See accompanying
notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
The Company was incorporated in the State
of Nevada on February 21, 2013. On May 31, 2019, Freedom Leaf Inc. closed the purchase of ECS Labs LLC (the Green Lotus Companies),
a Texas limited liability company. ECS Labs LLC wholly owns two subsidiaries: B&B Labs, LLC, a Texas limited liability company,
and Texas Wellness Center, LLC, a Texas limited liability company.
On November 20, 2019, the Company changed
its name to “GL Brands, Inc.” by filing Articles of Merger merging a newly formed Nevada subsidiary, GL Brands Name
Change Subsidiary, Inc., into the registrant as permitted by Section 92A.180(5) of the Nevada Revised Statutes. The Company has
filed an Issuer Company-Related Notification Form with the Financial Industry Regulatory Authority, Inc. (FINRA) to affect the
name change and a corresponding ticker symbol change.
GL Brands, Inc. (fka Freedom Leaf Inc.) is an audited and reporting public company traded under the symbol
(OTC Pink: FRLF) with corporate headquarters located at 3939 Beltline Road, Suite 350, Addison, Texas 75001.
Nature of Operations
GL Brands, Inc.
(OTC Pink: FRLF) is a global hemp consumer packaged goods house of brands that creates authentic, enduring and culturally relevant
brands engaged in the development and sale of hemp derived products.
Through its premier
brands Green Lotus™ and IrieCBD™, GL Brands, Inc. delivers a full portfolio of hemp-derived CBD products, including
tinctures, softgels, gummies, sparkling beverages, vapes, flower, pre-rolls and topical segments to promote greater wellness and
balance, in the U.S. and throughout the world. Our vision is a 21st century shaped by the acceptance of cannabis as
a force for personal, economic, and environmental renewal.
Basis of Presentation
The Company prepares its consolidated
financial statements in conformity with generally accepted accounting principles in the United States of America. The unaudited
condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of such statements. These unaudited condensed consolidated financial
statements have been prepared in accordance with GAAP pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Additionally, the results of operations for the three months ended September 30, 2019 are not necessarily
indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements
should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2019.
Principles of Consolidation
The Company consolidates any variable interest
entities of which it is the primary beneficiary. Equity investments through which the Company exercises significant influence over
but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using
the equity method. Investments through which the Company is not able to exercise significant influence over the investee and which
do not have readily determinable fair values are accounted for under the cost method. All material inter-company accounts have
been eliminated in the consolidation.
Use of Estimates
The preparation of consolidated 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.
Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include
the amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the
web site and property and equipment, valuation of warrants and beneficial conversion feature debt discounts, valuation of derivatives,
valuation of share-based payments and the valuation allowance on deferred tax assets.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets
in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment
or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell. The Company recorded a loss on impairment
of assets of $0 and $780,884 for the 3-month period ended September 30, 2019 and year ended June 30, 2019, respectively.
Fair Value of Financial Instruments
The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including
cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.
We follow accounting guidance for financial
and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires
certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based
payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach
(present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement
cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices
that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market
participant would use.
Revenue Recognition
On July 1, 2018, the Company
adopted Topic 606. The Company elected to use the modified retrospective approach for contracts that were not completed as of
July 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with Topic 606,
while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting method
under Topic 605. As a result of applying the new standard, there were no changes to any financial statement line items.
Performance Obligations. Our
performance obligations include providing product and servicing our product. The Company recognizes product revenue
performance obligations in most cases when the product is delivered to the customer. Occasionally, the Company ships product
on a customer’s account. On these occasions, revenue is recognized when the product has been shipped. At that point in
time, the control of the product is transferred to the customer. The Company does not engage in transactions for services or
in transactions acting as an agent. The Company typically satisfies its performance obligations within a few months of
entering the contract. Depending on the size of the project, the performance obligations could be satisfied sooner or
later.
The Company’s sole revenue type going
forward is product sales, through its primary brands Green Lotus™ Hemp and IRIE™.
Significant Judgements. For many
revenue contracts, the Company invoices the customer when the performance obligation is satisfied, and payment is due 30 days
later. Occasionally, other terms such as progress billings or longer terms are agreed to on a case-by-case basis. The Company does
not have significant financing components, non-cash consideration, or variable consideration. The Company estimates the transaction
price between performance obligations based on stand-alone product prices. The Company elected the practical expedient by which
disclosures are not required regarding the value of unsatisfied performance obligations for contracts with an original expected
duration of one year or less.
