Note

– Background and Significant Accounting Policies

GB Sciences, Inc. (“the Company”, “GB Sciences”, “we”, “us”, or “our”) seeks to be a biopharmaceutical research and cannabinoid-based drug development company whose goal is to create patented formulations for safe, standardized, cannabinoid therapies that target a variety of medical conditions in both the pharmaceutical and wellness markets. The Company is 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

four

USPTO & WIPO patent applications,

four

provisional USPTO patent applications, and

three

patent applications that we anticipate filing during the fiscal year ended

March 31, 2020,

as well as licenses for

three

additional patents covering novel cannabinoid delivery systems.

We currently hold

100%

membership interests in cultivation and extraction facilities in Nevada under our subsidiaries GB Sciences Nevada, LLC ("GBSN") and GB Sciences Las Vegas, LLC ("GBLV"). 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 for

million cash upon close and up to an additional

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. The sale is expected to close upon the successful transfer of the Nevada cultivation and production licenses. The transfer of cannabis licenses in the State of Nevada is presently subject to an indefinite moratorium, and while the moratorium is expected to be lifted shortly, we cannot provide any assurances as to the timing of the close of the sale.

We recently completed the sale of the Company's controlling interest in GB Sciences Louisiana, LLC, which has partnered with Louisiana State University to operate a cultivation and extraction facility to produce products for the medical cannabis market. As consideration for the sale of our controlling membership interest in GB Sciences Louisiana, LLC, we received an

million promissory note and

may

receive up to an additional

million in earn out payments. The Company retained its

50%

interest in the research relationship with Louisiana State University ("LSU") and will retain an interest in rights to the intellectual property developed through the relationship with LSU.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of GB Sciences, Inc. (the “Company,” “We” or “Us”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form

-Q and Article

of Regulations S-

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, 2020.

The balance sheet at

March 31, 2019

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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form

-K for the year ended

March 31, 2019

Principles of Consolidation

We prepare our consolidated financial statements in accordance with generally accepted accounting principles (GAAP) for the United States of America. Our consolidated financial statements include all operating divisions and majority-owned subsidiaries, reported as a single operating segment, for which we maintain controlling interests. Intercompany accounts and transactions have been eliminated in consolidation. The ownership interest of non-controlling participants in subsidiaries that are

not

wholly owned is included as a separate component of equity. The non-controlling participants’ share of the net loss is included as “Net loss attributable to non-controlling interest” on the unaudited consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, inventory valuation, valuation of initial right-of-use assets and corresponding lease liabilities, valuation of beneficial conversion features in convertible debt, valuation of the assets and liabilities of discontinued operations, stock-based compensation expense, purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of costs and expenses that are

not

readily apparent from other sources. The actual results the Company experiences

may

differ materially and adversely from these estimates.

Reclassifications

Certain reclassifications have been made to the comparative period amounts in order to conform to the current period presentation. The current and long-term capital lease obligations recorded in the consolidated balance sheet as of

March 31, 2019

have been reclassified to conform to the current period presentation as finance lease obligations, current, and finance lease obligations, long term. Certain items on the unaudited statements of cash flows have been reclassified to confirm with current period presentation. In addition, the assets, liabilities, income, and cash flows of GB Sciences Louisiana, LLC have been separated from the comparative period amounts to confirm to the current period presentation as discontinued operations as the result of the sale of the Company’s interest in GB Sciences Louisiana, LLC (Note

). The reclassifications had

effect on the reported financial position, results of operations or cash flows of the Company.

Discontinued Operations

Discontinued operations comprise those activities that were disposed of during the period or which were classified as held for sale at the end of the period and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes.

The assets and liabilities associated with discontinued operations included in our condensed consolidated balance sheets are as follows:

Discontinued Operations – (continued)	December 31, 2019						March 31, 2019
	Continuing		Discontinued		Total		Continuing		Discontinued		Total
ASSETS
CURRENT ASSETS
Cash	$	37,300	$	-	$	37,300	$	182,055	$	45,703	$	227,758
Accounts receivable, net		80,436		-		80,436		488,329		-		488,329
Inventory, net		1,560,048		-		1,560,048		1,533,792		602,714		2,136,506
Prepaid and other current assets		83,240		-		83,240		262,208		351,970		614,178
Note receivable		1,365,042		-		1,365,042		-		-		-
TOTAL CURRENT ASSETS		3,126,066		-		3,126,066		2,466,384		1,000,387		3,466,771

Property and equipment, net		10,097,430		-		10,097,430		10,481,706		13,022,996		23,504,702
Intangible assets, net		2,073,839		-		2,073,839		1,818,802		-		1,818,802
Note receivable		5,366,133		-		5,366,133		-		-		-
Deposits and other noncurrent assets		95,504		-		95,504		230,651		1,002,376		1,233,027
Operating lease right-of-use assets, net		144,146		-		144,146		-		-		-

