible Note Offering
In March 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $965,500. The Notes are payable within three years of issuance and are convertible into 3,862,000 shares of the Company’s common stock and 3,862,000 common stock purchase warrants 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 beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $416,733 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $548,767 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended June 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $1,034,500. The Notes are payable within three years of issuance and are convertible into 4,138,000 shares of the Company’s common stock. The Company also issued 4,138,000 common stock warrants to the Note holders. 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 beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $487,957 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $480,236 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
July 2017 Convertible Note Offering
In July, 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.65 per share for the period of three years.
During the three months ended September 30, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $3,085,000. The Notes are payable within three years of issuance and are convertible into 12,340,000 shares of the Company’s common stock. The Company also issued 12,340,000 common stock warrants to the Note holders. 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 $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,541,797 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $1,532,335 recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
During the three months ended December 31, 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $4,116,000. The Notes are payable within three years of issuance and are convertible into 16,464,000 shares of the Company’s common stock. The Company also issued 16,464,000 common stock warrants to the Note holders. 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 $0.65 per share for a period of three years. The beneficial conversion feature resulting from the discounted conversion price compared to the market price was calculated based on the date of issuance to be $1,600,808 after adjusting the effective conversion price for the relative fair value of the note proceeds compared to the fair value of the attached warrants and note. In addition to this discount related to the beneficial conversion feature, an additional discount of $2,417,856 was recorded based on the fair value of the warrants attached to the note. This value was derived using the Black-Scholes valuation model.
As of March 31, 2019, convertible notes having a carrying value of $692,071, net of unamortized discount of $564,929 remained outstanding from the March 2017 and July 2017 note offerings, and accrued interest on the notes is $121,558. Discount amortization was $786,484 for the year ended March 31, 2019.
Convertible Note Payable to CSW Ventures, LP
On February 28, 2019, the Company issued a $1,500,000 8% Senior Secured Convertible Promissory Note and entered into the Note Purchase Agreement and Security Agreement with CSW Ventures, LP (together, “CSW Note”). The note matures on August 28, 2020 and is convertible at any time until maturity into 8,823,529 shares of the Company’s common stock at $0.17 per share. Collateral pledged as security for the note includes all of the Company’s 100% membership interests in GB Sciences, Nevada, LLC and GB Sciences Las Vegas, LLC, which together represent substantially all of the Company’s cannabis cultivation and production operations and assets located at its Teco facility in Las Vegas, Nevada.
The intrinsic value of the beneficial conversion feature resulting from the market price of the Company’s common stock in excess of the conversion price was $176,471 on the date of issuance, and the Company recorded a discount on the CSW Note in that amount. During the year ended March 31, 2019, the company recorded accrued interest on the CSW Note of $8,329 and recorded an additional $7,336 in interest expense as the result of amortization of the note discount. |
Note 7 - Property and Equipment |
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Note 7 - Property and Equipment | Note 7 - Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset or, in the case of leasehold improvements amortized over the lesser of the useful life of the asset or the underlying lease term. We recorded depreciation expense of $0.6 million and $0.8 million for the fiscal years ended March 31, 2019 and March 31, 2018, respectively. Property and equipment is comprised of the following:
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Note 8 - Income Taxes |
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Note 8 - Income Taxes | Note 8 – Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction. The Company operates in the state of Nevada which does not levy an income tax. The Company has analyzed filing positions for all open tax years in the federal jurisdiction where it is required to file income tax returns. The Company identified its federal tax return as its “major” tax jurisdiction, as defined under generally accepted accounting principles.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into United States tax law. The Company has adjusted its deferred tax assets and liabilities at December 31, 2017 to reflect the Act’s reduction of corporate income tax rates. The Company’s effective tax rate was -2.4% and 0% for the years ended March 31, 2019 and 2018, respectively.
Income tax expense was $526,145 for the year ended March 31, 2019. This amount includes a $510,647 tax liability and tax penalties of $15,498 attributable to the tax year ended March 31, 2018. Income tax expense was $0 for the year ended March 31, 2018.
The Company’s income tax payable was $506,145 as of March 31, 2019, and $0 as of March 31, 2018. The increase in income taxes payable is based on a tax liability attributable to the March 31, 2018 tax year, less $20,000 in tax payments made during the current year.
At March 31, 2019 and 2018 respectively, the Company had net operating loss carryforwards (“NOLs”) for income tax purposes of $47,430,184 and $34,481,122. The net operating loss carryforwards are expected to expire at various times from 2025 through 2039. These NOLs have the potential to be used to offset future ordinary taxable income and reduce future cash tax liabilities. Utilization of the Company’s net operating losses may be subject to substantial annual limitation if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and similar state provisions. Such an ownership change would substantially increase the possibility of net operating losses expiring before complete utilization.
Because the Company operates in the legal 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.
The provision for income taxes is different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the following reconciliation:
The tax effects of the primary temporary differences giving rise to the Company’s deferred tax assets and liabilities are as follows for the year ended March 31, 2019 and 2018:
Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies. The Company continues to evaluate its deferred tax asset valuation allowance on a quarterly basis. The Company concluded that, as of March 31, 2019, it is more likely than not that the Company will not have sufficient taxable income within the applicable net operating loss carry-forward period to realize any portion of its deferred tax assets.
The Company believes that the tax positions taken in its tax returns would be sustained upon examination by taxing authorities. The Company files income tax returns in the U.S. federal jurisdiction and other required state jurisdictions. The Company's periodic tax returns filed in 2016 and, thereafter, are subject to examination by taxing authorities under the normal statutes of limitations in the applicable jurisdictions. |
Note 9 - Capital Transactions |
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Note 9 - Capital Transactions | Note 9 – Capital Transactions
Sale of Common Stock and Warrants
Debt Conversions
During the year ended March 31, 2019, the Company received notice from convertible note holders of the conversion of a total of $4,470,000 in face value and $170,971 in accrued interest on the related convertible notes. Accordingly, the Company has issued 18,563,885 shares of its common stock based on a $0.25 per share conversion price. In connection with the conversions, $3,464,187 in unamortized discount on the related notes was recognized as interest expense and the Company has reduced the carrying amount of convertible notes payable by $1,005,813.
Exercise of Warrants for Stock
During the year ended March 31, 2019, the Company issued 12,657,875 shares of its common stock for the exercise of warrants as follows:
Issuance of Stock for Services
The Company issued 4,032,407 shares in exchange for past and future consulting services and recorded a related expense of $0.9 million and prepaid expense of $0.3 million. The shares and services were valued at the closing price of the Company’s common stock on the dates granted under the related consulting agreements.
