$GBLX Form 10-K

Overview

On March 18, 2014, Growblox purchased assets, including the Growblox� cultivation technology from our current CEO, Mr. Craig Ellins and his affiliated companies which resulted in a change in its corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc. We plan to utilize this technology to plan to research the medical treatment potential of cannabis and develop treatments from those findings and to commercially cultivate and produce medical grade cannabis for sale in the United States and territories in which it is legal and.

Growblox Sciences, Inc. was incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, a majority of stockholders approved changing its then name “Signature Exploration and Production Corp.” as the business model had changed.

Plan of Operation

The Company’s goal is to be an industry leader in cultivation technology and research and development of medical cannabis drugs and treatments. To achieve this goal, the Company will use a vertically-integrated approach. Strategically to continue to improve cultivation to enable the provision of consistent medical-grade yield cannabis, to strive to innovate biopharmaceutical and nutraceutical products using the harvested materials, and streamline marketing and distribution in coordination with business partnerships in markets in which the distribution and use of medical cannabis is legal.

Our 65% owned subsidiary GB Sciences Nevada, LLC (“GBS Nevada”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. GB Sciences LLC holds a provisional certificate from the Division of Public & Behavioral Health of the Nevada Department of Health and Human Services to operate an establishment to cultivate medical cannabis at its Las Vegas location. The certificate is considered provisional until the establishment is in compliance with applicable local government requirements and has received a state business operating license. Granted in November 2014, the provisional certificate is subject to revocation if a medical marijuana establishment is not fully operational within 18 months from receipt.

GBS Nevada has applied for a permit or certificate to dispense medical cannabis at two locations in Clark County, Nevada, including one location within the City of Las Vegas, and a certificate to deliver medical grade cannabis throughout the State of Nevada. GBS Nevada is waiting for approval of such dispensary and delivery certificates by the State of Nevada. There can be no assurance that such certificates or permits will be issued, or if issued, that Growblox or GBS Nevada will derive any significant revenues or profits from the cultivation, dispensing and delivery of medical cannabis within such County or City.

In March 2015, Growblox and GBS Nevada entered into a binding memorandum with the local minority members of GBS Nevada who now own 35% of its equity. Under the terms of such agreement, Growblox’s equity in GBS Nevada increased from 55% to 65%, GBS Nevada will retain its existing certification to cultivate and grow cannabis and, if and when issued by Clark County and/or Las Vegas, Nevada, the delivery certification. If and when issued, the dispensary certification will be assigned to an entity to be wholly-owned by the 35% minority owners of GBS Nevada. In consideration for such assignment, the entity operating the dispensaries will agree to purchase a minimum of 20% of its inventory of cannabis from GBS Nevada and pay to Growblox 10% of all profits derived from its dispensary business. In addition, GBS Nevada shall retain the delivery certificate and the exclusive right to provide all delivery services on behalf of the dispensaries that are permitted by applicable state and local Nevada law.

We are finalizing the production and testing of the Growblox� Suites system, primarily at our Growblox Sciences, Puerto Rico, LLC, (GBSPR) which we opened in San Juan in April 2015. We shipped our first Growblox Suites from third party contractor production facilities located in China during November 2014. After testing and revisions are made, GBSPR intends to produce an initial round of demonstration production Suites in the second quarter of fiscal 2016.

Our Science division will seek to pioneer technologies and industry leading processes, in combination with “big data” driven clinical research and development programs to bring pain relief and potential cures to patients suffering from a variety of neurological and other diseases. Our Science division is currently working on licensing its initial biopharmaceutical cannabinoid product prototypes to begin clinical trials. In addition, we are currently seeking co-development partners to assist us with growing a phytocannabinoid-based biopharmaceutical product pipeline.

On May 12, 2015, Growblox entered into a note purchase agreement, to be effective as of June 9, 2015, with Pacific Leaf Ventures, LP ( “Pacific Leaf”), pursuant to which Pacific Leaf agreed to make an installment loan to our Company of up to $1,750,000 (the “Loan”). The purpose of the financing will be to provide for the acquisition and installation of an operating facility, equipment and other tangible assets by GBS Nevada. Such facility and equipment will be dedicated to the cultivation of cannabis and the extraction of oils and other constituents present in cannabis, subject at all times to Nevada legal requirements.

