Section 3.3 Capitalization.
(a) The outstanding equity interests of the Teco Subsidiaries consist entirely of the Membership Interests which are held of record and beneficially solely by Seller. All of the Membership Interests have been duly authorized, are validly issued, fully paid and non-assessable.
(b) All of the Membership Interests were issued in compliance with applicable Laws. None of the Membership Interests were issued in violation of any agreement, arrangement or commitment to which Seller or any Teco Subsidiary is a party or is subject to or in violation of any preemptive or similar rights of any Person.
(c) There are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the equity interests of the Teco Subsidiaries or obligating the Seller or the Teco Subsidiaries to issue or sell any units, membership interest, or any other interest in the Teco Subsidiaries. The Teco Subsidiaries do not have outstanding or authorized any share or unit appreciation, phantom share or unit, profit participation or similar rights.
(d) Seller is the record and beneficial owner of the Membership Interests, free and clear of any Encumbrance, other than Encumbrances in favor of Buyer or its Affiliates. Seller has the full unrestricted and unconditioned right, authority and power to sell, assign and transfer the Purchased Membership Interests owned by it to Buyer. There are no restrictions on or agreements with respect to the voting rights of Seller that would impair Buyer’s rights under this Agreement. At the Closing, Buyer will acquire good, valid and marketable title to the Purchased Membership Interests, free and clear of any Encumbrance, other than Encumbrances in favor of Buyer or its Affiliates.
Section 3.4 Subsidiaries. There are no Subsidiaries of the Teco Subsidiaries. The Teco Subsidiaries do not own or hold, and have not owned or held, any capital stock in any subsidiary or any Person.
Section 3.5 No Conflicts; Consents. Except as set forth in Section 3.5 of the Disclosure Schedules, the execution, delivery and performance by the Seller of this Agreement and each of the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of formation, limited liability company agreement or other organizational documents of Seller or the Teco Subsidiaries; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Seller or the Teco Subsidiaries; (c) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which either of the Teco Subsidiaries is a party or by which either of the Teco Subsidiaries is bound or to which any of their respective properties and assets are subject or any Permit affecting the properties, assets or business of the Teco Subsidiaries; or (d) result in the creation or imposition of any Encumbrance on any properties or assets of the
Teco Subsidiaries. Except as set forth in Section 3.5 of the Disclosure Schedules, no consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Seller or the Teco Subsidiaries in connection with the execution and delivery of this Agreement or any other Transaction Document and the consummation of the transactions contemplated hereby and thereby.
Section 3.6 Financial Statements. True and complete copies of the following unaudited financial statements for the Teco Subsidiaries are attached to Schedule 3.6, such statements being referred to hereafter, collectively as the “Financial Statements”: (i) the balance sheet as of March 31 in each of the years 2019 and 2018 and the related statements of income, statements of members equity and statements of cash flows for the Teco Subsidiaries for the years then ended, and (ii) the interim consolidating balance sheet as of December 31, 2019 and related statement of income, members equity and cash flows for the nine month period then ended. Each of the Financial Statements including the notes thereto, if any, has been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and fairly presents in all material respects the financial condition of the Teco Subsidiaries as of such dates and the results of the Teco Subsidiaries operations for the periods specified. The balance sheet of the Teco Subsidiaries as of December 31, 2019 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date.”
Section 3.7 Litigation and Claims. There is no litigation or proceeding, in law or in equity, pending or, to Seller’s knowledge, threatened, against Seller, the Teco Subsidiaries or their respective officers, directors or members, either (i) with respect to or affecting Seller’s ability to perform its obligations hereunder, or (ii) that is reasonably likely to prohibit, restrict or delay the performance of this Agreement by Seller. .
Section 3.8 Taxes. All applicable transfer taxes and similar charges, fees that may be due or payable by Seller or the Teco Subsidiaries as a result of the conveyance, assignment, transfer, assumption or delivery of the Membership Interests as contemplated by this Agreement shall be paid by Seller.
Section 3.9 Conflicts. Except as set forth on Schedule 3.9, neither the Seller nor the Teco Subsidiaries are a party to, or bound by, any unexpired, undischarged or unsatisfied contract that is material to the Seller or the Teco Subsidiaries (“Material Contract”) under the terms of which the execution of, or the performance by Seller according to the terms of this Agreement would (i) be a default or an event of acceleration, (ii) prohibit, prevent or delay timely performance by Seller according to the terms of this Agreement; or (iii) require the consent of or otherwise give any other party to such Material Contract the right to refuse to give consent to the consummation of the transactions contemplated hereby or to elect to terminate such Material Contract, require Seller or the Teco Subsidiaries to give notice to any other party of the transactions contemplated hereby, or provide that, or give any other party the right to declare that, as a result of the consummation of the transactions contemplated hereby, the Material Contract shall be null and void.
Section 3.10 Employees. Except as set forth on Schedule 3.10(i):
(a) With respect to any current or former employees of the Seller or Teco Subsidiaries who was employed by the Teco Subsidiaries, there is not now, nor has there been within the twenty four (24) months before Closing, any pending or, to Seller’s Knowledge, threatened: (A) unfair labor practice charge, employment discrimination or other charge with any governmental entity responsible for equal employment opportunity, or employee grievance; (B) labor-related organizational effort, election activities, or request or demand for negotiations, recognition or representation; (C) labor strike, dispute, slowdown, stoppage, picketing, interruption of work, lockout, or other dispute or controversy with or involving a labor organization or with respect to unionization or collective bargaining; or (D) grievance or arbitration proceeding arising out of or under any collective bargaining agreement. To the Seller’s Knowledge, the Teco Subsidiaries are not, and have not been, a party to or bound by any collective bargaining agreement, other agreement or understanding, work rules or practice, or arbitration award with any labor union or any other similar organization.
(b) As of the Closing, the Seller has timely paid, accrued on the Balance Sheet, or provided Buyer a reduction in the Cash Purchase Price as provided in Section 2.2(b), for any and all salaries, wages, bonus, sales commission, vacation and sick pay, profit sharing obligations, other compensation amounts, and Taxes and penalties (if any) due and owing for any period prior to the Closing Date by the Teco Subsidiaries to or with respect to Seller’s and Teco Subsidiaries’ current and former employees (“Employee Liability Amounts”). No employee or former employee of Seller has any right to be rehired by the Teco Subsidiaries. paid by Seller.
Section 3.11 No Undisclosed Liabilities; Teco Subsidiary Fines.
(a) The Teco Subsidiaries have no Liabilities incurred prior to the Management Commencement Date, except (a) those which are adequately reflected or reserved against in the Balance Sheet, (b) those which have reduced the Cash Purchase Price pursuant to Section 2.2(b) hereof, and (c) those which have been incurred in the ordinary course of business consistent with past practice which are not, individually or in the aggregate, material in amount.
(b) As of the Closing, Seller has paid or provided Buyer a reduction in the Purchase Price as provided in Section 2.2(b) with respect to all state or local regulatory fines, penalties, or charges incurred by either of the Teco Subsidiaries with respect to activities prior to the Management Commencement Date (“Teco Subsidiary Fines”).
Section 3.12 Brokers. (c) No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller or the Teco Subsidiaries.
Section 3.13 Complete Disclosure. (d) The representations and warranties of Seller in this Agreement (including the schedules and exhibits hereto) do not omit to state a material fact necessary in order to make the representations, warranties or statements contained herein not misleading.
Article IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the correspondingly numbered Schedules referred to below, Buyer represents and warrants to Seller that the statements contained in this Article IV are true and correct as of the date hereof and as of the Closing.
Section 4.1 Organization and Authority of Buyer. Buyer is a limited liability company duly formed and validly existing under the Laws of California. Buyer has full capacity and authority to enter into this Agreement and each of the other Transaction Documents to which it is or will be a party, to carry out its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and of the other Transaction Documents to which it is or will be a party, the performance by Buyer of its obligations hereunder and thereunder, and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and by general equitable principles).
Section 4.2 No Conflicts; Consents. The execution, delivery and performance by the Buyer of this Agreement and each of the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of formation, limited liability company agreement, bylaws or other organizational documents of Buyer; (b) conflict with or result in a material violation or breach of any provision of any Law or Governmental Order applicable to Buyer in any material respect; or (c) require the consent, notice or other action by any Person under, conflict with, result in a material violation or breach of, constitute a material default or an event that, with or without notice or lapse of time or both, would constitute a material default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any material Contract to which the Buyer is a party or by which the Buyer is bound or to which any material portion of its properties and assets are subject or any material Permit affecting the properties, assets or business of the Buyer.
Section 4.3 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer.
Article V
COVENANTS
Section 5.1 Conduct of Business Prior to the Closing. From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), the Seller and Buyer shall cause the Teco Subsidiaries to, (x) conduct their business in the ordinary course of business
consistent with past practice; and (y) use reasonable best efforts to maintain and preserve intact the current organization, business and franchise of the Teco Subsidiaries and to preserve the rights, franchises, goodwill and relationships of their respective employees, customers, landlords, lenders, suppliers, regulators and others having business relationships with the Teco Subsidiaries. Without limiting the foregoing, from the date hereof until the Closing Date, the Seller and Buyer shall:
(a) not permit the Teco Subsidiaries to cancel or forfeit any License or other Permit or take any action or fail to take any action with the purpose or having the effect of causing any License or other Permit not to be in full force and effect;
(b) cause the Teco Subsidiaries to pay their respective debts, Taxes and other obligations when due;
(c) cause the Teco Subsidiaries to maintain the properties and assets, including, without limitation, all Real Property and equipment, owned, operated, leased or used by the Teco Subsidiaries in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear, and maintain the inventory of the Teco Subsidiaries in a manner so as to avoid spillage, breakage or other waste outside the ordinary course of business;
(d) cause the Teco Subsidiaries to continue in full force and effect without modification all insurance policies, except as required by applicable Law;
(e) cause the Teco Subsidiaries to defend and protect their properties and assets (including, without limitation, their Intellectual Property) from infringement or usurpation;
(f) cause the Teco Subsidiaries to perform all of their respective obligations under all Contracts relating to or affecting their properties, assets or business;
(g) cause the Teco Subsidiaries to maintain their respective books and records in accordance with past practice;
(h) cause the Teco Subsidiaries to comply in all material respects with all applicable Laws;
(i) not permit either of the Teco Subsidiaries to create, incur permit, allow or take any action to create any Encumbrance on any of their respective assets other than Permitted Encumbrances;
(j) not permit either of the Teco Subsidiaries to enter into any Material Contract (including any Lease); or
(k) not permit the Teco Subsidiaries to waive, release, assign, cancel compromise, settle, or offer or propose to settle, any Action other than any workers’ compensation or public liability claims, unless (1) the amount involved in such waiver, release, assignment, compromise, settlement or offer to settle does not exceed $2,500 individually or $10,000 in the aggregate, and (2) such waiver, release, assignment, compromise, settlement or offer to settle does not impose any injunctive or other non-monetary relief or criminal fines on
the Teco Subsidiaries, does not provide for any admission of liability by the Teco Subsidiaries, does not impose any sanction or restriction upon the conduct or operation of the business the Teco Subsidiaries, and the Teco Subsidiaries are fully and completely released.
Section 5.2 Access to Information. From the date hereof until the Closing, the Seller shall cause the Teco Subsidiaries to, (a) afford Buyer and its Representatives full and free access to, and the right to inspect all of the Real Property, properties, assets, premises, books and records, Contracts and other documents and data related to the Teco Subsidiaries; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Teco Subsidiaries as Buyer or any of its Representatives may reasonably request; and (c) instruct the Representatives of Seller and the Teco Subsidiaries to cooperate with Buyer in its investigation of the Teco Subsidiaries. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement.
Section 5.3 Nevada Approval(a) . To the extent permissible under applicable Law, the Buyer shall cause the Teco Subsidiaries to file applications with the Nevada Department and all other relevant state and local authorities, and shall use commercially reasonable efforts, with the cooperation of Seller, to secure from the Nevada Department and all other applicable licensing authorities to obtain on or prior to the Closing Date, the Nevada Approval and any other consent required for (i) the change of control of the Teco Subsidiaries with respect to all Licenses, and (ii) the issuance of any necessary temporary, provisional or permanent Licenses required for the continued operation of the business of the Teco Subsidiaries following the Closing.
Section 5.4 Confidentiality. From and after the Closing, Seller shall, and shall cause its Affiliates to, hold, and shall use its commercially reasonable efforts to cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Teco Subsidiaries, except to the extent that such Seller can show that such information (a) became generally available to the public without breach of this Agreement and through no act or omission of Seller, or its Affiliates or Representatives; (b) Seller received it from a third party that did not violate any agreement, duty or applicable law in disclosing the information to such Seller; or (c) is legally required to be disclosed. If any Seller or any of its respective Affiliates or Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, Seller shall promptly notify Buyer in writing and shall disclose only that portion of such information which Seller is advised by its counsel in writing is legally required to be disclosed, provided, however, that Seller shall use commercially reasonable efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.
Section 5.5 Governmental Approvals and Consents.
(a) Each party hereto shall, subject to applicable Law, as promptly as possible, (i) make, or cause or be made, all filings and submissions required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement; including, without limitation,
such filings and submissions to the Nevada Department to obtain the Nevada Approval as set forth in Section 5.4. Seller and Buyer acknowledge that the Nevada Department of Taxation has issued a moratorium on transfers of ownership interests of marijuana licenses/companies as of the date hereof. Notwithstanding the foregoing, each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals in accordance with applicable laws and regulations under the State of Nevada. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.
(b) The Seller and Buyer shall use commercially reasonable efforts to give all notices to, and obtain all required consents from, all third parties that are described in Section 3.5 of the Disclosure Schedules.
Section 5.6 Closing Conditions. From the date hereof until the Closing, each party hereto shall, and Seller shall cause the Teco Subsidiaries to, use their best efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in Article VII hereof.
Section 5.7 Public Announcements. All public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicated with any news media shall be made with the prior written consent of each party, which consent shall not be unreasonably withheld, conditioned or delayed, and the parties shall cooperate as to the timing and contents of any such announcement in compliance with applicable Laws.
Section 5.8 Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement.
Article VI
TAX MATTERS
Section 6.1 Tax Covenants.
(a) Without the prior written consent of Buyer, Seller (and, prior to the Closing, the Teco Subsidiaries, and their respective Affiliates and Representatives) shall not, to the extent it may affect, or relate to, the Teco Subsidiaries, make, change or rescind any Tax election, amend any Tax Return or take any position on any Tax Return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the Tax liability or reducing any Tax asset of Buyer or the Teco Subsidiaries in respect of any Post-Closing Tax Period. Seller agrees that Buyer is to have no liability for any Tax resulting from any action of the Seller, the Teco Subsidiaries and their respective Affiliates and Representatives, and agree to indemnify and hold harmless Buyer (and, after the Closing Date, the Teco Subsidiaries) against any such Tax or reduction of any Tax asset for periods prior to the Closing Date.
(b) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be borne and paid by Seller when due. Seller shall, on behalf of the Seller and at the Seller’s own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer shall cooperate with respect thereto as necessary).
(c) Buyer shall prepare, or cause to be prepared, all Tax Returns required to be filed by the Teco Subsidiaries after the Closing Date with respect to a Pre-Closing Tax Period. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or any accounting method and shall be submitted by Buyer to Seller (together with schedules, statements and, to the extent requested by Seller, supporting documentation) at least 45 days prior to the due date (including extensions) of such Tax Return. If Seller objects to any item on any such Tax Return, it shall, within ten days after delivery of such Tax Return, notify Buyer in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection shall be duly delivered, Buyer and Seller shall negotiate in good faith and use their reasonable best efforts to resolve such items. If Buyer and Seller are unable to reach such agreement within ten days after receipt by Buyer of such notice, the disputed items shall be resolved by an independent, nationally recognized accounting firm selected by Buyer and reasonably acceptable to Seller (the “Accounting Referee”) and any determination by the Accounting Referee shall be final. The Accounting Referee shall resolve any disputed items within twenty days of having the item referred to it pursuant to such procedures as it may require. If the Accounting Referee is unable to resolve any disputed items before the due date for such Tax Return, the Tax Return shall be filed as prepared by Buyer and then amended to reflect the Accounting Referee’s resolution. The costs, fees and expenses of the Accounting Referee shall be borne equally by Buyer and Seller. The preparation and filing of any Tax Return of the Teco Subsidiaries that does not relate to a Pre-Closing Tax Period shall be exclusively within the control of Buyer.
Section 6.2 Termination of Existing Tax Sharing Agreements. Any and all existing Tax sharing agreements (whether written or not) binding upon the Teco Subsidiaries shall be terminated as of the Closing Date. After such date neither of the Teco Subsidiaries, Seller nor any of Seller’s Affiliates and their respective Representatives shall have any further rights or liabilities thereunder.
Section 6.3 Straddle Period. In the case of Taxes that are payable with respect to a taxable period that begins before and ends after the Closing Date (each such period, a “Straddle Period”), the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this Agreement shall be:
(a) in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital or net worth, (ii) imposed in connection with the sale, transfer or assignment of property, or (iii) required to be withheld, deemed equal to the amount which would be payable if the taxable year ended with the Closing Date; and
(b) in the case of other Taxes, deemed to be the amount of such Taxes for the entire period multiplied by a fraction the numerator of which is the number of days in the period ending on the Closing Date and the denominator of which is the number of days in the entire period.
Section 6.4 Cooperation and Exchange of Information. At the Closing, Seller shall provide Buyer with all Tax Returns, schedules and work papers, records and other documents of the Teco Subsidiaries in their possession relating to Tax matters of the Teco Subsidiaries for any taxable period beginning before the Closing Date. Seller and Buyer shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to this Article VI or in connection with any audit or other proceeding in respect of Taxes of the Teco Subsidiaries. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by tax authorities. The parties shall retain all Tax Returns, schedules and work papers, records and other documents in their possession relating to Tax matters of the Teco Subsidiaries for any taxable period beginning before the Closing Date until at least six (6) years following the Closing Date. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Teco Subsidiaries for any taxable period beginning before the Closing Date, Seller or Buyer (as the case may be) shall provide the other party with reasonable written notice and offer the other party the opportunity to take custody of such materials.
Section 6.5 Tax Treatment. Seller and Buyer agree that the transactions contemplated hereby will be treated for U.S. federal income Tax purposes and applicable state income Tax purposes as a taxable sale by Seller and a purchase by Buyer of one hundred percent (100%) interest in the assets of each of the Teco Subsidiaries.
Section 6.6 Tax Allocation. Seller and Buyer agree that the Purchase Price shall be allocated among the assets of each of the Teco Subsidiaries for U.S. federal and applicable state and local income tax purposes as shown on the allocation schedule (the "Allocation Schedule").
A draft of the Allocation Schedule shall be prepared by Buyer and delivered to Seller within 60 days following the Closing Date. If Seller notifies Buyer in writing that Seller objects to one or more items reflected in the Allocation Schedule, Seller and Buyer shall negotiate in good faith to resolve such dispute; provided, however, that if Seller and Buyer are unable to resolve any dispute with respect to the Allocation Schedule within 90 days following the Closing Date, such dispute shall be resolved by the Accounting Referee. The fees and expenses of such accounting firm shall be borne equally by Seller and Buyer. Buyer and Seller shall file all Tax Returns (including amended returns and claims for refund) and information reports in a manner consistent with the Allocation Schedule. Any adjustments to the Purchase Price shall be allocated in a manner consistent with the Allocation Schedule.
Article VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligations of All Parties. The obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, to the condition that no Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.
Section 7.2 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the following conditions:
(a) The representations and warranties of Seller contained in Article III shall be true and correct in all respects (in the case of any representations or warranties containing any materiality or Material Adverse Effect qualifiers) or in all material respects (in the case of any representations or warranties without any materiality or Material Adverse Effect qualifiers) as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, which shall be true and correct in all respects as of that specified date).
(b) Seller shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date, including, without limitation, those set forth in Article VI; provided, however, that with respect to agreements, covenants and conditions that are qualified by materiality, Seller shall have performed such agreements, covenants and conditions, as so qualified, in all respects.
(c) No Action shall have been commenced against Buyer, Seller, the Teco Subsidiaries, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.
(d) Seller shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section 3.5, including, without limitation, the Nevada Approval, in each case, in form and substance reasonably satisfactory to Buyer and Seller, and no such consent, authorization, order and approval shall have been revoked.
(e) From the date of this Agreement, there shall not have occurred any Material Adverse Effect, including, without limitation, any an change in any Federal, state or local laws or regulations, or the enforcement thereof, that would have an adverse effect on the cannabis industry in general or the business of the Teco Subsidiaries.
(f) Buyer shall have received a certificate, dated the Closing Date and signed by Seller, that each of the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied.
(g) Seller shall have transferred and assigned to the Teco Subsidiaries all of the assets owned by Seller that are related to the business conducted or proposed to be conducted at the Teco Facility.
(h) All intercompany obligations owed by any of the Teco Subsidiaries to Seller or any Affiliate of Seller shall have been discharged, canceled or otherwise satisfied.
(i) Seller shall have delivered to Buyer good standing certificates (or their equivalent) for the Teco Subsidiaries from the secretary of state or similar Governmental Authority of the jurisdiction under the Laws in which the Seller and each of the Teco Subsidiaries are organized.
(j) Seller shall have delivered, or caused to be delivered, to Buyer, instruments of assignment with respect to the Purchased Membership Interests, substantially in the form of Exhibit B hereto.
(k) Seller shall have caused a representative of Buyer (to be designated by Buyer prior to Closing) to be made a signatory on all of the bank accounts of the Teco Subsidiaries.
Section 7.3 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Seller’s waiver, at or prior to the Closing, of each of the following conditions:
(a) The representations and warranties of Buyer contained in Article IV shall be true and correct in all respects (in the case of any representations or warranties containing any materiality qualifiers) or in all material respects (in the case of any representations or warranties without any materiality qualifiers) as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, which shall be true and correct in all respects as of that specified date), except where the failure of such representations and warranties to be true and correct would not have a material adverse effect on Buyer’s ability to consummate the transactions contemplated hereby.
(b) Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.
(c) No Action shall have been commenced against Buyer, Seller, the Teco Subsidiaries, which would prevent the Closing.
(d) No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.
(e) Seller shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer that each of the conditions set forth in Sections 7.3(a) and Section 7.3(b) have been satisfied.
Article VIII
INDEMNIFICATION
Section 8.1 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is two (2) years following the Closing Date; provided, however, that the representations and warranties set forth in Section 3.1 (Authority of Seller), Section 3.2 (Organization, Authority and Qualification of the Teco Subsidiaries), Section 3.3 (Capitalization), Section 3.4 (Subsidiaries), Section 3.12 (Brokers), will survive indefinitely (such representations and warranties, collectively, the “Fundamental Representations”). All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.
Section 8.2 Indemnification By Seller. Subject to the other terms and conditions of this Article VIII, the Seller shall indemnify and defend each of Buyer and its Affiliates (including the Teco Subsidiaries) and their respective Representatives (collectively, the “Buyer Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement, in any other Transaction Document or in any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by such Seller pursuant to this Agreement;
(c) any Excluded Liability; or
(d) any sanction or penalty by any Governmental Authority as a result of any transfer or deemed transfer of any License or other Permit as a result of the consummation of the transactions contemplated by this Agreement without the approval of such Governmental Authority, to the extent such approval is required prior to the Closing.
Section 8.3 Indemnification By Buyer. Subject to the other terms and conditions of this Article VIII, Buyer shall indemnify and defend Seller and their respective Affiliates and Representatives (collectively, the “Seller Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement, in any other Transaction Document or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); or
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement.
Section 8.4 Certain Limitations. The indemnification provided for in Section 8.2 and Section 8.3 shall be subject to the following limitations:
(a) The Seller shall not be liable to the Buyer Indemnitees for indemnification under Section 8.2(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.2(a) exceeds Twenty Five Thousand Dollars ($25,000) (the “Basket”), in which event the Seller shall be required to pay or be liable for all such Losses from the first dollar. The aggregate amount of all Losses for which the Seller shall be liable pursuant to Section 8.2(a) shall not exceed the Purchase Price (the “Cap”).