Issuance of Stock for Cash During the year ended March 31, 2019, the Company issued 277,778 shares of its common stock to an investor for the cash purchase of shares at $0.36 per share. Stock Issued in Private Placement
The Company issued 35,878,302 shares of its common stock in private placements:
Issuance of Stock to Settle Pacific Leaf Royalty Agreement
In connection with the Pacific Leaf Amendment and Termination Agreement, the Company issued 600,000 shares of its common stock and recorded $131,000 in other expense related to those shares.
Options and Warrants On December 1, 2018, the Company entered into an agreement with EMLL Group, LLC for business advisory and consulting services. In consideration for the services, the Company issued warrants to purchase 8 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $969,197 using the Black-Scholes valuation model. All services owed to the Company under the agreement were provided as of March 31, 2019, and the company recorded $969,197 in expense related to the warrants in its Consolidated Statement of Operations for the year ended March 31, 2019. On December 6, 2018, the Company entered into an agreement with SylvaCap Media for business advisory and consulting services. In consideration for the services, the Company issued warrants to purchase 2 million shares of the Company’s common stock at $0.1125 per share. The Company valued the warrants at $244,000 using the Black-Scholes valuation model. The fair value of the warrants will be recognized as consulting expense over the twelve-month term of the agreement. The company recorded $81,333 in expense related to the warrants in its Consolidated Statement of Operations for the year ended March 31, 2019. In connection with the agreement with SylvaCap Media, the Company also agreed to pay a $10,000 monthly fee for 12 months and to issue 4 million restricted shares of the Company’s common stock, of which 2 million shares were due on the date of the contract and have been issued to the consultant. On June 6, 2019, the Company entered into a Cancellation and Settlement with SylvaCap Media and terminated the December 6, 2018 agreement. In consideration for termination of the agreement, the Company will pay $135,000 as a one-time cancellation fee and will not issue the remaining 2 million shares due under the agreement. In connection with the Placement Agent’s Agreement dated August 10, 2018 and as amended August 23, 2018, the Company issued 2,000,000 compensation warrants to the brokers who participated in the offering and recorded a related expense of $0.6 million. Each compensation warrant is for the purchase of one share of the Company’s common stock at a price of $0.60 per share and expires on October 1, 2023. During the year ended March 31, 2019, the Company issued 400,000 stock options under the 2014 Equity Incentive Plan to its employees. The options are exercisable upon vesting for a period of 10 years from issuance at an exercise price ranging from $0.37 to $0.60 per share. The Company has recognized total of $0.8 million in share-based compensation expense related to all outstanding options during the year ended March 31, 2019. Warrants Outstanding
Presented below is a summary of the Company’s warrant activity for the years ended March 31, 2019 and 2018:
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Note 10 - Employee Benefit Plan |
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Disclosure Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 10 - Employee Benefit Plan | Note 10 – Employee Benefit Plan
Share-Based Employee Compensation
On February 6, 2008, the Board of Directors adopted the GB Sciences, Inc. 2007 Amended Stock Option Plan (“2007 Plan”). Under the 2007 Plan, 8,000,000 shares of the Company’s restricted common stock may be issuable upon the exercise of options issued to employees, advisors and consultants. The Company revised the plan and the Board of Directors adopted the new 2014 Equity Compensation Plan. On June 30, 2015, GB Sciences filed a Form S-8 Registration Statement with the SEC to register 8,500,000 shares of common stock issuable under stock options to grant to employees and consultants. At the Company’s special meeting of the shareholders held on April 6, 2018, the adoption by the Board of Directors of the 2014 Equity Compensation Plan was ratified by a majority of shareholders present at the meeting, either in person or by proxy.
Compensation Expense
For the years ended March 31, 2019 and 2018, the Company recorded compensation expense of $0.8 million and $1.8 million respectively, related to employee stock options and restricted stock.
The unrecognized compensation cost, and weighted-average period over which the cost is expected to be recognized for non-vested awards as of March 31, 2019, are presented below:
Fair Value
The closing price of the Company's stock on the date of grant is used as the fair value for the issuances of restricted stock. The fair value of stock options granted is estimated as of the grant date using the Black-Scholes option pricing model.
The following range of assumptions in the Black-Scholes option pricing model was used to determine fair value at the years ended below:
Expected volatilities used for award valuation in 2019 and 2018 are based on the peer group volatility.
The risk-free interest rate for periods equal to the expected term of an award is based on a blended historical rate using Federal Reserve rates for U.S. Treasury securities.
Stock Options
A summary of option activity as of March 31, 2019 and 2018, and changes during the years then ended, is presented below:
Restricted stock awards
No restricted stock awards were granted or outstanding during the years ended March 31, 2019 and 2018. |
Note 11 - Commitments and Contingencies |
12 Months Ended |
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Mar. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Note 11 - Commitments and Contingencies | Note 11 – Commitments and Contingencies
On September 18, 2017 GB Sciences finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of the LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences. The contract includes the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter. The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights. As of March 31, 2019, GB Sciences has made payments totaling $1,500,000 toward its obligations under the agreement. From time to time, the Company may become involved in certain legal proceedings and claims which arise in the ordinary course of business. In management’s opinion, based on consultations with outside counsel, the results of any of these ordinary course matters, individually and in the aggregate, are not expected to have a material effect on our results of operations, financial condition, or cash flows. As more information becomes available, if management should determine that an unfavorable outcome is probable on such a claim and that the amount of such probable loss that it will incur on that claim is reasonably estimable, the Company would record a reserve for the claim in question. If and when the Company records such a reserve, it could be material and could adversely impact its results of operations, financial condition, and cash flows. |
Note 12 - Deposits and Prepayments |
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Mar. 31, 2019 | |
Notes to Financial Statements | |
Note 12 - Deposits and Prepayments | Note 12 – Deposits and Prepayments
Deposits and prepayments were $1.2 million and $1.5 million at March 31, 2019 and March 31, 2018, respectively. The decrease in deposits and prepayments is primarily due to a $0.3 million escrow deposit related to our Letter of Intent regarding potential acquisition of 100% interest in NevadaPURE, LLC (“NVPURE LOI”) entered into on March 22, 2018. On May 9, 2019, the NVPURE LOI was terminated and the Company received a refund of its $0.3 million deposit. |
Note 13 - Related Party Transactions |
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Mar. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Note 13 - Related Party Transactions | Note 13 - Related Party Transactions
During the fiscal year ended March 31, 2017, the Company entered into a consulting contract with Quantum Shop, a Company owned by a relative of one of the Company’s executives. Per the terms of the agreement, Quantum Shop is to provide GB Sciences with research, design, development, fabrication, and production services. During the years ended March 31, 2019, and March 31, 2018, the Company made payments totaling $1.1 million and $1.3 million, respectively, to Quantum Shop primarily related to the build-out of the Company’s cultivation and production facility in Baton Rouge, Louisiana.
