Note 1 - Background and Significant Accounting Policies

3 Months Ended

Jun. 30, 2024

Significant Accounting Policies [Text Block]

Note 1 – Background and Significant Accounting Policies

Business

GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) is a plant-inspired, biopharmaceutical research and development company creating patented, disease-targeted formulations of cannabis- and other plant-inspired therapeutic mixtures for the prescription drug market through its wholly owned Canadian subsidiary, GbS Global Biopharma, Inc. (“GBSGB”).

Through GBSGB, the Company is engaged in the research and development of plant-inspired medicines, with virtual operations in North America and Europe. GBSGB’s assets include a portfolio of intellectual property containing both proprietary plant-inspired formulations and our AI-enabled drug discovery platform, as well as critical research contracts and key supplier arrangements. The Company’s intellectual property portfolio, which is held by GBSGB, contains eight U.S. and twelve foreign patents issued, two foreign patents allowed, as well as fifteen U.S. and forty-one foreign patent-pending applications.

The Company was 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 the then name “Signature Exploration and Production Corp.” when the business model had changed.

On April 4, 2014, the Company changed its name from Signature Exploration and Production Corporation to Growblox Sciences, Inc. Effective December 12, 2016, the Company amended its Certificate of Corporation pursuant to shareholder approval, and the Company’s name was changed from Growblox Sciences, Inc. to GB Sciences, Inc.

Effective April 8, 2018, Shareholders of the Company approved the change in corporate domicile from the State of Delaware to the State of Nevada and increase in the number of authorized capital shares from 250,000,000 to 400,000,000. Effective August 15, 2019, Shareholders of the Company approved an increase in authorized capital shares from 400,000,000 to 600,000,000. Effective March 09, 2023, Shareholders of the Company approved an increase in authorized capital shares from 600,000,000 to 950,000,000.

Recent Developments

Intellectual Property Portfolio

In the past year, GBLX/GBSGB’s foreign patents for plant-based treatments of serious disorders were allowed in different countries, expanding our patent protections as follows. On February 3, 2023, GB Sciences’ first foreign patent protecting its proprietary cannabinoid-based formulations for Parkinson’s disease was issued in China. China is an increasingly important pharmaceutical market with cultural acceptance of plant-based formulations, which is a good fit for GB Sciences’ drug candidates. The global market for treatments of Parkinson’s disease is projected to grow to $8.8 billion by the year 2026, and new therapies to address Parkinson’s disease symptoms are greatly needed. The Chinese Patent was issued for GBSGB’s Cannabinoid-Containing Complex Mixtures for the treatment of Parkinson’s disease. On December 1, 2022, the Israeli (IL) Patent was allowed, protecting our Cannabinoid-Containing Complex Mixtures for the treatment of Mast Cell Activation Syndrome (MCAS). MCAS is a severe immunological condition in which mast cells inappropriately and excessively release inflammatory mediators, resulting in a range of severe chronic hyperinflammatory symptoms and life-threatening anaphylaxis attacks. On December 15, 2022, the Australian (AU) Patent was allowed, protecting the Company’s Cannabinoid-Containing Complex Mixtures for the treatment of Mast Cell Activation Syndrome (MCAS). On February 20, 2023, the Japanese (JP) Patent was allowed, protecting the Company’s Cannabinoid-Containing Complex Mixtures for the treatment of Mast Cell Activation Syndrome (MCAS). Additionally, on March 9, 2023, the Notice of Allowance was received for the Company’s U.S. Patent Application No. 16/878,295. This Notice of Allowance protects the use of the Company’s Myrcene-Containing Complex Mixtures in the treatment of cardiac hypertrophy, overactive bladder, and refractory chronic cough. On April 25, 2023, the Japanese patent was also issued for the use of GBSGB’s Cannabinoid-Containing Complex Mixtures in the treatment of Parkinson’s disease.

In 2021, our growing intellectual property portfolio was augmented with additional patent-protections for our PhAROS™ drug discovery platform that were filed in July of 2021 and in October of 2021. The Company, through GBSGB, also filed for protection of new PhAROS™ discovered, non-cannabis formulations in July of 2021. In September of 2021, the Company filed a patent application for the Company’s improved DCR-MEM formulations for our PD therapeutic program. These new patent applications expanded upon the solid foundation of intellectual property developed over the past six years.