(b) Buyer shall not be liable to the Seller Indemnitees for indemnification under Section 8.3(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.3(a) exceeds the Basket, in which event Buyer shall be required to pay or be liable for all such Losses from the first dollar. The aggregate amount of all Losses for which Buyer shall be liable pursuant to Section 8.3(a) shall not exceed the Cap.
(c) Notwithstanding the foregoing, the limitations set forth in Section 8.4(a) and Section 8.4(b) shall not apply to Losses based upon, arising out of, with respect to or by reason of (i) fraud, intentional misrepresentation, or (ii) breach of any of the Fundamental Representations.
(d) For purposes of determining the amount of Losses pursuant to this Article VIII, any inaccuracy in or breach of any representation or warranty shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.
Section 8.5 Indemnification Procedures. The party making a claim under this Article VIII is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this Article VIII is referred to as the “Indemnifying Party”.
(a) Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, however, that if the Indemnifying Party is a Seller, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a Person that is a material supplier or customer of the Teco Subsidiaries, or (y) seeks an injunction or other equitable relief against the Indemnified Party. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 8.5(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, however, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different in any material respect from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8.5(b), pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. Seller and Buyer shall cooperate with each other in all
reasonable respects in connection with the defense of any Third Party Claim, including making available records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.
(b) Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, such consent not to be unreasonably withheld, conditioned or delayed, except as provided in this Section 8.5(b). If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8.5(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).
(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Teco Subsidiaries’ premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such 30 day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
Section 8.6 Payments. Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VIII, the Indemnifying Party shall satisfy its obligations within fifteen (15) Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds.
Section 8.7 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
Section 8.8 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.2 or Section 7.3, as the case may be.
Section 8.9 Exclusive Remedies. Subject to Section 10.11, the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Article VIII. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in this Article VIII. Nothing in this Section 8.9 shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraudulent, criminal or intentional misconduct.
Section 8.10 Offset of Seller Note. To the extent Seller is required to make any indemnification payment to Buyer Indemnitees pursuant to this Article VIII, Buyer shall be entitled to offset amounts due to Seller under the Seller Note until the balance of the Seller Note is reduced to zero.
Article IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of Seller and Buyer;
(b) by Buyer by written notice to Seller if:
(i) Buyer is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VII; or
(ii) any of the conditions set forth in Section 7.1 or Section 7.2 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Termination Date, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;
(c) by Seller by written notice by Seller to Buyer if:
(i) Seller are not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VII; or
(ii) any of the conditions set forth in Section 7.1 or Section 7.3(c) or (d) shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Termination Date, unless such failure shall be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;
(iii) any of the conditions set forth in Section 7.3(a)(b) or (e) shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by the Termination Date, unless such failure shall be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or
(d) by Buyer or Seller in the event that (i) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable.
(e) The “Termination Date” shall be June 6, 2021, provided that if the Nevada Approval is not obtained by the Termination Date, Buyer shall have the option of extending the Termination Date to December 31, 2021 at any time upon written notice to Seller.
Section 9.2 Effect of Termination. In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:
(a) as set forth in this Article IX, Section 5.9 and Article X hereof; and
(b) that nothing herein shall relieve any party hereto from liability for fraud, intentional misrepresentation or any willful breach of any provision hereof.
Article X
MISCELLANEOUS
Section 10.1 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors, brokers and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.
Section 10.2 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.2):
If to Seller, or to the Teco Subsidiaries:
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GB Sciences, Inc.
3550 W. Teco Avenue
Las Vegas Nevada 89118
Attn: John Poss
Email: J.Poss@gbsciences.com
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with a copy to:
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Jennings & Fulton, LTD.
2580 Sorrel St.
Las Vegas, NV 89146
Attn: Adam Fulton
Email: afulton@jfnvlaw.com
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If to Buyer:
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_______________
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_______________
Email: dweiner@w-net.com
Attention: David Weiner
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with a copy to:
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Fox Rothschild LLP
101 Park Avenue
17th Floor
New York, NY 10178
Facsimile: (212) 692-0940
E-mail: anewman@foxrothschild.com
Attention: Alison Newman, Esq.
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Section 10.3 Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.
Section 10.4 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
Section 10.5 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the court may modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
Section 10.6 Entire Agreement. This Agreement and the Exhibits and Schedules attached hereto constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement, the Exhibits and Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.
Section 10.7 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that prior to the Closing Date, Buyer may, without obtaining the prior written consent of Seller, assign all of its rights and obligations under this Agreement to any of its Affiliates.
Section 10.8 No Third-party Beneficiaries. Except as provided in Article VIII, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any
other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 10.9 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 10.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction).
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL OR STATE COURTS SITTING IN CLARK COUNTY, NEVADA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.11(c).
Section 10.11 Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
BUYER:
AJE MANAGEMENT, LLC
By: /s/ David Weiner
Name: David Weiner
Title: Managing Member
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SELLER:
GB SCIENCES, INC.
By: /s/ John C Poss
Name: John C Poss
Title: CEO
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GB SCIENCES LAS VEGAS, LLC
By: /s/ John C Poss
Name: John Poss
Title: CEO of Sole Member
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GB SCIENCES NEVADA, LLC
By: /s/ John C Poss
Name: John Poss
Title: CEO of Sole Member
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EXHIBIT A
SELLER NOTE
EXHIBIT B
ASSIGNMENT OF MEMBERSHIP INTEREST
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this “Agreement”), effective as of December 6, 2019 (the “Effective Date”), is made by and between GB Sciences, Inc. a Nevada corporation (the “Company”), GB Sciences Las Vegas, LLC, a Nevada limited liability company (“GBS LV”), GB Sciences Nevada LLC, a Nevada limited liability company (“GBS LV” and together with GBS LV, the “Teco Subsidiaries”, and the Teco Subsidiaries together with the Company, the “GBS Parties”), and AJE Management, LLC, a California limited liability company (the “Manager”, and together with the GBS Parties, each a “Party” and collectively, the “Parties”).
WHEREAS, the Company, through the Teco Subsidiaries, operates the cannabis cultivation and extraction facilities located at 3550 W. Teco Avenue, Las Vegas, Nevada 89118 (the “Teco Facility”);
WHEREAS, Manager and/or its affiliates desire to purchase 75% of the equity interests in the Teco Subsidiaries (“Sale Transaction”) at such time as all approvals have been obtained from all applicable governmental authorities in the State of Nevada for the transfer of such equity interests to Manager;
WHEREAS, the Parties desire that Manager manage and control the operations of the Teco Facility until the closing of the Sale Transaction in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the respective mutual agreements, covenants, representations and warranties contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Engagement of Manager. The GBS Parties hereby engage Manager as an independent contractor on an exclusive basis to manage and control the operations of the Teco Facility. Manager shall have the sole authority to operate the Teco Facility, including, without limitation, by providing the services set forth in Section 4 below (the “Services”). Manager hereby agrees to provide the Services on the terms and conditions provided in this Agreement.
2. Independent Contractor. It is the intention of the Parties that Manager and its employees and affiliates shall be INDEPENDENT CONTRACTORS and not employees or franchisees of any of the GBS Parties for all purposes, including, but not limited to, the application of the Federal Insurance Contribution Act, the Social Security Act, the Federal Unemployment Act, the provisions of the Internal Revenue Code, any State of Nevada revenue and taxation code relating to income tax withholding at the source of income, State of Nevada Workers’ Compensation Act, and the State of Nevada unemployment insurance code. Manager shall retain the sole and absolute discretion and judgment of the manner and means of carrying out Manager’s duties and responsibilities under the terms and conditions of this Agreement and compliance therewith. This Agreement shall not be construed to create an agency relationship, joint venture or partnership as between the GBS Parties and Manager. Manager states and affirms that Manager is acting as a free agent and independent contractor, holding out to the general public, as such.
3. Cooperation. Each of Manager and the GBS Parties shall use commercially reasonable efforts to perform and fulfill all of their respective obligations to be fulfilled or performed by it under this Agreement.
4. Services of Manager; Employees.
(a) Subject to any limitations imposed by applicable state and local laws or regulations, (a) Manager shall have the sole authority to operate the Teco Facility including, without
limitation, all activities related to cultivation, production, processing, sales and transport operations, government affairs, product development, quality oversight and assurance and financial services, including the collection, receipt and disbursement of funds generated by the Teco Facility, and (b) conduct relations on behalf of the Teco Subsidiaries with vendors, dispensaries, state and local agencies, contractors, accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). The Manager shall provide and devote to the performance of the Services (a) such employees, consultants, affiliates and agents of Manager, and (b) such employees of the Teco Subsidiaries, in each case, as Manager shall deem appropriate to the furnishing of the Services. Manager will use commercially reasonable efforts to maximize the profitability and cash flow from the Teco Facility.
(b) Following the Effective Date, Manager shall have the power and authority to cause the Teco Subsidiaries to terminate any of its employees designated by Manager in its sole discretion.
5. Expenses, Disbursements and Cash Management.
(a) Except for the cost of its own personnel or as otherwise provided for in the Loan Agreement among the Teco Subsidiaries and Manager, dated as of December 3, 2019 (the “Loan Agreement”), Manager shall not be obligated to make any advance to or for the account of any GBS Party, or to pay any sums, except out of funds held by the GBS Parties or in accounts maintained by the GBS Parties, nor shall Manager be obligated to incur any liability or obligation for the account of any of the GBS Parties. The GBS Parties shall reimburse Manager by wire transfer of immediately available funds for any third-party expense paid for by Manager with the prior written consent of the Company, which shall be in addition to any other amount payable to Manager under this Agreement.
(b) The Manager shall cause all available cash generated by the Teco Facility to be disbursed (to the extent applicable), on a monthly basis as follows:
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(i)
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First, to the payment of outstanding expenses owed to third parties directly relating to the operations of the Teco Facility;
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(ii)
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Second, to pay any management fees then due to Manager under Section 6 below;
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(iii)
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Third, to pay the Company $100,000;
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(iv)
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Fourth, to repay any amounts then outstanding under the Loan Agreement; and
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(v)
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Fifth, any amounts remaining shall then be paid to the Company.
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(c) The GBS Parties covenant and agree, that without the prior written consent of the Manager or a designee of the Manager, they shall not disburse or withdraw funds, whether by check, ACH, wire or otherwise, from any depository account into which revenues generated by the Teco Facility are deposited (other than the revenues paid to the Company under Sections 5(b)(iii) and 5(b)(v) above).
6. Compensation of Manager.
(a) In consideration of the Services to be rendered hereunder, subject to Section 5 above, the GBS Parties will pay to Manager a monthly fee in the amount of seventy five thousand dollars ($75,000) (the “Management Fee”). Any portion of the Management Fee not paid to Manager during the Term of this Agreement shall accrue and be paid to Manager when such cash is available as provided in Section 5 above, but in no event later than the closing of the Sale Transaction.
(b) Any payment pursuant to this Section 6 shall be made in cash, by wire transfer(s), check, or money order of immediately available funds to or among one or more accounts as designated from time to time by Manager to the Company in writing.
7. Other Activities of Manager; Investment Opportunities. The GBS Parties acknowledge
and agree that neither Manager nor any of Manager’s employees, officers, directors, affiliates or associates (collectively, the “Manager Group”) shall be required to devote its full time and business efforts to the Services, but instead shall devote such time and efforts as Manager reasonably deems necessary to provide the Services. The GBS Parties further acknowledge and agree that members of the Manager’s Group are engaged in the business of investing in, acquiring and/or managing businesses for their own account, for the account of their affiliates and associates and for the account of other unaffiliated parties, and understand that Manager plans to continue to be engaged in such business (and other business or investment activities) during the term of this Agreement.
8. Term. The term of this Agreement shall commence on the Effective Date and continue
until the earlier of (i) eighteen (18) months following the Effective Date and (ii) the closing of the Sale Transaction. Any Party hereto may terminate this Agreement upon breach of any other material terms or conditions of this Agreement or any other agreement or undertaking entered into between the Parties and if such breach shall continue for a period of thirty (30) days after written notice thereof has been given to the breaching Party. Notwithstanding the foregoing, if at any time, applicable law or regulations change such that Manager would be obligated to obtain or hold any license or registration in order to continue to perform Manager’s obligations hereunder, then the terms of this Agreement will be suspended and all obligations and responsibilities of the Parties hereto shall immediately cease until the earliest of the following to occur: (i) Manager is able to obtain any necessary licenses, registrations or similar authorization to perform its obligations and to receive the consideration set forth herein; (ii) the Parties amend this Agreement such that Manager is able to perform its obligations and to receive the consideration set forth herein without obtaining any such licenses, registrations or other authorizations, and the Parties shall cooperate in good faith to make any such amendments within ten (10) days of any determination that this Agreement will be suspended in accordance with this Section 8. In addition, Manager shall have the right to immediately terminate this Agreement upon any change in the current federal laws that could have a material adverse effect on Manager, and/or the federal government taking prosecutorial action without any change in the current laws, in each case, as determined by Manager.
9. Representations and Warranties/Covenants.
(a) Each Party hereby represents and warrants to the other Parties, as of the Effective Date, as follows:
(i) Organization. It is a company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all requisite power and authority, corporate or otherwise, to execute, deliver and perform this Agreement.
(ii) Authorization. The execution and delivery of this Agreement and the performance by it of the transactions contemplated hereby have been duly authorized by all necessary
action and will not violate (a) such Party’s organizational documents, bylaws and operating agreement, (b) any agreement, instrument or contractual obligation to which such Party is bound in any material respect, (c) any requirement of any applicable laws, or (d) any order, writ, judgment, injunction, decree, determination or award of any court or governmental agency presently in effect applicable to such Party.
(iii) Binding Agreement. This Agreement is a legal, valid and binding obligation of such Party enforceable against it in accordance with its terms and conditions.
(iv) No Inconsistent Obligation. It is not under any obligation, contractual or otherwise, to any person that conflicts with or is inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations hereunder.
(b) The GBS Parties hereby represent and warrant to Manager, as of the Effective Date, that the Teco Subsidiaries hold all valid state, local and municipal licenses, permits and certificates required to operate the Teco Facility in full compliance with applicable law, ordinances and regulations, including the cannabis production and cultivation licenses issued by Nevada governmental authorities; which licenses, permits and certificates are listed on as Exhibit A (collectively, the “Licenses”). True copies of the Licenses have been provided to Manager, and each License is current, in effect, and the transactions contemplated hereby will not cause a breach or violation of any such Licenses,. The GBS Parties hereby covenant and agree that they will use their best efforts to cause the Teco Subsidiaries to maintain such Licenses throughout the Term. In addition, the Company shall notify Manager immediately upon the expiration, non-renewal, termination, suspension or other withdrawal of any License for any reason.
10. Indemnification; Limitation of Liability; Insurance.
(a) Indemnity. The GBS Parties, jointly and severally, on the one hand, and Manager on the other hand (as the case may be, the “Indemnifying Party”) shall indemnify and hold harmless each other, and its (or their) respective affiliates (which shall, in the case of Manager, include without limitation, each member of the Manager Group), and their respective officers, directors, employees and agents (collectively, the “Indemnified Party”), from and against all claims, demands, losses, liabilities, damages, fines, costs and expenses, including reasonable attorneys’ fees and costs and amounts paid in settlement (collectively, the “Damages”), arising out of: (1) the negligence, recklessness, bad faith, intentional wrongful acts or omissions of the Indemnifying Party or its affiliates or representatives in connection with activities undertaken pursuant to this Agreement, except to the extent that Damages arise out of the negligence, recklessness, bad faith or intentional wrongful acts or omissions committed by the Indemnified Party or its affiliates (or, to the extent permitted under this Agreement, their respective representatives working on their behalf); and (2) any breach by the Indemnifying Party or its affiliates or representatives of the covenants and agreements of, or the representations and warranties made in, this Agreement. The Indemnified Party may participate in, but not control, any defense or settlement of any claim controlled by the Indemnifying Party and if such claim is being defended by the Indemnifying Party, the Indemnified Party shall bear its own costs and expenses with respect to such participation.
(b) Procedures. The Indemnifying Party shall reimburse the Indemnified Party promptly upon demand for any legal or other fees or expenses reasonably incurred by the Indemnified Party in connection with investigating or defending any such loss, claim, damage or liability (or actions, suits, or proceedings in respect thereof), provided that the Indemnified Party must immediately notify the Indemnifying Party of the claim or proceeding and has otherwise complied with this Agreement and that Indemnifying Party has the right to defend any claim. If Indemnifying Party defends the claim, the Indemnified Party has no obligation to indemnify or reimburse the Indemnified Party with respect to any fees or disbursements of any attorney retained by the Indemnified Party.
(c) Limitation on Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OF ITS AFFILIATES FOR (I) ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST REVENUES, (II) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES, WHETHER UNDER ANY CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY OR (III) ANY LIABILITY, DAMAGE, LOSS OR EXPENSE UNDER THIS AGREEMENT IN EXCESS OF THE AGGREGATE SERVICE FEES PAID UNDER THIS AGREEMENT.
11. Assignment. Neither Party may sell, assign, in whole or in part, this Agreement or any rights hereunder, or to delegate any duties to an unrelated third-party hereunder, without the prior written consent of the other Parties hereto; provided, however, that Manager may assign this Agreement to any of its affiliates, successors or assigns. Any actual or purported assignment occurring by operation of law or otherwise without the other Parties’ prior written consent shall be a material default of this Agreement and shall be null and void.
12. Notices. All notices, demands, or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given or made when (i) delivered personally to the recipient, (ii) telecopied to the recipient (with hard copy sent to the recipient by reputable overnight courier service (charges prepaid) that same day) if telecopied before 5:00 p.m. pacific standard time on a business day, and otherwise on the next business day, (iii) one business day after being sent to the recipient by reputable overnight courier service (charges prepaid) or (iv) received via electronic mail by the recipient (with hard copy sent to the recipient by reputable overnight courier service (charges prepaid) that same day) if received via electronic mail before 5:00 p.m. pacific standard time on a business day, and otherwise on the next business day after such receipt. Such notices, demands, and other communications shall be sent to the address for such recipient indicated below:
If to any of the GBS Parties: GB Sciences Inc.
3550 W. Teco Avenue
Las Vegas, NV 89118
With a copy to:
Adam R. Fulton, Esq.
Jennings & Fulton, LTD.
2580 Sorrel Street
Las Vegas, NV 89146
If to Manager: AJE Management LLC
3940 Laurel Canyon Blvd., Suite 327
Studio City, CA 91604
Attn: David Weiner
With a copy to:
Fox Rothschild, LLP
101 Park Avenue
New York, NY 10178
Attn: Alison Newman, Esq.
or to such other address or to the attention of such other person as the recipient Party has specified by prior written notice to the sending Party.
13. Severability. Whenever possible, each provision of this Agreement will 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 will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed, and enforced in such jurisdiction as if such invalid, illegal, or unenforceable provision had never been contained herein.
14. No Waiver. The failure by any Party to exercise any right, remedy or elections herein contained or permitted by law shall not constitute or be construed as a waiver or relinquishment for the future exercise of such right, remedy or election, but the same shall continue and remain in full force and effect. All rights and remedies that any Party may have at law, in equity or otherwise upon breach of any term or condition of this Agreement, shall be distinct, separate and cumulative rights and remedies and no one of them, whether exercised or not, shall be deemed to be in exclusion of any other right or remedy.
15. Cannabis Industry Disclosure; Waiver.
(a) By signing this Agreement, each Party understands and acknowledges that United States federal law prohibits the use, possession, cultivation, and distribution of cannabis. Although many states have legalized cannabis to varying degrees, companies and individuals involved in the sector are still at risk of being prosecuted by federal authorities, even in so-called ancillary businesses that service or supply cannabis growers or sellers or otherwise aid or abet their activities. Such prosecution may implicate a wide range of criminal, civil, and regulatory violations, such as trafficking, racketeering, and money-laundering. In addition, federal bankruptcy courts may not be available to participants in the cannabis industry, and participants in the cannabis industry may be treated differently under federal tax laws. Moreover, participants in the cannabis industry may not have access to federally insured banks and other financial institutions. Each Party confirms its understanding that the regulatory landscape in the cannabis industry changes rapidly. This means that at any time, a city, county, or state where cannabis is permitted can change its current laws and/or the federal government can disregard those laws and take prosecutorial action. Such change in the current laws and/or the federal government taking prosecutorial action without change in the current laws shall be grounds for termination of the Agreement by Manager pursuant to Section 8 of this Agreement.
(b) Furthermore, it is possible that the conflict between state and federal law may have an impact on the relationship of the Parties, including this Agreement. For example, federal law enforcement authorities may determine to prosecute one of the Parties to this Agreement for its participation in the cannabis industry. Such federal investigations or prosecutions may require such Party to disclose otherwise confidential information and/or breach its confidentiality and fiduciary duties to the other Party. Both Parties hereby confirm their understanding of this risk.
(c) Each Party to this Agreement hereby (i) acknowledges and agrees that in the event the other Party to this Agreement, the other Party’s members, managers, officers or any of their respective subsidiaries, acting in accordance with and pursuant to the provisions of this Agreement and in accordance with all applicable laws, other than federal law relating to cannabis as set forth herein, is charged with, or convicted of, any violation of federal law or regulation regarding cannabis or cannabis products, such charge or conviction shall not be deemed to be a breach of this Agreement by the other Party, (ii) acknowledges and agrees that such Party will have no claim against the other Party, the other Party’s members, managers, officers or any of their respective subsidiaries on account of any such charge or conviction, including but not limited to, any claim under this Agreement, (iii) waives any and all rights
it may have to assert any claim against the other Party, the other Party’s members, managers, officers or any of their respective subsidiaries on account of any such charge or conviction, including but not limited to, any claim under this Agreement, and (iv) releases and forever discharges the other Party, the other Party’s members, managers, officers or any of their respective subsidiaries from any and all liability to such Party on account of any such charge or conviction, including but not limited to, any claim under this Agreement.
16. Entire Agreement; Amendment. This Agreement contains the entire agreement between the Parties hereto with respect to the matters herein contained and supersedes all prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof or the transactions contemplated hereby, and any agreement hereafter made shall be ineffective to effect any change or modification, in whole or in part, unless such agreement is in writing and signed by the Party against whom enforcement of the change or modification is sought. The provisions of this Agreement may be amended or modified only with the prior written consent of the Company and Manager.
17. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of Nevada, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than Nevada.
18. Dispute Resolution; Mediation; Mandatory Arbitration.
(a) If there is any dispute or controversy relating to this Agreement or any of the transactions contemplated herein (each, a “Dispute”), such Dispute shall be resolved in accordance with this Section 18.
(b) The Party claiming a Dispute shall deliver to each of the other Party a written notice (a “Notice of Dispute”) that will specify in reasonable detail the dispute that the claiming Party wishes to have resolved. If the Parties are not able to resolve the Dispute within five (5) business days of a Party’s receipt of an applicable Notice of Dispute, the Parties shall enter into mediation administered in Las Vegas, Nevada. The mediation process and any documents or exhibits utilized in conducting the same shall be confidential and inadmissible in any future proceeding. All such proceedings provided for in this Section 18(b) must be concluded within thirty (30) days of the issuance of the Notice of Dispute.
(c) If the Parties to the Dispute are not able to resolve their Dispute after application of Section 18(a) and (b), to the maximum extent allowed by applicable law, the Dispute shall be submitted to and finally resolved by, binding arbitration. Any Party may file a written Demand for Arbitration with the American Arbitration Association’s Regional Office closest to the Company’s principal office, and shall send a copy of the Demand for Arbitration to the other Parties. The arbitration shall be conducted pursuant to the terms of the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association, except that discovery may be had in accordance with the Federal Rules of Civil Procedure. The venue for the arbitration shall be Las Vegas, Nevada. The arbitration shall be conducted before one arbitrator selected through the American Arbitration Association’s arbitrator selection procedures. The arbitrator shall promptly fix the time, date and place of the hearing and notify the Parties. The Parties shall stipulate that the arbitration hearing shall last no longer than five (5) Business Days. The arbitrator shall render a decision within ten (10) days of the completion of the hearing, which decision may include an award of legal fees, costs of arbitration and interest. The arbitrator shall promptly transmit an executed copy of its decision to the Parties. The decision of the arbitrator shall be final, binding and conclusive upon the Parties. Each Party shall have the right to have the decision enforced by any court of competent jurisdiction. Notwithstanding any other provision of this Section, any Dispute in which a Party seeks equitable relief may be brought in any court
within the United States which has jurisdiction over the Party against which such relief is sought. Each Party (a) acknowledges that the other Parties would be irreparably damaged if any of the provisions of this Agreement are not performed by such Party in accordance with their specific terms and (b) agrees that the other Parties are entitled to injunctive relief to prevent breaches of this Agreement, and have the right to specifically enforce this Agreement and the terms and provisions hereof, in addition to any other remedies available at law or in equity.
