$GBLX Form 10-Q

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

The Company is an innovative technology and solution company that converts the cannabis plant into medicines, therapies and treatments for a variety of ailments. The Company is developing and utilizing state of the art technologies in plant biology, cultivation and extraction techniques, combined with biotechnology, to produce consistent and measurable medical-grade cannabis, cannabis concentrates and cannabinoid therapies.

We seek to become a trusted producer of consistent and efficacious medicinal strains and products, combining both cannabinoids and terpenes, which we intend to market in those states within the United States and in other countries where the sale of medical cannabis products are permitted. In addition, subject to obtaining Food and Drug Administrative (FDA) certification, we intend to market our cannabinoid based drug discoveries on a world-wide basis.

On March 18, 2014, we purchased assets, including the Growblox� cultivation technology, from our current Chief Executive Officer, Mr. Craig Ellins and his affiliated companies which resulted in a change in our corporate name on April 4, 2014, from Signature Exploration and Production Corporation to Growblox Sciences, Inc.

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.

Plan of Operation

The Company believes that it is a leader in developing innovative technologies and solutions to convert the cannabis plant into medicines, therapies and treatments for a variety of ailments. We intend to conduct our business operations primarily through subsidiaries in three distinct operating units which we designate as our “Solutions,” “Sciences” and “Products” divisions.

Our Solutions division involves the development and use of our proprietary suite of controlled-climate indoor agricultural technology growing and cultivation Suites, which we call “TissueBLOX”, “GrowBLOX,” TM”CureBLOX” and “ExtractionLAB” (collectively, the “GrowBLOX Suites”). Our GrowBLOX Suites are engineered and designed to cultivate medical grade cannabis and create cGMP-certified plant extracts, and thereafter to enable us to process and manufacture a variety of pharmaceutical, nutraceutical and cosmeceutical formulations and products based on these certified raw ingredients.

Our Science division will seek to create and validate the effectiveness of proprietary formulations of active ingredients derived from the cannabis plant, 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 engaged in preclinical testing of its biopharmaceutical cannabinoid product prototypes to begin future human clinical trials. In addition, we are seeking co-development partners to assist us with growing a phytocannabinoid-based biopharmaceutical product pipeline.

Our Products division will market the pharmaceutical, nutraceutical and cosmeceutical drugs and therapies produced by our Science division. In addition, our Products division will seek to dispense medical-grade cannabis solutions and products in states within the United States and in other countries where the sale and use of such products are permitted. We will operate our Products division and market its solutions and products through existing and future subsidiaries to be located in permitted jurisdictions.

Subsidiaries

Our majority owned subsidiary GB Sciences Nevada, LLC (“GBS Nevada”) leases a warehouse facility at 3550 W. Teco Avenue, Las Vegas Nevada. GBS Nevada 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 we 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, the Company and GBS Nevada entered into a binding memorandum (the “Memorandum”) with GBS Nevada Partners, LLC (“GBS Partners”), the local minority members of GBS Nevada. Under the terms of such agreement, our equity in GBS Nevada was to increase from 55% to 65%, GBS Nevada was to 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 was to be assigned to an entity to be wholly-owned by the minority owners of GBS Nevada. In consideration for such assignment, the entity operating the dispensaries was to agree to purchase a minimum of 20% of its inventory of cannabis from GBS Nevada and pay to us 10% of all profits derived from its dispensary business. In addition, GBS Nevada was to 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. The delivery and dispensary certifications have yet to be issued and none of the actions contemplated by the Memorandum have been taken. Further to the determination to separate the business activities of GBS Nevada and ownership rights therein, on August 17, 2015, we entered into an agreement (the “Separation Agreement”) with GBS Partners, pursuant to which the rights and obligations of the parties contemplated by the Memorandum were expanded upon. Pursuant thereto, we will become the sole shareholder of GBS Nevada which will retain the Clark County cultivation license together with all related Supplemental Use Permits (“SUPs”) and state certificates. GBS Partners will receive the Clark County and City of Las Vegas dispensary location licenses together with related SUPs and state certificates. In connection therewith, the parties intend to enter into a ten year Consignment and Delivery Agreement (the “CDA”). For a more detailed description of the Separation Agreement and CDA see

Installment Loan Financing – Convertible Debenture

On May 12, 2015, we entered into a note purchase agreement, (the “NPA”) effective as of June 9, 2015, with Pacific Leaf Ventures, LP ( “Pacific Leaf”), pursuant to which Pacific Leaf agreed to make installment loans to us in the aggregate amount of $1.75 million (the “Loans”). The purpose of the financing is 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. Currently, the Company expects to achieve operating revenues in March or April 2016.

Under the NPA, Pacific Leaf made advances detailed in the table below resulting in total Loans to date of $1.5 million.

