GB SCIENCES INC - Quarter Report: 2014 June (Form 10-Q)

gblxtenqjunfourteen.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

__________________________

(Mark One)

ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission file number: 333-82580

GROWBLOX SCIENCES, INC.

(Exact name of small business issuer as specified in its charter)

____________________

Delaware

(State or other Jurisdiction of Incorporation or organization)

59-3733133

(IRS Employer I.D. No.)

___________________________

7251 West Lake Mead Blvd, Suite 300

Las Vegas, Nevada 89128

Phone: (844) 843-2569

Fax: (866) 929-5122

(Address and telephone number of

principal executive offices)

(Address, including zip code, and telephone and facsimile numbers, including area code, of

registrant’s executive offices)

___________________________

(Former name, former address and former fiscal year, if changed since last report)

___________________________

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer

Non-accelerated filer Smaller reporting company ü

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes No ü

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class Outstanding as of August 12, 2014

Common stock, .0001 par value 32,473,282

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

FORM 10-Q

INDEX

PART I – FINANCIAL INFORMATION		Page
Item 1.	Financial Statements

	Condensed Balance Sheet (unaudited) at June 30, 2014 and March 31, 2013	3
	Condensed Statements of Operations (unaudited) for the Three Months Ended June 30, 2014 and 2013	4
	Condensed Statements of Cash Flows (unaudited) for the Three Months Ended June 30, 2014 and 2013	5
	Notes to Condensed Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4.	Controls and Procedures	20

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	22

SIGNATURE PAGE		24

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Condensed Balance Sheets

Assets
	June 30,			March 31,
	2014			2013

Current assets:
Cash	$	3,213,358		$	339,327
Subscription Receivable		-			150,000
Inventory		3,000			-
Prepaid expenses and other current assets		17,664			-

Total current assets		3,234,022			489,327

Property and Equipment:


Property and Equipment, net		74,021			44,922
Intangible assets, net		3,675			3,735

Total property and equipment		77,696			48,657

Total assets	$	3,311,718		$	537,984

Liabilities and Stockholders’ Equity (Deficiency)

Current liabilities:
Accounts payable	$	33,862		$	19,762
Subscription payable		35,250			10,000
Accrued interest		108,749			252,304
Other accrued expenses		1,847			1,847
Notes from shareholders		5,000			5,000
Convertible notes from shareholders		368,610			1,262,441

Total current liabilities		553,318			1,551,354

Commitments and contingencies		-			-

Stockholders’ equity (deficiency):
Common stock, $0.0001 par value, 250,000,000 shares authorized 32,473,282 and 7,268,948 shares issued and outstanding at June 30, 2014 and March 31, 2014		3,247			727
Additional paid-in capital		10,350,432			5,198,659
Accumulated deficit		(7,657,974	)		(6,212,756	)

Total stockholders’ equity (deficiency)		2,695,705			(1,013,370	)
Noncontrolling interest		62,695			-
Total equity		2,758,400			(1,013,370	)

Total liabilities and stockholders’ equity (deficiency)	$	3,311,718		$	537,984

The accompanying notes are an integral part of the financial statements.

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Condensed Statements of Operations (unaudited)

For the Three Months ended June 30, 2014 and 2013

	2014			2013
Net revenue	$	-		$	-

Cost of revenue		-			-

Gross profit (loss)		-			-

Stock compensation		537,296			-
Investor relations		396,000			-
General and administrative expenses		561,900			29,487

Loss from continuing operations		(1,495,196	)		(29,487	)

Other income/(expense)
Interest expense		-			(12,717	)
Interest income		173			-

Total other income/(expenses)		173			(12,717	)

Total income/(loss)		(1,495,023	)		(42,204	)
Less net income (loss) attributable to noncontrolling interests		(49,805	)		-

Net income/(loss)	$	(1,445,218	)	$	(42,204	)

Weighted average common shares outstanding:
Basic and diluted		3,658,004			850,110

Net income/(loss) per share
Basic and diluted	$	(0.40	)	$	(0.05	)

The accompanying notes are an integral part of the financial statements.