During the year ended March 31, 2017, the Company entered into an advisory agreement with Electrum Partners, LLC, (“Electrum Partners”) a company whose President resides on GB Sciences’ Board of Directors and serves as a Chair of the Audit Committee. Per the terms of the agreement, Electrum Partners shall be compensated $5,000 monthly with the initial payment due upon the execution of the consulting agreement. Electrum Partners is also to receive an additional $10,000 each month in restricted stock. The agreement has a term of one year and is renewable for a successive one-year period. The agreement was renewed for its second one-year period in March 2018.
During the year ended March 31, 2018, the Company made payments totaling $75,562 to Electrum Partners and issued 499,102 shares of its restricted stock. During the year ended March 31, 2019, the Company made payments totaling $153,329 to Electrum Partners, LLC and issued 432,407 shares of its restricted stock at an expense of $122,363. On January 29, 2019, the Company provided Electrum Partners with notice of the agreement’s termination effective February 28, 2019.
On November 1, 2017, the Company entered into an Edibles Production Agreement (the “EPA”) with The Happy Confections, L.L.C. (“THCLLC”) through the Company’s wholly-owned subsidiary, GB Sciences Las Vegas, LLC (“GBSLV”). Dr. Andrea Small-Howard, a member of GB Science’s Board of Directors, is a Co-Managing Member of THCLLC. Under the EPA, THCLLC was to produce cannabis-infused baked goods and other edibles in GBSLV’s production facility upon approval of GBSLV’s Nevada Medical Marijuana Production License. The Company would receive a royalty of between 20% and 25% on all sales of edibles produced by THCLLC.
Contemporaneously with the EPA, the Company entered into a Non-Revolving Credit Line Agreement and Non-Revolving Credit Line Promissory Note (together, the “THC Note” or “Note”) to advance up to $300,000 to THCLLC for the purpose of expanding THCLLC’s operations. The Note bears interest at a rate of 1.29% per annum. Beginning 90 days after the sale of its first product, THCLLC was to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment was due within 10 days of the sale of any product.
As of March 31, 2019, the Company advanced $253,034 under the THC Note. On October 15, 2018, the Company gave notice to THC LLC that Company would not provide any additional financing beyond the $300,000 Credit Line granted under the Non-Revolving Credit Line Agreement dated November 1, 2017. In this notice, the Company requested that THC LLC seek to find additional sources of financing to be able to fund the manufacture of edibles. The Company further notified THC LLC that the Company would terminate the Edibles Production Agreement and all other related agreements with THC LLC if it was unable to acquire additional funding by October 22, 2018. On October 19, 2018, the Company received a response from THC LLC that it was unable to acquire additional funding. Accordingly, the Company has terminated all of its agreements with THC LLC effective October 19, 2018 and has taken possession of all tangible assets owned by THC LLC on October 22, 2018, as collateral for the balance owed under the Note. These assets include kitchen and production machinery and equipment, leasehold improvements, and inventory that will be used in the Company’s production operations at the Teco Facility.
The Company assessed the Fair Value of the machinery and equipment received at $139,411 and has capitalized that amount in fixed assets during the year ended March 31, 2019. All of the machinery and equipment received from THC LLC was placed in service for use in the Company’s production facility during December 2018. The Company also recorded $113,623 as other expense in its Consolidated Statement of Operations for the year ended March 31, 2019, which represents the remaining balance of the outstanding note receivable from THC LLC. |
Note 14 - Concentrations |
12 Months Ended |
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Mar. 31, 2019 | |
Risks and Uncertainties [Abstract] | |
Note 14 - Concentrations | Note 14 – Concentrations
For the year ended March 31, 2019, there were two customers that accounted for 10.1% each of total revenue. Two customers accounted for 21.4% and 11.1% of total accounts receivable. |
Note 15 - Subsequent Events |
12 Months Ended |
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Mar. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Note 15 - Subsequent Events | Note 15 – Subsequent Events
Capital Transactions
Convertible Promissory Note Payable to Iliad Research and Trading, L.P.
On April 23, 2019, the Company entered into the Note Purchase Agreement with Iliad Research and Trading, L.P. and issued an 8% Convertible Promissory Note with a face value of $2,765,000. The Note was issued with an original issue discount of $265,000 and is convertible into shares of the Company’s common stock at a price of $0.17 per share at the option of the note holder at any time until the Note is repaid. The Note matures on April 22, 2020.
Cancellation of Agreement with SylvaCap Media
On June 6, 2019, the Company entered into a Cancellation and Settlement with SylvaCap Media and terminated the December 6, 2018 agreement. In consideration for termination of the agreement, the Company will pay $135,000 as a one-time cancellation fee and will not issue the remaining 2 million shares due under the agreement. |
Note 16 - Non-Controlling Interest |
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Noncontrolling Interest [Abstract] | |
Note 16 - Non-Controlling Interest | Note 16 – Non-Controlling Interest
On February 12, 2018, the Company entered into the Operating Agreement for its wholly-owned subsidiary, GB Sciences Louisiana, LLC (“GBSLA"). Pursuant to the Operating Agreement, Wellcana Group, LLC (“Wellcana”) purchased 15% of the membership interest in GBSLA for the price of $3 million. Under the operating agreement, Wellcana has the option to make additional capital contributions for the purchase of up to an additional 35% membership interest in GBSLA, at the rate of 5% membership interest per $1 million contributed.
During the year ended March 31, 2019, Wellcana made additional cash contributions of $7.0 million and its non-controlling interest in GBSLA increased to 49.99%. The capital contributions have been used to fund the buildout of the Petroleum Drive facility and to pay for the operating costs of GBSLA.
The Company maintains a majority interest in GBSLA and continues to exercise control over the management and operations of GBSLA. Accordingly, the Company has consolidated GBSLA in its consolidated financial statements for the year ended March 31, 2019. |
Note 17 - Formation of GBS Global Biopharma |
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Mar. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Note 17 - Formation of GBS Global Biopharma | Note 17 – Formation of GBS Global Biopharma, Inc.
On September 21, 2018, the Company formed a wholly-owned subsidiary, GBS Global Biopharma, Inc., in the province of Ontario, Canada with plans to license and/or transfer some of Growblox Life Sciences LLC’s intellectual property to the newly formed entity. On March 15, 2019, the Company entered into the Asset Purchase Agreement with GBS Global Biopharma, Inc., whereby all of the assets and certain liabilities held by Growblox Life Sciences, LLC, a wholly-owned subsidiary of GB Sciences, Inc., were transferred to GBS Global Biopharma, Inc. in exchange for a promissory note in the amount of $1,435,700. It is anticipated that GBS Global Biopharma Inc. will pursue clinical development of the intellectual property, including clinical trials.