Under the note purchase agreement, Pacific Leaf made a $100,000 advance on June 9, 2015 and shall make additional advances to GBS Nevada in installments, as follows: (a) $600,000 by July 9, 2015; (b) $700,000 by August 9, 2015; and (c) $350,000 by September 9, 2015. The installment advances are designed to dovetail with construction and implementation needs for the cultivation facility for GBS Nevada.

Results of Operations

Comparison of the fiscal year ended March 31, 2015 and March 31, 2014.

FINANCIAL INFORMATION



                                                        2015            2014

General expenses                                    $  2,995,039     $  156,021
Payroll and related                                    4,467,536         30,824
Utilities and facilities                                 441,250              0
-Depreciation and amortization                            70,025            915
                                                      (7,973,850 )     (187,760 )
Other income/(expense)                                       136       (468,195 )
Net income/(loss) before non-controlling interest     (7,973,715 )     (655,955 )
Non-controlling interest                                (250,960 )            -

Net income/(loss)                                   $ (7,722,755 )   $ (655,955 )

Payroll and Related. Payroll increased by $4,405,888 due to a $616,899 increase in wages due to an increase in staff, stock option expense of 3,768,120, and an increase in employee benefits of $51,733 Additionally employee insurance was added in fiscal year 2015. During 2015 previous consulting positions were moved into full time employees as positions and business developed.

Other Income/(Expense). Other expenses increased by $468,059 for the year ended March 31, 2015 over the year ended March 31, 2014 primarily due to the change in the fair value of convertible notes and warrants by 57,000 and a loss on loan modifications of $559,000 in the prior year.

Liquidity and Capital Resources

We had cash balances totaling approximately $0 and $339,000 as of March 31, 2015 and 2014. Historically principal source of funds has been cash generated from financing activities. Subsequent to March 31, 2015 we raised approximately $1,603,000 from a combination of private placements and exercise of Class B warrants during the temporary reduction of the exercise price from $2.00 to t $0.20. Also on June 9, 2015 we signed a note agreement for $1,750.000 to fund the construction of the grow operations for GBS Nevada LLC.

Cash flow from operations. Cash flows used in operations were $3,545,583 and 521,127 for the year ended March 31, 2015 and 2014, respectively. We anticipate that cash flows from operations may be insufficient to fund business operations for the next twelve-month period. Accordingly, we will have to generate additional liquidity or cash flow to fund our current and anticipated operations. This will likely require the sale of additional common stock or other securities. There is no assurance that we will be able to realize any significant proceeds from such sales, if at all.

Cash flows from investing activities. Cash used for investing activities for purchasing equipment were $937,660 and $49,573 for the years ended March 31, 2015 and 2014.

Cash flows from financing activities. Net cash provided by financing activities was generated from promissory notes, sales of common stock and exercise of warrants that totaled $3,869,001 and $6,466,828 for the year ended March 31, 2015 and $715,750 for the year ended March 31, 2014.

Variables and Trends

We have no operating history with respect to the current business plan. In the event we are able to obtain the necessary financing to move forward with the business plan, we expect expenses to increase significantly as we grow this 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 these circumstances.

General and Administrative. General and administrative expenses increased in 2014 due to an increase in professional and consulting fees for obtaining licenses in Nevada.

Variables and Trends

We have no operating history with respect to the current business plan.. In the event we are able to obtain the necessary financing to move forward with the business plan, we expect business expenses to increase significantly as we go operational. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of future performance and must be considered in light these circumstances.

Critical Accounting Policies

General

The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of the financial statements are reasonable. Policies involving the most significant judgments and estimates are summarized below.

Fair Value of Financial Instruments

The Company holds certain financial liabilities which are measured at fair value on a recurring basis in accordance with ASC Topic 825-10-15. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability.

Convertible notes issued with detachable warrants were measured at fair value, in accordance with ASC Topic 825-10-15, as one instrument, and that fair value was allocated to each component. The Company made the fair value election due to this methodology providing a fairer representation of the economic substance of the transaction within the fair value hierarchy. Due to the lack of relevant and market reflective Level 1 and Level 2 inputs, the Company valued the instruments using Level 3 inputs, which require significant judgment and estimates on behalf of management in developing model assumptions. The factors considered in developing those assumptions included; the Company’s inability to attract investment at terms more favorable to the Company, the lack of success in developing oil properties thus far, the continuing reduction in the net assets of the Company and the Company’s history of default on currently outstanding debt.

