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
issued USPTO Patents, five USPTO patent applications, four provisional USPTO
patent applications, and one USPTO application that we anticipate filing by the
end of calendar year 2020, as well as licenses for three additional patents
covering novel cannabinoid delivery systems. In addition to the USPTO patents
and patent applications, the company has filed 28 patent applications
internationally.
We were incorporated in the State of Delaware on April 4, 2001, under the name
"Flagstick Venture, Inc." On March 28, 2008, stockholders owning a majority of
our outstanding common stock approved changing our then name "Signature
Exploration and Production Corp." as our business model had changed.
On March 13, 2014, we entered into a definitive assets purchase agreement for
the acquisition of assets, including the Growblox™ cultivation technology which
resulted in a change in our corporate name on April 4, 2014, from Signature
Exploration and Production Corporation to Growblox Sciences, Inc.
Effective December 12, 2016, the Company amended its Certificate of Corporation
pursuant to shareholder approval as reported in the Form 8-K filed on October
14, 2016. Pursuant to the amendment the Company's name was changed from
Growblox Sciences, Inc. to GB Sciences, Inc.
Effective April 8, 2018, Shareholders of the Company approved the change in
corporate domicile from the State of Delaware to the State of Nevada and
increase in the number of authorized capital shares from 250,000,000 to
400,000,000. Effective August 15, 2019, Shareholders of the Company approved an
increase in authorized capital shares from 400,000,000 to 600,000,000.
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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). 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.
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For its lead chronic neuropathic pain program, GBSGB is testing its
Cannabinoid-Containing Complex Mixtures (CCCM) and Myrcene-Containing Complex
Mixtures (MCCM) both as encapsulated, time-released nanoparticles, as well as in
non-encapsulated forms of these therapeutic mixtures in an animal model at the
NRC in Halifax, Nova Scotia. In preparation for human clinical trials, our
standard MCCM and the time-released MCCM are currently being compared in an
animal model that demonstrates their potential effectiveness at treating chronic
pain. The early results from this preclinical research project look very
promising.
The two patents which protect formulations in the Company's lead therapeutic
programs have been issued by the USPTO. The issuance of U.S. Patent No.
10,653,640 entitled "Cannabinoid-Containing Complex Mixtures for the Treatment
of Neurodegenerative Diseases" on May 19, 2020 protects methods of using GBSGB's
proprietary cannabinoid-containing complex mixtures (CCCM™) for treating
Parkinson's Disease (PD). This was an important milestone in the development of
these vitally-important therapies and validates GBSGB's drug discovery platform.
In the US alone, the combined direct and indirect costs associated with
Parkinson's disease are estimated at $52 billion, and new therapies to address
Parkinson's disease symptoms are greatly needed. This was also the first time
that a US patent has been awarded for a cannabis-based complex mixture defined
using this type of drug discovery method. The first US patent for PD therapies
validated our drug discovery platform and strengthened our intellectual property
portfolio of unique CCCM's™, each targeting one of up to 60 specific clinical
applications. The issuance of GBSGB's second US patent for active pharmaceutical
ingredients that are complex mixtures identified by our biotech platform further
confirms that GBSGB's pharmaceutical compositions can be patent-protected for
use as biopharmaceutical and nutraceutical products. The US Patent entitled
"Myrcene-Containing Complex Mixtures Targeting TRPV1" protects methods of using
GBSGB's proprietary Myrcene-Containing Complex Mixtures ("MCCM") for the
treatment of pain disorders related to arthritis, shingles, irritable bowel
syndrome, sickle cell disease, and endometriosis. In the US alone, chronic pain
represents an estimated health burden of between $560 and $650 billion dollars,
and an estimated 20.4% of U.S. adults suffer from chronic pain that
significantly decreases their quality of life. Despite the widespread rates of
addiction and death, opioids remain the standard of care treatment for most
people with chronic pain. The Company believes that it is important to create
safer, less addictive alternatives to opioids for the treatment of chronic pain
disorders, like GBSGB's myrcene-containing complex mixtures.
Favorable Research Updates from our university collaborators reveal the promise
in our discovery programs with Michigan State University (HIV-Associated
Neurodegenerative Disorder and COVID-19 therapies), Chaminade University
(Chronic Neuropathic Pain, Metabolic Syndrome, Cannabis Metabolomics with the
University of Athens), the University of Athens, Greece (Cannabis Metabolomics),
the University of Seville, Spain (Time-Released Nanoparticles), and the National
Research Council (NRC) of Canada (Parkinson's Disease, Chronic Neuropathic
Pain).
Intellectual Property Portfolio
GBSGB retained Fenwick & West, a Silicon Valley based law firm focusing on life
sciences and high technology companies with a nationally top-ranked intellectual
property practice, to develop strategies for the protection of the Company's
intellectual property. The status of the intellectual property portfolio is as
follows.
Two USPTO Patents Issued/Allowed for Cannabinoid- and Myrcene-Containing Complex
Mixtures
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
NEURODEGENERATIVE DISEASES
U.S. Patent Number 10,653,640; Expiration date: October 23, 2038
Issued: May 19, 2020; Inventors: Andrea Small-Howard
et al.