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

For the Three months ended June 30, 2014 and 2013

Cash flows from operating activities:	2014			2013
Net loss	$	(1,445,218	)	$	(42,204	)
Less net loss attributable to noncontrolling interest		(49,805	)

Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense		227			75
Amortization expense		60			-
Stock compensation		537,296			-
Non-cash interest		-			1,694
Changes in operating assets and liabilities:
Inventory		(3,000	)		-
Prepaid expenses		(13,564	)		-
Other assets		(4,100	)		-
Accounts payable		14,100			10,825
Stock subscription payable		25,250			-
Accrued expenses		-			18,705

Net cash used in operating activities		(938,754	)		(10,905	)

Cash flows from investing activities:

Purchase of property and equipment		(29,326	)		-

Net cash used in investing activities		(29,326	)		-

Cash flows from financing activities:
Stock subscription receivable		150,000			-
Proceeds from issuance of stock		3,579,612			-
Proceeds from noncontrolling interest		112,500			-
Proceeds from issuance of debt to stockholders		-			26,000

Net cash provided by financing activities		3,842,112			26,000

Net increase (decrease) in cash		2,874,032			15,095

Cash, beginning of year	$	339,327		$	2,427

Cash, end of June 30, 2014	$	3,213,359		$	17,522

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	-		$	-

Non-cash investing and financing activities:
Stock issued to settle convertible debt	$	893,831		$	-
Stock issued to settle interest expense	$	143,555		$	-

The accompanying notes are an integral part of the financial statements.

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2014

NOTE 1 - ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed financial statements have been prepared by the Company, pursuant to the rules and regulations of the U. S. Securities and Exchange Commission for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited condensed financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. Interim results are not necessarily indicative of the results that may be expected for the year. The unaudited condensed financial statements should be read in conjunction with the condensed financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operation, for the year ended March 31, 2014, contained in the Company’s March 31, 2014 Annual Report on Form 10-K.

The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced net losses since April 4, 2001 which losses have caused an accumulated deficit of approximately $7,600,000 as of June 30, 2014. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

Management has been able, thus far, to finance the losses through a public offering, private placements and obtaining operating funds from stockholders. The Company is continuing to seek sources of financing. There are no assurances that the Company will be successful in achieving its goals.

In view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. The Company is currently in the process of acquiring and developing crude oil and natural gas leases. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.

NOTE 2 – BASIS OF PRESENTATION

Reporting Entity. GrowBlox Sciences, Inc. (“GrowBlox” or “the Company”) was incorporated on April 4, 2001 under the laws of the State of Delaware. The Company is authorized to issue 250,000,000 shares of common stock, par value $.0001. On March 18, 2014, we purchased assets from Craig Ellins, which included the revolutionary GrowBLOX™ technology. We plan to utilize this technology to commercially cultivate and produce medical grade cannabis for sale in the U.S. states and territories in which it is legal. We also plan to research the medical treatment potential of cannabis and develop treatments from those findings. On April 4, 2014, we officially changed our name to GrowBLOX™ Sciences, Inc. to reflect this new corporate direction. The Company’s office is located in Las Vegas, Nevada.

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2014

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage Company. The Company is considered to be in the development stage.

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.

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: 3-8 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.

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.

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 has 8,757,106 potentially dilutive common shares at March 31, 2014. However, such common stock equivalents were not included in the computation of diluted net loss per share as their inclusion would have been anti-dilutive.

Fair Value Measurement. 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. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 fair value elections are made on an instrument by instrument basis.

In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments.

Recent Accounting Pronouncements

There were no recently issued accounting pronouncements that will have a material impact on the Company’s financial statements

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2014

NOTE 4 – CONVERTIBLE NOTES AND WARRANTS

Convertible Notes from Shareholders

The Company has debt outstanding to shareholders, which was issued between 2006 and 20013. The debt was not issued with warrants and some of the debt was not originally issued with a conversion feature. During fiscal years 2009 and 2010, the notes without conversion features were modified to contain a conversion feature, for which the Company recorded a loss on the modification. Convertible notes from shareholders issued during fiscal year 2010 contained a beneficial conversion feature, with the discount being amortized over the term of the note.

Convertible notes from shareholders accrued interest at a rate of 10 percent per annum. The note holders had the sole option of converting the principal and interest represented by these notes into our common stock at a strike price equal to a $0.01. The note holders were only be allowed to convert shares or portion thereof to the extent that, at the time of the conversion, the conversion will not result in the note holders beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.