19. Successors. This Agreement and all the obligations and benefits hereunder shall inure to the successors and permitted assigns of the Parties.
20. Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if all signing Parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.
21. Confidentiality. Neither Party may disclose the terms of this Agreement nor any information, documents, or trade secrets of the other Party obtained as part of this Agreement, except as may be required by applicable law.
[Signatures on the next page]
IN WITNESS WHEREOF, the Parties hereto have caused this Management Services Agreement to be executed and delivered as of the date first above written.
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GB Sciences Las Vegas, LLC
GB Sciences Nevada, LLC
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By:
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/s/John Poss
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Name: John Poss
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Title:CEO of Sole Member
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GB Sciences, Inc.
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By:
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/s/ John Poss
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Name: John Poss
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Title:CEO
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AJE Management, LLC
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By:
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/s/ David Weiner
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Name: David Weiner
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Title: Managing Member
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[Signature Page to Management Services Agreement]
EXHIBIT “A” LICENSES
AMENDMENT TO NOTE DOCUMENTS
THIS AMENDMENT TO NOTE DOCUMENTS (this “Amendment”), dated as of July 12, 2019, is made and entered into on the terms and conditions hereinafter set forth, by and among GB SCIENCES, INC., a Nevada corporation (“Borrower”), and CSW VENTURES, LP (“Lender”).
RECITALS:
1. Pursuant to a Note Purchase Agreement dated as of February 28, 2019, among Borrower and the Lender (as amended from time to time, the “Note Agreement”), Lender made loans to Borrower pursuant to an 8% Senior Secured Convertible Promissory Note dated as of February 28, 2019 (the “Original Note”), all as more specifically described in the Note Agreement and the Original Note. Capitalized terms used but not otherwise defined in this Amendment shall have the meanings given to them in the Note Agreement.
2. The parties hereto desire to amend the Original Note and the other Transaction Documents to, among other things, reflect an additional loan to be made by Lender to Borrower in the amount of $100,000 (the “Additional Loan”) concurrently with the execution of this
Amendment.
AGREEMENTS:
1. Amended and Restated Note. Concurrently with the execution of this Amendment,
the Lender shall make the Additional Loan and Borrower shall deliver to Lender an Amended and Restated 8% Senior Secured Convertible Promissory Note (the “Amended Note”), in the form attached hereto as Exhibit A, duly executed by Borrower, which Amended Note will amend and restate the Original Note, and will be issued in substitution of and exchange for the Original Note. From and after the date this Amendment becomes effective, the Amended Note will be deemed to be the “Note” referred to in the Note Agreement and the Security Agreement for all purposes therein.
2. Prospectus Supplement. The Company shall, to the extent required as a result of
this Amendment or if otherwise requested by Lender, prepare and file with the SEC such amendments or supplements to the prospectus included in the Required Registration Statement necessary to permit the continued sale of the Conversion Shares by the Lender pursuant to such registration statement and prospectus.
3. Representations and Warranties. As an inducement to Lender to make the
Additional Loan, Borrower hereby represents and warrants to Lender that, upon the filing of the Borrower’s Form 10-K with the Securities and Exchange Commission for the fiscal year ended March 31, 2019, which filing is projected to be made on July 15, 2019:
(a) the representations and warranties of Borrower contained in the Note Agreement and the other Transaction Documents are true and correct, and
(b) no Event of Default under the Note has occurred and is continuing.
4. Effect of Amendment; Continuing Effectiveness of Note Agreement and
Transaction Documents. Neither this Amendment nor any other indulgences that may have been
granted to Borrower by Lender shall constitute a course of dealing or otherwise obligate Lender to modify, expand or extend the agreements contained herein, or to agree to any amendments to the Transaction Documents. This Amendment shall constitute a Transaction Document for all purposes of the Note Agreement and the other Transaction Documents. Except to the extent amended hereby, the Note Agreement, the other Transaction Documents and all terms, conditions and provisions thereof shall continue in full force and effect in all respects.
5. Counterparts. This Amendment 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
6. Miscellaneous. This Amendment shall be subject to the governing law, notice and other applicable provisions set forth in Section 8 of the Note Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: GB SCIENCES, INC.
By: /s/ John C. Poss
Name: John C. Poss
Title: Chief Executive Officer
LENDER: CSW VENTURES, LP
By: /s/ David Weiner
Name: David Weiner
Title: General Partner
EXHIBIT A
FORM OF
AMENDED AND RESTATED NOTE
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.
Amended and Restated
8% Senior Secured Convertible Promissory Note
$1,471,863.00 July 12, 2019
As of February 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 Four Hundred Seventy One Thousand Eight Hundred Sixty Three Dollars ($1,471,863) 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 Amended and Restated 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 amends and restates in its entirety, and is issued in substitution of and exchange for, but not in payment of, that certain 8% Senior Secured Convertible Promissory Note, dated February 28, 2019, in the principal amount of $1,500,000.00, made by the Company in favor of the Payee.
This Note represents an (i) initial loan of One Million Dollars ($1,000,000) made on March 1, 2019, (ii) a loan of Five Hundred Thousand Dollars ($500,000) made on March 14, 2019, (iii) accrued interest of Forty One Thousand Eight Hundred Sixty Three Dollars ($41,863) through July 11, 2019 that has been added to the principal amount of the loans under this Note, and (iv) a loan of One Hundred Thousand Dollars ($100,000) (the “Additional Loan”) made on the date hereof, as reduced by the conversion of One Hundred Seventy Thousand Dollars
($170,000) of principal under the Original Note into Conversion Shares pursuant to Section 5 prior to the date hereof.
The portion of the Principal Amount attributable to the Additional Loan, together with all accrued interest thereon (together, the “Subordinated Obligations”), shall be subordinate in all respects to that certain note in the face amount of Two Million Seven Hundred Sixty Five Thousand ($2,765,000) dated April 23, 2019, made by the Company in favor of Iliad Research And Trading, L.P., provided, however, that (i) nothing herein shall prevent the Payee from converting the Subordinated Obligations into Conversion Shares pursuant to Section 5, and (ii) any conversion under this Note following the date hereof shall be applied first to the Subordinated Obligations in reduction thereof and then to the remaining obligations of Payee hereunder.
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 October 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 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 (as amended from time to time, the “Note Purchase Agreement”) originally entered into between the Company and the Payee dated as of February 28, 2019, and is secured by a Security Agreement dated as of February 28, 2019 (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 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;
(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;
(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; and
(ix) Use of Proceeds. The Company shall use the proceeds of the Additional Loan solely for maintaining in good standing and renewing the Cannabis Licenses (as defined in the Security Agreement) with respect to the Teco Facility.
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) 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 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
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(f)
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Liens set forth set forth on Schedule 3B(v). 6
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(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.
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;
(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 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 $0.11 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 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.
(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.
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]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company.
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GB SCIENCES, INC.
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By:
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/s/ John C. Poss
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Name: John C. Poss
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Title: Chief Executive Officer
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ANNEX A
CONVERSION NOTICE
The undersigned hereby elects to convert principal and/or interest under the Amended and Restated 8% Senior Secured Convertible Promissory Note, originally issued as of February 28, 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:
SCHEDULE 3B(iv)
INDEBTEDNESS
SCHEDULE 3B(v) LIENS
AMENDMENT TO PROMISSORY NOTE
THIS AMENDMENT TO PROMISSORY NOTE (this “Amendment”), dated as of October 23, 2019, is entered into by and among GB SCIENCES, INC., a Nevada corporation (“Borrower”), and CSW VENTURES, LP (“Lender”).
RECITALS:
1. Pursuant to a Note Purchase Agreement dated as of February 28, 2019, among Borrower and the Lender (as amended from time to time, the “Note Agreement”), Lender made loans to Borrower pursuant to an 8% Senior Secured Convertible Promissory Note dated as of February 28, 2019 (the “Original Note”).
2. On July 12, 2019, the Original Note was amended and restated to, among other things, reflect an additional loan made by Lender to Borrower in the amount of $100,000 (as so amended, the “Note”). Capitalized terms used but not otherwise defined in this Amendment shall have the meanings given to them in the Note.
3. As an inducement to Lender to enter into a Forbearance Agreement with Borrower and certain of its affiliates, dated as of the date hereof, with respect to certain existing events default under the Note (the “Forbearance Agreement”), Borrower has agreed to reduce the Conversion Price under the Note.
AGREEMENTS:
1. Amendment to Note. Section 5.A of the Note is hereby amended to reduce the Conversion Price thereunder by replacing “$0.11 per share” with “$0.08 per share” in such Section. From and after the date hereof, the Note, as amended by this Amendment, will be deemed to be the “Note” referred to in the Note Agreement and the Security Agreement for all purposes therein.
2. Prospectus Supplement. The Company shall, to the extent required as a result of this Amendment or if otherwise requested by Lender, prepare and file with the SEC such amendments or supplements to the prospectus included in the Required Registration Statement necessary to permit the continued sale of the Conversion Shares by the Lender pursuant to such registration statement and prospectus.
3. Continuing Effectiveness of Note Agreement and Transaction Documents. This Amendment shall constitute a Transaction Document for all purposes of the Note Agreement and the other Transaction Documents. Except to the extent amended hereby or provided in the Forbearance Agreement, the Note Agreement, the other Transaction Documents and all terms, conditions and provisions thereof shall continue in full force and effect in all respects.
4. Counterparts. This Amendment 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.
5. Miscellaneous. This Amendment shall be subject to the governing law, notice and other applicable provisions set forth in Section 8 of the Note Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: GB SCIENCES, INC.
By: /s/ John Poss
Name: John C. Poss
Title: Chief Executive Officer
LENDER: CSW VENTURES, LP
By: /s/ David Weiner
Name: David Weiner
Title: General Partner
SECOND AMENDMENT TO NOTE DOCUMENTS
THIS SECOND AMENDMENT TO NOTE DOCUMENTS (this “Amendment”), dated as of November 27, 2019, is made and entered into on the terms and conditions hereinafter set forth, by and among GB SCIENCES, INC., a Nevada corporation (“Borrower”), and CSW VENTURES, LP (“Lender”).
RECITALS:
1. Pursuant to a Note Purchase Agreement dated as of February 28, 2019, among Borrower and the Lender (as amended from time to time, the “Note Agreement”), Lender made loans to Borrower pursuant to an 8% Senior Secured Convertible Promissory Note dated as of February 28, 2019 (the “Original Note”), all as more specifically described in the Note Agreement and the Original Note. Capitalized terms used but not otherwise defined in this Amendment shall have the meanings given to them in the Note Agreement.
2. On July 12, 2019, the Original Note was amended (as so amended, the “Amended Note”) to reflect an additional loan to be made by Lender to Borrower in the amount of $100,000.
3. The parties hereto desire to further amend the Amended Note and the other Transaction Documents to, among other things, reflect (i) an additional loan to be made by Lender to Borrower in the amount of $30,000 (the “Additional Loan”), concurrently with the execution of this Amendment, and (ii) the reduction of the conversion price under the Amended Note to $0.04.
AGREEMENTS:
1. Second Amended and Restated Note. Concurrently with the execution of this Amendment, the Lender shall make the Additional Loan and Borrower shall deliver to Lender a Second Amended and Restated 8% Senior Secured Convertible Promissory Note (the “Second Amended Note”), in the form attached hereto as Exhibit A, duly executed by Borrower, which will amend and restate the Amended Note, and will be issued in substitution of and exchange therefor. From and after the date this Amendment becomes effective, the Second Amended Note will be deemed to be the “Note” referred to in the Note Agreement and the Security Agreement for all purposes therein.
2. Prospectus Supplement. The Company shall, to the extent required as a result of this Amendment or if otherwise requested by Lender, prepare and file with the SEC such amendments or supplements to the prospectus included in the Required Registration Statement necessary to permit the continued sale of the Conversion Shares by the Lender pursuant to such registration statement and prospectus.
3. Representations and Warranties. As an inducement to Lender to make the Additional Loan, Borrower hereby represents and warrants to Lender that:
(a) the representations and warranties of Borrower contained in the Note Agreement and the other Transaction Documents are true and correct, and
(b) no Event of Default under the Note has occurred and is continuing.
4. Effect of Amendment; Continuing Effectiveness of Note Agreement and Transaction Documents. Neither this Amendment nor any other indulgences that may have been granted to Borrower by Lender shall constitute a course of dealing or otherwise obligate Lender to modify, expand or extend the agreements contained herein, or to agree to any amendments to the Transaction Documents. This Amendment shall constitute a Transaction Document for all purposes of the Note Agreement and the other Transaction Documents. Except to the extent amended hereby, the Note Agreement, the other Transaction Documents and all terms, conditions and provisions thereof shall continue in full force and effect in all respects.
5. Counterparts. This Amendment 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
6. Miscellaneous. This Amendment shall be subject to the governing law, notice and other applicable provisions set forth in Section 8 of the Note Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: GB SCIENCES, INC.
By: /s/ John C Poss
Name: John C. Poss
Title: Chief Executive Officer
LENDER: CSW VENTURES, LP
By: /s/ David Weiner
Name: David Weiner
Title: General Partner
EXHIBIT A
FORM OF
SECOND AMENDED AND RESTATED NOTE
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.
Second Amended and Restated
8% Senior Secured Convertible Promissory Note
$1,501,863.00 November 27, 2019
As of February 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 One Thousand Eight Hundred Sixty Three Dollars ($1,501,863) 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 Second Amended and Restated 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 amends and restates in its entirety, and is issued in substitution of and exchange for, but not in payment of, that certain Amended and Restated 8% Senior Secured Convertible Promissory Note, dated July 12, 2019, in the principal amount of $1,471,863.00, made by the Company in favor of the Payee.
This Note represents an (i) initial loan of One Million Dollars ($1,000,000) made on March 1, 2019, (ii) a loan of Five Hundred Thousand Dollars ($500,000) made on March 14, 2019, (iii) accrued interest of Forty One Thousand Eight Hundred Sixty Three Dollars ($41,863) through July 11, 2019 that has been added to the principal amount of the loans under this Note, (iv) a loan of One Hundred Thousand Dollars ($100,000) made on July 12, 2019, and (v) a loan of Thirty Thousand Dollars ($30,000) (the “Additional Loan”) made on the date hereof, as
reduced by the conversion of One Hundred Seventy Thousand Dollars ($170,000) of principal under the Original Note into Conversion Shares pursuant to Section 5 prior to the date hereof.
The portion of the Principal Amount attributable to the Additional Loan, together with all accrued interest thereon (together, the “Subordinated Obligations”), shall be subordinate in all respects to that certain note in the face amount of Two Million Seven Hundred Sixty Five Thousand ($2,765,000) dated April 23, 2019, made by the Company in favor of Iliad Research And Trading, L.P., provided, however, that (i) nothing herein shall prevent the Payee from converting the Subordinated Obligations into Conversion Shares pursuant to Section 5, and (ii) any conversion under this Note following the date hereof shall be applied first to the Subordinated Obligations in reduction thereof and then to the remaining obligations of Payee hereunder.
Interest shall accrue on the Principal Amount outstanding from time to time and shall be payable (i) quarterly in arrears commencing on October 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 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 (as amended from time to time, the “Note Purchase Agreement”) originally entered into between the Company and the Payee dated as of February 28, 2019, and is secured by a Security Agreement dated as of February 28, 2019 (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 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;
(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;
(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; and
(ix) Use of Proceeds. The Company shall use the proceeds of the Additional Loan solely to pay employees, vendors and other third party creditors of GB Sciences Las Vegas, LLC and GB Sciences Nevada LLC in connection with the operation of the Teco Facility.
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) 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 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.
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;
(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 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 $0.04 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 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.
(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.
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]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company.
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GB Sciences, Inc.
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By:
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/s/ John C Poss
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Name: John C Poss
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Title: CEO
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ANNEX A
CONVERSION NOTICE
The undersigned hereby elects to convert principal and/or interest under the Second Amended and Restated 8% Senior Secured Convertible Promissory Note, originally issued as of February 28, 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: ________________________________________
SCHEDULE 3B(iv)
INDEBTEDNESS
SCHEDULE 3B(v) LIENS
LOAN AGREEMENT
THIS LOAN AGREEMENT (this “Agreement”), is entered into as of December 3, 2019 (the “Effective Date”), by and among GB Sciences Las Vegas, LLC, a Nevada limited liability company (“GBS LV”), GB Sciences Nevada LLC, a Nevada limited liability company (“GBS NV” and together with GBS LV, the “Borrowers”), and AJE Management LLC, a California limited liability company (the “Lender”).
WHEREAS, the Borrowers wish to request from time to time that Lender advance loans to the Borrowers (the “Loans”), pursuant a Promissory Note (the “Note”) in the principal amount of $470,000 (the “Maximum Amount”), 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 CLOSING
1.1 Authorization of Loans. The Borrowers have authorized the borrowing from time to time of Loans pursuant to the Note. The Note shall be in the form attached hereto as Exhibit A.
1.2 Initial Advance. Subject to the terms and conditions hereof, at the Closing, the Borrowers shall issue the Note to the Lender, and the Lender shall advance the Borrowers a loan in the principal amount of $170,000 (the “Initial Advance”) which shall be evidenced by the Note.
1.3 Closing. The closing of the issuance 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 Borrowers and the Lender 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 Borrowers will deliver to the Lender the Note to the Lender, against receipt by the Borrowers of the proceeds of the Initial Advance by check made payable to the order of, or wire transfer to, the Borrowers.
1.4 Additional Advances Under the Note. From time to time following the Effective Date, during the period Note is outstanding, the Borrowers may request that Lender make one or more additional advances to the Borrowers under the Note (the “Additional Advances” and together with the Initial Advance, each, an “Advance”) in an amount of an additional $300,000 in the aggregate. All Additional Advances shall be made at the reasonable discretion of Lender, and on the terms and conditions set forth in this Agreement and the Note, following the written request (a “Loan Request”) from the Borrower to Lender of an Advance under the Note, which Loan Request shall set forth the proposed uses for such Advance. Subject to the outstanding Advances not exceeding the Maximum Amount, the Borrowers may borrow, prepay and reborrow Loans under the Note prior to the maturity of the Note.
2. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
Except as set forth on a Schedule of Exceptions delivered by the Borrowers to the Lender, the Borrowers hereby jointly and severally represent and warrant to the Lender that:
2.1 Organization and Standing; Qualifications. Each Borrower is a limited liability company validly existing and in good standing under the laws of the State of Nevada. Each Borrower 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. Each Borrower 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 Borrowers taken as a whole, or (ii) on the authority or ability of the Borrowers to perform their 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 the Borrowers of any license or permit necessary for the conduct by the Borrowers of its business or proposed business, or (iii) any failure by the Borrowers 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”).
2.2 Corporate Power. The Borrowers have all requisite power and authority to execute and deliver this Agreement, and borrow Loans under the Note, and to carry out and perform its obligations under the terms of this Agreement and each of the Transaction Documents.
2.3 Authorization. All corporate action on the part of the Borrowers, their managers and members, necessary for (i) the authorization, execution and delivery of the Agreement by the Borrowers, (ii) the authorization, issuance and delivery of the Note, and (iii) the performance of all of the Borrowers’ obligations under the Transaction Documents, has been taken. This Agreement has been duly and validly executed and delivered by the Borrowers and constitutes the valid and binding obligation of the Borrowers, 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.
2.4 Capitalization. All of the outstanding membership interests of the Borrowers are owned by GB Sciences, Inc., a Nevada corporation (the “Parent”).
2.5 Non-Contravention. The execution, delivery and performance of this
Agreement by the Borrowers, and the consummation by the Borrowers of the transactions contemplated hereby, do not (i) contravene or conflict with any certificate of incorporation, certificate of formation, operating agreement, bylaws or other constituent documents of the Borrowers or the Parent; (ii) 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 Borrowers; 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 Borrowers or the Parent is entitled under, or result in the creation or imposition of any lien, claim or encumbrance on any assets of the Borrowers under, any contract to which the Borrowers or the Parent is a party or any permit, license or similar right relating to the Borrowers or by which the Borrowers may be bound or affected.
2.6 Compliance with Law and Charter Documents; Regulatory Permits. Neither
Borrower is in violation or default of any provisions of its certificate of formation, operating agreement or similar organizational document, as applicable. The Borrowers 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 Borrowers’ business or property (“Laws”), and neither Borrower 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 Borrower 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 any Borrower is a party or by which any Borrower is bound or by which the properties of the Borrowers are bound, which default would be reasonably likely to have a Material Adverse Effect. The Borrowers possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct its business as currently conducted or proposed to be conducted, 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 Borrower has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
2.7 SEC Documents.
2.7.1 Reports. The Parent has filed on the Securities and Exchange Commission’s (“SEC”) EDGAR system, prior to the date hereof, its Annual Report on Form 10K for the fiscal year ended March 31, 2019 (the “Form 10-K”), its quarterly reports on Form 10Q for the fiscal quarters ended June 30, 2019 and September 30, 2019 (the “Form 10-Qs”), and any Current Report on Form 8-K (“Form 8-Ks”) required to be filed by the Parent 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 Parent 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 Parent 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 Parent and the Borrowers and fairly present in all material respects the financial position of the Parent as of the dates thereof and the results of operations and cash flows for the periods then ended.
2.8 Absence of Certain Changes. Except as set forth in the SEC Documents, since
September 30, 2019, the business and operations of the Borrowers have been conducted in the ordinary course consistent with past practice, and there has not been:
2.8.1 any damage, destruction or loss to the Borrowers’ 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;
2.8.2 any waiver by the Borrowers 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;
2.8.3 any material change or amendment to, or any waiver of any material right under a material contract or arrangement by which the Borrowers or any of their assets or properties are bound or subject that could be expected to have a Material Adverse Effect;
2.8.4 any 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;
2.8.5 any sale of any assets, individually or in the aggregate, in excess of $10,000 outside of the ordinary course of business; or
2.8.6 any capital expenditures, individually or in the aggregate, in excess of $10,000 outside of the ordinary course of business.
2.9 Intellectual Property. To the Borrowers’ knowledge, the Borrowers 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 Borrowers’ knowledge, neither of the Borrowers 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 Borrowers is unenforceable or invalid. To the Borrowers’ knowledge, there is no claim, action or proceeding against the Borrowers with
respect to any Intellectual Property. The Borrowers have no actual knowledge of any infringement or improper use by any third party with respect to any Intellectual Property of the Borrowers which would reasonably be expected to result in a Material Adverse Effect. The Borrowers have taken reasonable security measures to protect the secrecy, confidentiality and value of all of such of its Intellectual Property as the Borrowers is required to keep secret. None of the Borrowers’ 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 Borrowers is the assignee are believed to be valid and binding obligations of the assignor(s).
3. CONDITIONS TO CLOSING
The Lender’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 Lender, subject to the fulfillment of the following conditions:
3.1 Representations and Warranties True and Correct. The representations and
warranties made by the Borrowers 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.
3.2 Board Approval. The Borrowers shall have delivered to the Lender evidence of
the approval of this Agreement and the transactions contemplated hereby by the sole member of the Borrowers and the Board of Directors of the Parent, in form and substance satisfactory to the Lender and its counsel.
3.3 Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Borrowers on or prior to such date shall have been performed or complied with.
3.4 No Material Adverse Effect. No Material Adverse Effect shall have occurred.
4. COVENANTS.
4.1 Inspection Rights. Lender (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 Borrowers and to make copies thereof, and the right to check, test, and inspect all equipment, materials, and facilities of the Borrowers.