In 2020, the three patents which protect formulations for the Company’s lead therapeutic programs were 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 the Company’s second and third US patents for active pharmaceutical ingredients that are complex mixtures identified by our biotech platform further confirmed that the Company’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 our proprietary MEMs 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 MEMs.

The Company's third issued US Patent entitled "Cannabinoid-Containing Complex Mixtures for the Treatment of Mast-Cell-Associated or Basophil-Mediated Inflammatory Disorders" protects methods of using the Company’s proprietary MEMs for treating Mast Cell Activation Syndrome (MCAS). MCAS is a severe immunological condition in which mast cells inappropriately and excessively release inflammatory mediators, resulting in a range of severe chronic hyperinflammatory symptoms and life-threatening anaphylaxis attacks. Receiving this patent for the treatment of MCAS using our MEMs is an important milestone in the development of this urgently needed medicine. There is no single recommended treatment for MCAS patients. Instead, they attempt to manage MCAS symptoms primarily by avoiding ‘triggers’ and using rescue medicines for their severe hyperinflammatory attacks. Therefore, MCAS patients need new therapeutic options to control their mast cell related symptoms, and our MEMs were designed to simultaneously control multiple inflammatory pathways within mast cells as a comprehensive treatment option. The Company is strategically targeting MCAS for two additional reasons. By focusing on a rare disease with no known cure, our company can apply for the U.S. Food and Drug Administration’s expedited approval process, which allows clinically successful treatments to get to market both quicker and more cost effectively. Gaining approval from the US FDA for the entire anti-inflammatory market would be extremely time consuming and cost prohibitive. Demonstrating that our MEMs are safe for the treatment of MCAS would favorably position our Company for clinical testing of these MEMs as potential treatments for other related inflammatory disorders, such as inflammatory bowel disease, thereby widening the target market and drastically shortening the development cycle and costs.

The Company’s fourth US Patent was issued on March 1, 2022 for a cannabinoid-containing mixture designed to treat cardiac hypertrophy, often present in advanced heart disease. GB Sciences’ newly issued patent also covers the use of these receptor-targeted formulations for the treatment of TRPV1-receptor associated hearing loss and urinary cystitis. Despite multiple categories of prescription heart medications on the market, heart disease remains the leading cause of death in the United States for people of most racial and ethnic groups. Alternative therapeutic approaches are still needed, especially for the treatment of advanced heart disease.

Licensing Agreement

On September 26, 2024, the Company entered into a mutually beneficial licensing agreement with EndoPure Life Sciences, LLC (“EndoPure”). EndoPure will pay to license certain intellectual property (“IP”) rights from within the intellectual property portfolio of GB Sciences. Under this IP licensing agreement, EndoPure will develop, manufacture, and market pharmaceutical products that are protected within GB Sciences’ IP portfolio.

GB Sciences will contribute the following to the intellectual property license:

Intellectual property protecting proprietary formulations for the treatment of neurological disorders, including, but not limited to, Parkinson’s disease, Alzheimer’s disease, Huntington’s disease, dementia, multiple sclerosis, epilepsy, and autism.

An exclusive license to develop, manufacture, and sell these treatments for neurological disorders in Brazil.

An exclusive license for EndoPure to develop, manufacture, and sell specifically-approved treatments in South America to be granted after EndoPure has successfully obtained regulatory approvals to market the products in Brazil.

In consideration of this intellectual property license, EndoPure will pay the following:

A royalty equal to 5% of gross sales of any product developed and manufactured pursuant to the IP license agreement in the agreed upon territories.

An annual pre-paid minimum royalty of $50,000 per product for three years. This amount will offset royalty payments otherwise due on this product starting after EndoPure has achieved market approval for at least one of these licensed formulas in Brazil.

An upfront payment of approximately $125,000 USD disbursed directly to Catalent Pharmaceuticals, Inc. (“Catalent”), which is related to the development and contract manufacturing of these licensed products within Catalent’s proprietary Zydis® orally dissolving tablet (“ODT”) dosage format.

A consulting fee of $5,000 per month as compensation for the assistance of Dr. Andrea Small-Howard in the planning and execution of clinical development for these products.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of GB Sciences, Inc. 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 Regulation 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, 2025. The balance sheet at June 30, 2024 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, 2024.