                                    Advance amount       Cumulative amount
            June 9, 2015           $        100,000     $           100,000
            July 3, 2015           $        200,000     $           300,000
            July 22, 2015          $        200,000     $           500,000
            August 3, 2015         $        190,000     $           690,000
            August 19, 2015        $         95,000     $           785,000
            August 21, 2015        $         15,000     $           800,000
            September 2, 2015      $        200,000     $         1,000,000
            September 30, 2015     $        200,000     $         1,200,000
            October 8, 2015        $        200,000     $         1,400,000
            October 27, 2015       $        100,000     $         1,500,000

RESULTS OF OPERATIONS



The following table sets forth certain of our Statements of Operations data:



                                     Three months ended                 Six months ended
                                        September 30,                     September 30,
                                    2015             2014             2015             2014

   Revenue                      $          -     $          -     $          -     $          -
   General and administrative
   expenses                        2,693,145        1,780,161        4,132,531        3,275,358
   Other income/(expense)            (10,571 )            160          (10,011 )            334
   Other                                (985 )              -             (985 )              -
   Loss attributable to
   non-controlling interest          (23,704 )       (109,902 )       (204,160 )       (159,707 )
   Net income/(loss)              (2,680,997 )     (1,670,099 )     (4,022,746 )     (3,115,317 )

Revenues

The Company had no operating revenues for the three months ended September 30, 2015, and September 30, 2014, and has not achieved any operating revenues to date.

General and administrative expenses

General and administrative expenses increased $0.9 million to $2.7 million for the three months ended September 30, 2015 compared to $1.8 million for the three months ended September 30, 2014. The increase in primarily attributable to increases in professional fees, consulting, and advisory services related to our licensing procedures.

Other expense

Total other expense increased by $0.01 million compared to the same period in prior year primarily due to the recognition of accrued interest at September 30, 2015 pertaining to the loan proceeds received from Pacific Leaf.

Comparison of the Six Months Ended September 30, 2015 and September 30, 2014

Revenues

The Company had no operating revenues for the six months ended September 30, 2015, and September 30, 2014, and has not achieved any operating revenues to date.

General and administrative expenses

General and administrative expenses increased $0.9 million to $4.1 million for the six months ended September 30, 2015 compared to $3.3 million for the six months ended September 30, 2014. The increase in primarily attributable to increases in professional fees, consulting, and advisory services related to our licensing procedures combined with increase in utilities and facilities expenses due to additional facilities leased during the six months ended September 30, 2015.

Other expense

Total other expense increased by $0.01 million compared to the same period in prior year primarily due to the recognition of accrued interest at September 30, 2015 pertaining to the loan proceeds received from Pacific Leaf.

LIQUIDITY AND CAPITAL RESOURCES

Current Liquidity

The Company will need additional capital to implement our strategies. There is no assurance that it will be able to raise the amount of capital needed for future growth plans. Even if financing is available, it may not be on terms that are acceptable. If unable to raise the necessary capital at the times required, the Company may have to materially change the business plan, including delaying implementation of aspects of the business plan or curtailing or abandoning the business plan. The Company represents a speculative investment and investors may lose all of their investment. In order to be able to achieve the strategic goals, the Company needs to further expand its business and financing activities. Based upon the cash position, it is necessary to raise additional capital by the end of the next quarter in order to continue to fund current operations. These factors raise substantial doubt about the ability to continue as a going concern. The Company is pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings. In order to finance existing operations and pay current liabilities over the next twelve months, the Company will need to raise approximately $4-5 million of capital depending upon license status. 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 September 30, 2015, cash was $0.3 million, other current assets excluding cash were $0.1 million and our working capital deficit was $2.4 million. At the same time, current liabilities were approximately $1.6 million, which consisted principally of $1.1 million in accounts payable, $1.6 million in notes payable, and $0.1 million in accrued liabilities. At March 31, 2015, cash was $0, and other current assets, excluding cash was $0.2 million. At the same time, current liabilities were $2.5 million, which consisted principally of $1.5 million in deferred compensation, $0.7 million in accounts payable, and $0.2 million in notes payable. The working capital deficit at March 31, 2015 was $2.3 million. The improvement in our liquidity position at September 30, 2015 compared to March 31, 2015 is primarily attributable to the decrease in deferred compensation.

Sources and Uses of Cash

Operating Activities

Net cash used in operating activities was $1.6 million for the six months ended September 30, 2015, as compared to net cash used of $2.4 million for the six months ended September 30, 2014. The decrease in net cash used in operations was primarily due to the increase in stock based compensation offset by an increase in net loss when compared to the prior period due to increase in general and administrative expenses.

Investing Activities

During the six months ended September 30, 2015 and 2014, the Company used $0.7 million and $0.2 million, respectively, of cash in investing activities. The cash used in investing activities during the six months ended September 30, 2015 was primarily for the purchase of property and equipment.

Financing Activities

During the six months ended September 30, 2015 and 2014, cash flows from financing activities totaled $2.6 million and $3.8 million, respectively. Cash flows from financing activities for the six months ended September 30, 2015 relate primarily to $1.2 million in proceeds from the issuance of debt securities, $1.2 million in proceeds from the issuance of common stock and warrants, and $0.3 million in proceeds from non-controlling interests.

GOING CONCERN

The unaudited interim financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of approximately $18 million as of September 30, 2015, and further losses are anticipated in the development of the business raising substantial doubt about the ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or obtaining the necessary financing to meet obligations and repay liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and/or private placements of debt and equity securities. The financials do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.

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 Item 15 of its Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended March 31, 2015, as filed with the SEC.