Based on management’s evaluation of the assumptions discussed above, the liabilities were initially recorded in an amount equal to the transaction price, which represented the fair value of the total liability at initial recognition.. The model used by the Company is calibrated so that the model value at initial recognition equals the transaction price. On an ongoing basis the fair value model used in valuing the convertible notes and derivative liability utilizes the following inputs; exercise price per warrant, conversion price per share, contract term, volatility, current stock prices and risk free rates. The following assumptions were made in the model: (1) risk free interest rate of 0.19% to 0.51%, (2) remaining contractual life of 1 to 4.98 years, (3) expected stock price volatility of 697% and (4) expected dividend yield of zero.

Equity-Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model. The FASB issued accounting guidance requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. This accounting guidance requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact the financial statements for each respective reporting period.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: three to eight years for machinery and equipment, leasehold improvements are amortized over the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend the useful lives of related assets are expensed as incurred.

Intangibles

Intangible assets with definite lives are amortized, but are tested for impairment annually and when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. The annual testing date is March 31. We test intangibles for impairment by first comparing the carrying value of net assets to the fair value of the related operations. If the fair value is determined to be less than carrying value, a second step is performed to compute the amount of the impairment. In this process, a fair value for intangibles is estimated, based in part on the fair value of the operations, and is compared to its carrying value. The shortfall of the fair value below carrying value represents the amount of intangible impairment. We test these intangibles for impairment by comparing their carrying value to current projections of discounted cash flows attributable to the customer list. Any excess carrying value over the amount of discounted cash flows represents the amount of the impairment.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Stock-Based Compensation



                                    Total Awards      WA Strike Price       WA Volatility       WA Interest Rate
              2014
Starting Balance                                -     $              -                   -                      -
Issued in Period                     6,014,000.00     $              -                2.74                   0.01
Exercised in Period                  1,594,400.00     $              -                2.92                   0.00
Naturally Expired in Period                     -     $              -                   -                      -
Expired Vested in Period                        -     $              -                   -                      -
Forfeited Unvested in Period                    -     $              -                   -                      -
Total Expired in Period                         -     $              -                   -                      -
              2015
Starting Balance                     4,419,600.00     $              -                2.67                   0.01
Issued in Period                     1,000,000.00     $           0.20                   -                      -
Exercised in Period                  1,000,000.00     $           0.20                   -                      -
Naturally Expired in Period                     -     $              -                   -                      -
Expired Vested in Period                        -     $              -                   -                      -
Forfeited Unvested in Period                    -     $              -                   -                      -
Total Expired in Period                         -     $              -                   -                      -
Ending Balance                       4,419,600.00     $              -                2.67                   0.01




                                        WA                                                      Remaining
                                    Remaining               WA                                 Exercisable              WA
                Outstanding        Contractual          Outstanding         Exercisable        Contractual          Exercisable
Range           Outstanding            Life            Strike Price         Exercisable            Life            Strike Price

0 to 5           4,419,600.00               4.47     $               -       1,632,400.00               4.11     $               -
5.01 to 10                  -                  -     $               -                  -                  -     $               -
10.01 to 15                 -                  -     $               -                  -                  -     $               -
15.01 to 20                 -                  -     $               -                  -                  -     $               -
20.01 to 25                 -                  -     $               -                  -                  -     $               -
0 to 25          4,419,600.00               4.47     $               -       1,632,400.00               4.11     $               -

1) Exercisable information:

At March 31, 2015 and 2016, there were 4 and 1,632,400 exercisable awards with a weighted average exercise price of $0.00 and $0.00, respectively.

2) Intrinsic Value Information:

The aggregate intrinsic value of outstanding as of March 31, 2016 was $1,723,644.00 and far vested as of March 31, 2016 was $694,000.00.

The intrinsic value of awards exercised during the years ended March 31, 2015 and 2016 was $1,711,628.00 and $0.00, respectively.

3) Unrecognised Compensation Cost:

The total remaining unrecognized compensation cost is $2,147,805.50 and $654,968.43 as of March 31, 2015 and 2016. The weighted average period over which this cost is expected to be recognized is 2.78 and 2.15 years.

Recent Accounting Pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.