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. All subsidiaries were wholly owned by the Company for the periods presented.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, collectability of notes receivable, inventory valuation and standard cost allocations, valuation of initial right-of-use assets and corresponding lease liabilities, 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.

Fair Value of Financial Instruments

The Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

-	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
-	Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The carrying value of cash, accounts receivable, accounts payable and accrued expenses are estimated by management to approximate fair value, primarily due to the short-term nature of the instruments.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no short-term investments classified as cash equivalents at June 30, 2024 and 2023.

Indefinite and Definite-Lived Intangible Assets

Capitalized costs related to our indefinite-lived intangible assets consisted primarily of the value of our patents pending and includes the costs paid to draft and file patent applications. Upon issuance of the patents, the indefinite-lived intangible assets will have finite lives. Intangible assets also historically included the acquisition cost of a cannabis production license with an indefinite life.

We historically amortized our finite-lived intangible assets, which consisted of granted patents, over their estimated useful lives using the straight-line method, and we periodically evaluate the remaining useful lives of our finite-lived intangible assets to determine whether events or circumstances warrant a revision to the remaining period of amortization.

We review all of our intangible assets for impairment indicators throughout the year. Impairment testing for indefinite-lived intangible assets is performed at least annually and we perform testing for definite-lived intangible assets whenever impairment indicators are present. If we determine that the fair value is less than the carrying value of these assets during testing, we record impairment losses equal to the difference between the carrying value of the asset and the fair market value of the asset.

As of March 31, 2024, we recorded a loss on impairment related to the capitalized patent costs of $42,194. The Company has recorded an impairment of its capitalized patent costs based on the relevant facts and circumstances that existed as of March 31, 2023 in accordance with ASC 350-30-35. Due to liquidity constraints the Company deemed that the likelihood of realizing value from previously capitalized patent costs was questionable, as a result the associated patents were impaired.

At June 30, 2024, the Company’s intellectual property portfolio, which is held by GBSGB, contains eight U.S. and twelve foreign patents issued, two foreign patents allowed, as well as fifteen U.S. and forty-one foreign patent-pending applications. The patents owned by the Company expire between January 2038 and May 2039. Amortization expense for the quarters ended June 30, 2024 and 2023, was $0 and $624, respectively. The carrying amount of definite-lived intangible assets was $0 at June 30, 2024 and 2023.

There were 10 United States patent applications that are pending as of June 30, 2023, and the corresponding patent assets are treated as indefinite-lived intangible assets. There were 35 international patents pending at June 30, 2023. The carrying amount of the indefinite-lived patent assets was $0 at June 30, 2024 and 2023.

Revenue Recognition

The FASB issued Accounting Standards Codification (“ASC”) 606 as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method.

The Company’s only material revenue source is part of discontinued operations and derives from sales of cannabis and cannabis products, distinct physical goods. Under ASC 606, the Company is required to separately identify each performance obligation resulting from its contracts from customers, which may be a good or a service. A contract may contain one or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC 606 results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did not record any material adjustment to report the cumulative effect of initial application of the guidance.

Equity-Based Compensation

The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). The computation of the expense associated with stock-based compensation requires the use of a valuation model. The FASB-issued accounting guidance requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of our stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in financial statements or tax returns. Deferred tax items are reflected at the enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets.

Because the Company operated in the State-licensed cannabis industry until the December 31, 2021 disposition of the Nevada Subsidiaries, revenue from those activities were subject to the limitations of Internal Revenue Code Section 280E (“280E”) for U.S. income tax purposes. Under 280E, the Company is allowed to deduct expenses that are directly related to the production of its products, i.e. cost of goods sold, but is allowed no further deductions for ordinary and necessary business expenses from its gross profit. The Company believes that the deductions disallowed include the deduction of net operating loss carryforwards ("NOLs"). The unused NOLs will continue to carry forward and those that do not expire or become subject to other limitations may be used by the Company to offset future taxable income that is not subject to the limitations of 280E.

Loss per Share

The Company’s basic loss per share has been calculated using the weighted average number of common shares outstanding during the year. The Company had 167,396,125 and 162,611,301 potentially dilutive common shares including convertible debt, stock options and warrants at June 30, 2024 and 2023, respectively. 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

Standards Not Yet Adopted

All other newly issued accounting pronouncements have been deemed either immaterial or not applicable.

GB SCIENCES INC 10-Q