4.2 Further Assurances. The Borrowers shall cure promptly any defects in the
creation and issuance of the Note, and in the execution and delivery of the Transaction Documents. The Company, at its expense, shall execute and deliver promptly to the Lender upon request all such other and further documents, agreements and instruments as may be reasonably necessary to permit the Borrowers 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.
4.3 Use of Proceeds. The proceeds of all Advances shall (i) be used to fund the
ongoing operations of the Teco Facility (as defined in the Note) in accordance with the
applicable Loan Request for such Advance, and (ii) unless otherwise agreed to by the Lender, be
disbursed by Lender directly to vendors and other third party creditors of the Borrowers.
5. INDEMNIFICATION.
The Borrowers hereby agree, jointly and severally, to indemnify, exonerate and hold harmless the Lender and each of its managers, members, officers, 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 Borrowers 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 Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
6. MISCELLANEOUS
6.1 Governing 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.
6.2 Successors 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). 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.
6.3 Amendment. Any provision of this Agreement may be amended, waived, modified, discharged or terminated only with the written consent of the Borrowers and the Lender. The Lender may waive its rights or the Borrowers’ obligations with respect to the Note hereunder without obtaining the consent of any other natural person or Person.
6.4 Notices. 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 Borrowers 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 Borrowers’ records or at such other address as a party may designate by ten (10) days’ advance written notice to the other parties hereto.
6.5 Counterparts. 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.
6.6 Severability. 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.
6.7 Titles 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.
6.8 Survival 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. For the avoidance of doubt, the representations and warranties made in this Agreement shall not survive the execution and delivery hereof.
6.9 Attorneys’ 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.
6.10 Facsimile/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.
6.11 Entire 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 LAS VEGAS, LLC
GB SCIENCES NEVADA LLC
By: GB SCIENCES, INC., as sole member
By:/s/ John Poss
Name: John Poss
Title: Chief Executive Officer
AJE MANAGEMENT, LLC
By: /s/ David Weiner
Name: David Weiner
Title: Manager of AJE Management, LLC
EXHIBIT A
Form of Promissory Note
GB SCIENCES LAS VEGAS, LLC
GB SCIENCES NEVADA LLC
8% Promissory Note
$470,000.00 December 3, 2019
FOR VALUE RECEIVED, GB SCIENCES LAS VEGAS, LLC, a Nevada limited liability company (“GBS LV”), and GB SCIENCES NEVADA LLC, a Nevada limited liability company (“GBS NV” and together with GBS LV, collectively, the “Borrower”) with their principal executive offices at 3550 W. Teco Avenue, Las Vegas NV 89118, jointly and severally promise to pay to the order of AJE MANAGEMENT, LLC (the “Lender” or the “Holder of this Note”) or registered assigns, the principal amount of Four Hundred [Seventy] Thousand Dollars ($470,000) Dollars, or such lesser amount as shall equal the aggregate unpaid principal amount of the loans made by Lender to the Borrower hereunder (the “Principal Amount”), together with interest on such Principal Amount, on December 31, 2020 (the “Maturity Date”). Interest on this 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.
Interest shall accrue on the Principal Amount outstanding from time to time and shall be payable (i) upon maturity (whether at the Maturity Date, by acceleration or otherwise) and (ii) at any time after maturity until paid in full (after as 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 Borrower 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 Borrower 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 Borrower (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 Lender pursuant to a Loan Agreement (as amended from time to time, the “Loan Agreement”) of even date herewith. Unless otherwise defined in this Note, capitalized terms used herein shall have the meanings set forth in the Loan Agreement.
1. Principal Repayment. This Note may be prepaid, in whole or in part, at any
time or from time to time, without premium or penalty. All payments made on this Note shall be applied first to interest accrued to the date of the payment, then to other amounts which may then be due hereunder (other than principal), and then to the outstanding principal amount of this Note.
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.
3. Covenants of Borrower.
A. Affirmative Covenants. Each Borrower covenants and agrees that, so long as this Note shall be outstanding, unless it has otherwise obtained the prior written consent of the Lender, it will perform the obligations set forth in this Section 3A:
(i) Taxes and Levies. The Borrower will promptly pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Borrower 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 Borrower 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 Borrower 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 Borrower, except where the failure to comply would not have a material adverse effect on the Borrower;
(iii) Maintenance of Property. The Borrower 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 Borrower 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 Borrower will 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 Borrower 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 Lender or its agents;
(vii) Notice of Certain Events. The Borrower (will give prompt written notice (with a description in reasonable detail) to the Lender 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;
(viii) Compliance with Laws. The Borrower will 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; and
(ix) Use of Proceeds. The Borrower shall use the proceeds of Advances solely to pay employees, vendors and other third party creditors of Borrower in connection with the operation of the Teco Facility.
B. Negative Covenants. Each Borrower covenants and agrees that, so long as this Note shall be outstanding, unless it has otherwise obtained the prior written consent of the Lender, it will perform the obligations set forth in this Section 3B:
(i) Liquidation, Dissolution. The Borrower 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; 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 Borrower 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 Borrower’s business to any person or entity other than a direct or indirect subsidiary of the Borrower;
(iii) Redemptions. The Borrower will not redeem or repurchase any outstanding equity and/or debt securities of the Borrower;
(iv) Indebtedness. Borrower 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, or (C) other accrued expenses incurred by the Borrower in the ordinary course of business;
(v) Negative Pledge. Other than with respect to this Note, the Borrower 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 Borrower 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 Borrower will not 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 Borrower or any of its subsidiaries (including officers, directors and shareholders owning five (5%) percent or more of the Parent’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 Borrower as determined by the Board of Directors in good faith.
(vii) Dividends. The Borrower will not declare or pay any distributions on its outstanding capital stock.
(viii) Parent. Each Borrower will continue to be wholly-owned subsidiaries of the Parent.
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. Borrower 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. Borrower 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. Borrower 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. Borrower 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 Borrower 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 Borrower 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 Borrower, and, if such case or proceeding is not commenced by the Borrower or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Borrower 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. The Borrower 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. Borrower 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 Borrower for money borrowed in excess of $100,000;
(vii) Cross-Acceleration. Any other indebtedness for borrowed money of Borrower 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; or
(viii) Other Breaches, Defaults. Borrower shall default or be in breach of any other term or provision of this Note, any other Transaction Document (as defined in the Loan Agreement), in any material respect, for a period of ten (10) days, or any material representation or warranty made by the Borrower to the Lender in any Transaction Document shall be materially false or misleading;
then, and in any such event, the Lender shall, by notice to the Borrower, take or cause to be taken any or all of the following actions, without prejudice to the rights of Lender to enforce its claims against the Borrower: (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 Borrower, (2) 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 (2) 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 Borrower, 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 addition to every other remedy conferred herein or now or hereinafter existing at law or in equity or by statute or otherwise.
5. 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 Borrower and the Lender.
B. No failure or delay on the part of the Lender 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 Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Lender 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 Borrower make a payment or payments to the Lender, 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 Lender 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 Lender or such enforcement or setoff had not occurred.
6. Miscellaneous.
A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Borrower or the Lender shall bind and inure to the benefit of its successors and permitted assigns of the Borrower and the Lender, 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]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Borrower.
GB SCIENCES LAS VEGAS, LLC GB SCIENCES NEVADA LLC,
By: GB SCIENCES, INC., as sole member
By: /s/ John Poss
Name: John Poss
Title: Chief Executive Officer
SCHEDULE 3B(v)
LIENS
PROMISSORY NOTE
Borrower: GB Sciences, Inc.
3550 W. Teco Ave.
Las Vegas, NV 89118
Lender: John B. Davis
2644 Fairway Drive
Baton Rouge, LA 70809
Principal Amount: $151,923.07
Effective Date: November 15, 2019
|
1.
|
For value received, the Borrower promises to pay the Lender at the address identified above or as may be provided in writing to the Borrower, the principal sum of $151,923.07.
|
|
2.
|
This Note shall be repaid in installments as follows:
|
|
●
|
$51,923.07 on or before December 12, 2019; and
|
|
●
|
$100,000.00 on or before five business days after the first cash payment in excess of $100,000.00 that Borrower receives from Wellcana Plus, LLC, per the promissory note between Borrower and Wellcana Plus, LLC, dated on or about November 15, 2019. Borrower agrees to permit Wellcana Plus, LLC, or its designee, to deduct $100,000.00 from the first cash payment identified above and pay that amount directly to Lender.
|
|
3.
|
Should Borrower default on the December 12, 2019 installment, Borrower shall be liable to Lender either for ninety days wages at Lender’s daily rate of pay ($37,500.00), or else for full wages per day ($416.66) from December 12, 2019, until Borrower shall pay or tender the December 12, 2019 installment, whichever is the lesser amount of this penalty.
|
|
4.
|
Should Borrower default on full and final payment of the outstanding balance of $100,000.00, a 10% penalty shall be applied to the outstanding balance.
|
|
5.
|
All costs, expenses and expenditures including, and without limitation, the complete legal costs incurred by the Lender in enforcing this Note as a result of any default of the Borrower, will be added to the principal then outstanding and will immediately be paid by the Borrower.
|
|
6.
|
If any term, covenant, condition or provision of this Note is held by a court of competent jurisdiction to be invalid, void or unenforceable, it is the parties’ intent that such provision be reduced in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable and the remainder of the provisions of this Note will in no way be affected, impaired or invalidated as a result.
|
|
7.
|
This Note will be construed in accordance with the laws of the State of Louisiana.
|
|
8.
|
This Note will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and assigns of the Borrower and the Lender.
|
|
9.
|
Except for a suit to enforce the Borrower’s promises and obligations contained in this Note, in consideration of Borrower issuing this Note, Lender further agrees, promises and covenants that neither he, nor any person, organization, or any other entity acting on his behalf (the “Lender Parties”), will file, charge, claim, sue or cause or permit to be filed, charged or claimed, any action for damages or other relief (including injunctive, declaratory, monetary relief or other) against Borrower or any of its subsidiaries, contractors, advisors, officers, directors, employees or shareholders (the “Borrower Parties”), involving any matter, cause or thing whatsoever, occurring in the past up to the effective date of this Note or involving any continuing effects of actions or practices which arose prior to the effective date of this Note or the termination or resignation of the Lender’s employment (the “Prior Obligations”), and the Lender Parties hereby release and discharge the Borrower Parties from the Prior Obligations, if any.
|
|
0.
|
Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.
|
IN WITNESS WHEREOF, this Note has been agreed upon, executed and delivered on the date specified above by the Lender and the duly authorized representative of the Borrower.
Borrower:
GB Sciences, Inc.
By: /s/ John Poss
CEO and Chairman
Lender:
John B. Davis
By: /s/ John B. Davis
Subsidiaries of GB Sciences, Inc.
GB Sciences, LLC
GB Sciences Nevada, LLC
GB Sciences Las Vegas, LLC
ECRX, Inc.
GB Sciences Texas, LLC
GB Sciences Nopah, LLC
GBS Global Biopharma, Inc.
Exhibit 31.1
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, 2020 of GB Sciences, Inc.;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
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;
|
|
|
|
|
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;
|
|
|
|
|
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
|
|
|
|
|
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
|
|
|
|
|
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: August 28, 2020
|
By:
|
/s/ John Poss
|
|
|
|
John Poss
|
|
|
|
President and Chief Executive Officer
|
|
Exhibit 31.2
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Zach Swarts, certify that:
1.
|
I have reviewed this annual report on Form 10-K for the year ended March 31, 2020 of GB Sciences, Inc.;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
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;
|
|
|
|
|
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;
|
|
|
|
|
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
|
|
|
|
|
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
|
|
|
|
|
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: August 28, 2020
|
By:
|
/s/ Zach Swarts
|
|
|
|
Zach Swarts
|
|
|
|
Chief Financial Officer
|
|
Exhibit 32.1
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, 2020 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.
|
|
|
|
Date: August 28, 2020
|
By:
|
/s/ John Poss
|
|
|
|
John Poss
|
|
|
|
Chief Executive Officer
|
|
Exhibit 32.2
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, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Zach Swarts, 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.
|
|
|
|
Date: August 28, 2020
|
By:
|
/s/ Zach Swarts
|
|
|
|
Zach Swarts
|
|
|
|
Chief Financial Officer
|
|
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
__________________________
(Mark One)
☒
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from __________ to ___________
Commission file number: 000-55462
|
GB SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other Jurisdiction of Incorporation or organization)
|
|
59-3733133
(IRS Employer I.D. No.)
|
3550 W. Teco Avenue
Las Vegas, Nevada 89118
Phone: (866) 721-0297
(Address and telephone number of
principal executive offices)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
|
Trading Symbol(s)
|
Name of exchange on which registered
|
None
|
N/A
|
N/A
|
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer ☐
|
Non-accelerated filer ☐
|
Smaller reporting company ☒
|
Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). ☐ Yes ☒ No
There were 281,779,436 shares of common stock, par value $0.0001 per share, outstanding as of November 13, 2020.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
GB SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
As of September 30,
|
|
|
As of March 31,
|
|
|
|
2020
|
|
|
2020
|
|
CURRENT ASSETS:
|
|
|
(unaudited)
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
545,020
|
|
|
$
|
2,406
|
|
Prepaid expenses and other current assets
|
|
|
18,776
|
|
|
|
18,776
|
|
Note receivable
|
|
|
4,350,000
|
|
|
|
5,224,423
|
|
Current assets from discontinued operations
|
|
|
1,997,037
|
|
|
|
1,755,275
|
|
TOTAL CURRENT ASSETS
|
|
|
6,910,833
|
|
|
|
7,000,880
|
|
Property and equipment, net
|
|
|
31,278
|
|
|
|
37,821
|
|
Intangible assets, net of accumulated amortization of $17,611 and $12,287 at September 30, 2020 and March 31, 2020, respectively
|
|
|
1,545,355
|
|
|
|
1,128,702
|
|
Long term assets from discontinued operations
|
|
|
5,766,598
|
|
|
|
6,185,465
|
|
TOTAL ASSETS
|
|
$
|
14,254,064
|
|
|
$
|
14,352,868
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,346,652
|
|
|
$
|
1,913,049
|
|
Accrued interest
|
|
|
479,255
|
|
|
|
366,865
|
|
Accrued liabilities
|
|
|
1,205,248
|
|
|
|
813,618
|
|
Notes and convertible notes payable and line of credit, net of unamortized discount of $9,624 and $608,580 at September 30, 2020 and March 31, 2020, respectively
|
|
|
6,428,278
|
|
|
|
5,054,728
|
|
Indebtedness to related parties
|
|
|
710,075
|
|
|
|
586,512
|
|
Note payable to related party
|
|
|
-
|
|
|
|
151,923
|
|
Income tax payable
|
|
|
620,856
|
|
|
|
592,982
|
|
Current liabilities from discontinued operations
|
|
|
1,348,111
|
|
|
|
1,406,080
|
|
TOTAL CURRENT LIABILITIES
|
|
|
13,138,475
|
|
|
|
10,885,757
|
|
Long term liabilities from discontinued operations
|
|
|
3,465,160
|
|
|
|
3,555,605
|
|
TOTAL LIABILITIES
|
|
|
16,603,635
|
|
|
|
14,441,362
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT:
|
|
|
|
|
|
|
|
|
Common Stock, $0.0001 par value, 600,000,000 shares authorized, 280,532,686 and 275,541,602 outstanding at September 30, 2020 and March 31, 2020, respectively
|
|
|
28,054
|
|
|
|
27,554
|
|
Additional paid-in capital
|
|
|
97,679,001
|
|
|
|
97,271,157
|
|
Accumulated deficit
|
|
|
(100,056,626
|
)
|
|
|
(97,387,205
|
)
|
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(2,349,571
|
)
|
|
|
(88,494
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
14,254,064
|
|
|
$
|
14,352,868
|
|
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months Ended September 30,
|
|
|
For the Six Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
491,818
|
|
|
|
1,291,232
|
|
|
|
1,007,071
|
|
|
|
3,082,697
|
|
LOSS FROM OPERATIONS
|
|
|
(491,818
|
)
|
|
|
(1,291,232
|
)
|
|
|
(1,007,071
|
)
|
|
|
(3,082,697
|
)
|
OTHER INCOME/(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(410,946
|
)
|
|
|
(352,736
|
)
|
|
|
(1,082,874
|
)
|
|
|
(664,937
|
)
|
Debt default penalty
|
|
|
-
|
|
|
|
-
|
|
|
|
(286,059
|
)
|
|
|
-
|
|
Other income/(expense)
|
|
|
(1,750
|
)
|
|
|
92,707
|
|
|
|
(3,374
|
)
|
|
|
92,707
|
|
Total other expense
|
|
|
(412,696
|
)
|
|
|
(260,029
|
)
|
|
|
(1,372,307
|
)
|
|
|
(572,230
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
(904,514
|
)
|
|
|
(1,551,261
|
)
|
|
|
(2,379,378
|
)
|
|
|
(3,654,927
|
)
|
Income tax benefit/(expense)
|
|
|
(19,034
|
)
|
|
|
57,392
|
|
|
|
(27,874
|
)
|
|
|
-
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(923,548
|
)
|
|
|
(1,493,869
|
)
|
|
|
(2,407,252
|
)
|
|
|
(3,654,927
|
)
|
Gain/(loss) from discontinued operations
|
|
|
118,090
|
|
|
|
(1,434,737
|
)
|
|
|
(244,906
|
)
|
|
|
(1,812,563
|
)
|
NET LOSS
|
|
|
(805,458
|
)
|
|
|
(2,928,606
|
)
|
|
|
(2,652,158
|
)
|
|
|
(5,467,490
|
)
|
Net loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
(245,565
|
)
|
|
|
-
|
|
|
|
(377,781
|
)
|
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC.
|
|
$
|
(805,458
|
)
|
|
$
|
(2,683,041
|
)
|
|
$
|
(2,652,158
|
)
|
|
$
|
(5,089,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common stockholders of GB Sciences, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(923,548
|
)
|
|
$
|
(1,493,869
|
)
|
|
$
|
(2,407,252
|
)
|
|
$
|
(3,654,927
|
)
|
Discontinued operations
|
|
|
118,090
|
|
|
|
(1,189,172
|
)
|
|
|
(244,906
|
)
|
|
|
(1,434,782
|
)
|
Net loss
|
|
$
|
(805,458
|
)
|
|
$
|
(2,683,041
|
)
|
|
$
|
(2,652,158
|
)
|
|
$
|
(5,089,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per common share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
Net loss
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
|
280,532,686
|
|
|
|
252,700,538
|
|
|
|
279,257,607
|
|
|
|
248,392,203
|
|
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Six Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,652,158
|
)
|
|
$
|
(5,467,490
|
)
|
Loss from discontinued operations
|
|
|
(244,906
|
)
|
|
|
(1,812,563
|
)
|
Net loss from continuing operations
|
|
|
(2,407,252
|
)
|
|
|
(3,654,927
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,612
|
|
|
|
76,716
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
341,724
|
|
Amortization of debt discount and beneficial conversion feature
|
|
|
748,956
|
|
|
|
434,750
|
|
Interest expense on conversion of notes payable
|
|
|
-
|
|
|
|
26,804
|
|
Loss on extinguishment
|
|
|
-
|
|
|
|
124,158
|
|
Default penalty on convertible note payable
|
|
|
286,059
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
180,060
|
|
Accounts payable
|
|
|
262,881
|
|
|
|
304,550
|
|
Accrued expenses
|
|
|
414,130
|
|
|
|
187,133
|
|
Accrued interest
|
|
|
325,925
|
|
|
|
190,695
|
|
Income tax payable
|
|
|
27,874
|
|
|
|
-
|
|
Indebtedness to related parties
|
|
|
123,563
|
|
|
|
-
|
|
Net cash used in operating activities of continuing operations
|
|
|
(202,252
|
)
|
|
|
(1,788,337
|
)
|
Net cash used in operating activities of discontinued operations
|
|
|
(10,602
|
)
|
|
|
(1,758,120
|
)
|
Net cash used in operating activities
|
|
|
(212,854
|
)
|
|
|
(3,546,457
|
)
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from note receivable
|
|
|
701,923
|
|
|
|
-
|
|
Acquisition of intangible assets
|
|
|
-
|
|
|
|
(91,862
|
)
|
Net cash provided/(used) in investing activities of continuing operations
|
|
|
701,923
|
|
|
|
(91,862
|
)
|
Net cash used in investing activities of discontinued operations
|
|
|
(104,265
|
)
|
|
|
(462,920
|
)
|
Net cash provided/(used) in investing activities
|
|
|
597,658
|
|
|
|
(554,782
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
550,225
|
|
Gross proceeds from warrant exercises
|
|
|
151,202
|
|
|
|
944,975
|
|
Gross proceeds from convertible notes payable
|
|
|
150,000
|
|
|
|
2,600,000
|
|
Proceeds from Line of Credit
|
|
|
125,000
|
|
|
|
-
|
|
Principal payment on note payable to related party
|
|
|
(151,923
|
)
|
|
|
-
|
|
Fees for issuance of convertible note
|
|
|
-
|
|
|
|
(175,000
|
)
|
Brokerage fees for issuance of common stock and warrants
|
|
|
(15,121
|
)
|
|
|
(166,027
|
)
|
Net cash provided by financing activities of continuing operations
|
|
|
259,158
|
|
|
|
3,754,173
|
|
Net cash provided/(used) in financing activities of discontinued operations
|
|
|
(101,487
|
)
|
|
|
213,625
|
|
Net cash provided by financing activities
|
|
|
157,671
|
|
|
|
3,967,798
|
|
Net change in cash and cash equivalents
|
|
|
542,475
|
|
|
|
(133,441
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
151,766
|
|
|
|
227,758
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
|
694,241
|
|
|
|
94,317
|
|
Less: cash and cash equivalents classified as discontinued operations
|
|
|
(149,221
|
)
|
|
|
(23,639
|
)
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD FROM CONTINUING OPERATIONS
|
|
$
|
545,020
|
|
|
$
|
70,678
|
|
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Six Months Ended September 30, 2020 and 2019
(unaudited)
|
|
Six Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
332,167
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Accrued liabilities forgiven in connection with Wellcana Note letter agreement
|
|
$
|
172,500
|
|
|
$
|
-
|
|
Depreciation capitalized in inventory
|
|
$
|
272,267
|
|
|
$
|
273,090
|
|
Accrued interest capitalized in convertible note principal
|
|
$
|
223,094
|
|
|
$
|
-
|
|
Property capitalized under operating leases
|
|
$
|
-
|
|
|
$
|
182,624
|
|
Patent acquisition costs capitalized in intangible assets
|
|
$
|
320,722
|
|
|
$
|
67,008
|
|
Stock options issued to acquire intangible assets
|
|
$
|
105,000
|
|
|
$
|
-
|
|
Stock issued upon conversion of notes payable
|
|
$
|
-
|
|
|
$
|
280,000
|
|
Induced dividend from warrant exercises
|
|
$
|
17,263
|
|
|
$
|
230,025
|
|
Beneficial conversion feature on notes payable
|
|
$
|
150,000
|
|
|
$
|
133,806
|
|
Cumulative effect of the new lease standard
|
|
$
|
-
|
|
|
$
|
7,550
|
|
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
For the Three Months Ended September 30, 2020 and 2019
(unaudited)
|
|
Shares
|
|
|
Amount
|
|
|
Additional Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
Balance at June 30, 2020
|
|
|
280,532,686
|
|
|
$
|
28,054
|
|
|
$
|
97,574,001
|
|
|
$
|
(99,251,168
|
)
|
|
$
|
-
|
|
|
$
|
(1,649,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options issued to acquire intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,000
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(805,458
|
)
|
|
|
-
|
|
|
|
(805,458
|
)
|
Balance at September 30, 2020
|
|
|
280,532,686
|
|
|
$
|
28,054
|
|
|
$
|
97,679,001
|
|
|
$
|
(100,056,626
|
)
|
|
$
|
-
|
|
|
$
|
(2,349,571
|
)
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
Balance at June 30, 2019
|
|
|
246,852,769
|
|
|
$
|
24,686
|
|
|
$
|
94,095,065
|
|
|
$
|
(87,232,454
|
)
|
|
$
|
8,723,541
|
|
|
$
|
15,610,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for debt conversion
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
109,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,000
|
|
Exercise of warrants for stock
|
|
|
7,492,250
|
|
|
|
749
|
|
|
|
673,553
|
|
|
|
-
|
|
|
|
-
|
|
|
|
674,302
|
|
Share based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
32,408
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,408
|
|
Beneficial conversion feature on notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
133,806
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,806
|
|
Contributions from non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
550,001
|
|
|
|
550,001
|
|
Compensation warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
132,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,914
|
|
Inducement dividend from warrant exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
155,625
|
|
|
|
(155,625
|
)
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,683,041
|
)
|
|
|
(245,565
|
)
|
|
|
(2,928,606
|
)
|
Balance at September 30, 2019
|
|
|
255,345,019
|
|
|
$
|
25,535
|
|
|
$
|
95,333,271
|
|
|
$
|
(90,071,120
|
)
|
|
$
|
9,027,977
|
|
|
$
|
14,315,663
|
|
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
GB SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
For the Six Months Ended September 30, 2020 and 2019
(unaudited)
|
|
Shares
|
|
|
Amount
|
|
|
Additional Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
Balance at March 31, 2020
|
|
|
275,541,602
|
|
|
$
|
27,554
|
|
|
$
|
97,271,157
|
|
|
$
|
(97,387,205
|
)
|
|
$
|
-
|
|
|
$
|
(88,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants for stock, net of issuance costs
|
|
|
4,991,084
|
|
|
|
500
|
|
|
|
135,581
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,081
|
|
Beneficial conversion feature on notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
Stock options issued to acquire intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,000
|
|
Inducement dividend from warrant exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
17,263
|
|
|
|
(17,263
|
)
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,652,158
|
)
|
|
|
-
|
|
|
|
(2,652,158
|
)
|
Balance at September 30, 2020
|
|
|
280,532,686
|
|
|
$
|
28,054
|
|
|
$
|
97,679,001
|
|
|
$
|
(100,056,626
|
)
|
|
$
|
-
|
|
|
$
|
(2,349,571
|
)
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
Balance at March 31, 2019
|
|
|
240,627,102
|
|
|
$
|
24,063
|
|
|
$
|
93,020,015
|
|
|
$
|
(84,743,836
|
)
|
|
$
|
8,855,757
|
|
|
$
|
17,155,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for debt conversion
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
279,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280,000
|
|
Exercise of warrants for stock
|
|
|
9,449,750
|
|
|
|
945
|
|
|
|
849,533
|
|
|
|
-
|
|
|
|
-
|
|
|
|
850,478
|
|
Share based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
208,809
|
|
|
|
-
|
|
|
|
-
|
|
|
|
208,809
|
|
Issuance of stock for cash, net of issuance costs
|
|
|
3,668,167
|
|
|
|
367
|
|
|
|
478,329
|
|
|
|
-
|
|
|
|
-
|
|
|
|
478,696
|
|
Beneficial conversion feature on notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
133,806
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,806
|
|
Contributions from non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
550,001
|
|
|
|
550,001
|
|
Compensation warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
132,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,914
|
|
Cancelled shares issued to consultant
|
|
|
(400,000
|
)
|
|
|
(40
|
)
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Inducement dividend from warrant exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
230,025
|
|
|
|
(230,025
|
)
|
|
|
-
|
|
|
|
-
|
|
Cumulative effect of the new lease standard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,550
|
)
|
|
|
-
|
|
|
|
(7,550
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,089,709
|
)
|
|
|
(377,781
|
)
|
|
|
(5,467,490
|
)
|
Balance at September 30, 2019
|
|
|
255,345,019
|
|
|
$
|
25,535
|
|
|
$
|
95,333,271
|
|
|
$
|
(90,071,120
|
)
|
|
$
|
9,027,977
|
|
|
$
|
14,315,663
|
|
The accompanying unaudited notes are an integral part of these unaudited condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Background and Significant Accounting Policies
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) seeks to be a biopharmaceutical research and cannabinoid-based drug development company whose goal is to create patented formulations for safe, standardized, cannabinoid therapies that target a variety of medical conditions in both the pharmaceutical and wellness markets. The Company is engaged in the research and development of cannabinoid medicines and plans to produce cannabinoid therapies for the wellness markets based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and development of cannabinoid medicines with virtual operations in North America and Europe. GBSGB assets include cannabinoid medicine intellectual property, research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of conditions and several programs are in pre-clinical animal stage of development; including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes two issued USPTO Patents, five USPTO patent applications, four provisional USPTO patent applications, and one USPTO application that we anticipate filing by the end of calendar year 2020, as well as licenses for three additional patents covering novel cannabinoid delivery systems. In addition to the USPTO patents and patent applications, the company has filed 28 patent applications internationally.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of GB Sciences, Inc. (the “Company,” “We” or “Us”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending March 31, 2021. The balance sheet at March 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended March 31, 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. The ownership interest of non-controlling participants in subsidiaries that are not wholly owned is included as a separate component of equity. The non-controlling participants’ share of the net loss is included as “Net loss attributable to non-controlling interest” on the unaudited consolidated statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, inventory valuation and standard cost allocations, valuation of initial right-of-use assets and corresponding lease liabilities, valuation of beneficial conversion features in convertible debt, valuation of the assets and liabilities of discontinued operations, stock-based compensation expense, purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates.