Additional, between December 2009 and February 2013, the Company entered into several Convertible Note Agreements ("Notes") for a total of $1,033,744. The Company received aggregate proceeds of $884,700 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

The Notes were due after one year. The note holders could have converted any portion of the Notes that are outstanding, whether such portion represents principal or interest, into shares of common stock of the Company at a price equal to $0.10. The Notes includes an anti-dilution adjustment that may not be adjusted below $0.01.

Simultaneously with the issuance of these Notes, the Company issued to the Note holders a 5-year warrant (the "Warrants") to purchase 12,364,766 shares of common stock of the Company. The Warrants were exercisable at a price equal to $0.15. The Warrants included an anti-dilution adjustment that may not be adjusted below $0.01.

The note holders were only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.

Simultaneously with the issuance of this Note, the Company issued to each Note holder a 5-year warrant (the "Warrant") to purchase 504,203 shares of common stock of the Company. The Warrant is exercisable at a price equal to $0.50. The Warrants include an anti-dilution adjustment that may not be adjusted below $0.01.

The note holder will only be allowed to convert shares or exercise warrants or portion thereof to the extent that, at the time of the conversion or exercise, the conversion or exercise will not result in the note holder beneficially owning more than 9.9% of the issued and outstanding common shares of the Company.

In March 2014, the note holders’ agreed to modify the terms of all the notes and warrants. The notes are now convertible at a fixed price of $0.26. The warrants have been cancelled and no longer have any value. A loss of $559,048 for the extinguishment of debt has been recorded on the State of Operations as of March 31, 2014.

	For the three months ended June31, 2014				For the year ended March 31, 2014
	Convertible Notes		Accrued Interest		Convertible Notes		Accrued Interest
Balance, beginning of period	$	1,262,441	$	252,304	$	1,376,498	$	208,088
Conversion to common stock		893,831		252,304		114,057		-
Accrued interest		-		-		-		44,216
Balance, end of period	$	368,610	$	108,749	$	1,262,441	$	252,304

GROWBLOX SCIENCES, INC AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2014

NOTE 4 – CONVERTIBLE NOTES AND WARRANTS, CONTINUED


	Warrants Outstanding
	Number of Shares			Exercise Price
Outstanding at March 31, 2013		12,364,766		$	0.15-$0.10
Warrants issued		2,960,000		$	1.00-$2.00
Warrants exercised		-
Warrants expired/cancelled		(12,364,766	)
Outstanding at March 31, 2014		2,960,000		$	1.00-$2.00
Warrants issued		12,038,446		$	0.55-$2.00
Warrants exercised		-
Warrants expired/cancelled
Outstanding at June 30, 2014		14,995,446		$	0.55-$2.00

NOTE 5 – STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY)

From April 2014 to June 2014, the Company converted a total of $1,015,459 of notes payable from certain Note Holders into common stock of the Company. The Company issued 3,905,612 shares of our common stock to satisfy the principal and interest balances of the notes payable.

As of June 30, 2014, the Company sold 4,520,000 units through a private placement. Each unit consists of one share of common stock, one A warrant, expiring in three years, with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise price of $2.00. The price was $0.50 per unit.

On March 13, 2014 the Company entered into a definitive agreement (the “Agreement”) with Mr. Craig Ellins for the acquisition of assets. In accordance with the Agreement, Mr. Ellins was issued an additional four million shares upon the completion of a minimum of $1,000,000 in proceeds to the Company from fund raising on May 1, 2014. The shares were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.

On June 27, 2014, the Company issued 8,950,000 shares of common stock pursuant to the employment contracts of our three executive officers valued at $1.24 per share. Fifty thousand of the shares were paid directly to one of the officers. The remaining shares will be held by the Company until such time as certain milestones are reached and vesting periods have run. The issuance was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act because there was no public offering in connection with the issuance of the shares.

NOTE 6 – SUBSEQUENT EVENTS

On July 15, 2014 the Company converted a total of $307,356 of notes payable from certain Note Holders into common stock of the Company. The Company issued 1,202,500 shares of our common stock to satisfy the principal and interest balances of the notes payable.