Patent protection was granted for GBSGB's Cannabinoid-Containing Complex
Mixtures for the treatment of Parkinson's disease.
Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1
U.S. Patent Number 10,709,670; Expiration date: May 22, 2038
Issued: July 14, 2020; Inventors: Andrea
Small-Howard, et al.
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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Five USPTO & Twenty-Three International Patent Applications Pending
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF
NEURODEGENERATIVE DISEASES
U.S. Patent Application No. 15/729,565; WIPO Application number:
PCT/US2017/055989
Filed: October 10, 2017; Inventors: Andrea
Small-Howard et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and JP on October
10, 2017.
On April 3, 2020, GBSGB Received a Notice of Allowance on our
Cannabinoid-Containing Complex Mixtures for 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.
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF MAST
CELL-ASSOCIATED OR BASOPHIL-MEDIATED INFLAMMATORY DISORDERS
U.S. Patent Application No.15/885,620; WIPO Application number:
PCT/US2018/016296
Filed: January 31, 2018; Inventors: Andrea
Small-Howard, et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and JP on January
31, 2018.
Claims benefit of U.S. Patent Application No. 62/453,161 filed February 1, 2017.
Title: MYRCENE-CONTAINING COMPLEX MIXTURES TARGETING TRPV1
U.S. Patent Application No. 15/986,316; WIPO Patent Application No.
PCT/US2018/033956
Filed: May 22, 2018; Inventors: Andrea
Small-Howard, et al.
National stage applications entered in AU, CA, CN, EP, HK, IL, and JP on May 22,
2018.
On May 12, 2020, GBSGB received a Notice of Allowance for its Myrcene-Containing
Complex Mixtures. On the same day as we paid the fee for the allowed claims, we
filed a Continuation for the review of the other formulations including those
for heart disease and other TRPV1-related pathologies. U.S. Continuation
Application No. 16/878,295, filed on May 19, 2020, is pending. Claims benefit of
U.S. Patent Application No. 62/509,546 filed May 22, 2017.
Title: TRPV1 ACTIVATION-MODULATING COMPLEX MIXTURES OF CANNABINOIDS AND/OR
TERPENES
U.S. Patent Application No.: 16/420,004; WIPO Patent Application No.:
PCT/US2019/033618
Filed: May 22, 2019; Inventors: Andrea
Small-Howard, et al.
Claims benefit of U.S. Patent Application Nos. 62/674,843 filed May 22, 2018;
62/769,743 filed November 20, 2018; and 62/849,719 filed May 17, 2019.
Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING TERPENOIDS AND/OR CANNABINOIDS
U.S. Patent Application No.:16/686,069 WIPO Patent Application No.:
PCT/ES2019/070765
Filed: November 8, 2019; Inventors: Andrea
Small-Howard, et al.
Claims benefit of U.S. Patent Application Nos. 62/757,660 filed November 8, 2018
Two Provisional USPTO Patent Applications Pending
Title: TREATMENT OF PAIN USING ALLOSTERIC MODULATOR OF TRPV1
U.S. Patent Application No.: 62/868,794; Inventors: Andrea
Small-Howard, et al.
Filed: June 28, 2019
Title: THERAPEUTIC NANOPARTICLES ENCAPSULATING TERPENOIDS AND/OR
CANNABINOIDS
U.S. Patent Application No.: 62/897,235 Inventors: Andrea Small-Howard, et
al.
Filed: September 6, 2019
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Two Additional Provisional Patent Applications Filed on August 18, 2020
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF CHRONIC
INFLAMMATORY DISORDERS
Filing Date: August 18, 2020; Inventor: Andrea Small-Howard
Title: CANNABINOID-CONTAINING COMPLEX MIXTURES FOR THE TREATMENT OF OF
CYTOKINE RELEASE SYNDROME WHILE PRESERVING KEY ANTI-VIRAL IMMUNE REACTIONS
Filing Date: August 18, 2020; Inventor: Andrea Small-Howard
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
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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.
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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.
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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 Nevadahas been subject to an
indefinite moratorium since October 2019. In a meeting held on July 21, 2020,
the Nevada Cannabis Compliance Board lifted the moratorium, however, the board
has indicated that there are over 90 requests pending and it will take up to
several months to process the entire backlog of pending license transfers. Based
on this information, we cannot provide any assurances as to the timing of the
close of the sale. The lifting of the moratorium and processing of cannabis
license transfers have been delayed by the COVID-19 pandemic and could be
further delayed if the pandemic continues.