Revenue was $2,121,508 for the three months
ended September 30, 2019, compared to $608,658 for the three months ended September 30, 2018. Disaggregated Revenue, by class,
is as follows:
Revenues:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Magazine related
|
|
$
|
–
|
|
|
$
|
472
|
|
Product sales
|
|
|
2,121,508
|
|
|
|
608,186
|
|
Total
|
|
$
|
2,121,508
|
|
|
$
|
608,658
|
|
Net Earnings (Loss) Per Share
In accordance with ASC 260-10, “Earnings
Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by
the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using
the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common
stock equivalent shares that may dilute future earnings per share consist of warrants to purchase 47,644,444 shares of common stock
at September 30, 2019. Equivalent shares are not utilized when the effect is anti-dilutive.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company had revenue of $2,121,508 and net
losses attributable to common stockholders of $14,512,256 for the 3 months ended September 30, 2019, compared to revenue of $608,658
and net losses attributable to common stockholders of $1,111,766 for the 3 months ended September 30, 2018. The Company had a
working capital deficit, stockholders’ equity, and accumulated deficit of $9,696,055, $6,023,283 and $36,835,479, respectively,
at September 30, 2019. These factors raise substantial doubt about the ability of the Company to continue as a going concern for
a period of one year from the issuance of these financial statements. The Company is highly dependent on its ability to continue
to obtain investment capital from future funding opportunities to fund the current and planned operating levels. The consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s continuation as a going concern is dependent upon its ability to successfully engage in income generating
activities and its ability to continue receiving investment capital from future funding opportunities. No assurance can be given
that the Company will be successful in these efforts. Please see Note 11 - Subsequent Events, for information regarding a $5,000,000
capital raise completed by the Company on November 18, 2019.
Reclassification of Certain Expenses
The results of operations as of September
30, 2019 were not prepared on a consistent basis with prior periods. The results of operations in this filing were prepared classifying
appropriate expenses as cost of goods sold (“COGS”). The term COGS refers to the direct costs of producing the products
sold by the Company. The Company has elected to reflect COGS in order to accurately state inventory value and gross margin. Further,
this change is reflective of the Company’s transition to a product-based business. Previously, these costs were presented
as direct costs of revenue. The result of this presentation method change results in no change to the net income, and no pro forma
financial information is necessary.
The Company has evaluated
all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had
or is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 2 – INVENTORY
Inventories at September 30, 2019 and June
30, 2019 consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Raw materials
|
|
$
|
1,906,203
|
|
|
$
|
1,017,291
|
|
Finished goods
|
|
|
85,026
|
|
|
|
87,943
|
|
Inventory reserve
|
|
|
(21,077
|
)
|
|
|
(21,077
|
)
|
Inventory, net
|
|
$
|
1,970,152
|
|
|
$
|
1,084,157
|
|
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2019 and June 30, 2019
consisted of the following:
|
|
September
30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Property
and equipment
|
|
$
|
68,870
|
|
|
$
|
192,944
|
|
Furniture
and office equipment
|
|
|
90,063
|
|
|
|
88,330
|
|
Total property and equipment
|
|
|
158,933
|
|
|
|
281,274
|
|
Less:
Accumulated depreciation
|
|
|
(15,066
|
)
|
|
|
(59,552
|
)
|
Property
and equipment, net
|
|
$
|
143,867
|
|
|
$
|
221,722
|
|
The
depreciation expense for the three months ended September 30, 2019 and 2018, was $4,724 and $143,619, respectively.
NOTE 4 – INTANGIBLE ASSETS
Intangible assets at September 30, 2019 and June 30, 2019 consisted
of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Websites and other intangible assets
|
|
$
|
161,437
|
|
|
$
|
158,423
|
|
Trademarks and trade names
|
|
|
342,682
|
|
|
|
342,682
|
|
Customer relationships
|
|
|
712,000
|
|
|
|
712,000
|
|
Total intangible assets
|
|
|
1,216,119
|
|
|
|
1,213,105
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
(762,068
|
)
|
|
|
(663,178
|
)
|
Intangible assets, net
|
|
$
|
454,051
|
|
|
$
|
549,927
|
|
Amortization
expense for the three months ended September 30, 2019 and 2018 was $98,890 and $219,265 respectively.