Reclassifications
Certain reclassifications have been made to the comparative period amounts to conform to the current period presentation. Certain items on the unaudited balance sheets and statements of operations and cash flows have been reclassified to conform with current period presentation. The assets, liabilities, income, and cash flows of GB Sciences Louisiana, LLC, GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC have been reclassified to discontinued operations due to the sale of the Company's Louisiana cultivation and extraction facility (Note 10) and the pending sale of the Company's Nevada cultivation and extraction facilities (Note 11).
Discontinued Operations
Refer to Note 3.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Long-Lived Assets
Property and equipment comprise a significant portion of our total assets. We evaluate the carrying value of property and equipment if impairment indicators are present or if other circumstances indicate that impairment may exist under authoritative guidance. The annual testing date is March 31. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of property and equipment are prepared. If the projections indicate that the carrying value of the property and equipment are not recoverable, we reduce the carrying values to fair value. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available. No indicators of impairment were identified by the Company as of September 30, 2020.
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 net realizable value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete inventory is based on expected future use.
Beneficial Conversion Feature of Convertible Notes Payable
The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options and Emerging Issues Task Force (“EITF”) 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”. A beneficial conversion feature (“BCF”) exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the BCF of a convertible note is measured by allocating a portion of the note's proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The Company calculates the fair value of warrants issued with the convertible notes using the Black-Scholes valuation model and uses the same assumptions for valuing any employee options in accordance with ASC Topic 718 Compensation – Stock Compensation. The only difference is that the contractual life of the warrants is used.
The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on a relative fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
Revenue Recognition
The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.
The Company’s only 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Earnings/(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 153,637,853 and 158,404,020 potentially dilutive common shares at September 30, 2020 and March 31, 2020, respectively. However, such common stock equivalents were not included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive.
Recent Accounting Pronouncements
Recently Adopted Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on its financial statements.
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted the standard on April 1, 2020. The adoption of this guidance did not have a material 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.
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, which have caused an accumulated deficit of $(100,056,626) at September 30, 2020. The Company had a working capital deficit of $(6,227,642) at September 30, 2020, net of working capital of $648,926 classified as discontinued operations, compared to $(3,884,877) at March 31, 2020, net of working capital of $349,195 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $(212,854) for the six months ended September 30, 2020, including $(10,602) used in discontinued operations, compared to $(3,546,457) including $(1,758,120) used in discontinued operations for the six months ended September 30, 2019. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is unable to continue as a going concern.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Discontinued Operations
Discontinued operations comprise those activities that were disposed of during the period or which were classified as held for sale at the end of the period and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. The Company has included its subsidiaries GB Sciences Louisiana, LLC, GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC in discontinued operations due to the sale of the Company's Louisiana cultivation and extraction facility (Note 10) and the pending sale of the Company's Nevada cultivation and extraction facilities (Note 11).
There were no assets and liabilities from discontinued operations attributable to GB Sciences Louisiana, LLC at September 30, 2020 and March 31, 2020 due to the entity having been deconsolidated at the November 15, 2019 date of close. The assets and liabilities associated with discontinued operations included in our condensed consolidated balance sheets as of September 30, 2020 and March 31, 2020 were as follows:
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
|
|
Continuing
|
|
|
Nevada Subsidiaries
|
|
|
Total
|
|
|
Continuing
|
|
|
Nevada Subsidiaries
|
|
|
Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
545,020
|
|
|
$
|
149,221
|
|
|
$
|
694,241
|
|
|
$
|
2,406
|
|
|
$
|
149,360
|
|
|
$
|
151,766
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
346,058
|
|
|
|
346,058
|
|
|
|
-
|
|
|
|
117,967
|
|
|
|
117,967
|
|
Inventory, net
|
|
|
-
|
|
|
|
1,439,320
|
|
|
|
1,439,320
|
|
|
|
-
|
|
|
|
1,445,839
|
|
|
|
1,445,839
|
|
Prepaid and other current assets
|
|
|
18,776
|
|
|
|
62,438
|
|
|
|
81,214
|
|
|
|
18,776
|
|
|
|
42,109
|
|
|
|
60,885
|
|
Note receivable
|
|
|
4,350,000
|
|
|
|
-
|
|
|
|
4,350,000
|
|
|
|
5,224,423
|
|
|
|
-
|
|
|
|
5,224,423
|
|
TOTAL CURRENT ASSETS
|
|
|
4,913,796
|
|
|
|
1,997,037
|
|
|
|
6,910,833
|
|
|
|
5,245,605
|
|
|
|
1,755,275
|
|
|
|
7,000,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
31,278
|
|
|
|
5,113,829
|
|
|
|
5,145,107
|
|
|
|
37,821
|
|
|
|
5,496,012
|
|
|
|
5,533,833
|
|
Intangible assets, net
|
|
|
1,545,355
|
|
|
|
571,265
|
|
|
|
2,116,620
|
|
|
|
1,128,702
|
|
|
|
571,264
|
|
|
|
1,699,966
|
|
Deposits and other noncurrent assets
|
|
|
-
|
|
|
|
81,504
|
|
|
|
81,504
|
|
|
|
-
|
|
|
|
91,504
|
|
|
|
91,504
|
|
Operating lease right-of-use assets, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,685
|
|
|
|
26,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
6,490,429
|
|
|
$
|
7,763,635
|
|
|
$
|
14,254,064
|
|
|
$
|
6,412,128
|
|
|
$
|
7,940,740
|
|
|
$
|
14,352,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,346,652
|
|
|
$
|
607,766
|
|
|
$
|
2,954,418
|
|
|
$
|
1,913,049
|
|
|
$
|
646,865
|
|
|
$
|
2,559,914
|
|
Accrued interest
|
|
|
479,255
|
|
|
|
79,123
|
|
|
|
558,378
|
|
|
|
366,865
|
|
|
|
30,787
|
|
|
|
397,652
|
|
Accrued expenses
|
|
|
1,205,248
|
|
|
|
48,010
|
|
|
|
1,253,258
|
|
|
|
813,618
|
|
|
|
74,394
|
|
|
|
888,012
|
|
Notes payable, net
|
|
|
6,428,278
|
|
|
|
485,000
|
|
|
|
6,913,278
|
|
|
|
5,054,728
|
|
|
|
480,000
|
|
|
|
5,534,728
|
|
Indebtedness to related parties
|
|
|
710,075
|
|
|
|
-
|
|
|
|
710,075
|
|
|
|
586,512
|
|
|
|
-
|
|
|
|
586,512
|
|
Note payable to related party
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,923
|
|
|
|
-
|
|
|
|
151,923
|
|
Income tax payable
|
|
|
620,856
|
|
|
|
-
|
|
|
|
620,856
|
|
|
|
592,982
|
|
|
|
-
|
|
|
|
592,982
|
|
Finance lease obligations, current
|
|
|
-
|
|
|
|
128,212
|
|
|
|
128,212
|
|
|
|
-
|
|
|
|
166,769
|
|
|
|
166,769
|
|
Operating lease obligations, current
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,265
|
|
|
|
7,265
|
|
TOTAL CURRENT LIABILITIES
|
|
|
11,790,364
|
|
|
|
1,348,111
|
|
|
|
13,138,475
|
|
|
|
9,479,677
|
|
|
|
1,406,080
|
|
|
|
10,885,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations, long term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,515
|
|
|
|
22,515
|
|
Finance lease obligations, long term
|
|
|
-
|
|
|
|
3,465,160
|
|
|
|
3,465,160
|
|
|
|
-
|
|
|
|
3,533,090
|
|
|
|
3,533,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
11,790,364
|
|
|
$
|
4,813,271
|
|
|
$
|
16,603,635
|
|
|
$
|
9,479,677
|
|
|
$
|
4,961,685
|
|
|
$
|
14,441,362
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations - Revenues and Expenses
The revenues and expenses associated with discontinued operations included in our condensed consolidated statements of operations for the three and six months ended September 30, 2020 and 2019 were as follows:
|
|
For the Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Total
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Total
|
|
Sales revenue
|
|
$
|
-
|
|
|
$
|
1,264,271
|
|
|
$
|
1,264,271
|
|
|
$
|
-
|
|
|
$
|
1,548,705
|
|
|
$
|
1,548,705
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
(859,068
|
)
|
|
|
(859,068
|
)
|
|
|
-
|
|
|
|
(2,237,779
|
)
|
|
|
(2,237,779
|
)
|
Gross profit/(loss)
|
|
|
-
|
|
|
|
405,203
|
|
|
|
405,203
|
|
|
|
-
|
|
|
|
(689,074
|
)
|
|
|
(689,074
|
)
|
General and administrative expenses
|
|
|
491,818
|
|
|
|
81,464
|
|
|
|
573,282
|
|
|
|
1,291,232
|
|
|
|
536,814
|
|
|
|
1,828,046
|
|
INCOME/(LOSS) FROM OPERATIONS
|
|
|
(491,818
|
)
|
|
|
323,739
|
|
|
|
(168,079
|
)
|
|
|
(1,291,232
|
)
|
|
|
(1,225,888
|
)
|
|
|
(2,517,120
|
)
|
OTHER INCOME/(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(410,946
|
)
|
|
|
(128,201
|
)
|
|
|
(539,147
|
)
|
|
|
(352,736
|
)
|
|
|
(185,599
|
)
|
|
|
(538,335
|
)
|
Other income/(expense)
|
|
|
(1,750
|
)
|
|
|
(77,448
|
)
|
|
|
(79,198
|
)
|
|
|
92,707
|
|
|
|
(23,250
|
)
|
|
|
69,457
|
|
Total other expense
|
|
|
(412,696
|
)
|
|
|
(205,649
|
)
|
|
|
(618,345
|
)
|
|
|
(260,029
|
)
|
|
|
(208,849
|
)
|
|
|
(468,878
|
)
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
|
(904,514
|
)
|
|
|
118,090
|
|
|
|
(786,424
|
)
|
|
|
(1,551,261
|
)
|
|
|
(1,434,737
|
)
|
|
|
(2,985,998
|
)
|
Income tax expense
|
|
|
(19,034
|
)
|
|
|
-
|
|
|
|
(19,034
|
)
|
|
|
57,392
|
|
|
|
-
|
|
|
|
57,392
|
|
NET INCOME/(LOSS)
|
|
$
|
(923,548
|
)
|
|
$
|
118,090
|
|
|
$
|
(805,458
|
)
|
|
$
|
(1,493,869
|
)
|
|
$
|
(1,434,737
|
)
|
|
$
|
(2,928,606
|
)
|
|
|
For the Six Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Total
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Total
|
|
Sales revenue
|
|
$
|
-
|
|
|
$
|
1,815,468
|
|
|
$
|
1,815,468
|
|
|
$
|
-
|
|
|
$
|
2,459,381
|
|
|
$
|
2,459,381
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
(1,350,863
|
)
|
|
|
(1,350,863
|
)
|
|
|
-
|
|
|
|
(2,862,148
|
)
|
|
|
(2,862,148
|
)
|
Gross profit/(loss)
|
|
|
-
|
|
|
|
464,605
|
|
|
|
464,605
|
|
|
|
-
|
|
|
|
(402,767
|
)
|
|
|
(402,767
|
)
|
General and administrative expenses
|
|
|
1,007,071
|
|
|
|
370,920
|
|
|
|
1,377,991
|
|
|
|
3,082,697
|
|
|
|
1,012,737
|
|
|
|
4,095,434
|
|
INCOME/(LOSS) FROM OPERATIONS
|
|
|
(1,007,071
|
)
|
|
|
93,685
|
|
|
|
(913,386
|
)
|
|
|
(3,082,697
|
)
|
|
|
(1,415,504
|
)
|
|
|
(4,498,201
|
)
|
OTHER INCOME/(EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,082,874
|
)
|
|
|
(261,143
|
)
|
|
|
(1,344,017
|
)
|
|
|
(664,937
|
)
|
|
|
(373,809
|
)
|
|
|
(1,038,746
|
)
|
Debt default penalty
|
|
|
(286,059
|
)
|
|
|
-
|
|
|
|
(286,059
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income/(expense)
|
|
|
(3,374
|
)
|
|
|
(77,448
|
)
|
|
|
(80,822
|
)
|
|
|
92,707
|
|
|
|
(23,250
|
)
|
|
|
69,457
|
|
Total other expense
|
|
|
(1,372,307
|
)
|
|
|
(338,591
|
)
|
|
|
(1,710,898
|
)
|
|
|
(572,230
|
)
|
|
|
(397,059
|
)
|
|
|
(969,289
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
(2,379,378
|
)
|
|
|
(244,906
|
)
|
|
|
(2,624,284
|
)
|
|
|
(3,654,927
|
)
|
|
|
(1,812,563
|
)
|
|
|
(5,467,490
|
)
|
Income tax expense
|
|
|
(27,874
|
)
|
|
|
-
|
|
|
|
(27,874
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NET LOSS
|
|
$
|
(2,407,252
|
)
|
|
$
|
(244,906
|
)
|
|
$
|
(2,652,158
|
)
|
|
$
|
(3,654,927
|
)
|
|
$
|
(1,812,563
|
)
|
|
$
|
(5,467,490
|
)
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations - Revenues and Expenses (continued)
The components of revenues and expenses associated with discontinued operations included in our condensed consolidated statements of operations for the three and six months ended September 30, 2020 and 2019 were as follows:
|
|
For the Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
GB Sciences Louisiana, LLC
|
|
|
Nevada Operations
|
|
|
Total Discontinued Operations
|
|
|
GB Sciences Louisiana, LLC
|
|
|
Nevada Operations
|
|
|
Total Discontinued Operations
|
|
Sales revenue
|
|
$
|
-
|
|
|
$
|
1,264,271
|
|
|
$
|
1,264,271
|
|
|
$
|
377,007
|
|
|
$
|
1,171,698
|
|
|
$
|
1,548,705
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
(859,068
|
)
|
|
|
(859,068
|
)
|
|
|
(380,629
|
)
|
|
|
(1,857,150
|
)
|
|
|
(2,237,779
|
)
|
Gross profit/(loss)
|
|
|
-
|
|
|
|
405,203
|
|
|
|
405,203
|
|
|
|
(3,622
|
)
|
|
|
(685,452
|
)
|
|
|
(689,074
|
)
|
General and administrative expenses
|
|
|
-
|
|
|
|
81,464
|
|
|
|
81,464
|
|
|
|
424,732
|
|
|
|
112,082
|
|
|
|
536,814
|
|
INCOME/(LOSS) FROM OPERATIONS
|
|
|
-
|
|
|
|
323,739
|
|
|
|
323,739
|
|
|
|
(428,354
|
)
|
|
|
(797,534
|
)
|
|
|
(1,225,888
|
)
|
OTHER EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
(128,201
|
)
|
|
|
(128,201
|
)
|
|
|
(62,777
|
)
|
|
|
(122,822
|
)
|
|
|
(185,599
|
)
|
Other expense
|
|
|
-
|
|
|
|
(77,448
|
)
|
|
|
(77,448
|
)
|
|
|
-
|
|
|
|
(23,250
|
)
|
|
|
(23,250
|
)
|
Total other expense
|
|
|
-
|
|
|
|
(205,649
|
)
|
|
|
(205,649
|
)
|
|
|
(62,777
|
)
|
|
|
(146,072
|
)
|
|
|
(208,849
|
)
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
|
-
|
|
|
|
118,090
|
|
|
|
118,090
|
|
|
|
(491,131
|
)
|
|
|
(943,606
|
)
|
|
|
(1,434,737
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NET INCOME/(LOSS)
|
|
$
|
-
|
|
|
$
|
118,090
|
|
|
$
|
118,090
|
|
|
$
|
(491,131
|
)
|
|
$
|
(943,606
|
)
|
|
$
|
(1,434,737
|
)
|
|
|
For the Six Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
GB Sciences Louisiana, LLC
|
|
|
Nevada Operations
|
|
|
Total Discontinued Operations
|
|
|
GB Sciences Louisiana, LLC
|
|
|
Nevada Operations
|
|
|
Total Discontinued Operations
|
|
Sales revenue
|
|
$
|
-
|
|
|
$
|
1,815,468
|
|
|
$
|
1,815,468
|
|
|
$
|
377,007
|
|
|
$
|
2,082,374
|
|
|
$
|
2,459,381
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
(1,350,863
|
)
|
|
|
(1,350,863
|
)
|
|
|
(380,629
|
)
|
|
|
(2,481,519
|
)
|
|
|
(2,862,148
|
)
|
Gross profit/(loss)
|
|
|
-
|
|
|
|
464,605
|
|
|
|
464,605
|
|
|
|
(3,622
|
)
|
|
|
(399,145
|
)
|
|
|
(402,767
|
)
|
General and administrative expenses
|
|
|
-
|
|
|
|
370,920
|
|
|
|
370,920
|
|
|
|
626,571
|
|
|
|
386,166
|
|
|
|
1,012,737
|
|
INCOME/(LOSS) FROM OPERATIONS
|
|
|
-
|
|
|
|
93,685
|
|
|
|
93,685
|
|
|
|
(630,193
|
)
|
|
|
(785,311
|
)
|
|
|
(1,415,504
|
)
|
OTHER EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
(261,143
|
)
|
|
|
(261,143
|
)
|
|
|
(125,372
|
)
|
|
|
(248,437
|
)
|
|
|
(373,809
|
)
|
Debt default penalty
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expense
|
|
|
-
|
|
|
|
(77,448
|
)
|
|
|
(77,448
|
)
|
|
|
-
|
|
|
|
(23,250
|
)
|
|
|
(23,250
|
)
|
Total other expense
|
|
|
-
|
|
|
|
(338,591
|
)
|
|
|
(338,591
|
)
|
|
|
(125,372
|
)
|
|
|
(271,687
|
)
|
|
|
(397,059
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
-
|
|
|
|
(244,906
|
)
|
|
|
(244,906
|
)
|
|
|
(755,565
|
)
|
|
|
(1,056,998
|
)
|
|
|
(1,812,563
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NET LOSS
|
|
$
|
-
|
|
|
$
|
(244,906
|
)
|
|
$
|
(244,906
|
)
|
|
$
|
(755,565
|
)
|
|
$
|
(1,056,998
|
)
|
|
$
|
(1,812,563
|
)
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations - Inventory
Raw materials consist of supplies, materials, and consumables used in the cultivation and extraction processes. Work-in-progress includes live plants and cannabis in the drying, curing, and trimming processes. Finished goods includes completed cannabis flower, trim, and extracts in bulk and packaged forms. Inventory is included in current assets from discontinued operations in the Company's unaudited condensed consolidated balance sheets at September 30, 2020 and March 31, 2020.