The assets transferred include all intellectual property and intangible assets owned by the Company, consisting primarily of patents in process and research contracts with universities and researchers. GBS Global Biopharma, Inc. also assumed $475,586 of liabilities associated with the development of the transferred intellectual property. With the assistance of a third-party valuation specialist, The Company valued the assets transferred, net of liabilities assumed, at $1,435,700.
Because the transaction consisted of an intercompany transfer of assets between wholly owned subsidiaries of GB Sciences, Inc., the promissory note and any gain or loss resulting from the Asset Purchase Agreement have been eliminated from the Company’s Consolidated Financial Statements for the year ended March 31, 2019. |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
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Principles of Consolidation | Principles of Consolidation
We prepare our consolidated financial statements in accordance with generally accepted accounting principles (GAAP) for the United States of America. Our consolidated financial statements include all operating divisions and majority-owned subsidiaries, reported as a single operating segment, for which we maintain controlling interests. Intercompany accounts and transactions have been eliminated in consolidation. In our opinion, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included.
Certain reclassifications have been made to the comparative year amounts in order to conform to the current period presentation. These reclassifications had no effect on the reported financial position, results of operations or cash flows. |
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Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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Fair Value of Financial Instruments | 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:
The carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. |
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Cash and Cash Equivalents | 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. |
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Accounts Receivable | Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability. |
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Inventory | 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. |
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Indefinite-Lived Intangible Assets | Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets primarily represent the value of our patents pending. Upon issuance of the patents, the indefinite-lived intangible assets will have finite lives. We amortize our finite-lived intangible assets over their estimated useful lives using the straight-line method, and we periodically evaluate the remaining useful lives of our finite-lived intangible assets to determine whether events or circumstances warrant a revision to the remaining period of amortization. |
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Property and Equipment | Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements are amortized over the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend the useful lives of related assets are expensed as incurred. |
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Long-lived Assets | 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. No indicators of impairment were identified by the Company as of March 31, 2019. |
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Beneficial Conversion Feature of Convertible Notes Payable | 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. |
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Other Assets | Other Assets
Other assets primarily include employee advances. |
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Revenue Recognition | Revenue Recognition
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance. |
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Research and Development Costs | Research and Development Costs
Research and development costs are expensed as incurred. |
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Equity-based Compensation | 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. |
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Income Taxes | 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. |
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Loss Per Share | 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 128,608,852 and 104,207,396 potentially dilutive common shares at March 31, 2019 and 2018, 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
Net loss attributable to common stockholders for the year ended March 31, 2019 includes and adjustment for a deemed dividend from induced warrant exercises. The following table sets forth the computation of basic and diluted EPS:
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Recent Accounting Pronouncements | Recent Accounting Pronouncements
Standards Effective in Future Years
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019. The Company reviewed the terms of its existing lease and has recorded a right of asset and related lease liability of approximately $213,000 upon adoption.
In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of April 1, 2019. The Company determined that all share-based payments were settled as of the date of the adoption, so there was no impact on the Company's financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
Recently Adopted Standards
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance. |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies (Tables) |
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Computation of basic and diluted EPS | The following table sets forth the computation of basic and diluted EPS:
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Note 4 - Capital Lease (Tables) |
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Schedule of Future Minimum Lease Payments for Capital Leases | The future minimum lease payments required under the capital leases and the net present value of the minimum lease payments as of March 31, 2019, are as follows:
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Note 5 - Notes Payable (Tables) |
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February 2018 Agreement | All amounts related to the February 2018 Agreement recorded in the Company’s Consolidated Balance Sheet and Statement of Operations for the year ended March 31, 2018, are summarized below:
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Amounts Recorded in Other Expense | In total, the Company recorded $3.1 million related to the Amendment and Termination Agreement in Other Expense in its Consolidated Statement of Operations for the year ended March 31, 2019, as summarized in the table below:
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Schedule of Debt | As of March 31, 2019, the following notes payable were recorded in the Company’s Consolidated Balance Sheet:
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Note 7 - Property and Equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | Property and equipment is comprised of the following:
|
Note 8 - Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effective Income Tax Rate Reconciliation | The provision for income taxes is different than would result from applying the U.S. statutory rate to profit before taxes for the reasons set forth in the following reconciliation:
|
|||||||||||||||||||||||||||||||||||||||||||||
Schedule of Deferred Tax Assets and Liabilities | The tax effects of the primary temporary differences giving rise to the Company’s deferred tax assets and liabilities are as follows for the year ended March 31, 2019 and 2018:
|
Note 9 - Capital Transactions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Warrants |
Presented below is a summary of the Company’s warrant activity for the years ended March 31, 2019 and 2018:
|
Note 10 - Employee Benefit Plan (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Unrecognized Compensation Cost, Nonvested Awards | The unrecognized compensation cost, and weighted-average period over which the cost is expected to be recognized for non-vested awards as of March 31, 2019, are presented below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Options, Valuation Assumptions | The following range of assumptions in the Black-Scholes option pricing model was used to determine fair value at the years ended below:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Options Roll Forward | A summary of option activity as of March 31, 2019 and 2018, and changes during the years then ended, is presented below:
|
Note 1 - Background and Basis of Presentation (Details) |
12 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2019
USD ($)
ft²
shares
|
Mar. 15, 2019
USD ($)
|
Apr. 08, 2018
shares
|
Mar. 31, 2018
shares
|
|
Entity Incorporation, Date of Incorporation | Apr. 04, 2001 | |||
Common stock shares authorised | shares | 400,000,000 | 400,000,000 | 250,000,000 | |
Las Vegas Facility | ||||
Area of Real Estate Property | ft² | 28,000 | |||
THC | ||||
Advance from related party | $ 253,034 | |||
Capitalization of fair value of machinery and equipment | 139,411 | |||
Other expense | 113,623 | |||
LSU | ||||
Minimum financial contribution | 3,400,000 | |||
Payment to related party | $ 1,500,000 | |||
GBS Global Biopharma | Asset Purchase Agreement | ||||
Promissory note | $ 1,435,700 |
Note 2 - Going Concern (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Text Block [Abstract] | ||
NET LOSS ATTRIBUTABLE TO GROWBLOX SCIENCES, INC. | $ (23,653,165) | $ (22,974,190) |
Accumulated Deficit | (84,743,836) | $ (58,229,235) |
Working capital deficit | $ (3,200,000) |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies: Property and Equipment (Details) - Machinery and Equipment |
12 Months Ended |
---|---|
Mar. 31, 2019 | |
Minimum | |
Property, Plant and Equipment, Useful Life | 3 years |
Maximum | |
Property, Plant and Equipment, Useful Life | 8 years |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies: Loss Per Share (Details) - shares |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Text Block [Abstract] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 128,608,852 | 104,207,396 |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies: Recent Accounting Pronouncements (Details) |
Apr. 01, 2019
USD ($)
|
---|---|
Text Block [Abstract] | |
Right of asset | $ 213,000 |
Lease liability | $ 213,000 |
Note 3 - Basis of Presentation and Summary of Significant Accounting Policies: Loss per Share : Basic and diluted EPS (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Disclosure Text Block [Abstract] | ||
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. | $ (23,653,165) | $ (22,974,190) |
Less: Inducement dividend from warrant exercises | (2,861,436) | |
Net loss attributable to common stockholders | $ (26,514,601) | $ (22,974,190) |
Weighted average common shares outstanding - basic and diluted | 209,537,769 | 132,934,141 |
Net loss per share - basic and diluted | $ (0.13) | $ (0.17) |
Note 4 - Capital Lease: Future Minimum Lease Payments for Capital Leases (Details) - USD ($) |
Mar. 31, 2019 |
Mar. 31, 2018 |
---|---|---|
Disclosure Text Block [Abstract] | ||
2020 | $ 777,671 | |
2021 | 835,499 | |
2022 | 851,352 | |
2023 | 890,712 | |
2024 | 915,208 | |
Thereafter | 7,331,562 | |
Total minimum lease payments | 11,602,004 | |
Less: Amount representing interest | (5,465,943) | |
Present value of minimum lease payments | 6,136,061 | |
Less: Current maturities of capital lease obligations | (142,010) | |
Long-term capital lease obligations | $ 5,994,051 | $ 6,142,606 |
Note 4 - Capital Lease (Details) - Pacific Leaf Ventures Lp - USD ($) |
1 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Mar. 04, 2019 |
Feb. 06, 2019 |
Jan. 16, 2019 |
Feb. 23, 2018 |
Jul. 31, 2016 |
Mar. 31, 2019 |
|
Debt Instrument, Periodic Payment | $ 210,000 | $ 100,000 | $ 100,000 | $ 1,269,818 | ||
Teco Facility Lease | ||||||
Debt Instrument, Periodic Payment | $ 40,000 | |||||
Description of Lessee Leasing Arrangements, Capital Leases | Commencing January 1, 2018, the monthly rent payments increased by 3% and will increase by 3% per annum through the expiration of the lease. | |||||
Capital Lease Obligations | $ 3,900,000 | |||||
Discount Rate | 11.60% | |||||
GB Sciences Louisiana Lease | ||||||
Debt Instrument, Periodic Payment | $ 25,588 | |||||
Capital Lease Obligations | $ 2,500,000 | |||||
Discount Rate | 10.30% |
Note 5 - Notes Payable (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 04, 2019 |
Feb. 06, 2019 |
Jan. 16, 2019 |
Dec. 21, 2018 |
Dec. 20, 2018 |
Oct. 23, 2018 |
Aug. 31, 2018 |
Feb. 23, 2018 |
Sep. 30, 2018 |
Mar. 31, 2019 |
Mar. 31, 2018 |
Jul. 31, 2018 |
|
Allocated Share-based Compensation Expense | $ 800,000 | $ 1,800,000 | ||||||||||
Prepaid expenses | 614,178 | 1,956,734 | ||||||||||
Interest expenses | $ 5,191,259 | $ 5,176,361 | ||||||||||
Convertible Promissory Note | ||||||||||||
Debt Instrument, Convertible, Terms of Conversion Feature | The Notes are payable within three years of issuance and are convertible into 16,464,000 shares of the Company’s common stock. | |||||||||||
Debt Conversion, Converted Instrument, Amount | $ 300,000 | |||||||||||
Common Stock | Convertible Promissory Note | ||||||||||||
Debt Instrument, Convertible, Conversion Price | $ 0.25 | |||||||||||