The following table presents the amortization for the next five years:
2020 remaining
|
|
|
$
|
205,961
|
|
2021
|
|
|
|
36,632
|
|
2022
|
|
|
|
36,632
|
|
2023
|
|
|
|
36,632
|
|
2024
|
|
|
|
36,632
|
|
2025 and thereafter
|
|
|
|
101,562
|
|
Total
|
|
|
$
|
454,051
|
|
NOTE 5 – BUSINESS COMBINATIONS
ECS Labs, LLC Acquisition
On May 31, 2019, the Company closed the acquisition of Dallas, Texas based ECS Labs LLC (the “Acquisition”), including its two-wholly owned operating subsidiaries, B&B Labs, LLC and Texas Wellness Center, each a Texas limited liability company, which constitute the “Green Lotus” premium hemp CBD products brand.
Green Lotus™ Hemp (“Green Lotus™”) is a rapidly growing premium hemp products brand that manufactures and distributes premium cannabinoid products including tinctures, gel caps, edibles, topicals, vape cartridges, and beverages made from organic industrial hemp. Green Lotus™ has grown rapidly since its inception in 2016 and now has a national presence in over 1,700 locations in the U.S. and is a first mover in the Mexican CBD market, with 3,000 points of initial distribution.
The Company has performed a valuation analysis of the fair market value of ECS Labs, LLC assets and liabilities. The provisional fair value of the purchase consideration issued to the sellers of ECS, Labs LLC was allocated to the net tangible assets acquired. We accounted for the Acquisition as the purchase of a business under GAAP under the acquisition method of accounting. The assets and liabilities acquired were recorded as of the acquisition date at their respective fair values and consolidated with those of our company. The excess of the aggregate fair value of the net tangible assets has been allocated to an intangible asset, value of customer accounts and the remainder to goodwill. The purchase price allocation was based, in part, on management’s knowledge of ECS Labs, LLC business and is preliminary. Once we complete our analysis to finalize the purchase price allocation, which includes finalizing the valuation report from a third-party appraiser and a review of potential intangible assets, it is reasonably possible that, there could be significant changes to the preliminary values below.
The provisional purchase price was allocated as follows:
Purchase Consideration:
|
|
|
|
|
|
|
|
|
|
Consideration given:
|
|
|
|
|
|
|
|
|
|
Common stock shares given
|
|
$
|
14,000,000
|
|
Notes payable
|
|
|
2,795,430
|
|
Total consideration given
|
|
$
|
16,795,430
|
|
|
|
|
|
|
Assets acquired and liabilities assumed at fair value:
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
1,632,348
|
|
Property and equipment
|
|
|
105,333
|
|
Goodwill
|
|
|
15,057,749
|
|
Total consideration
|
|
$
|
16,795,430
|
|
Revenue recognized by ECS Labs, LLC from acquisition through September 30, 2019 was $2,047,479.
The following table summarizes our consolidated results of operations for the 3 months ended September 30, 2019,
and 2018, as well as unaudited pro forma consolidated results of operations for the 3 months ended September 30, 2018 as though
each acquisition had occurred on July 1, 2018.
|
|
Three
Months
Ended
September 30,
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
2019
|
|
|
As Reported
|
|
|
Pro Forma
|
|
Net sales
|
|
$
|
2,121,508
|
|
|
$
|
608,658
|
|
|
$
|
1,351,897
|
|
Net loss
|
|
|
(14,512,256
|
)
|
|
|
(1,111,766
|
)
|
|
|
(3,026,831
|
)
|
Loss per common share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
The unaudited pro forma information set forth above is for informational purposes only and includes adjustments related to the step-up of acquired inventories, amortization expense of acquired intangible assets, and interest expense on long-term debt. The pro forma information should not be considered indicative of actual results that would have been achieved if each acquisition had occurred on July 1, 2018, or results that may be obtained in any future period.
The goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale we hope to achieve from combining the acquired assets and operations with our historical operations.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in
litigation relating to claims arising out of our operations in the normal course of business. Other than disclosed herein, there
were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
In May 2019, the Company received a demand
letter from a former employee for employment-related claims, but this individual has since signed an agreement waiving all claims.