Item 2. Management’s Discussion and Analysis or Plan of Operations.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. These forward-looking statements, including those with respect to our operating results for 2008, are based upon current expectations and beliefs of the Company’s management and are subject to risks and uncertainties that could cause results to differ materially from those indicated in the forward-looking statements. Some, but not all, of the factors, which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading “Risk Factors” and elsewhere in this report. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, or to explain why actual results differ. Readers should carefully review the risk factors described in this section below and in any reports filed with the Securities and Exchange Commission (“SEC”).

Overview

Our company was incorporated in the State of Delaware on April 4, 2001, under the name “Flagstick Venture, Inc.” On March 28, 2008, a majority of our stockholders approved changing our name to Signature Exploration and Production Corp. as our business model had changed to become an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States.

On March 18, 2014, we purchased assets from Craig Ellins, which included the revolutionary GrowBLOX™ technology. We plan to utilize this technology to commercially cultivate and produce medical grade cannabis for sale in the U.S. states and territories in which it is legal. We also plan to research the medical treatment potential of cannabis and develop treatments from those findings. On April 4, 2014, we officially changed our name to GrowBLOX™ Sciences, Inc. to reflect this new corporate direction.

Plan of Operation

Our goal is to be an industry leader in the cultivation technology and research and development of medical cannabis drugs and treatments. To achieve our goal, we plan to use a vertically-integrated approach involving the development of methods and products to improve cultivation and provide consistent medical-grade yield, innovation of biopharmaceutical and nutraceutical products using the harvested materials, and marketing and distribution in coordination with business partnerships to establish in markets in which the distribution and use of medical cannabis is legal.

We have created a majority owned partnership (55%), GB Sciences Nevada, LLC to obtain licensing for cultivation and distribution of cannabis in the state of Nevada. We have been granted a special use permit by Clark County, NV for a cultivation and dispensary location. Upon state approval, we will set up a cultivation facility and a dispensary in Clark County, Nevada. We are also seeking approval to set up a dispensary in the city of Las Vegas, Nevada. We plan to use our Nevada operations as a model for establishing business in other U.S. states and territories by seeking out partnerships in each strategic area. At this time, we have created subsidiary companies in Puerto Rico, Florida and New Jersey.

We have also executed a binding Memorandum of Understanding ("MOU") with LaurelCo, LLC, an Illinois limited liability company formed to pursue the acquisition of both cultivation and dispensary medical marijuana licenses in the state of Illinois. Pursuant to the MOU, the Company will acquire a 20% equity interest in LaurelCo, LLC in exchange for licenses to use our proprietary GrowBLOXTM growing chambers, as well as all technology related to the machines and to various other proprietary technologies. The Company will also provide technical assistance during the upcoming complex Illinois license application process. Upon LaurelCo, LLC receiving one or more licenses in the state, the Company will provide growing chambers for the their growing facilities, in exchange for an accelerated payback of actual costs, plus a 10% royalty interest going forward in any products created in the chambers and sold by licensed entity.

We received first system from production in China during August 2014. After testing and revisions are made, an initial round of production will provide containers for the first cultivation facility in Clark County, Nevada and Illinois in January 2015.

We also plan to set up biopharmaceutical research and development of products using our harvested cannabis. Our initial phase will be the accelerated “virtual pharma” and will include obtaining license patents on promising projects, testing and FDA approval, and co-developing the resulting product for marketing and sale. The next phase will involve setting up a traditional biopharmaceutical research method to allow our company to begin the R&D process in-house and fully own resulting patents and products.

Cash Requirements

We estimate that we will require an additional $4,750,000 to fund our currently anticipated requirements for ongoing operations and grow and dispensary facilities for our existing business for the next twelve-month period.

Based upon our cash position, we will need to raise additional capital prior by the end of fiscal 2015 in order to fund current operations. These factors raise substantial doubt about our ability to continue as a going concern. We are pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings. We are in discussions with our existing stockholders to provide additional funding in exchange for notes or equity. In order to finance existing operations and pay current liabilities over the next twelve months, we will need to raise $2,250,000 of capital. However, there can be no assurance that the requisite financing will be consummated in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans or possibly cease operations. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.

Results of Operations

Comparison of the fiscal year ended June 30, 2014 and June 30, 2013.