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RESULTS OF OPERATIONS
The following table sets forth certain of our Statements of Operations data:
For the Three Months Ended
June 30,
2020 2019
SALES REVENUE $ 551,197 $ 910,676
COST OF GOODS SOLD (491,795 ) (624,369 )
GROSS PROFIT 59,402 286,307
GENERAL AND ADMINISTRATIVE EXPENSES 804,708 2,065,549
LOSS FROM OPERATIONS (745,306 ) (1,779,242 )
OTHER INCOME/(EXPENSE) (1,092,554 ) (437,815 )
NET LOSS BEFORE INCOME TAX EXPENSE (1,837,860 ) (2,217,057 )
INCOME TAX EXPENSE (8,840 ) (57,392 )
LOSS FROM CONTINUING OPERATIONS (1,846,700 ) (2,274,449 )
LOSS FROM DISCONTINUED OPERATIONS - (264,434 )
NET LOSS (1,846,700 ) (2,538,883 )
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST - (132,216 )
NET LOSS ATTRIBUTABLE TO GB SCIENCES, INC. $ (1,846,700 ) $ (2,406,667 )
Comparison of the Three Months Ended June 30, 2020 and 2019
Sales revenue
The Company recorded sales revenue of $551,197 for the three months ended June
30, 2020, as compared to $910,676 for the same period in the prior year. The
decrease in sales is largely attributable to the COVID-19 pandemic and the
temporary closing of retail cannabis stores in the State of Nevada.
Cost of goods sold
Cost of goods sold decreased to $491,795 for the three months ended June 30,
2020, compared to $624,369 for the three months ended June 30, 2019. The
decrease is largely attributable to the decrease in sales volume as the result
of the COVID-19 pandemic.
General and Administrative Expenses
General and Administrative Expenses decreased by $(1,260,841) to $804,708 for
the three months ended June 30, 2020, compared to $2,065,549 for the three
months ended June 30, 2019. The decrease is attributable to a company-wide
initiative to reduce general and administrative costs, including a substantial
reduction in the number of employees involved in administrative functions.
Other expense
Other expenses increased $654,739 to $1,092,554 for the three months ended June
30, 2020, compared to $437,815 for the three months ended June 30, 2019. The
increase in other expense is primarily the result of the $286,059 default
penalty related to the note payable to Iliad Research and Trading, LP, which is
recorded in other expense, and an increase of $357,498 in interest expense due
to larger debt balances outstanding at higher effective interest rates.
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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.
At June 30, 2020, cash was $101,230, other current assets excluding cash were
$7,019,880, and our working capital deficit was $(5,381,534). At the same time,
current liabilities were $12,502,644 and consisted principally of $2,712,122 in
accounts payable, $1,843,698 in accrued liabilities, $6,327,113 in notes and
convertible notes payable, net of $(247,695) in discounts, $712,176 in
indebtedness to related parties, a note payable to related party of $151,923,
$601,822 in income tax payable, and $146,211 in current finance lease
obligations. At March 31, 2020, the Company had a cash balance of $151,766,
other current assets excluding cash were $6,849,114, and our working capital
deficit was $(3,884,877). Current liabilities were $10,885,757, which consisted
principally of $2,559,914 in accounts payable, $1,285,664 in accrued
liabilities, $5,534,728 in notes and convertible notes payable, $586,512 of
indebtedness to related parties, a note payable to related party of $151,923,
$592,982 in income taxes payable, and $166,769 in current finance lease
obligations.
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Sources and Uses of Cash
Operating Activities
Net cash used in operating activities was $(323,845) for the three months ended
June 30, 2020, compared to $(2,631,121) for the three months ended June 30,
2019, including $(883,295) used in discontinued operations. We anticipate that
cash flows from operations may be insufficient to fund business operations for
the next twelve-month period. Accordingly, we will have to generate additional
liquidity or cash flow to fund our current and anticipated operations. This will
likely require the sale of additional common stock or other securities. There is
no assurance that we will be able to realize any significant proceeds from such
sales, if at all.
Investing Activities
During the three months ended June 30, 2020, the Company used no cash in
investing activities, compared to $(257,674) during the three months ended June
30, 2019, including $(48,000) used in discontinued operations. The cash used in
investing activities during the three months ended June 30, 2019 was primarily
for the purchase of property and equipment and the acquisition of intangible
assets.
Financing Activities
During the three months ended June 30, 2020 and 2019, cash flows provided by
financing activities totaled $273,309 and $2,802,349, respectively. Cash flows
from financing activities for the three months ended June 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 $(17,772) of principal
payments on debt and finance lease obligations and $(15,121) in brokerage fees.
Cash flows from financing activities for the three months ended June 30, 2019
related primarily to $745,975 in proceeds from the sale of common stock and
$2,500,000 in proceeds from issuing convertible notes, offset by $(175,000) in
fees for the issuance of a convertible note, $(91,104) of brokerage fees, and
$(62,641) of principal payments on debt and finance lease obligations.
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 $(99,251,168) at June 30,
2020. The Company had a working capital deficit of $(5,381,534) at June 30,
2020, compared to $(3,884,877) at March 31, 2020. In addition, the Company has
consumed cash in its operating activities of $(323,845) for the three months
ended June 30, 2020, compared to $(2,631,121) including $(883,295) from
discontinued operations for the three months ended June 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.
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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.
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GB SCIENCES, INC. 