Debt Conversion, Converted Instrument, Shares Issued | 18,563,885 | |||||||||||
Warrant | ||||||||||||
Debt Instrument, Face Amount | $ 8,235,500 | |||||||||||
Class of Warrant, Outstanding | 16,464,000 | |||||||||||
Investment Warrants, Exercise Price | $ 0.65 | |||||||||||
Pacific Leaf Ventures Lp | ||||||||||||
Debt Instrument, Convertible, Conversion Price | $ 0.25 | |||||||||||
Debt Instrument, Maturity Date | Nov. 30, 2018 | |||||||||||
Class of Warrant, Outstanding | 1,500,000 | |||||||||||
Debt instrument payment | $ 210,000 | $ 100,000 | $ 100,000 | $ 1,269,818 | ||||||||
Accrued royalties | 269,818 | $ 1,500,000 | ||||||||||
Other expense | 250,000 | $ 3,140,925 | $ 510,000 | |||||||||
Prepaid expenses | 750,000 | |||||||||||
Value of restricted common stock issued | $ 1,040,000 | |||||||||||
Notes payable description | The Company recorded $260,000 in other expense related to the issuance of those shares, which represents 25% of the market value of those shares. We recorded $780,000 in prepaid expenses, representing the 75% portion of the fair market value of those shares which will be credited toward future royalties in the event that the final $1.5 million payment is not made on or before July 31, 2018. | |||||||||||
Royalty Expense | $ 1,530,000 | 1,530,000 | 269,818 | |||||||||
Royalty Buyout Payment | 2,309,818 | |||||||||||
Promissory note description | On December 21, 2018, the company made a $100,000 payment on the promissory note. The payment was applied to interest accrued to date of $12,164 and the remaining $87,836 was applied to the principal balance of the Note. | |||||||||||
Interest expenses | 15,929 | |||||||||||
Pacific Leaf Ventures Lp | Short Term Promissory Note 4 | ||||||||||||
Debt Instrument, Face Amount | $ 500,000 | |||||||||||
Debt Instrument, Convertible, Conversion Price | $ 0.25 | |||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 6.00% | |||||||||||
Debt Conversion, Converted Instrument, Amount | $ 500,000 | |||||||||||
Pacific Leaf Ventures Lp | Convertible Promissory Note | ||||||||||||
Debt Instrument, Convertible, Terms of Conversion Feature | The Second Amendment eliminates Pacific Leaf's option to purchase up to a 20% membership interest in GBSN and reduces Pacific Leaf's existing royalty rate to 16.4% of the gross sales revenue of GBSN. It also caps maximum aggregate royalty payments to be made to Pacific Leaf at $2,420,000 with respect to any calendar year | |||||||||||
Pacific Leaf Ventures Lp | Short Term Promissory Note 5 | ||||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 6.00% | |||||||||||
Pacific Leaf Ventures Lp | Cash Payment 1 | ||||||||||||
Other expense | $ 250,000 | |||||||||||
Royalty Expense | $ 1,500,000 | 269,818 | ||||||||||
Royalty Buyout Payment | $ 1,000,000 | $ 1,269,818 | ||||||||||
Pacific Leaf Ventures Lp | Common Stock | Short Term Promissory Note 4 | ||||||||||||
Debt Conversion, Converted Instrument, Shares Issued | 2,000,000 | |||||||||||
Edibles Production Agreement | Credit Line Promissory Note | ||||||||||||
Debt Instrument, Payment Terms | Beginning 90 days after the sale of its first product, THCLLC is to make repayment of its advances under the Note in an amount equal to 25% of its gross sales revenue. Such repayment is due within 10 days of the sale of any product. | |||||||||||
BCM Med | ||||||||||||
Promissory note description | On December 20, 2018, GB Sciences Louisiana, LLC (“GBSLA") entered into a $300,000 Loan Agreement with BCM MED, LLC (“BCM MED”). BCM MED is a related party to Wellcana Group, LLC, the minority member in GBSLA. The purpose of the financing is to fund operating expenses incurred by or on behalf of medical marijuana operations of GBSLA. | |||||||||||
483 Management | ||||||||||||
Long-term Debt, Gross | 521,067 | |||||||||||
Promissory note description | 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% unsecured Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. | |||||||||||
Interest expenses | $ 85,981 | |||||||||||
Imputed interest rate | 20.30% | |||||||||||
Discount on notes payable | $ 178,933 |
Note 5 - Notes Payable: February 2018 Agreement (Details) - Pacific Leaf Ventures Lp - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Aug. 31, 2018 |
Feb. 23, 2018 |
Sep. 30, 2018 |
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Royalty Buyout Payment | $ 2,309,818 | ||||
Royalty Expense | $ 1,530,000 | $ 1,530,000 | 269,818 | ||
Other Expenses | $ 250,000 | $ 3,140,925 | 510,000 | ||
Other Prepaid Expense, Current | 1,530,000 | ||||
Cash Payment 1 | |||||
Royalty Buyout Payment | $ 1,000,000 | 1,269,818 | |||
Royalty Expense | $ 1,500,000 | 269,818 | |||
Other Expenses | 250,000 | ||||
Other Prepaid Expense, Current | 750,000 | ||||
Share Payment1 | |||||
Royalty Buyout Payment | 1,040,000 | ||||
Royalty Expense | 0 | ||||
Other Expenses | 260,000 | ||||
Other Prepaid Expense, Current | $ 780,000 |
Note 5 - Notes Payable: Amounts Recorded in Other Expense (Details) - Pacific Leaf Ventures Lp - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|
Dec. 21, 2018 |
Aug. 31, 2018 |
Feb. 23, 2018 |
Sep. 30, 2018 |
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Royalty Expense | $ 1,530,000 | $ 1,530,000 | $ 269,818 | |||
Royalty Buyout Payment | 2,309,818 | |||||
Extinguishment of Debt, Amount | (20,075) | |||||
Other Expenses | $ 250,000 | 3,140,925 | 510,000 | |||
Share Payment2 | ||||||
Stock Issued During Period, Value, Other | $ 95,000 | 36,000 | ||||
Short Term Promissory Note 4 | ||||||
Promissory notes | $ 500,000 | |||||
Cash Payment 1 | ||||||
Royalty Expense | $ 1,500,000 | 269,818 | ||||
Royalty Buyout Payment | $ 1,000,000 | 1,269,818 | ||||
Other Expenses | $ 250,000 |
Note 6 - Convertible Notes (Details) |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|---|
Feb. 28, 2019
USD ($)
Integer
$ / shares
|
Jul. 31, 2017 |
Mar. 31, 2017
USD ($)
Integer
$ / shares
shares
|
Mar. 31, 2019
USD ($)
$ / shares
|
Dec. 31, 2017
USD ($)
Integer
$ / shares
shares
|
Sep. 30, 2017
USD ($)
Integer
$ / shares
shares
|
Jun. 30, 2017
USD ($)
Integer
$ / shares
shares
|
Mar. 31, 2019
USD ($)
$ / shares
|
Mar. 31, 2018
USD ($)
$ / shares
|
|
Class of Warrant, Exercise Price | $ / shares | $ 0.20 | ||||||||
Private Placement Terms | 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. | ||||||||
Common stock price per share | $ / shares | $ 0.20 | $ 0.20 | |||||||
Accrued interest | $ 142,112 | $ 142,112 | $ 175,878 | ||||||
Interest expense | 5,191,259 | 5,176,361 | |||||||
Discount amortization | 793,820 | $ 1,620,709 | |||||||
Convertible Note Payable | CSW Ventures | |||||||||
Debt Instrument, Face Amount | $ 1,500,000 | ||||||||
Debt Instrument, Convertible, Number of Equity Instruments | Integer | 8,823,529 | ||||||||