TOTAL ASSETS	$	20,903,118	$	-	$	20,903,118	$	14,997,543	$	15,025,759	$	30,023,302

LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	1,998,994	$	-	$	1,998,994	$	1,374,771	$	1,695,985	$	3,070,756
Accrued interest		429,064		-		429,064		142,112		-		142,112
Accrued expenses		469,053		-		469,053		244,931		76,415		321,346
Notes payable, net		4,860,221		-		4,860,221		2,229,812		300,000		2,529,812
Indebtedness to related parties		476,661		-		476,661		-		-		-
Income tax payable		506,145		-		506,145		506,145		-		506,145
Operating lease obligations, current		47,084		-		47,084		-		-		-
Finance lease obligations, current		134,239		-		134,239		80,132		61,877		142,009
TOTAL CURRENT LIABILITIES		8,921,461		-		8,921,461		4,577,903		2,134,277		6,712,180

Note payable, net		-		-		-		161,072				161,072
Operating lease obligations, long term		114,052		-		114,052		-				-
Finance lease obligations, long term		3,565,622		-		3,565,622		3,646,540		2,347,511		5,994,051

TOTAL LIABILITIES	$	12,601,135	$	-	$	12,601,135	$	8,385,515	$	4,481,788	$	12,867,303

The revenues and expenses associated with discontinued operations included in our condensed consolidated statements of operations were as follows:

	For the Three Months Ended December 31,
	2019									2018
	Continuing			Discontinued			Total			Continuing			Discontinued			Total
Sales revenue	$	254,131		$	192,070		$	446,201		$	695,764		$	-		$	695,764
Cost of goods sold		(675,933	)		(193,915	)		(869,848	)		(302,569	)		-			(302,569	)
Gross profit (loss)		(421,802	)		(1,845	)		(423,647	)		393,195			-			393,195
General and administrative expenses		1,744,699			666,042			2,410,741			2,456,411			526,210			2,982,621
LOSS FROM OPERATIONS		(2,166,501	)		(667,887	)		(2,834,388	)		(2,063,216	)		(526,210	)		(2,589,426	)
OTHER INCOME/(EXPENSE)
Interest expense		(419,264	)		(52,769	)		(472,033	)		(258,522	)		(62,627	)		(321,149	)
Other income/(expense)		(118,695	)		-			(118,695	)		(402,504	)					(402,504	)
Loss on extinguishment		(92,795	)		-			(92,795	)		-			-			-
Gain on deconsolidation of subsidiary		4,502,058			-			4,502,058			-			-			-
Total other expense		3,871,304			(52,769	)		3,818,535			(661,026	)		(62,627	)		(723,653	)
NET LOSS BEFORE INCOME TAXES		1,704,803			(720,656	)		984,147			(2,724,242	)		(588,837	)		(3,313,079	)
Income tax expense		-			-			-			(737,568	)		-			(737,568	)
NET INCOME/(LOSS)	$	1,704,803		$	(720,656	)	$	984,147		$	(3,461,810	)	$	(588,837	)	$	(4,050,647	)

	For the Nine Months Ended December 31,
	2019									2018
	Continuing			Discontinued			Total			Continuing			Discontinued			Total
Sales revenue	$	2,336,505		$	569,077		$	2,905,582		$	2,728,277		$	-		$	2,728,277
Cost of goods sold		(3,157,452	)		(574,544	)		(3,731,996	)		(1,185,878	)		-			(1,185,878	)
Gross profit (loss)		(820,947	)		(5,467	)		(826,414	)		1,542,399			-			1,542,399
General and administrative expenses		5,213,561			1,292,613			6,506,174			10,079,767			1,935,766			12,015,533
LOSS FROM OPERATIONS		(6,034,508	)		(1,298,080	)		(7,332,588	)		(8,537,368	)		(1,935,766	)		(10,473,134	)
OTHER INCOME/(EXPENSE)
Interest expense		(1,332,637	)		(178,140	)		(1,510,777	)		(4,681,235	)		(188,947	)		(4,870,182	)
Other income/(expense)		74,920			-			74,920			(3,352,311	)		-			(3,352,311	)
Loss on extinguishment		(216,954	)		-			(216,954	)		-			-			-
Gain on deconsolidation of subsidiary		4,502,058			-			4,502,058			-			-			-
Total other expense		3,027,387			(178,140	)		2,849,247			(8,033,546	)		(188,947	)		(8,222,493	)
NET LOSS BEFORE INCOME TAXES		(3,007,121	)		(1,476,220	)		(4,483,341	)		(16,570,914	)		(2,124,713	)		(18,695,627	)
Income tax expense		-			-			-			(737,568	)		-			(737,568	)
NET LOSS	$	(3,007,121	)	$	(1,476,220	)	$	(4,483,341	)	$	(17,308,482	)	$	(2,124,713	)	$	(19,433,195	)

Long-Lived Assets

Property and equipment comprise a significant portion of our total assets. We evaluate the carrying value of property and equipment if impairment indicators are present or if other circumstances indicate that impairment

may

exist under authoritative guidance. The annual testing date is

March 31.