In December 2019, the Company received a demand letter from a former employee for employment-related claims. This claim is being
disputed.
On or about June 20, 2019, a former Company
consultant, Richard Bolandz, filed a complaint against the Company in the District Court for Clark County, Nevada (Richard A. Bolandz,
individually and d/b/a International Consultants Consortium LLC v. Freedom Leaf Inc., Case No. A-19-797130-C, Dept. No. XXVII),
alleging that the Company breached its consulting agreement with Mr. Bolandz by attempting to terminate the agreement improperly
and failing to pay Mr. Bolandz amounts due thereunder, and seeking an award of monetary damages in excess of $15,000 as well as
recovery of attorney fees. On or about August 8, 2019, the Company answered the complaint and filed a counterclaim against
Mr. Bolandz, alleging that Mr. Bolandz breached the consulting contract by repeatedly missing deadlines, delivering unusable work
product, and acting in an unprofessional manner including showing up at the Company’s office intoxicated. The Company is
seeking an award of monetary damages in an amount to be determined at trial along with attorney fees. The parties are currently
scheduling a settlement conference regarding the matter.
NOTE 7 – RELATED PARTIES
Carlos Frias, CEO and Director of the Company,
has promissory notes payable to him in the amount of $57,041 for various expense reimbursements and they are reflected as liabilities
on the financial statements as of September 30, 2019 and June 30, 2019. Mr. Frias also has $2,400,000 in cash incentives as part
of his employment agreement in conjunction with the acquisition of ECS Labs, subject to his continued provision of services to
the Company. Imputed interest is immaterial. All payment obligations related to this employment agreement have been deferred until
June 1, 2020.
Alexandro Frias, VP of Finance of the Company,
has $1,600,000 in cash incentives as part of his employment agreement in conjunction with the acquisition of ECS Labs, subject
to his continued provision of services to the Company. Imputed interest is immaterial. All payment obligations related to this
employment agreement have been deferred until June 1, 2020.
Ngoc “Daniel” Quong Nguyen,
CSO and Director of the Company, has promissory notes payable to him in the amount of $203,269 for various expense reimbursements
and asset purchases and they are reflected as liabilities on the financial statements as of September 30, 2019 and June 30, 2019.
Mr. Nguyen also has $2,400,000 in cash incentives as part of his employment agreement in conjunction with the acquisition of ECS
Labs, subject to his continued provision of services to the Company. Imputed interest is immaterial. All payment obligations related
to this employment agreement have been deferred until June 1, 2020.
NOTE 8 – NOTES PAYABLE
Notes payable as of September 30, 2019 and June 30, 2019 consist
of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 12.0%, originated June 18, 2019, due on December 18, 2019
|
|
$
|
630,000
|
|
|
$
|
630,000
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 12.0%, originated May 21, 2019, due on November 21, 2019
|
|
$
|
183,750
|
|
|
$
|
183,750
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 18.0%, originated May 14, 2019, due on July 30, 2019
|
|
$
|
45,000
|
|
|
$
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 12.0%, originated April 15, 2019, due on November 30, 2019
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 40.0%, originated June 30, 2018, due on June 30, 2020
|
|
$
|
57,394
|
|
|
$
|
57,394
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 40.0%, originated June 30, 2018, due on June 10, 2020
|
|
$
|
57,041
|
|
|
$
|
57,041
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 0.0%, originated May 31, 2018, due on May 31, 2020
|
|
$
|
539,836
|
|
|
$
|
554,528
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 40.0%, originated May 31, 2018, due on May 31, 2020
|
|
$
|
158,269
|
|
|
$
|
158,269
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 1.5%, originated October 23, 2017, due on April 20, 2018
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 0.0%, originated March 3, 2017, due on March 3, 2020
|
|
$
|
91,500
|
|
|
$
|
93,000
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 12.0%, originated July 24, 2019, due on January 24, 2020
|
|
$
|
200,000
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 12.0%, originated August 20, 2019, due on February 20, 2020
|
|
$
|
400,000
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 12.0%, originated September 13, 2019, due on March 13, 2020
|
|
$
|
500,000
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
3,082,790
|
|
|
$
|
1,998,982
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(2,997,290
|
)
|
|
$
|
(1,911,982
|
)
|
|
|
|
|
|
|
|
|
|
Long-term notes payable
|
|
$
|
85,500
|
|
|
$
|
87,000
|
|
NOTE 9 – STOCKHOLDERS’ EQUITY
Series A Preferred Stock
On May 24, 2016, the Board of Directors
of the Company authorized amending the Company’s Articles of Incorporation to authorize 10,000,000 shares of “blank
check” preferred stock and designate 1,000,000 of the shares as Series A preferred stock. Each share of the Series A preferred
stock is entitled to 500 votes and is convertible into 100 shares of common stock.