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
2,677
|
|
|
$
|
91,465
|
|
Work in progress
|
|
|
789,482
|
|
|
|
1,166,511
|
|
Finished goods
|
|
|
653,314
|
|
|
|
466,319
|
|
Subtotal
|
|
|
1,445,473
|
|
|
|
1,724,295
|
|
Allowance to reduce inventory to net realizable value
|
|
|
(6,153
|
)
|
|
|
(278,456
|
)
|
Total inventory, net
|
|
$
|
1,439,320
|
|
|
$
|
1,445,839
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations - Leases
The Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment. These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2024 to 2025.
As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet with a lease liability and right-of-use asset ("ROU"). Application of this standard resulted in the recognition of ROU assets of $182,624, net of accumulated amortization, and a corresponding lease liability of $190,173 at the April 1, 2019, the date of adoption. Accounting for finance leases is substantially unchanged.
Operating leases are included in other current assets , accrued liabilities, and operating lease obligations, long term on the unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the unaudited condensed consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available. The rates used to discount finance leases previously recorded as capital leases range from 10.2% to 11.5%. Operating leases were discounted at a rate of 17.0%.
Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the consolidated balance sheet.
All finance costs recorded in the Company's unaudited condensed consolidated financial statements for the three and six months ended September 30, 2020 and 2019 relate to discontinued operations. During the six months ended September 30, 2020, finance lease costs included in discontinued operations were $286,436, of which $209,086 represents interest expense and $77,350 represents amortization of the right-of-use assets.
Operating lease costs included in continuing operations were $3,243, of which $1,242 represents interest expense and $2,001 represents amortization of the right-of-use assets. As of September 30, 2020, all of the Company's operating leases have terminated.
Amortization of lease assets is included in general and administrative expenses. As of September 30, 2020, there are no operating or finance lease obligations included in continuing operations. The future minimum lease payments of lease liabilities as of September 30, 2020, from discontinued operations are as follows:
Year Ending
|
|
|
|
|
March 31,
|
|
Finance Leases
|
|
|
|
|
|
|
2021 (6 months)
|
|
$
|
266,188
|
|
2022
|
|
|
544,296
|
|
2023
|
|
|
560,625
|
|
2024
|
|
|
577,444
|
|
2025
|
|
|
594,767
|
|
Thereafter
|
|
|
3,781,102
|
|
Total minimum lease payments
|
|
|
6,324,422
|
|
Less: Amount representing interest
|
|
|
(2,731,050
|
)
|
Present value of minimum lease payments
|
|
|
3,593,372
|
|
Less: Current maturities of capital lease obligations
|
|
|
(128,212
|
)
|
Long-term capital lease obligations
|
|
$
|
3,465,160
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Leases (Continuing Operations)
As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet with a lease liability and right-of-use asset ("ROU"). Application of this standard resulted in the recognition of ROU assets of $182,624, net of accumulated amortization, and a corresponding lease liability of $190,173 at the April 1, 2019, the date of adoption. Accounting for finance leases is substantially unchanged.
Operating leases are included in other current assets and operating lease obligations, short and long term on the unaudited condensed consolidated balance sheets. Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the consolidated balance sheet.
There are no finance leases included in continuing operations. Operating lease costs included in continuing operations were $3,243, of which $1,242 represents interest expense and $2,001 represents amortization of the right-of-use assets. As of September 30, 2020, all of the Company's operating leases have terminated, and there are no right-of-use assets or operating or finance lease obligations included in continuing operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Notes Payable and Line of Credit
0% Note Payable dated October 23, 2017
On October 23, 2017, the Company amended the existing Nevada Medical Marijuana Production License Agreement (“Amended Production License Agreement”). Per the terms of the Amended Production License Agreement, GB Sciences purchased the remaining percentage of the production license resulting in the 100% ownership of the license. GB Sciences also received 100% ownership of the cultivation license included in the original Nevada Medical Marijuana Production License Agreement. In exchange, GB Sciences made one-time payment of $500,000 and issued a 0% Promissory Note in the amount of $700,000 payable in equal monthly payments over a three-year period commencing on January 1, 2018. The present value of the note was $521,067 on the date of its issuance based on an imputed interest rate of 20.3% and the Company recorded a discount on notes payable of $178,933 related to the difference between the face value and present value of the note.
To date, the company has made principal payments totaling $330,555 and the principal balance of the note was $369,445 at September 30, 2020. During the six months ended September 30, 2020, the Company recorded interest expense of $12,009 related to amortization of the note discount. The remaining unamortized discount as of September 30, 2020 was $ (1,919).
On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") for the sale of its interest in GB Sciences Nopah, LLC (Note 11). The Nopah MIPA will close upon successful transfer of the Nevada Medical Marijuana Cultivation Facility Registration Certificate. Upon close, the principal balance of the note will be reduced to $190,272 and the maturity date of the note will be extended to July 31, 2021, with no payments of principal or interest due until maturity. In addition, the note will no longer bear interest at the penalty rate of 15% unless there is a new event of default.
8% Line of Credit dated November 27, 2019
In connection with the Binding Letter of Intent dated November 27, 2019 (Note 11), the Company entered into a promissory note and received a line of credit for up to $470,000 from the purchaser of the Company's membership interest in its Nevada facilities. The purpose of the line of credit is to supply working capital for the Nevada operations. The note matures upon the close of the sale of membership interests. As of September 30, 2020, the Company has received $485,000 in advances under the line of credit, reflecting an informal agreement with the lender to increase the Line of Credit limit by $15,000. The Company accrued interest of $19,420 on the line of credit for the six months ended September 30, 2020, and the balance of the line of credit was $485,000 at September 30, 2020. Upon the close of the sale of the Teco Facility all principal and interest due under the line of credit will be considered satisfied in full.
8% Note Payable dated May 7, 2020
On May 7, 2020, the Company received $135,000 cash from an investor, net of $(15,000) in brokerage fees, and issued a $150,000 promissory note. The note bears interest at a rate of 8.0% per annum. The note was to be repaid upon the first proceeds received from the $8,000,000 promissory note related to the sale of the Company's membership interest in GB Sciences Louisiana, LLC (Note 10), or from the proceeds of the sale of the Teco Facility (Note 11). As inducement to enter into the note transaction, the Company repriced 8,002,500 preexisting warrants held by the investor to an exercise price of $0.04. The repriced warrants were valued at $272,085 on the date of the transaction using the Black-Scholes Model, which exceeded the value of the warrants prior to the price reduction of $49,525 by $222,560. As the result of the increase in the estimated fair value of the warrants, the Company recorded a full discount on notes payable of $(150,000). During the six months ended September 30, 2020, the Company recorded interest expense of $154,964 related to the note consisting of accrued interest of $4,964 and $150,000 related to amortization of the note discount. Unamortized discount remaining at September 30, 2020 was $0. The Company repaid all principal and interest due under the note on October 5, 2020.
8% Line of Credit dated July 24, 2020
On July 24, 2020, the Company entered into the Loan Agreement, 8% Secured Promissory Note, and Security Agreement (together, the "July 24 Note") with AJE Management, LLC, which established a revolving loan of up to $500,000 that the Company may draw on from time to time. The loan is collateralized by the Teco Facility, subject to the pre-existing lien held by CSW Ventures, L.P. in connection with the 8% Senior Secured Convertible Promissory Note dated February 28, 2019 (Note 6). Any advances will be made at the sole discretion of the lender following a written request made by the Company. Contemporaneously with the Loan Agreement, the Company and AJE Management entered into the Amendment to the Membership Interest Purchase Agreement with AJE Management. The amendment provides that any balances outstanding under the July 24 Note at the time of the close of the sale of the Teco Facility will be forgiven in exchange for a reduction to the $4,000,000 note receivable that the Company will receive as consideration for the sale of the Teco Facility (Note 11). The reduction to the note receivable will be equal to 3 times the balance outstanding under the July 24 Note on the date of the close of the sale of the Teco Facility. The balance outstanding under the note plus accrued interest may be repaid prior to the close of the sale of the Teco facility and management believes it may have sufficient funds to repay the note from the proceeds of the Wellcana Note Receivable. As of September 30, 2020, the Company has received advances totaling $125,000. Interest expense was $1,162 for the six months ended September 30, 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Summary of Notes and Convertible Notes Payable
As of September 30, 2020, the following notes payable were recorded in the Company’s consolidated balance sheet:
|
|
As of September 30, 2020
|
|
Short-Term Notes Payable
|
|
Face Value
|
|
|
Discount
|
|
|
Carrying Value
|
|
0% Note Payable dated October 23, 2017 (Note 5)
|
|
$
|
369,445
|
|
|
$
|
(1,919
|
)
|
|
$
|
367,526
|
|
8% Line of Credit dated November 27, 2019 (Note 5)
|
|
|
485,000
|
|
|
|
-
|
|
|
|
485,000
|
|
8% Line of Credit dated July 24, 2020 (Note 5)
|
|
|
125,000
|
|
|
|
-
|
|
|
|
125,000
|
|
8% Note Payable dated May 7, 2020 (Note 5)
|
|
|
150,000
|
|
|
|
-
|
|
|
|
150,000
|
|
6% Convertible promissory notes payable (Note 6)
|
|
|
1,257,000
|
|
|
|
(7,705
|
)
|
|
|
1,249,295
|
|
8% Convertible Secured Promissory Note dated February 28, 2019, as amended (Note 6)
|
|
|
1,271,863
|
|
|
|
-
|
|
|
|
1,271,863
|
|
8% Convertible Promissory Note dated April 23, 2019 (Note 6)
|
|
|
3,264,594
|
|
|
|
-
|
|
|
|
3,264,594
|
|
Total short-term notes payable
|
|
|
6,922,902
|
|
|
|
(9,624
|
)
|
|
|
6,913,278
|
|
Less: Notes payable classified as discontinued operations
|
|
|
(485,000
|
)
|
|
|
-
|
|
|
|
(485,000
|
)
|
Total short-term notes payable classified as continuing operations
|
|
$
|
6,437,902
|
|
|
$
|
(9,624
|
)
|
|
$
|
6,428,278
|
|
Note 6 – Convertible Notes
March 2017 $2M Convertible Note Offering
In March 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.60 per share for the period of three years. Between March 2017 and May 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $2,000,000. The Notes are payable within three years of issuance and are convertible into 8,000,000 shares of the Company’s common stock. The Company also issued 8,000,000 common stock warrants to the Noteholders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.60 per share for a period of three years. The Company recorded an aggregate discount on convertible notes of $1,933,693, which included $904,690 related to the relative fair value of beneficial conversion features and $1,029,003 for the relative fair value of the warrants issued with each note. The fair value of warrants was derived using the Black-Scholes valuation model.
July 2017 $7.2M Convertible Note Offering
In July, 2017, the Company entered into a Placement Agent’s Agreement with a third-party brokerage firm to offer units consisting of a $1,000 6% promissory note convertible into 4,000 shares of the Company’s common stock at $0.25 per share and 4,000 warrants to purchase shares of the Company’s’ common stock at an exercise price of $0.65 per share for the period of three years. Between July 2017 and December 2017, the Company issued short-term Promissory Notes (“Notes”) to various holders with combined face value of $7,201,000. The Notes are payable within three years of issuance and are convertible into 28,804,000 shares of the Company’s common stock. The Company also issued 28,804,000 common stock warrants to the Noteholders. The warrants are exercisable at any time and from time to time before maturity at the option of the holder. Each warrant gives the Noteholder the right to purchase one share of common stock of the Company at an exercise price of $0.60 per share for a period of three years.The Company recorded an aggregate discount on convertible notes of $7,092,796, which included $3,142,605 related to the relative fair value of beneficial conversion features and $3,950,191 for the relative fair value of the warrants issued with each note. The fair value of warrants was derived using the Black-Scholes valuation model.
As of September 30, 2020, convertible notes having a carrying value of $1,249,295, net of unamortized discount of $(7,705) remained outstanding from the March 2017 and July 2017 note offerings, and accrued interest on the notes is $234,998. Interest expense for the six months ended September 30, 2020 was $185,448, of which $147,635 represents amortization of the note discount.
As of September 30, 2020, notes totaling $997,000 from the March and July 2017 offerings have passed their maturity date and are in default. The Company is currently negotiating the terms of an extension with the note holders. The notes do not provide for a default penalty or penalty interest rate.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8% Senior Secured Convertible Promissory Note dated February 28, 2019
On February 28, 2019, the Company issued a $1,500,000 8% Senior Secured Convertible Promissory Note and entered into the Note Purchase Agreement and Security Agreement with CSW Ventures, L.P. (together, “CSW Note”). The note matured on August 28, 2020 and was convertible at any time until maturity into 8,823,529 shares of the Company’s common stock at $0.17 per share. Collateral pledged as security for the note includes all of the Company’s 100% membership interests in GB Sciences, Nevada, LLC and GB Sciences Las Vegas, LLC, which together represent substantially all of the Company’s cannabis cultivation and production operations and assets located at the Teco facility in Las Vegas, Nevada. The intrinsic value of the beneficial conversion feature resulting from the market price of the Company’s common stock in excess of the conversion price was $176,471 on the date of issuance, and the Company recorded a discount on the CSW Note in that amount.
On May 28, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $170,000 of the principal balance of the 8% Senior Secured Promissory Note dated February 28, 2019. Accordingly, the Company issued 1,000,000 shares of its common stock based on a $0.17 per share conversion price. In connection with the conversions, $17,225 in unamortized discount was recorded as interest expense and the Company reduced the carrying amount of convertible notes payable by $152,775. After conversion, the remaining balance outstanding was $1,330,000.
On July 12, 2019, the Company entered into the Amendment to Note Documents and the Amended and Restated 8% Senior Secured Promissory Note (together, “Amended CSW Note”). The Amended CSW Note increased the note balance by $100,000 to reflect an additional $100,000 advanced to the Company on July 12, 2019 and by $41,863 to add accrued interest to date to the principal balance, and decreased the conversion price to $0.11 per share, with the remaining terms substantially unchanged from the original CSW Note.
The Company evaluated the modification under the guidance in ASC 470-50 and determined that the amendment represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the CSW Note on the amendment date. The carrying value of the amended note on the date of extinguishment was $1,338,057, net of a beneficial conversion feature discount of $133,806, and we recorded a loss on extinguishment of $124,158.
On August 1, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $ 110,000 of the principal balance of the Amended CSW Note at $0.11 per share. Accordingly, the Company issued 1,000,000 shares of its common stock. In connection with the conversions, $9,579 in unamortized discount was recorded as interest expense and the Company has reduced the carrying amount of convertible notes payable by $100,421. After conversion, the remaining balance outstanding was $ 1,361,863.
On October 23, 2019, the Company entered into the Amendment to Promissory Note. The October 23, 2019 amendment decreased the conversion price to $0.08 per share, with the remaining terms substantially unchanged from the Amended CSW Note.
We evaluated the modification under the guidance in ASC 470-50 and determined that the amendment represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the Amended CSW Note immediately prior to the 2nd Amended CSW Note. The carrying value of the Amended CSW Note on the date of extinguishment was $1,269,067, net of a beneficial conversion feature discount of $92,796, and we recorded a loss on extinguishment of $92,796 during the year ended March 31, 2020.
On November 27, 2019, the Company entered into the Second Amendment to Note Documents and the Second Amended and Restated 8% Senior Secured Promissory Note (together, “2nd Amended CSW Note”). The 2nd Amended CSW Note decreased the conversion price to $0.04 per share and increased the note balance by $30,000 to reflect an advance received on that date, with the remaining terms substantially unchanged from the Amended CSW Note.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We evaluated the modification under the guidance in ASC 470-50 and determined that the 2nd Amended CSW Note represents an extinguishment because the change in the fair value of the conversion feature exceeded 10% of the carrying value of the Amended CSW Note immediately prior to the 2nd Amended CSW Note; however, no loss on extinguishment was recorded because the net consideration paid for the 2nd Amended CSW Note was equal to the extinguished carrying value of the Amended CSW Note. The carrying value of the Amended CSW Note on the date of extinguishment was $1,361,863.
On December 16, 2019, the Company received notice from CSW Ventures, L.P. of the conversion of a total of $120,000 of the principal balance of the Amended CSW Note at $0.04 per share and we issued 3,000,000 shares of common stock. In connection with the conversions, $57,551 in unamortized discount was recorded as interest expense, and the Company has reduced the carrying amount of convertible notes payable by $62,449. After conversion, the remaining balance outstanding was $1,271,863 and the carrying amount of the note was $687,021, net of $584,842 in unamortized discount from the beneficial conversion feature.
During the six months ended September 30, 2020, we recorded interest expense of $460,495 related to the CSW Note and its amendments consisting of $51,014 in accrued interest and $409,481 related to amortization of the note discount. As of September 30, 2020, the carrying amount of the CSW Note was $1,271,863, and there is no remaining unamortized discount.
The Company defaulted on the amended CSW Note due to non-payment of quarterly interest payments and for nonpayment of an income tax liability related to the March 31, 2018 tax year. The terms of the note provide that the Company has 5 days to cure a default caused by nonpayment of interest and ten days to cure a default caused by noncompliance with affirmative or negative debt covenants. The lender has agreed to provide forbearance of the defaults in connection with the sale of the Teco facilities, and the Company anticipates that the CSW Note will be paid in full from the proceeds of the sale of the Company's interests in its Teco Facility to an entity affiliated with CSW Ventures, L.P. (Note 11).
8% Convertible Promissory Note dated April 23, 2019
On April 23, 2019, the Company entered into the Note Purchase Agreement with Iliad Research and Trading, L.P. ("Iliad") and issued an 8% Convertible Promissory Note with a face value of $2,765,000. The Note was issued with original issue discount of $265,000 and is convertible into shares of the Company’s common stock at a price of $0.17 per share at the option of the note holder at any time until the Note is repaid. The Note matures on April 22, 2020. A total discount of $440,000 was recorded on the note, which includes $265,000 of original issue discount and $175,000 in fees paid to brokers.
During the year ended March 31, 2020, the Company honored the conversion of a total of a total of $125,000 of accrued interest on the Iliad Note at reduced conversion rates. On October 30, 2019, the Company received notice of the conversion of $75,000 at $0.06 per share and issued 1,250,000 shares of its common stock. The fair value of the shares issued exceeded the fair value of the shares issuable under the original terms of the Note by $64,706, and the Company recorded an induced conversion expense. On November 18, 2019, the Company received notice of the conversion of $50,000 of the note balance at $0.0375 per share and issued 1,333,333 shares of its common stock.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 22, 2020, the Company failed to make payment of the principal and accrued interest due under the Iliad Note, resulting in a default. Upon the occurence of the default, the principal and accrued interest balances outstanding increased by 10%. As the result of the default, Company recorded an expense of $9,559 related to a 10% increase in the accrued interest balance, which is recorded in interest expense, and $276,500 related to the 10% increase in the principal balance, which is recorded in debt default penalty and other expense.
On May 20, 2020, Iliad filed a lawsuit against the Company in the Third Judicial District Court of Salt Lake County in the State of Utah demanding repayment of the note. The lawsuit further sought to compel the Company to participate in arbitration pursuant to the arbitration provisions contained within the Note Purchase Agreement and to prohibit the Company to raise funds through the issuance of its common stock unless the note is paid in full simultaneously with such issuance. The Company filed a confession of judgment in response to the complaint and does not intend to defend the lawsuit. On July 14, 2020, the Court entered judgment in favor of Iliad in the amount of $3,264,594 and the judgment accrues interest at the default rate of 15% per annum. The Company will also be responsible for reasonable attorney's fees and costs incurred by Iliad for obtaining and collecting on the judgment. The amount of such fees has not been established as of the date of this report. The Company believes it will have sufficient resources to repay the Iliad Note from the proceeds of the note receivable from Wellcana Group from the sale of the Company's membership interest in GB Sciences Louisiana, LLC (Note 10).
During the six months ended September 30, 2020, interest expense related to the note was $275,310, of which $29,831 was amortization of the note discount, $140,833 was accrued pre-judgment interest, and $104,646 was accrued post-judgment interest. There is no remaining unamortized discount and the carrying amount of the note is equal to the judgment amount of $3,264,594.
Note 7 – Capital Transactions
Sale of Common Stock and Exercise of Warrants
On April 1, 2020, the Company entered into the Advisory Agreement with its brokers and effected a temporary decrease in the exercise price of the Company's outstanding warrants to $0.03-$.05 per share. As a result of the price reduction, the Company received notice of the exercise of 4,991,084 warrants during the six months ended September 30, 2020 and received proceeds of $136,081, net of brokerage fees of $(15,121).
During the quarter ended September 30, 2020, the Company issued 3,500,000 immediately-vesting options to purchase one share of the Company's Common Stock at the price of $0.03 per share for a period of ten years as compensation to a scientist and researcher for drafting and filing U.S. and international patents. The options were valued at $105,000 using the Black-Scholes model.
At September 30, 2020, 79,488,161 warrants at exercise prices ranging from $0.25 to $1.00 per share and 13,366,334 options with a weighted average exercise price of $0.28 remain outstanding.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 – 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 an annual research investments of $500,000 to the LSU AgCenter. The Company retained its 50% interest in the research relationship with LSU after the sale of its membership interest in GB Sciences Louisiana, LLC (Note 10), and accordingly remains obligated for $250,000 of the $500,000 annual research investment for three years, or a total commitment of $750,000. The research investment is paid annually in September and amortized over a one-year period. On August 4, 2020, the Company received its first payment under the Wellcana Note Receivable, net of the $250,000 research contribution due for the twelve month period ended September 30, 2020, and our commitment for that twelve month period was paid by the purchaser with the funds withheld from the note payment. The monetary contributions will 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, of which AgCenter would retain 50% of those rights with the other 50% retained 25% each by the Company and by GB Sciences Louisiana, LLC.
On August 24, 2020, the Company entered into a letter of intent with the purchaser to discount the note receivable in exchange for accelerated payment. Pursuant to the letter of intent, the purchaser will assume the annual $250,000 research contribution commitment to LSU and the Company will retain no rights in the intellectual property developed under the research relationship (Note 10).
Tara “Dee” Russell filed a Charge of Discrimination with the Nevada Equal Rights Commission ("NERC") against the Company on April 2, 2019, alleging that she was subjected to sexual harassment and retaliatory discharge. The Company received the Notice of Charge of Discrimination on or about May 15, 2019. The Company submitted its response to the Notice of Discrimination Charge on July 26, 2019. It is the Company's position that Ms. Russell was not an employee of the Company, but rather was an independent contractor. The Company intends to aggressively respond to the charge. To date, the NERC has not issued a ruling regarding the charge.
On April 22, 2020, the Company failed to repay any of the outstanding balance of the Convertible Promissory Note Payable to Iliad Research and Trading, L.P. (Note 6), resulting in a default. On May 20, 2020, Iliad filed a lawsuit against the Company in the Third Judicial District Court of Salt Lake County in the State of Utah demanding repayment of the note. On July 14, 2020, the Court entered judgment in favor of Iliad in the amount of $3,264,594 and the judgment accrues interest at the default rate of 15% per annum. The Company was ordered to pay reasonable attorney's fees and costs incurred by Iliad for obtaining and collecting on the judgment. The amount of such fees has not been established as of the date of this report. The Company believes it will have sufficient resources to repay the Iliad Note from the proceeds of the note receivable from Wellcana Group from the sale of the Company's membership interest in GB Sciences Louisiana, LLC (Note 10). As of September 30, 2020, the total balance due under the note is $3,369,240 including $104,646 in accrued post-judgment interest.
On April 22, 2020, the Company was served notice of a lawsuit filed in the Eighth Judicial District Court in Clark County, Nevada, filed by a contractor who had been hired to perform architectural and design services. The lawsuit demands payment of $73,050 for the services provided. On September 17, 2020, the Company entered into a Mutual Compromise, Settlement, and Release Agreement with the contractor and made payment of $25,000 in full satisfaction of the alleged debt and reduced the cost basis of the related fixed asset by $48,050.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 9 – Related Party Transactions
As of September 30, 2020 the Company is indebted to its officers and directors for a total of $710,075, consisting of $532,130 in unpaid salaries and wages, $112,087 in directors’ compensation, and $65,858 in reimbursements for business expenses.