FINANCIAL INFORMATION

	2014		2013
Stock Compensation		537,300		-
Investor relations		396,000		-
General and administrative		561,900		29,000
Other income/(expense)		200		(13,000	)
Net income/(loss)	$	1,495,000	$	(42,000	)

Stock Compensation. Stock compensation increase due to the issues of shares to employees in accordance with employee contracts.

Investor Relation. The company hire a professional firm to manage it investor and public relations in the May 2014.

General and Administrative. General and administrative expenses increased by 532,900 in 2014 due to an increase in professional and consulting fees relating to our licensing process, the addition of six employees. Travel expenses have also increased due to the licensing process in multiple states.

Other Income/(Expense). Other expenses decreased by $12,800 in 2013 due to a decrease in interest expense.

Liquidity and Capital Resources

We had cash balances totaling approximately $3,200,000 as of June 30, 2013. Historically, our principal source of funds has been cash generated from financing activities.

Cash flow from operations. We have been unable to generate either significant liquidity or cash flow to fund our current operations. We anticipate that cash flows from operations will be insufficient to fund our business operations for the next twelve-month period.

Cash flows from investing activities. There was $29,000 and $0 cash used in investing activities for the three months ended June 30, 2014 and 2013.

Cash flows from financing activities. Net cash provided by financing activities was generated from the sale of equity that total approximately $3,800,000 and $26,000 for the three months ended June 30, 2014 and 2013.

Variables and Trends

In the event we are able to obtain the necessary financing to move forward with our business plan, we expect our expenses to increase significantly as we grow our business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our 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 our 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 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.

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: 3-8 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. Our 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.

Commitments

Except as shown in the following table, as of June 30, 2014, we did not have any material capital commitments, other than funding our operating losses and repaying outstanding debt. It is anticipated that any capital commitments that may occur will be financed principally through borrowings from stockholders (although such additional financing has not been arranged). However, there can be no assurance that additional capital resources and financings will be available to us on a timely basis, or if available, on acceptable terms.

Future payments due on our contractual obligations as of June 30, 2014 are as follows:

Convertible notes from shareholders		367,000
Accrued interest		109,000

Total	$	476,000

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 our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3 – Quantitive and Qualitative Disclosers About Market Risk

ITEM 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer has carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2014.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are ineffective. Internal control weaknesses included controls over period end financial disclosure and reporting processes including not having a functioning audit committee consisting of independent Board members as well as lack of expertise with respect to the application of US GAAP and SEC rules and regulations.

Material Weaknesses

In our Form 10-K for the fiscal year ended March 31, 2014 under Item 9-A- Controls and Procedures, we identified material weaknesses in our system of internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On April 2, 2014, the Company commenced an action in the United States District Court for the Southern District of New York against GCM Administrative Services, LLC (“GCM”), Strategic Turnaround Equity Partners, L.P., Gary Herman, and Seth M. Lukash. The action was brought for the purpose of determining whether the defendants or any of them were entitled to receive stock in the Company pursuant to conversion rights held under promissory notes given by an affiliate of the Company to GCM. The defendants answered the compliant and brought five counterclaims back against the Company. The counterclaims were for declaratory judgment, damages for breach of fiduciary duty and unjust enrichment, a money award for quantum meruit, and for breach of contract for refusing to convert the notes into shares. No specific amount of money damages is identified in the counterclaims. The Company believes the court will rule that there are no conversion rights pursuant to which the Company will be required to issue stock and that the counterclaims are without merit

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On June 27, 2014 the Company issued 8,950,000 shares of common stock pursuant to the employment contracts of our three executive officers at $1.24 per share. Fifty thousand of the shares were paid directly to one of the officers. The remaining shares will be held by the Company until such time as certain milestones are reached and vesting periods have run. The issuance was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act because there was no public offering in connection with the issuance of the shares.

Convertible Notes and Warrants

Between December 2009 and February 2013, the Company entered into several Convertible Note Agreements ("Notes") for a total of $1,033,744. The Company received aggregate proceeds of $884,700 reflecting a 15% original issue discount to the Note holders and a nominal rate of 16.63%.

In March 2014, the note holders’ agreed to modify the terms of the notes and warrants. The notes are now convertible at a fixed price of $0.26. The warrants have been cancelled and no longer have any value. A loss of $559,048 for the extinguishment of debt has been recorded on the State of Operations as of March 31, 2014.