Debt Instrument, Convertible, Beneficial Conversion Feature | $ 176,471 | ||||||||
Common stock price per share | $ / shares | $ 0.17 | ||||||||
Accrued interest | 8,329 | 8,329 | |||||||
Interest expense | 7,336 | ||||||||
Short Term Promissory Note 1 | |||||||||
Debt Instrument, Face Amount | $ 965,500 | $ 4,116,000 | $ 3,085,000 | $ 1,034,500 | |||||
Debt Instrument, Term | 3 years | 3 years | 3 years | 3 years | |||||
Class of Warrant, Outstanding | shares | 3,862,000 | 16,464,000 | 12,340,000 | 4,138,000 | |||||
Class of Warrant, Exercise Price | $ / shares | $ 0.60 | $ 0.65 | $ 0.65 | $ 0.60 | |||||
Debt Instrument, Convertible, Beneficial Conversion Feature | $ 416,733 | $ 1,600,808 | $ 1,541,797 | $ 487,957 | |||||
Beneficial conversion feature, an additional discount | $ 548,767 | $ 2,417,856 | $ 1,532,335 | $ 480,236 | |||||
Accrued interest | 121,558 | 121,558 | |||||||
Debt Instrument Carrying Amount | 692,071 | 692,071 | |||||||
Debt Instrument, Unamortized Discount | (564,929) | $ (564,929) | |||||||
Discount amortization | $ 786,484 | ||||||||
Short Term Promissory Note 1 | Common Stock | |||||||||
Debt Instrument, Convertible, Number of Equity Instruments | Integer | 3,862,000 | 16,464,000 | 12,340,000 | 4,138,000 |
Note 7 - Property and Equipment: Property, Plant and Equipment (Details) - USD ($) |
Mar. 31, 2019 |
Mar. 31, 2018 |
---|---|---|
Property, Plant and Equipment, Gross | $ 25,868,010 | $ 15,222,766 |
Less accumulated depreciation and amortization | (2,363,308) | (1,463,609) |
Property and Equipment, Net | 23,504,702 | 13,759,157 |
Furniture and Fixtures | ||
Property, Plant and Equipment, Gross | 20,883 | 0 |
Computer and software | ||
Property, Plant and Equipment, Gross | 201,304 | 151,748 |
Machinery and Equipment | ||
Property, Plant and Equipment, Gross | 1,633,004 | 1,094,472 |
Leaseholds | ||
Property, Plant and Equipment, Gross | 15,734,980 | 4,357,779 |
Construction in Progress | ||
Property, Plant and Equipment, Gross | 1,852,839 | 3,193,767 |
Capital lease - building | ||
Property, Plant and Equipment, Gross | $ 6,425,000 | $ 6,425,000 |
Note 7 - Property and Equipment (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Table Text Block Supplement [Abstract] | ||
Depreciation expense | $ 600,000 | $ 800,000 |
Note 8 - Income Taxes (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Text Block [Abstract] | ||
Effective tax rate | (2.40%) | 0.00% |
Income tax expense | $ 526,145 | $ 0 |
Tax liability | 510,647 | |
Tax penalties | 15,498 | |
Income tax payable | 506,145 | 0 |
Operating Loss Carryforwards | $ 47,430,184 | $ 34,481,122 |
Operating Loss Carryforwards, Limitations on Use | The net operating loss carryforwards are expected to expire at various times from 2025 through 2039. |
Note 8 - Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Text Block [Abstract] | ||
Tax benefit computed at U.S. statutory rates | $ (4,424,959) | $ (4,824,580) |
Increases (decreases) in taxes resulting from: | ||
IRC Section 280E | 968,870 | 159,188 |
Other permanent items | 35,590 | 5,604 |
Change in valuation allowance | 3,420,499 | 4,659,788 |
Prior year tax expense | (510,647) | 0 |
Total provision for income taxes | $ 510,647 | $ 0 |
Note 8 - Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) |
Mar. 31, 2019 |
Mar. 31, 2018 |
---|---|---|
Deferred tax assets: | ||
Stock based compensation | $ 2,883,491 | $ 752,617 |
Net operating loss carryforward | 9,960,339 | 9,190,629 |
Depreciation and Amortization expense | (416,944) | (286,240) |
Other temporary items | 68,520 | 0 |
Total deferred tax assets | 12,495,406 | 9,657,006 |
Less valuation Allowance | (12,495,406) | (9,657,006) |
Net deferred tax asset | $ 0 | $ 0 |
Note 9 - Capital Transactions (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|
Aug. 23, 2018 |
Jul. 31, 2017 |
Mar. 31, 2019 |
Mar. 31, 2019 |
Mar. 31, 2018 |
Mar. 31, 2017 |
Feb. 23, 2018 |
|
Common stock issued in connection with exercise of warrants | 325,125 | ||||||
Dividend | $ 2,900,000 | ||||||
Issuance of Stock for Services, value | 1,254,363 | $ 667,578 | |||||
Prepaid expense | $ 614,178 | 614,178 | 1,956,734 | ||||
Issuance of stock for cash , value | $ 6,522,125 | 7,200,000 | |||||
Share Price | $ 0.20 | $ 0.20 | |||||
Stock issued to settle Pacific Leaf royalty agreement, value | $ 131,000 | $ 1,040,000 | |||||
Stock options issued | 400,000 | 6,400,000 | |||||
Share-based Compensation Expense | $ 800,000 | $ 1,800,000 | |||||
Convertible Promissory Note | Principal | |||||||
Debt Instrument, Face Amount | $ 4,470,000 | 4,470,000 | |||||
Convertible Promissory Note | Interest | |||||||
Debt Instrument, Face Amount | $ 170,971 | 170,971 | |||||
Warrant | |||||||
Warrants issued to investors | 28,804,000 | 8,000,000 | |||||
Debt Instrument, Face Amount | 8,235,500 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Terms of Award | Company effected a temporary decrease in the exercise price of the warrants from $0.60 and $0.65, respectively, to $0.30 and $0.325 per share. | ||||||
Common Stock | |||||||
Exercise of warrants for stock, shares | $ 12,657,875 | $ 4,168,940 | |||||
Common stock issued | 12,332,750 | ||||||
Proceeds from common stock issued | $ 3,900,000 | ||||||
Issuance of Stock for Services, shares | 4,032,407 | 1,928,845 | |||||
Issuance of Stock for Services, value | $ 403 | $ 192 | |||||
Issuance of stock for cash, shares | 36,156,080 | 18,000,000 | |||||
Issuance of stock for cash , value | $ 3,616 | $ 1,800 | |||||
Stock issued to settle Pacific Leaf royalty agreement, value | $ 60 | $ 160 | |||||
Common Stock | Convertible Promissory Note | |||||||
Debt Conversion, Converted Instrument, Shares Issued | 18,563,885 | ||||||
SylvaCap Media | Warrant | |||||||
Share Price | $ 0.1125 | $ 0.1125 | |||||
Number of warrants purchased | 2,000,000 | ||||||
Value of warrants | $ 244,000 | ||||||
Warrants expense | 81,333 | ||||||
Monthly consuting fee | $ 10,000 | ||||||
Number of restricted common stock issued | 4,000,000 | ||||||
EMLL Group | Warrant | |||||||
Share Price | 0.1125 | $ 0.1125 | |||||
Number of warrants purchased | 8,000,000 | ||||||
Value of warrants | $ 969,197 | ||||||
Warrants expense | $ 969,197 | ||||||
Pacific Leaf Ventures Lp | |||||||
Common stock issued | 600,000 | ||||||
Prepaid expense | $ 750,000 | ||||||
Private placement | |||||||
Issuance of stock for cash, shares | 35,878,302 | ||||||
Share Price | $ 0.60 | ||||||
