Note 13 - Sale of Membership Interests in Nevada Subsidiaries

12 Months Ended

Mar. 31, 2022

Nevada Subsidiaries [Member]

Notes to Financial Statements

Noncontrolling Interest Disclosure [Text Block]

Note 13 - Sale of Membership Interests in Nevada Subsidiaries

On March 24, 2020, the Company entered into the Membership Interest Purchase Agreement ("Teco MIPA") with AJE Management, LLC. Pursuant to the Teco MIPA, the Company agreed to sell 100% of its membership interests in GB Sciences Nevada, LLC, and GB Sciences Las Vegas, LLC (the "Teco Subsidiaries") for approximately $8 million, which amount includes a cash payment at closing, the extinguishment and/or repayments of certain liabilities owed to the purchaser and affiliates of the purchaser, and an 8% promissory note.

On August 10, 2020, the Company entered into the Membership Interest Purchase Agreement ("Nopah MIPA") and Promissory Note Modification Agreement with 483 Management, LLC. Pursuant to the Nopah MIPA, the Company agreed to sell its 100% membership interest in GB Sciences Nopah, LLC ("Nopah"), which holds a Nevada medical marijuana cultivation certificate. As consideration, the Company would receive $312,315 in consideration in the form of a $237,668 reduction to the outstanding principal and accrued interest balances of the 0% Note payable dated October 23, 2017 (Note 5), and extinguishment of accounts payable of $74,647, which were owed to an affiliate of the purchaser.

The closing of the Teco and Nopah sales was contingent upon the successful transfer of the Nevada cultivation and production licenses. On December 14, 2021, the Company received approval from the Nevada Cannabis Compliance Board for the transfer of cannabis cultivation and extraction licenses held by its subsidiaries GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC (the "Nevada Subsidiaries"). Consequently, all conditions to closing the sales of the 100% membership interests in the Nevada Subsidiaries were satisfied, and the transactions formally closed on December 31, 2021. After the closing date, the Company retains no ownership interest in the Nevada Subsidiaries.

As consideration for the membership interests, the Company received cash payments of $1,648,772 (including $400,000 in advance payments received during the nine months ended December 31, 2021), the extinguishment $3,462,854 of debt and current liabilities owed to affiliates of the purchaser (see Note 5 and Note 6), and a $3,025,000 8% note receivable.

As the result of sale of the Nevada Subsidiaries, the Company recorded a gain on deconsolidation of $5,206,208 on December 31, 2021, calculated as follows:

	December 31, 2021
Cash payments received, including advancements of $400,000	$	1,648,772
8% Note Receivable due December 31, 2024		3,025,000
Extinguishment of debt and accrued interest due to purchasers and purchasers' affiliates		2,612,854
Extinguishment of accrued management fees due to purchaser		850,000
Total consideration		8,136,626
Carrying amount of assets		7,130,159
Carrying amount of liabilities		(4,199,741	)
Net assets deconsolidated		2,930,418
GAIN ON DECONSOLIDATION	$	5,206,208

As the result of sale, the income, assets, and cash flows of GB Sciences Nevada, LLC, GB Sciences Las Vegas, LLC, and GB Sciences Nopah, LLC have been reclassified as discontinued operations for all periods presented in the Company's consolidated financial statements prior to the sale.

Note Receivable from Sale of Teco Subsidiaries

The $3,025,000 note receivable from the sale of the Teco Subsidiaries is payable as quarterly, interest only payments of $60,500 for the first year, followed by seven quarterly payments of interest and principal of $201,774 beginning March 31, 2023, with a final payment of principal and interest totaling $2,014,225 on December 31, 2024.

The note contains a provision that allows payments of principal and interest due prior to the maturity date to be postponed to the next quarterly payment date if cash flow from the operations of the facility is insufficient to cover the amount of the payment. Several days prior to the first interest payment due date of April 1, 2022, AJE Management, LLC notified the Company that it would be postponing the payment of interest of $60,500 due on April 1, 2022 due to insufficient cash flow to make the payment. AJE Management, LLC has also notified us that it will be unable to make the interest payment due July 1, 2022 due to insufficient cash flow. As a result, the Company reevaluated the factors relating to the collectibility of the note and determined that an impairment charge in the amount of $3,025,000, equal to the full balance of the note, was warranted as there is substantial uncertainty around the collectibility of the note, and we are unable to make an appropriate estimate of the amount of payments, if any, the Company will ultimately receive. The impairment charge is included on the Company's Statement of Operations as loss on impairment of note receivable.