Sale of Common Stock

During the quarter ending June 30, 2014, the Company sold 4,520,000 units through a private placement. Each unit consists of one share of common stock, one A warrant, expiring in three years, with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise price of $2.00. The price was $0.50 per unit.

As of March 31, 2014, the Company sold 1,480,000 units through a private placement. Each unit consists of one share of common stock, one A warrant, expiring in three years, with an exercise price of $1.00 and one B warrant, expiring in five years, with an exercise price of $2.00. The price was $0.50 per unit.

Asset Purchase

On March 13, 2014, the Company, entered into a definitive agreement with Mr. Craig Ellins for the acquisition of assets The Assets include:

•	a provisional patent application

•	concepts associated with the Mr. Ellins or his associates

•	trademarks

•	business plans

•	investor presentations and histories

•

websites

•	trade secrets including without limitation trade secrets involving nutrient mixes

•	drawings and digital artwork

•	raw materials

•	production equipment and related assets including without limitation electrical equipment, plastic molds and internal parts

•	proof-of-concept equipment

•

URL’s

In exchange for the Assets, the Company agreed to issue 12,500,000 restricted shares of the Company’s common stock. Of the total number of shares to be issued, 4,500,000 were issued upon the signing of the Agreement. The remainder of the shares will be issued upon reaching certain milestones. The shares were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.

On March 13, 2014 Mr. Ellins was issued an additional four million shares upon the completion of a minimum of $1,000,000 in proceeds to the Company from fund raising on May 1, 2014. The shares were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.

Employment Agreements

Mr. Alan Gaines, our former Chief Executive Officer and Chairman, had entered into an Employment Agreement with the Company for a one year term beginning May 2, 2011. Mr. Gaines would have been compensated with 12,012,413 shares of restricted common stock, payable upon the completion of a Qualified Acquisition or Qualified Equity Raise. An expense of $960,993 would have been recorded as stock compensation at the time a Qualified Acquisition or Qualified Equity Raise is completed. Upon the resignation of Mr. David on April 18, 2012, the shares were canceled and no expense was recognized.

Dr. Amiel David, our former Chief Operating Officer, has entered into an Employment Agreement with the Company for a one year term beginning May 2, 2011. Dr. David would have been compensated with 12,013,413 shares of restricted common stock, payable upon the completion of a Qualified Acquisition or Qualified Equity Raise. An expense of $961,073 would have been recorded as stock compensation at the time a Qualified Acquisition or Qualified Equity Raise is completed. Upon the resignation of Mr. David on April 18, 2012, the shares were canceled and no expense was recognized.

Note Conversions

During the year ended March 31, 2013, the Company converted a total of $114,013 of notes payable from certain Note Holders into common stock of the Company. The Company issued 438,681 shares of our common stock to satisfy the principal balances of the notes payable.

During the year ended March 31, 2012, the Company converted a total of $104,000 of notes payable from certain Note Holders into common stock of the Company. The Company issued 140,000 shares of our common stock to satisfy the principal balances of the notes payable.

Equity Compensation Plan Information

The 2007 Amended Stock Option Plan was adopted by the Board of Directors on February 6, 2008. Under this plan, a maximum of 8,000,000 shares of our common stock, par value $0.0001, were authorized for issue. The vesting and terms of all of the options are determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years from the date of grant.

On August 20, 2009, the Company issued 4,000,000 options to a consultant valued at $984,600 under the 2007 Plan. The option’s exercise price is equal to fifty percent (50%) of the average closing bid price for the three day period prior to notice of exercise. The consultant will only be allowed to purchase shares upon the exercise of the option or portion thereof to the extent that, at the time of the purchase, the purchase will not result in the consultant beneficially owning more than 9.9% of the issued and outstanding common shares of the Company. These options expired on August 20, 2010.

Item 3. Defaults Upon Senior Securities.

Not Applicable

Item 4. Mine Safety Disclosures.

Not Applicable

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits

Exhibit No.	Description

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

101	XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 14, 2014

GROWBLOX SCIENCES, INC.

By:_/s/ Craig Ellins ___________

Name: Craig Ellins

Title: CEO, Chairman, and Director