As of September 30, 2019, there were no shares of
Series A issued and outstanding. On August 27, 2019 Clifford Perry and Richard Cowan converted 684,012 and 264,010 Series A shares,
respectively, in to 68,401,200 and 26,401,000 shares of Common Stock, pursuant to Board of Directors approval.
Common Stock
The Company is authorized to issue up to
1,000,000,000 shares of common stock par value $0.001 per share. The number of authorized shares of common stock was increased
on June 26, 2019, from 500,000,000, by written consent of the majority stockholders without a special meeting of the stockholders.
Please see Form DEF 14C filed on July 17, 2019 for more information on this matter. Each outstanding share of common stock entitles
the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable
and non-cumulative, with no pre-emptive rights.
As of September 30, 2019, 585,983,209 shares
were outstanding. During the quarter ended September 30, 2019, the Company issued 275,383,006 shares of common stock.
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Shares
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Fair Value
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Average
Price Per Share
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Common stock issued for:
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Conversion of preferred stock to common
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94,802,200
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$
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13,727,359
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$
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0.14
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Services
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180,580,806
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11,621,198
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$
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0.06
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Total
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275,383,006
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$
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25,348,557
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Warrants
As of September 30, 2019, warrants to acquire
47,644,444 shares of common stock were outstanding. No additional Warrants were issued during the quarter.
A summary of the status of the options and warrants granted
as at September 30, 2019 and June 30, 2019, and changes during the years then ended is presented below:
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Weighted-
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Average
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Exercise
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Number of
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Price per
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Warrants
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Share
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Outstanding at June 30, 2019
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48,444,444
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$
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0.20
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Granted
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–
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Exercised & expired
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(800,000
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)
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$
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0.25
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Outstanding at September 30, 2019
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47,644,444
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Exercisable at September 30, 2019
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47,644,444
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A summary of the status of the warrants outstanding at
September 30, 2019 is presented below:
Range of Exercise
Prices
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Number
Outstanding
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Weighted-Average
Remaining
Contractual Life
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Number
Exercisable
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Weighted-Average
Exercise Price
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$0.10 - $0.19
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30,444,444
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1.73 years
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30,444,444
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$
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0.17
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$0.20 - $0.29
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17,200,000
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1.99 years
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17,200,000
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$
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0.25
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47,644,444
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1.82 years
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47,644,444
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$
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0.20
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Stock Option Plan
On June 27, 2016, the Board of Directors
approved the 2016 Stock Option Plan which has reserved 10,000,000 shares of common stock. There are no stock options outstanding
as of September 30, 2019.
NOTE 10 – LEASES
The Company adopted ASC 842 - Leases, using
the modified retrospective method on July 1, 2019. The Company elected the package of practical expedients relief option offered
in ASU 2016-02 and the accounting policy election for lessees not to separate lease and non-lease components (election applies
to leased real property asset class).
The most significant impact of the adoption of ASC 842
was the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases of $524,935. The Company’s
accounting for finance leases, which are insignificant, remained unchanged. The adoption of ASC 842 did not have any impact on
the Company’s operating results or cash flows.
The Company has 4 office space, warehouse
and laboratory lease agreements which are accounted for as operating leases. The real property leases typically are for three to
five-year terms with many containing options for similar renewal periods. The Company determines if an arrangement is or contains
a lease at inception. Operating leases are included in operating lease right-of-use assets and operating lease liabilities (current
and noncurrent) in the condensed consolidated balance sheet. Finance leases are included in property and equipment and finance
lease obligations in the condensed consolidated balance sheet.