In connection with the sale of membership interest in GB Sciences Louisiana, LLC, the Company issued a note payable in the amount of $151,923 to John Davis, the Company's former General Counsel and President of GB Sciences Louisiana, LLC, for unpaid fees and bonuses. The note matured upon receipt of the first payment from the Wellcana Note Receivable (Note 10). The note and interest accrued was repaid on August 4, 2020, when the related funds were withheld from the first payment to the Company under the Wellcana Note Receivable.
Note 10 – Sale of Membership Interests in GB Sciences Louisiana, LLC
On February 12, 2018, the Company’s wholly-owned subsidiary, GB Sciences Louisiana, LLC (“GBSLA"), issued members’ equity interests equal to 15% in GBSLA to Wellcana Group, LLC (“Wellcana”) for $3 million. Under the GBSLA operating agreement, Wellcana had an 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. To date, Wellcana has made additional cash contributions of $7.0 million and its non-controlling interest in GBSLA increased to 49.99%. The capital contributions were used to fund the buildout of the Petroleum Drive facility and to pay for the operating costs of GBSLA.
On November 15, 2019, the Company entered into the Membership Interest Purchase Agreement ("MIPA") with Wellcana Plus, LLC ("Purchaser"), an affiliate of Wellcana Group, LLC. In consideration for the sale of its remaining 50.01% membership interest in GBSLA, the Company received the $8,000,000 Promissory Note ("Wellcana Note") and may receive up to an additional $8,000,000 in earn-out payments.
On August 24, 2020, the Company entered into a letter of intent with Wellcana to discount the note receivable in exchange for accelerated payment. Pursuant to the letter of intent, the Company would receive payments totaling $5,224,423, including the forgiveness by Wellcana of $324,423 in liabilities and the payment of $4,900,000 in cash, on or before October 15, 2020, less any cash payments made by Wellcana up to the date of the final payment. Upon receipt of the payment, all liabilities owed to the Company by Wellcana, including the $8,000,000 note receivable and any potential earn-out payments will be considered satisfied in full. Wellcana will assume the annual $250,000 research contribution commitment to LSU (Note 8) and the Company will retain no rights in the intellectual property developed under the research relationship. In addition, the Company agreed to reduce the $750,000 note payment due on September 1, 2020 to $500,000. As a result of the August 24, 2020 letter of intent, the Company determined that the amount of the note that was collectible as of March 31, 2020 was $5,224,423 and recorded a loss on modification of note receivable of $1,895,434 for the year ended March 31, 2020.
The Company granted forbearance of the June 1, 2020 payment from Wellcana in light of the circumstances created by the COVID-19 epidemic. The payment was received by the Company on August 4, 2020, net of the Company's $250,000 research contribution commitment to LSU for the twelve months ended September 2020 (Note 8) and the principal and accrued interest payable to related party (Note 9) totaling $189,423 as of the date of payment.
On September 30, 2020, the Company received the second note payment of $500,000 and reduced the note receivable by the amount of the payment. As of September 30, 2020, the balance of the note receivable was $4,350,000.
On October 15, 2020 the Company was notified that Wellcana would be unable to close the payment of $4,350,000 by October 15, 2020, and the parties entered into a letter agreement, which extended the due date of the final $4,350,000 payment to December 8, 2020. The letter agreement also requires Wellcana to provide proof of $4,350,000 in funds and an escrow deposit of $250,000, which will be released to the Company without reducing the Wellcana Note in the event that Wellcana is unable to make the $4,350,000 payment on or before December 8, 2020. On October 24, 2020, the parties entered into the Escrow Agreement and the $250,000 payment to fund the escrow was made on October 29, 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Sale of Membership Interests in Nevada Subsidiaries
On November 15, 2019, we entered into a Binding Letter of Intent ("Teco LOI") to sell 75% of the Company's membership interest interests in GB Sciences Nevada, LLC, and GB Sciences Las Vegas, LLC, for $3.0 million cash upon close and up to an additional $3.0 million in earn-out payments after close. In connection with the Teco LOI, we entered into a Management Agreement with the purchaser whereby the facilities will be managed by an affiliate of the purchaser until the close of the sale. As part of the transaction, the Company also entered into a Line of Credit of up to $470,000 with the purchaser (Note 5) to fund the operations of Teco. The line of credit accrues interest at a rate of 8% and the Company pledged its interest in the Teco facilities as collateral for the note, subject to the preexisting lien held by CSW Ventures, L.P. in connection with the 8% Senior Secured Convertible Promissory Note dated February 28, 2019 (Note 6). The Line of Credit will be considered satisfied in full upon close of the sale of the Teco Facility.
On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") which formalized the sale of the Teco Subsidiaries and modified the terms of the sale. Pursuant to the Teco MIPA, the Company will sell 100% of its membership interests in GBSN and GBLV for $4,000,000 cash upon close and will receive a $4,000,000 8% promissory note to be paid in monthly installments over 36 months.
On July 24, 2020, the Company entered into the Loan Agreement, 8% Secured Promissory Note, and Security Agreement (together, the "July 24 Note") with AJE Management, LLC, which established a revolving loan of up to $500,000 that the Company may draw on from time to time. The loan is collateralized by the Teco Facility, subject to the preexisting lien held by CSW Ventures, L.P. in connection with the 8% Senior Secured Convertible Promissory Note dated February 28, 2019 (Note 6). Any advances will be made at the sole discretion of the lender following a written request made by the Company. Contemporaneously with the Loan Agreement, the Company and AJE Management entered into the Amendment to the Membership Interest Purchase Agreement with AJE Management. The amendment provides that any balances outstanding under the July 24 Note at the time of the close of the sale of the Teco Facility will be forgiven in exchange for a reduction to the $4,000,000 note receivable that the Company will receive as consideration for the sale of the Teco Facility. The reduction to the note receivable will be equal to 3 times the balance outstanding under the July 24 Note on the date of the close of the sale of the Teco Facility. As of the date of this report, the Company has received advances totaling $125,000 under the July 24 Note (Note 5).
The sale is expected to close upon the successful transfer of the Nevada cultivation and production licenses. The transfer of cannabis licenses in the State of Nevada was subject to an indefinite moratorium beginning in October 2019. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there are over 90 requests pending and it will take up to several months to process the entire backlog of pending license transfers. The lifting of the moratorium and processing of cannabis license transfers have been delayed by the COVID-19 pandemic and could be further delayed if the pandemic continues.
The Company also holds a Nevada license for cultivation of medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The license is owned by the Company’s wholly owned subsidiary, GB Sciences Nopah, LLC ("Nopah"). Operations have not begun under the Nopah License. On November 27, 2019, the Company entered into a Binding Letter of Intent to sell its 100% interest in GB Sciences Nopah, LLC. On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") and Promissory Note Modification Agreement with the purchaser of GB Sciences Nopah, LLC. As consideration for the transfer of the license and membership interest in GB Sciences Nopah, LLC, the Company will receive $300,000 and the purchaser will pay all expenses related to the upkeep and maintenence of the Nopah License. The $300,000 purchase price will be applied as a reduction to the balance of the 0% Note payable dated October 23, 2017, which is held by an affiliate of the purchasert of the Nopah license. The transfer of the Nopah License is subject to the same restrictions on license transfers discussed above.
Because the moratorium on license transfers has been lifted, the Company determined that the Teco Facility and Nopah Facility qualify for presentation as discontinued operations, and the income, assets, and cash flows of the Teco Subsidiaries and GB Sciences Nopah, LLC have been reclassified as discontinued operations for all periods presented in the Company's condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Subsequent Events
Capital Transactions
Subsequent to September 30, 2020, the Company received warrant exercise notices for 1,246,750 shares at a price of $0.03 per share and received payment totaling $33,663, net of $3,740 in brokerage fees.
Note Receivable
On October 15, 2020 the Company was notified that Wellcana Plus, LLC would be unable to make the payment of $4,350,000 due by October 15, 2020 pursuant to the August 24, 2020 Letter of Intent (Note 10), and the parties entered into a letter agreement, which extended the due date of the final $4,350,000 payment to December 8, 2020. The letter agreement also requires Wellcana to provide proof of $4,350,000 in funds and an escrow deposit of $250,000, which will be released to the Company without reducing the Wellcana Note in the event that Wellcana is unable to make the $4,350,000 payment on or before December 8, 2020. On October 24, 2020, the parties entered into the Escrow Agreement, and Wellcana made payment of $250,000 to fund the escrow on October 29, 2020.
Note Payable
On October 5, 2020, the Company repaid the $150,000 principal amount of the 8% Note Payable dated May 7, 2020 (Note 5) with the interest accrued thereon.
On October 20, 2020, the Company received a $75,000 advance under the 8% Line of Credit dated July 24, 2020 (Note 5), increasing the principal balance to $200,000.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis 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 our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. 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 our actual results. Additional factors that could materially affect these forward-looking statements and/or predictions include among other things: (1)product demand, market and customer acceptance of GB Sciences products, equipment and other goods, (ii) ability to obtain financing to expand its operations, (iii) ability to attract qualified personnel, (iv)competition pricing and development difficulties, (v) general industry and market conditions and growth rates, unexpected natural disasters, and other factors, which we have little or no control: and other factors discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”). The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
The following discussion highlights the Company’s results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis is based on the Company’s unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.
Overview
GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) seeks to be a biopharmaceutical research and cannabinoid-based drug development company whose goal is to create patented formulations for safe, standardized, cannabinoid therapies that target a variety of medical conditions in both the pharmaceutical and wellness markets. The Company is engaged in the research and development of cannabinoid medicines and plans to produce cannabinoid therapies for the wellness markets based on its portfolio of intellectual property.
Through its wholly owned Canadian subsidiary, GBS Global Biopharma, Inc. (“GBSGB”), the Company is engaged in the research and development of cannabinoid medicines with virtual operations in North America and Europe. GBSGB assets include cannabinoid medicine intellectual property, research contracts and key supplier arrangements. GBSGB’s intellectual property covers a range of conditions and several programs are in pre-clinical animal stage of development; including Parkinson’s disease, neuropathic pain, and cardiovascular therapeutic programs. GBSGB runs a lean drug development program and takes effort to minimize expenses, including personnel, overhead, and fixed capital expenses through strategic partnerships with Universities and Contract Research Organizations (“CROs”). GBSGB’s intellectual property portfolio includes two USPTO issued patents, one USPTO patent which has been granted a Notice of Allowance, three patent applications pending, and five provisional patent applications, as detailed in the patent chart below. We expect to file additional patent applications in the near term. In addition to the USPTO patents and patent applications, the company has filed 28 patent applications internationally to protect its proprietary technology.
We were incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, stockholders owning a majority of our outstanding common stock approved changing our then name “Signature Exploration and Production Corp.” as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase agreement for the acquisition of assets, including the Growblox™ cultivation technology which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval as reported in the Form 8-K filed on October 14, 2016. Pursuant to the amendment the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000. Effective August 15, 2019, Shareholders of the Company approved an increase in authorized capital shares from 400,000,000 to 600,000,000.
Plan of Operation
Drug Discovery and Development of Novel Cannabis-Based Therapies
Through its wholly-owned, Canadian subsidiary, GBS Global Biopharma, Inc. ("GBSGB"), the Company has conducted ground-breaking research embracing the complexity of the whole plant led by Dr. Andrea Small-Howard, the Company’s Chief Science Officer and Director, and Dr. Helen Turner, Vice President of Innovation and Dean of the Natural Sciences and Mathematics Department at Chaminade University. Small-Howard and Turner posited that complex mixtures of cannabinoids and terpenes that are derived from native mixtures in the cannabis plant, but with precise optimizations, would provide more targeted and effective treatments for specific disease conditions than either single cannabinoids or whole plant formulations. They developed a rapid screening and assaying system which tested thousands of combinations of cannabinoids and terpenes in vitro against cell-based models of disease. This process identified precise mixtures of cannabinoids and terpenes, many of which contained no THC, to treat categories of disease conditions, including neurological disorders, inflammation, heart disease, metabolic syndrome, chronic and neuropathic pain.
GBSGB’s drug discovery process combines: 1) HTS: high throughput screening of tens of thousands of combinations of compounds derived from specific chemovars of the cannabis plant in well-established cellular models of diseases, and 2) NPP: a proprietary Network Pharmacology Platform algorithm for the prediction of complex therapeutic mixtures that the Company spent two-and-a-half-years training and testing against cell assay data. This combined approach to drug discovery increases research efficiency and accuracy reducing the time from ideation to patenting from 7 years to 1.5 years. Screening of cannabis-based mixtures for drug discovery involves the testing of specific combinations of plant chemicals from many naturally occurring cannabis chemovars and the use of live models for these diseases that have been well established by other researchers. First, the Company finds chemovars that show some therapeutic activity, and then refines these natural mixtures to optimize their effectiveness in cellular assays by removing compounds that do not act synergistically with the others in the mixtures. The Company also use its internally-validated Network Pharmacology Platform to prioritize and eliminate some potential combinations, which reduces the time in the discovery period.
The U.S. Patent and Trademark Office allows complex mixtures to be claimed as Active Pharmaceutical Ingredients. GBSGB has two issued patents and a series of pending patents containing cannabis-derived complex mixtures that act as therapeutic agents for specific disease categories, as described below. GBSGB’s pending patents are protected whether the individual compounds are derived from the cannabis plant, another plant, synthetically produced, or derived from a combination of sources for the individual chemical compounds in these mixtures.
GBS Global Biopharma, Inc. has made significant strides in the past year with respect to both its drug discovery research and product development programs. Our lead pharmaceutical programs in both Parkinson’s disease and chronic neuropathic pain are now in preclinical animal studies with Dr. Lee Ellis of the National Research Council ("NRC") Canada in Halifax, Nova Scotia. In addition, the two patents which protect GBSGB’s formulations in our lead development programs have been issued by the US Patent and Trademark Office ("USPTO"). We received a notice of allowance for a third patent titled Cannabinoid Containing Complex Mixtures for the Treatment of Mast Cell Activation Syndrome on September 23, 2020, and expect the patent to be issued shortly. Achieving these significant milestones is driving interest in these novel therapeutic programs.
For its lead program in PD therapeutics, GBSGB announced that it has obtained the statistically significant reduction of Parkinson’s-disease like symptoms using its proprietary complex mixtures in an animal model of Parkinson’s disease ("PD"). Several of GBSGB’s PD formulations significantly reduced the symptoms, while the most effective formula reduced the symptoms back to the baseline activity of normal animals. In addition, the toxicity studies for these PD formulas came back without any significant negative findings. These important preclinical results will be included in GBS’ Investigational New Drug ("IND") application with the US FDA to enter human clinical trials as soon as possible. New therapies to address Parkinson’s disease symptoms are needed to help those afflicted with this debilitating disease. The combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion in the U.S. alone.
For Parkinson’s disease, the initial clinical prototypes of GBSGB’s Cannabinoid-Containing Complex Mixtures ("CCCM™") are being formulated by Catalent Pharma using Catalent’s Zydis® Orally Disintegrating Tablet ("ODT") technology. This ODT format was selected for the PD formulas because it dissolves on the tongues of patients without the need to swallow for ease of use in patients with PD, who often have difficulties with swallowing. GBSGB selected Catalent as its development partner for the PD therapies due to Catalent’s prior experience in working on US FDA-approved, cannabinoid-containing drugs, their Schedule I drug manufacturing facilities, their familiarity with US FDA and international regulatory and manufacturing requirements, their expertise in tackling formulation challenges, and their ability to achieve the stability and dosing necessary for these novel complex mixtures. In addition to its Zydis® technology, Catalent has early drug development services and additional oral drug delivery solutions available for the efficient delivery of GBSGB's proprietary APIs.
For its lead chronic neuropathic pain program, GBSGB is testing its Cannabinoid-Containing Complex Mixtures and Myrcene-Containing Complex Mixtures ("MCCM") both as encapsulated, time-released nanoparticles, as well as in non-encapsulated forms of these therapeutic mixtures in an animal model at the NRC in Halifax, Nova Scotia. In preparation for human clinical trials, our standard MCCM and the time-released MCCM are currently being compared in an animal model that demonstrates their potential effectiveness at treating chronic pain. The early results from this preclinical research project look very promising.
The two patents which protect formulations in the Company’s lead therapeutic programs have been issued by the USPTO. The issuance of U.S. Patent No. 10,653,640 entitled "Cannabinoid-Containing Complex Mixtures for the Treatment of Neurodegenerative Diseases" on May 19, 2020 protects methods of using GBSGB’s proprietary cannabinoid-containing complex mixtures (CCCM™) for treating Parkinson’s Disease. This was an important milestone in the development of these vitally-important therapies and validates GBSGB’s drug discovery platform. In the US alone, the combined direct and indirect costs associated with Parkinson’s disease are estimated at $52 billion, and new therapies to address Parkinson’s disease symptoms are greatly needed. This was also the first time that a US patent has been awarded for a cannabis-based complex mixture defined using this type of drug discovery method. The first US patent for PD therapies validated our drug discovery platform and strengthened our intellectual property portfolio of unique CCCM’s™, each targeting one of up to 60 specific clinical applications. The issuance of GBSGB’s second US patent for active pharmaceutical ingredients that are complex mixtures identified by our biotech platform further confirms that GBSGB’s pharmaceutical compositions can be patent-protected for use as biopharmaceutical and nutraceutical products. The US Patent entitled “Myrcene-Containing Complex Mixtures Targeting TRPV1” protects methods of using GBSGB’s proprietary Myrcene-Containing Complex Mixtures for the treatment of pain disorders related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis. In the US alone, chronic pain represents an estimated health burden of between $560 and $650 billion dollars, and an estimated 20.4% of U.S. adults suffer from chronic pain that significantly decreases their quality of life. Despite the widespread rates of addiction and death, opioids remain the standard of care treatment for most people with chronic pain. The Company believes that it is important to create safer, less addictive alternatives to opioids for the treatment of chronic pain disorders, like GBSGB’s myrcene-containing complex mixtures.
Favorable Research Updates from our university collaborators reveal the promise in our discovery programs with Michigan State University (HIV-Associated Neurodegenerative Disorder and COVID-19 therapies), Chaminade University (Chronic Neuropathic Pain, Metabolic Syndrome, Cannabis Metabolomics with the University of Athens), the University of Athens, Greece (Cannabis Metabolomics), the University of Seville, Spain (Time-Released Nanoparticles), and the National Research Council of Canada (Parkinson’s Disease, Chronic Neuropathic Pain).
Intellectual Property Portfolio
GBSGB retained Fenwick & West, a Silicon Valley based law firm focusing on life sciences and high technology companies with a nationally top-ranked intellectual property practice, to develop strategies for the protection of the Company's intellectual property. The status of the intellectual property portfolio is as follows. Unless otherwise indicated, all patents listed below are assigned to the Company's wholly-owned subsidiary, GBS Global Biopharma, Inc.
Two USPTO Patents Issued/Allowed for Cannabinoid- and Myrcene-Containing Complex Mixtures
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES
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U.S. Patent Number
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10,653,640;
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Expiration date:
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October 23, 2038
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Issued:
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May 19, 2020;
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Inventors:
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Andrea Small-Howard et al.
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Patent protection was granted for GBSGB’s Cannabinoid-Containing Complex Mixtures for the treatment of Parkinson’s disease.
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Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1
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U.S. Patent Number
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10,709,670;
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Expiration date:
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May 22, 2038
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Issued:
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July 14, 2020;
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Inventors:
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Andrea Small-Howard, et al.
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GBSGB’s MCCMs are protected for use in the treatment of pain related to arthritis, shingles, irritable bowel syndrome, sickle cell disease, and endometriosis.
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One USPTO Patent for which the Company has Received a Notice of Allowance
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
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U.S. Patent Application No.:
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15/885,620;
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WIPO Application number:
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PCT/US2018/016296
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Filed:
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January 31, 2018;
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Inventors:
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Andrea Small-Howard, et al.
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Notice of Allowance: September 23, 2020
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National stage applications entered in AU, CA, CN, EP, HK, IL, and JP on January 31, 2018.
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Claims benefit of U.S. Patent Application No. 62/453,161 filed February 1, 2017.
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Three USPTO & Twenty-Three International Patent Applications Pending
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF NEURODEGENERATIVE DISEASES
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U.S. Patent Application No.:
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15/729,565;
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WIPO Application number:
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PCT/US2017/055989
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Filed:
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October 10, 2017;
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Inventors:
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Andrea Small-Howard et al.
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National stage applications entered in AU, CA, CN, EP, HK, IL, and JP on October 10, 2017.
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On April 3, 2020, GBSGB Received a Notice of Allowance on our Cannabinoid-Containing Complex Mixtures for Neurodegenerative Disease. On the same day as we paid the fee for the allowed patent claims, we filed a Continuation for Review of the non-Parkinson’s formulas within this application, which includes Alzheimer’s disease, Huntington’s disease, Lewy body dementia, and dementia. U.S. Continuation Application No. 16/844,713, filed on Apr 9, 2020, is pending. This application claims benefit of U.S. Patent Application No. 62/406,764 filed October 11, 2016.
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Title: TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR TERPENES
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U.S. Patent Application No.:
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16/420,004;
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WIPO Patent Application No.:
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PCT/US2019/033618
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Filed:
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May 22, 2019;
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Inventors:
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Andrea Small-Howard, et al.
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Claims benefit of U.S. Patent Application Nos. 62/674,843 filed May 22, 2018; 62/769,743 filed November 20, 2018; and 62/849,719 filed May 17, 2019.
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Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS
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U.S. Patent Application No.:
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16/686,069
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WIPO Patent Application No.:
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PCT/ES2019/070765
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Filed:
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November 8, 2019;
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Inventors:
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Andrea Small-Howard, et al.
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Claims benefit of U.S. Patent Application Nos. 62/757,660 filed November 8, 2018
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Five Provisional USPTO Patent Applications Pending
Title: TREATMENT OF PAIN USING ALLOSTERIC MODULATOR OF TRPV1
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U.S. Patent Application No.
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62/868,794;
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Inventors:
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Andrea Small-Howard, et al.
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Filed:
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June 28, 2019
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Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS
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U.S. Patent Application No.
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62/897,235
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Inventors:
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Andrea Small-Howard, et al.
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Filed:
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September 6, 2019
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Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF CHRONIC INFLAMMATORY DISORDERS
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Filing Date:
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August 18, 2020;
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Inventor:
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Andrea Small-Howard
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Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF OF CYTOKINE RELEASE SYNDROME WHILE PRESERVING KEY ANTI-VIRAL IMMUNE REACTIONS
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Filing Date:
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August 18, 2020;
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Inventor:
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Andrea Small-Howard
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Title: In Silico Meta-Pharmacopeia Assembly from Non-Western Medical Systems Using Advanced Data Analytic Techniques to
Identify and Design Phytotherapeutic Strategies
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Filing Date:
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October 14, 2020;
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Inventor:
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Helen Turner, et al.
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Licensed Patents for GBSGB’s Intellectual Property Portfolio
Title: METHODS AND COMPOSITIONS FOR PREVENTION AND TREATMENT OF CARDIAC HYPERTROPHY.
Inventor: Alexander Stokes;
Assignee: University of Hawai’i
Commercialization rights licensed to Makai Biotech, LLC
Sublicensed by Makai Biotech, LLC to GBS Global Biopharma, Inc.
Status: Granted in the following territories on the corresponding dates
U.S. Patent Number: 9,084,786; Issued: July 21, 2015
U.S. Patent Number: 10,137,123; Issued: November 27, 2018
U.S. Continuation Application: 16/181,204
European Union Patent Number: 2,635,281; Granted: March 14, 2018
Europe Patent Application: 3,348,267
Hong Kong Patent Number: 14102182.8; Granted: March 14, 2018
India Patent Application: 1404/KOLNP/2013
China Patent Application: 201180063998.4
Title: METHOD FOR PRODUCING A PHARMACEUTICAL COMPOSITION OF POLYMERIC NANOPARTICLES FOR TREATING NEUROPATHIC PAIN CAUSED BY PERIPHERAL NERVE COMPRESSION
Inventors: Martin Banderas, Lucia; Fernandez Arevala, Mercedes; Berrocoso, Dominguez, Esther; and Mico Segura, Juan Antonio
Assignees: Universidad de Sevilla, Universidad de Cadiz, and Centro de Investigacion Biomedica En Red (CIBER)
Exclusive worldwide license held by GBS Global Biopharma, Inc.