Private placements description | On August 10, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 10,000,000 units at the price of $0.25 per unit. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of three years. On August 23, 2018, the Placement Agent’s Agreement was amended to increase the number of units offered by 10,000,000 to 20,000,000 in total, with no other changes to the agreement. Between August 10, 2018 and September 25, 2018, the Company received a total of $4.4 million in proceeds from the private placement, net of $0.6 million in brokerage fees and issued 20 million shares of its common stock and 20 million warrants to purchase one share of its common stock for a period of three years to the investors who participated in the private placement. •On December 4, 2018, the Company entered into a Placement Agent’s Agreement to offer a total of 15,000,000 units at the price of $0.20 per unit up to a total of $3 million. Each unit consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price of $0.60 for a period of five years. On January 15, 2019, the Placement Agent’s Agreement was amended to decrease the unit price from $0.20 per unit to $0.15 per unit for a total of 20,000,000 units and decrease the exercise price of the warrants included in each unit from $0.60 to $0.30, applied retroactively to funds raised prior to the date of the amendment, with no other changes to the agreement. Between December 4, 2018 and March 31, 2019, the Company received a total of $2,072,125 in proceeds from the private placement, net of $309,620 in brokerage fees and issued 15,878,302 shares of its common stock and 15,878,302 warrants to purchase one share of its common stock at $0.30 per share. | ||||||
Number of warrant issued for compensation | 2,000,000 | ||||||
Warrant compensation expenses | $ 600,000 | ||||||
Warrants expiration date | Oct. 01, 2023 | ||||||
Investor | |||||||
Issuance of stock for cash, shares | 277,778 | ||||||
Share Price | $ 0.36 | $ 0.36 | |||||
Consultant | |||||||
Issuance of Stock for Services, shares | 4,032,407 | ||||||
Issuance of Stock for Services, value | $ 900,000 | ||||||
Prepaid expense | $ 300,000 | $ 300,000 | |||||
2014 Equity Incentive Plan | Employees | |||||||
Stock options issued | 400,000 | ||||||
Vesting period | 10 years | ||||||
2014 Equity Incentive Plan | Minimum | |||||||
Exercise price | $ 0.37 | $ 0.37 | |||||
2014 Equity Incentive Plan | Maximum | |||||||
Exercise price | $ 0.60 | $ 0.60 |
Note 9 - Capital Transactions: Schedule of Warrants (Details) - $ / shares |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Outstanding, Beginning Balance | 65,883,062 | 32,932,413 |
Warrants issued | 47,878,302 | 51,284,000 |
Warrants exercised | (12,657,875) | (9,838,375) |
Warrants expired/cancelled | (1,312,500) | (8,494,976) |
Outstanding, Ending Balance | 99,790,989 | 65,883,062 |
Warrants exercised, Exercised Price | $ 0.20 | |
Warrants expired/cancelled, Exercised Price | 1.00 | |
Minimum | ||
Warrants issued, Exercised Price | $ 0.30 | 0.60 |
Warrants exercised, Exercised Price | 0.30 | 0.01 |
Warrants expired/cancelled, Exercised Price | 0.50 | |
Maximum | ||
Warrants issued, Exercised Price | 0.60 | 1.00 |
Warrants exercised, Exercised Price | 0.325 | $ 0.20 |
Warrants expired/cancelled, Exercised Price | $ 2.00 |
Note 10 - Employee Benefit Plan (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Allocated Share-based Compensation Expense | $ 800,000 | $ 1,800,000 |
Growblox SciencesI nc 2007 Amended Stock Option Plan | ||
Number of Shares Authorized | 8,000,000 | |
S8 Registration Statement | ||
Number of Shares Authorized | 8,500,000 |
Note 10 - Employee Benefit Plan: Schedule of Unrecognized Compensation Cost, Nonvested Awards (Details) - Employee Stock Option |
12 Months Ended |
---|---|
Mar. 31, 2019
USD ($)
| |
Unrecognized Compensation Cost ($) | $ 193,559 |
Weighted Averge Period (years) | 4 months 24 days |
Note 10 - Employee Benefit Plan: Schedule of Stock Options, Valuation Assumptions (Details) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Text Block [Abstract] | ||
Weighted-average volatility | 181.00% | 183.55% |
Expected term (in years) | 10 years | 10 years |
Risk-free interest rate | 2.74% | 2.02% |
Note 11 - Commitments and Contingencies (Details) - LSU AgCenter |
12 Months Ended |
---|---|
Mar. 31, 2019
USD ($)
| |
Annual Research Investments | |
Other Commitment | $ 1,500,000 |
Research and Development Expense | 500,000 |
Minimum Financial Contribution | |
Other Commitment | $ 3,400,000 |
Gross receipts, commission | 10.00% |
Note 12 - Deposits and Prepayments (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Mar. 31, 2019 |
May 09, 2019 |
Mar. 31, 2018 |
|
Deposits and prepayment balances | $ 1,200,000 | $ 1,500,000 | |
NVPURE | |||
Refund of deposit | $ 300,000 | ||
LSU | |||
Proceeds from Other Deposits | $ 300,000 |
Note 13 - Related Party Transactions (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Quantum Shop | ||
Related Party Transaction, Amounts of Transaction | $ 1,100,000 | $ 1,300,000 |
Electrum Partners LLC | ||
Related Party Transaction, Amounts of Transaction | $ 153,329 | $ 75,562 |
Stock Issued During Period, Shares, Issued for Services | 432,407 | 499,102 |
Restricted stock expenses | $ 122,363 | |
Electrum Partners LLC | Consulting Agreement | ||
Initial periodic compensation payment | 5,000 | |
Value of additional restricted stock | $ 10,000 | |
Edibles Production Agreement | Minimum | ||
Royalty rates | 20.00% | |
Edibles Production Agreement | Maximum | ||
Royalty rates | 25.00% | |
Edibles Production Agreement | Credit Line Promissory Note | ||
Line of Credit Facility, Current Borrowing Capacity | $ 300,000 | |
THC | ||
Advance from related party | 253,034 | |
Capitalization of fair value of machinery and equipment | 139,411 | |
Other expense | $ 113,623 |
Note 14 - Concentrations (Details) |
12 Months Ended |
---|---|
Mar. 31, 2019 | |
Revenue | First Customer | |
Concentration Risk, Percentage | 10.10% |
Revenue | Second Customer | |
Concentration Risk, Percentage | 10.10% |
Accounts Receivable | First Customer | |
Concentration Risk, Percentage | 21.40% |
Accounts Receivable | Second Customer | |
Concentration Risk, Percentage | 11.10% |
Note 16 - Non-Controlling Interest (Details) - USD ($) |
1 Months Ended | |||
---|---|---|---|---|
Feb. 12, 2019 |
May 23, 2019 |
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Membership interest | $ 8,855,757 | $ 2,882,990 | ||
Wellcana | Operating Agreement | ||||
Membership interest Percentage | 15.00% | |||
Membership interest | $ 3,000,000 | |||
Additional membership interest Purchase | 35.00% | |||
Membership interest rate | 5.00% | |||
Additional membership interest Contribution | $ 1,000,000 | $ 7,000,000 | ||
Total membership interest Percentage | 49.99% |
Note 17 - Formation of GBS Global Biopharma (Details) - Asset Purchase Agreement - GBS Global Biopharma |
Mar. 15, 2019
USD ($)
|
---|---|
Promissory note | $ 1,435,700 |
Liabilities assumed | 475,586 |
Net liabilities assumed | $ 1,435,700 |
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