When management believes impairment indicators

may

exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of property and equipment are prepared. If the projections indicate that the carrying value of the property and equipment are

not

recoverable, we reduce the carrying values to fair value. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available.

indicators of impairment were identified by the Company as of

March 31, 2019

Inventory

We value our inventory at the lower of the actual cost of our inventory, as determined using the

first

-in,

first

-out method, or its current estimated net realizable value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete inventory is based on expected future use.

Beneficial Conversion Feature of Convertible Notes Payable

The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic

470

20,

Debt with Conversion and Other Options and Emerging Issues Task Force (“EITF”)

27,

“Application of Issue

No.

to Certain Convertible Instruments”. A beneficial conversion feature (“BCF”) exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after

first

considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the BCF of a convertible note is measured by allocating a portion of the note's proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The Company calculates the fair value of warrants issued with the convertible notes using the Black-Scholes valuation model and uses the same assumptions for valuing any employee options in accordance with ASC Topic

718

Compensation – Stock Compensation. The only difference is that the contractual life of the warrants is used.

The value of the proceeds received from a convertible note is then allocated between the conversion features and warrants on a relative fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

Revenue Recognition

The FASB issued Accounting Standards Codification (“ASC”)

606

as guidance on the recognition of revenue from contracts with customers. Revenue recognition depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits

two

methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company adopted the guidance on

April 1, 2018

and applied the cumulative catch-up transition method.

The Company’s only current revenue source is from sales of cannabis, a distinct physical good. Under ASC

606,

the Company is required to separately identify each performance obligation resulting from its contracts from customers, which

may

be a good or a service. A contract

may

contain

one

or more performance obligations. All of the Company’s contracts with customers, past and present, contain only a single performance obligation, the delivery of distinct physical goods. Because fulfillment of the company’s performance obligation to the customer under ASC

606

results in the same timing of revenue recognition as under the previous guidance (i.e. revenue is recognized upon delivery of physical goods), the Company did

not

record any material adjustment to report the cumulative effect of initial application of the guidance.

Earnings/(loss) per Share

The Company’s basic loss per share has been calculated using the weighted average number of common shares outstanding during the period. The Company had

158,728,095

and

108,999,521

potentially dilutive common shares at

December 31, 2019

and

2018

, respectively. However, for the

nine

months ended

December 31, 2019

and the

three

and

nine

months ended

December 31, 2018,

such common stock equivalents were

not

included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive. The computation of diluted earnings per share for the

three

months ended

December 31, 2019,

is presented in the following table:

	For the Three Months Ended December 31, 2019
Diluted EPS Computation	Income (Numerator)			Shares (Denominator)		Per-Share Amount

Net income from continuing operations available to common stockholders	$	1,704,803
Plus: Income impact of assumed conversions
Interest expense on convertible notes payable		51,608
Effect of assumed conversions		51,608
Income from continuing operations plus assumed conversions		1,756,411
Net loss from discontinued operations available to common stockholders		(360,329	)
Net income available to common stockholders	$	1,396,082

Weighted-average common shares outstanding					263,055,254
Plus: incremental shares from assumed conversions
Warrants					26,648,530
Convertible notes payable					36,086,770
Dilutive potential common shares					62,735,300
Adjusted weighted-average shares					325,790,554

Diluted EPS
Net income from continuing operations	$	1,756,411			325,790,554	$	0.01
Net loss from discontinued operations	$	(360,329	)		325,790,554	$	(0.00	)
Net loss	$	1,396,082			325,790,554	$	0.00

Recent Accounting Pronouncements

Recently Adopted Standards

February 2016,

the Financial Accounting Standards Board ("FASB") issued ASU

2016

02,

Leases (Topic

842

), (the "New Lease Standard"). This standard requires leases, other than short-term, to be recognized on the balance sheet as a lease liability and a corresponding right-of-use asset.

Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the standard. Lease payments do

not

include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. This standard is effective for interim and annual reporting periods beginning after

December 15, 2018

and the Company adopted the standard as of

April 1, 2019.

The Company also elected the package of practical expedients, which among other things, does

not

require reassessment of lease classification.

The Company adopted the New Lease Standard using the modified retrospective transition approach as of the effective date as permitted by the amendments in ASU

2018

11,

"Targeted Improvements - Leases (Topic

842

)." Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized at the adoption date. As a result, the Company was

not

required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption on

April 1, 2019.

The Company's consolidated balance sheet was affected by this standard, but the consolidated statement of operations and consolidated statement of cash flows were

not

significantly impacted. The most significant change to the consolidated balance sheet upon adoption on

April 1, 2019

relates to the recognition of new right-of-use (ROU) assets of

$182,624,

net of accumulated amortizations, and operating liabilities of

$190,173

at the date of adoption. The Company's accounting for finance leases remains substantially unchanged.

June 2018,

the FASB issued ASU

2018

07,

“Compensation - Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU

2018

07”

). ASU

2018

expands the scope of Topic

718

to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic

718

applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years, and is effective for the Company as of

April 1, 2019.

The Company determined that all share-based payments were settled as of the date of the adoption, so there was

impact on the Company's consolidated financial statements.

All other newly issued accounting pronouncements but

not

yet effective have been deemed either immaterial or

not

applicable.