ROU assets and lease liabilities are recognized
based on the present value of future minimum lease payments over the lease term at commencement date. As most of the Company’s
leases do not provide an implicit rate, Management used the Company’s collateralized incremental borrowing rate based on
the information available at commencement date in determining the present value of future payments.
The lease payment terms may include fixed
payment terms and variable payments. Fixed payment terms and variable payments that depend on an index (i.e., Consumer Price Index,
or “CPI”) or rate are considered in the determination of the operating lease liabilities. While lease liabilities are
not remeasured because of changes to the CPI, changes are treated as variable lease payments and recognized in the period in which
the obligation for those payments was incurred. Variable payments that do not depend on an index or rate are not included in the
lease liabilities determination. Rather, these payments are recognized as variable lease expense when incurred. Expenses related
to leases with a lease term of one month or less are recognized as variable lease expense when incurred. Variable lease payments
are included within operating costs and expenses in the condensed consolidated statement of operations.
Due to the significant assumptions and
judgements required in accounting for leases (to include whether a contract contains a lease, the allocation of the consideration,
and the determination of the discount rate), the judgements and estimates made could have a significant effect on the amount of
assets and liabilities recognized.
Future minimum lease payments under operating
leases as of September 30, 2019 were as follows:
2019 remaining
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$
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42,434
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2020
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171,557
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2021
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150,555
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2022
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111,898
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2023
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105,009
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2024 and thereafter
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53,802
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Total
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$
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635,255
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NOTE 11 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events
through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined
that there are no other events that warrant disclosure or recognition in the financial statements, except as stated herein.
On October 15, 2019 the Company amended
a promissory note payable to Merida Capital Partners II LP, dated April 15, 2019, in the principal sum of $200,000 to become due
and payable on November 30, 2019. This note was part of the November 18, 2019 cancellation of various promissory notes discussed
below.
On October 15, 2019, the Company issued
a promissory note to Merida Capital Partners III LP in the original principal amount of $900,000, accruing interest at 12.0% per
annum. This note was part of the November 18, 2019 cancellation of various promissory notes discussed below.
On October 18,
2019, Clifford Perry and Raymond Medeiros resigned from their officer and director positions with the Company.
On November 18,
2019, the Company issued 9,278,730 share of the Company’s common stock subject to restricted stock agreements as follows:
Merida Advisor, LLC, 6,250,000 shares; John Kalkanian Jr., 250,000 shares; David Goldburg, 750,000 shares; David Vautrin, 750,000
shares; Matthew Bartlett, 500,000 shares; Nicholas Shi, 214,286 shares; Anthony Catalano, 120,000 shares; and Rodrigo Chavez, 444,444
shares.
On November 18, 2019, the Company issued
a convertible promissory note to MCP Wellness II LP in the original principal amount of $5,000,000 convertible at holder’s
election into shares of the Company’s common stock at $0.20 per share, subject to certain adjustments, accruing interest
at 8% per annum. Interest will be payable by increasing the principal amount of the note by the accrued interest amounts, maturing
on November 18, 2022. As part of the same transaction, the Company issued a three-year warrant to acquire fifteen million (15,000,000)
shares of the Company’s common stock exercisable at a purchase price of $0.09 per share. The Convertible Note and the Warrant
were issued in exchange for an aggregate purchase price of $5,000,000. This purchase price was paid with $1,884,715 in cash and
with $3,019,750 via the cancellation of various promissory notes.
On November 18, 2019, the Company issued
a warrant, for services rendered, to Jane Cavalier, entitling her to purchase from the Company at any time after the Issue Date
until June 30, 2020, up to two hundred fifty thousand (250,000) fully paid and non-assessable shares of Common Stock, $0.001 par
value per share, at the applicable exercise price per share of $0.25. The warrant may be exercised in whole or in part.
On November 20,
2019, the registrant changed its name to “GL Brands, Inc.” by filing Articles of Merger merging a newly formed Nevada
subsidiary, GL Brands Name Change Subsidiary, Inc., into the registrant as permitted by Section 92A.180(5) of the Nevada Revised
Statutes. The registrant has filed an Issuer Company-Related Notification Form with the Financial Industry Regulatory Authority,
Inc. (FINRA) to affect the name change and a corresponding ticker symbol change.