WIPO/PCT Application: PCT/ES2016/000016 (Pub. No. WO 2016/128591)
Filed: August 18, 2016
Claims benefit of Spanish Patent Application no. P201500129 (Pub. No. ES 2582287)
Filed: February 9, 2015
U.S. Patent Application: 15/549,653
Spain Patent ES2582287; Granted: September 29, 2017
Europe Patent Application: EP3257503
Canada Patent Application CA2976040
Partnering Strategy
GBSGB runs a lean drug development program and minimizes expenses, including personnel, overhead, and fixed capital expenses (such as lab and diagnostic equipment), through strategic partnerships with Universities and Contract Research Organizations (“CROs”). Through these research and development agreements, GBSGB has created a virtual pipeline for the further development of novel medicines extracted from the cannabis plant. The partners bring both expertise and infrastructure at a reasonable cost to the life sciences program. In most instances, GBSGB has also negotiated with these partners to keep 100% of the ownership of the IP within GBSGB for original patent filings.
GBSGB currently has on-going research agreements with the following institutions covering the indicated areas of research:
Chaminade University: Broad-based research program to support the drug discovery platform that has yielded most of GBSGB’s original patents to date in the areas of neurodegenerative diseases, heart disease, inflammatory diseases, neuropathic pain and chronic pain. They have also performed the bioassay portion of the Cannabis Metabolomics study performed with the University of Athens, Greece and GBSGB.
University of Athens: Broad-based metabolomics analysis of over 100 cannabis genotypes including both hemp and THC-producing cannabis varieties, in combination with GBSGB’s bioassay data linking genotypes and potential disease-remediations. This project has the potential to define active ingredients from plant-derived mixtures beyond the standard cannabinoids and terpenoids. The discovery potential is huge, and novel agents have recently been discovered.
Michigan State University: Discovery work using a cutting-edge, multi-cellular model of the human immune system and a multi-cell model of the brain to explore CCCM™s for use in the prevention of HIV-Associated Neurocognitive Disorders (HAND). Although combination antiretroviral therapy keeps symptoms for most HIV-patients well controlled, between 40% and 70% of these well-controlled HIV patients end up with HAND symptoms that range from movement disorders to dementia-like symptoms. The results from this work were included in a new patent application that will be filed in Q3 of 2020. In addition, MSU has performed experiments using their novel model of the human-immune system that have allowed GBSGB to prepare cannabis-based formulas for the potential treatment of virally-induced hyperinflammation/cytokine storm syndrome that has led to the majority of COVID-19 deaths. The new patent application for our novel, cannabinoid-containing complex mixtures (CCCM™) for the treatment of hyperinflammation and cytokine storm syndrome in COVID-19 patients will also be filed in Q3 of 2020.
The University of Seville: Bringing their novel expertise to the development and functional testing of time-released and disease-targeted nanoparticles of cannabis-based complex mixtures for oral administration. These specialized nanoparticles are being used for the precise and time-released delivery of several of our therapies, including GBSGB’s MCCM™ and CCCM™’s used in the preclinical animal testing performed at the NRC Canada. The University of Seville has completed functional testing on nanoparticles containing myrcene, nerolidol, and beta-caryophyllene for our Myrcene-Containing Complex Mixtures. In these cell-based assays, the effectiveness and kinetics of the nanoparticle-forms of these terpenes were compared with the “naked” terpenes both individually and in mixtures. In all cases, the effectiveness of the nanoparticles were superior to the naked terpenes, however, the mixtures were dramatically more effective than the individuals. These results from Seville are very promising as these nanoparticles have entered the animal testing phase at the NRC in Halifax.
The National Research Center (NRC) of Canada, Halifax, Nova Scotia: Two animal-phase studies are being performed by Dr. Lee Ellis’ group at the NRC. An animal safety and efficacy study was initiated in Q4 of 2018 for GBSGB’s Parkinson’s disease therapies, and the NRC has demonstrated that the company’s PD formulations were able to reduce behavioral changes associated with the loss of dopamine-producing neurons, which underlies the pathology of Parkinson’s disease in the animal model. Based on achieving the statistically significant reduction in Parkinson’s disease symptomology, GBSGB has signed an amendment to include a final phase of testing, which will study the mechanism of action for these promising formulations. In Q1 of 2019, GBSGB started a safety and efficacy study in animals for GBSGB’s Chronic Neuropathic Pain (CNP) formulas. The midterm results for these preclinical pain studies are promising.
The University of Cadiz: Testing the safety and efficacy of the above-mentioned time-released nanoparticles in rodent models of chronic pain. Proof of concept complete for one formulation.
University of Hawaii: Validating the efficacy of a complex cannabis-based mixture for the treatment of cardiac hypertrophy and cardiac disease in a rodent model. Proof of concept work is complete.
Path to Market: Drug Development Stages and Proposed Clinical Trials
GBSGB has cannabis-based therapeutic products in the following stages of drug development: Discovery, Pre-Clinical, and entering the Clinical Phase. It has also licensed therapeutic products that the Company intends to develop through partners, labeled Partner Programs.
The completion of pre-clinical studies, clinical trials, and obtaining FDA-approvals for pharmaceutical products is traditionally a long and expensive process. However, GBSGB asserts that its cannabis-based drug discovery engine, lean development program, novel regulatory strategy, experienced development partners, and aggressive licensing of these products at early clinical stages can mitigate some of the risks. The Company uses a combination of in silico discovery methods and automated screening of cellular models of disease to decrease the time in Discovery prior to filing novel patent applications for disease-specific therapeutics. GBSGB’s original patent applications cover new chemical entities (“NCE”) based on complex combinations of plant-derived compounds. Its Exploratory IND/Phase 0 Program gets the Company to First-in-Man sooner than traditional programs, which reduces translational risks, and includes preliminary efficacy measures for responsible development decisions. In contrast, a traditional phased-development path would not provide any efficacy measures until Phase II. After the completion of our Phase 0 study, which compares the efficacies of multiple related cannabis-based formulations, the Company plans to advance the lead drug candidate using an adaptive trial design that is more efficient than the traditional phased-development pathway. GBSGB has entered into research contracts, partnerships, and/or joint ventures with several respected, independent contract research organizations, medical schools, universities, and other scientific researchers to increase developmental efficiencies. If and when one or more of GBSGB’s drugs, therapies or treatments are approved by the FDA, GBSGB will seek to market them under licensing arrangements with major biotechnology or pharmaceutical companies.
GBSGB plans to use a combination of FDA-registered human clinical trials, as described in detail above, and pilot human studies in the development of its therapeutic product portfolio. Early in product development, human pilot studies that are fully compliant with state medical cannabis programs will be used to gather early data on safety and efficacy that can later be referenced in the next phase of product development. GBSGB may be able to produce and sell the early products that prove efficacious, through licensing agreements with cannabis companies in other US states and countries that have legalized cannabis programs. GBSGB believes that these pilot studies will provide significant value by reducing the cost of commercialization, more rapidly putting effective drugs in the hands of patients, and accelerating by years the monetization of the research. GBSGB’s goal is to be the perfect partner to those companies with greater resources and experience in the marketing and distribution of medications worldwide.
There can be no assurance that we will ever be able to enter into any joint ventures or other arrangements with third parties to finance our drug development program or that if we are able to do so, that any of our projected therapies will ever be approved by the FDA. Even if we obtain FDA approval for a therapy, there can be no assurance that it could be successfully marketed or would not be superseded by another cannabis-based therapy produced by one or more of our competitors. It also may be anticipated that even if we enter into a joint venture development with a financially stable pharmaceutical or institutional partner, we will still be required to raise significant additional capital in the future to achieve the strategic goals of GBSGB. There can be no assurance that we will be able to obtain such additional capital on reasonable terms, if at all. If GBSGB fails to achieve its goal of producing one or more cannabis-based pharmaceuticals or therapies, it would have a material adverse effect on our future financial condition and business prospects.
In addition to our biopharmaceutical research and development activities described in detail above, the Company has operated in the medical and adult-use cannabis markets under State-issued cultivation and production licenses. Our wholly owned subsidiary GB Sciences Nevada, LLC (“GBSN”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada (the "Teco Facility") and operates a cannabis cultivation facility under Nevada licenses for the medical and adult-use markets. Our wholly owned subsidiary GB Sciences Las Vegas, LLC ("GBLV") holds Nevada certificates for medical and adult-use cannabis production and produces extracts and concentrates for the wholesale market.
On September 18, 2017, our subsidiary GB Sciences Louisiana, LLC finalized its agreement with Louisiana State University (“LSU”) AgCenter to be the sole operator of LSU’s medical marijuana program. The LSU Board of Supervisors entered into a five-year agreement—that has an option to renew for two additional five-year terms—with GB Sciences.The contract included the Company’s commitment to make a minimum financial contribution to the LSU AgCenter in the amount of $3.4 million, or a 10% commission of gross receipts, in addition to annual research investments of $500,000 to the LSU AgCenter. The monetary contributions would be used to conduct research on plant varieties, compounds, extraction techniques and delivery methods that could generate additional revenue through discoveries that are subject to intellectual property rights, which AgCenter would retain 50% of those rights.
On November 15, 2019, the Company entered into the Membership Interest Purchase Agreement ("MIPA") with the noncontrolling interest in GB Sciences Louisiana, LLC. In consideration for the sale of its 50.01% membership interest in GBSLA, the Company received the $8,000,000 Promissory Note ("Wellcana Note") and may receive up to an additional $8,000,000 in earn-out payments.
On August 24, 2020, the Company entered into a letter of intent with Wellcana to discount the note receivable in exchange for accelerated payment. Pursuant to the letter of intent, the Company would receive payments totaling $5,224,423, including the forgiveness by Wellcana of $324,423 in liabilities and the payment of $4,900,000 in cash, on or before October 15, 2020, less any cash payments made by Wellcana up to the date of the final payment. Upon receipt of the payment, all liabilities owed to the Company by Wellcana, including the $8,000,000 note receivable and any potential earn-out payments will be considered satisfied in full. Wellcana will assume the annual $250,000 research contribution commitment to LSU (Note 8) and the Company will retain no rights in the intellectual property developed under the research relationship. In addition, the Company agreed to reduce the $750,000 note payment due on September 1, 2020 to $500,000. As a result of the August 24, 2020 letter of intent, the Company determined that the amount of the note that was collectible as of March 31, 2020 was $5,224,423 and recorded a loss on modification of note receivable of $1,895,434 for the year ended March 31, 2020.
The Company granted forbearance of the June 1, 2020 payment from Wellcana in light of the circumstances created by the COVID-19 epidemic. The payment was received by the Company on August 4, 2020, net of the Company's $250,000 research contribution commitment to LSU for the twelve months ended September 2020 (Note 8) and the principal and accrued interest payable to related party (Note 9) totaling $189,423 as of the date of payment. On September 30, 2020, the Company received the second note payment of $500,000 and reduced the note receivable by the amount of the payment. As of September 30, 2020, the balance of the note receivable was $4,350,000.
On October 15, 2020 the Company was notified that Wellcana would be unable to close the payment of $4,350,000 by October 15, 2020, and the parties entered into a letter agreement, which extended the due date of the final $4,350,000 payment to December 8, 2020. The letter agreement also requires Wellcana to provide proof of $4,350,000 in funds and an escrow deposit of $250,000, which will be released to the Company without reducing the Wellcana Note in the event that Wellcana is unable to make the $4,350,000 payment on or before December 8, 2020. On October 24, 2020, the parties entered into the Escrow Agreement and the $250,000 payment to fund the escrow was made on October 29, 2020.
On November 15, 2019, we entered into a Binding Letter of Intent (the "LOI") to sell 75% of the Company's membership interest interests in GBSN and GBLV (together, the "Teco Subsidiaries") for $3.0 million cash upon close and up to an additional $3.0 million in earn-out payments after close. In connection with the LOI, we entered into a Management Agreement with the purchaser whereby the facilities will be managed by an affiliate of the purchaser until the close of the sale. On March 24, 2020, we entered into the Membership Interest Purchase Agreement ("Teco MIPA") which formalized the sale of the Teco Subsidiaries and modified the terms of the sale. Pursuant to the Teco MIPA, the Company will sell 100% of its membership interests in GBSN and GBLV for $4.0 million cash upon close and will receive a $4.0 million 8% promissory note to be paid in monthly installments over 36 months.
The Company also holds a Nevada license for cultivation of medical marijuana located in Sandy Valley, Nevada (the “Nopah License”). The license is owned by the Company’s wholly owned subsidiary, GB Sciences Nopah, LLC ("Nopah"). Operations have not begun under the Nopah License. On November 27, 2019, the Company entered into a Binding Letter of Intent to sell its 100% interest in GB Sciences Nopah, LLC (the “Nopah LOI”), with the transaction closing upon transfer of the Nopah License. As consideration for the transfer of the license, the Company will receive $300,000 and the purchaser will pay all expenses related to the upkeep and maintenence of the Nopah License. The transfer of the Nopah License is subject to the same restrictions on license transfers currently in effect in the State of Nevada (see Note 16).
The sales of the Teco Facility and Nopah are expected to close upon the successful transfer of the Nevada cultivation and production licenses. The transfer of cannabis licenses in the State of Nevada has been subject to an indefinite moratorium since October 2019. In a meeting held on July 21, 2020, the Nevada Cannabis Compliance Board lifted the moratorium, however, the board has indicated that there are over 90 requests pending and it will take up to several months to process the entire backlog of pending license transfers. Based on this information, we cannot provide any assurances as to the timing of the close of the sale. The lifting of the moratorium and processing of cannabis license transfers have been delayed by the COVID-19 pandemic and could be further delayed if the pandemic continues.
RESULTS OF OPERATIONS
The following table sets forth certain of our Statements of Operations data from continuing operations:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
491,818
|
|
|
|
1,291,232
|
|
|
|
1,007,071
|
|
|
|
3,082,697
|
|
LOSS FROM OPERATIONS
|
|
|
(491,818
|
)
|
|
|
(1,291,232
|
)
|
|
|
(1,007,071
|
)
|
|
|
(3,082,697
|
)
|
OTHER INCOME/(EXPENSE)
|
|
|
(412,696
|
)
|
|
|
(260,029
|
)
|
|
|
(1,372,307
|
)
|
|
|
(572,230
|
)
|
NET LOSS BEFORE INCOME TAX EXPENSE
|
|
|
(904,514
|
)
|
|
|
(1,551,261
|
)
|
|
|
(2,379,378
|
)
|
|
|
(3,654,927
|
)
|
INCOME TAX EXPENSE
|
|
|
(19,034
|
)
|
|
|
57,392
|
|
|
|
(27,874
|
)
|
|
|
-
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(923,548
|
)
|
|
|
(1,493,869
|
)
|
|
|
(2,407,252
|
)
|
|
|
(3,654,927
|
)
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
|
118,090
|
|
|
|
(1,434,737
|
)
|
|
|
(244,906
|
)
|
|
|
(1,812,563
|
)
|
NET LOSS
|
|
|
(805,458
|
)
|
|
|
(2,928,606
|
)
|
|
|
(2,652,158
|
)
|
|
|
(5,467,490
|
)
|
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
-
|
|
|
|
(245,565
|
)
|
|
|
-
|
|
|
|
(377,781
|
)
|
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC.
|
|
$
|
(805,458
|
)
|
|
$
|
(2,683,041
|
)
|
|
$
|
(2,652,158
|
)
|
|
$
|
(5,089,709
|
)
|
Comparison of the Three and Six Months Ended September 30, 2020 and 2019
General and Administrative Expenses
General and Administrative Expenses decreased by $(799,414) to $491,818 for the three months ended September 30, 2020, compared to $1,291,232 for the three months ended September 30, 2019. General and Administrative Expenses decreased by $(2,075,626) to $1,007,071 for the six months ended September 30, 2020, compared to $3,082,697 for the six months ended September 30, 2019.The decrease in both periods is largely attributable to a company-wide initiative to reduce general and administrative costs, including a substantial reduction in the number of employees involved in administrative functions.
Interest Expense
Interest expense increased by $58,210 to $410,946 for the three months ended September 30, 2020, compared to $352,736 in the prior year quarter. Interest expense increased by $417,937 to $1,082,874 for the six months ended September 30, 2020, compared to $664,937 for the six months ended September 30, 2019. The increases in both perriods are attributable to increased debt balances totaling $6,428,278 as of September 30, 2020, compared to $5,054,728 as of September 30, 2019, and to an increased penalty interest rate of 15% on the note payable to Iliad Research and Trading, L.P. due to the Company's default on that note.
Other Income and Expense
Other expenses were $(1,750) for the three months ended September 30, 2020, compared to other income $92,707 for the three months ended September 30, 2019. The change is primarily due to an other income item of $200,000 in the prior year quarter related to the reversal of an other expense charge for cash that was siezed during tansportation and later returned to the company.
Other expenses increased by $(3,374) for the six months ended September 30, 2020, compared to other income of $92,707 for the six months ended September 30, 2019. The change is attributable to the $200,000 other income item discussed above in the prior year and a default penalty expense of $(286,059) in the current year related to the Company's default on the note payable to Iliad Research and Trading, L.P.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
The Company will need additional capital to implement its 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 on the Company's cash position, it is necessary to raise additional capital by the end of the next quarter in order to continue to fund current operations. These factors raise substantial doubt about the ability to continue as a going concern. The Company is pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings. In order to finance existing operations and pay current liabilities over the next twelve months, the Company will need to raise additional capital. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future.
The principal sources of liquidity to date have been cash generated from sales of debt and equity securities and loans.
In continuing operations at September 30, 2020, cash was $545,020, other current assets excluding cash were $6,365,813, and our working capital deficit was $(6,227,642). At the same time, current liabilities were $13,138,475 and consisted principally of $2,346,652 in accounts payable, $1,684,503 in accrued liabilities, $6,428,278 in notes and convertible notes payable, net of $(9,624) in discounts, $710,075 in indebtedness to related parties, $620,856 in income tax payable, and $1,348,111 in current finance lease obligations. At September 30, 2020, current assets from discontinued operations were $1,997,037, current liabilities from discontinued operations were $1,348,111, and working capital from discontinued operations was 648,926.
At March 31, 2020, continuing operations included a cash balance of $2,406, other current assets excluding cash were $6,998,474, and our working capital deficit was $(3,884,877). Current liabilities were $10,885,757, which consisted principally of $1,913,049 in accounts payable, $1,180,483 in accrued liabilities, $5,054,728 in notes and convertible notes payable, $586,512 of indebtedness to related parties, a note payable to related party of $151,923, and $592,982 in income taxes payable. At March 31, 2020, current assets from discontinued operations were $1,755,275, current liabilities from discontinued operations were $1,406,080, and working capital from discontinued operations was $349,195.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $(212,854) including $(10,602) used in discontinued operations for the six months ended September 30, 2020, compared to $(3,546,457) including $(1,758,120) used in discontinued operations for the six months ended September 30, 2019. We anticipate that cash flows from operations will be insufficient to fund business operations for the next twelve-month period. Accordingly, we will have to generate additional liquidity or cash flow to fund our current and anticipated operations. This will likely require the sale of additional common stock or other securities. There is no assurance that we will be able to realize any significant proceeds from such sales, if at all.
Investing Activities
During the six months ended September 30, 2020, $597,658 was provided by investing activities, net of $(104,265) used in discontinued operations. During the six months ended September 30, 2019, the Company used $(554,782) of cash in investing activities, including $(462,920) used in discontinued operations. The cash used in investing activities during the six months ended September 30, 2019 was primarily for the purchase of property and equipment and the acquisition of intangible assets.
Financing Activities
During the six months ended September 30, 2020 and 2019, cash flows provided by financing activities totaled $157,671 and $3,967,798, respectively. Cash flows from financing activities for the six months ended September 30, 2020 related primarily to $151,202 in proceeds from warrant exercises and $150,000 in proceeds from the issuance of a note payable, offset by $(15,121) in brokerage fees and $(101,487) used in financing activities of discontinued operations. Cash flows from financing activities for the six months ended September 30, 2019 related primarily to $550,225 in proceeds from the sale of common stock, $944,975 in proceeds from warrant exercises, and $2,600,000 in proceeds from issuing convertible notes, offset by $(175,000) in fees for the issuance of a convertible note, $(166,027) of brokerage fees, and $213,625 of cash provided by the financing activities of discontinued operations.
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, which have caused an accumulated deficit of $(100,056,626) at September 30, 2020. The Company had a working capital deficit of $(6,227,642) at September 30, 2020, net of working capital of $648,926 classified as discontinued operations, compared to $(3,884,877) at March 31, 2020, net of working capital of $349,195 classified as discontinued operations. In addition, the Company has consumed cash in its operating activities of $(212,854) for the six months ended September 30, 2020, including $(10,602) used in discontinued operations, compared to $(3,546,457) including $(1,758,120) used in discontinued operations for the six months ended September 30, 2019. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.
In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company is unable to continue as a going concern.
VARIABLES AND TRENDS
In the event the Company is able to obtain the necessary financing to progress with its business plan, the Company expects expenses to increase significantly to grow the business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of future performance and must be considered in light of these circumstances.
CRITICAL ACCOUNTING POLICIES
A description of the Company's significant accounting policies is included in Note 3 of its Annual Report on Form 10–K for the fiscal year ended March 31, 2020.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended September 30, 2020, the Company carried out an evaluation, under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of disclosure controls and procedures, as defined in Rule 13(a)-15(e) and Rule 15d-15(e) under the 1934 Act. Based on this evaluation, management concluded that as of September 30, 2020, the disclosure controls and procedures were not effective due to material weaknesses 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.
Limitations on Effectiveness of Controls and Procedures
Management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Controls
During the fiscal quarter ended September 30, 2020, there have been no changes in the internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
Tara “Dee” Russell filed a Charge of Discrimination with the Nevada Equal Rights Commission ("NERC") against the Company on April 2, 2019, alleging that she was subjected to sexual harassment and retaliatory discharge. The Company received the Notice of Charge of Discrimination on or about May 15, 2019. The Company submitted its response to the Notice of Discrimination Charge on July 26, 2019. It is the Company's position that Ms. Russel was not an employee of the Company, but rather was an independent contractor. The Company intends to aggressively respond to the charge. To date, the NERC has not issued a ruling regarding the charge.
On April 22, 2020, the Company failed to repay any of the outstanding balance of the Convertible Promissory Note Payable to Iliad Research and Trading, L.P., resulting in a default. Pursuant to the terms of the Promissory Note, upon the default, the principal and accrued interest balances outstanding increased by 10% and the Company recorded expense of $286,059 related to the default. On May 20, 2020, Iliad filed a lawsuit against the Company in the Third Judicial District Court of Salt Lake County in the State of Utah demanding repayment of the note. The lawsuit further seeks to compel the Company to participate in arbitration pursuant to the arbitration provisions contained within the Note Purchase Agreement and to prohibit the Company to raise funds through the issuance of its common stock unless the note is paid in full simultaneously with such issuance. The Company filed a confession of judgment in response to the complaint and does not intend to defend the lawsuit. On July 14, 2020, the Court entered judgment in favor of Iliad in the amount of $3,264,594 and the judgment accrues interest at the default rate of 15% per annum. The Company will also be responsible for reasonable attorney's fees and costs incurred by Iliad for obtaining and collecting on the judgment. The amount of such fees has not been established as of the date of this report. The Company believes it will have sufficient resources to repay the Iliad Note from the proceeds of the sale of the Teco Facility and the note receivable therefrom, along with the proceeds of the note receivable from Wellcana Group from the sale of the Company's membership interest in GB Sciences Louisiana, LLC. As of September 30, 2020, the total balance due under the judgment was $3,264,594 and accrued post-judgment interest was $104,646.
On April 22, 2020, the Company was served notice of a lawsuit filed in the Eighth Judicial District Court in Clark County, Nevada, filed by a contractor who had been hired to perform architectural and design services. The lawsuit demanded payment of $73,050 for the services provided. On September 17, 2020, the Company entered into a Mutual Compromise, Settlement, and Release Agreement with the contractor and made payment of $25,000 in full satisfaction of the alleged debt.