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, 2017
(unaudited)
NOTE 1 – NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Freedom Leaf Inc. (the “Company,”
“we,” “us,” “our,” or “Freedom Leaf”) was incorporated in the State of Nevada on
February 21, 2013, under the name of Arkadia International, Inc. The Company was originally engaged in the business of the acquisition
of in demand equipment, cars, and goods with the intent to resale these in the U.S. territory or export to overseas countries.
On October 3, 2014, the Company experienced
a change in control. Richard C. Cowan acquired a majority of the issued and outstanding common stock of the Company in accordance
with stock purchase agreements by and between Mr. Cowan and Vladimir and Galina Shekhtman (“Sellers”). On the closing
date, October 3, 2014, Cowan purchased from the Sellers 6,950,100 shares of the Company’s outstanding restricted common stock
for $100,000, representing 93% of the then-outstanding common stock of the Company.
On November 6, 2014, the Company merged with
Freedom Leaf Inc., a private Nevada corporation. The Company changed its name from Arkadia International, Inc., to Freedom Leaf
Inc. As a result of the merger, the private company was dissolved, the sole officer, director and shareholder of the private company,
Clifford J. Perry, became an officer and director of the Company, and Mr. Perry received approximately 48.1% of the Company’s
common stock post-merger. See Note 2 for related discussion.
For financial reporting purposes,
the merger was accounted for as a "reverse merger" and recapitalization rather than a business combination, and private
company was deemed to be the accounting acquirer in the transaction, with the Company deemed to be the acquired company for financial
reporting purposes. Consequently, the assets and liabilities and the operations that are reflected in the historical consolidated
financial statements of the Company prior to the merger are those of the private company, and were recorded at the historical cost
basis of the private company, and the consolidated financial statements after completion of the merger include the assets and liabilities
of both the predecessor public company and private company, the historical operations of private company, and the operations of
both companies from the date of the merger.
Cannabis Business Solutions Inc. (“Cannabis
Business Solutions”), a Nevada corporation, was formed on February 5, 2014, and is a wholly-owned subsidiary of the Company.
This subsidiary had no activity until the agreement with Valencia Web Technology S.L., B-97183354 (see Note 2).
Leafceuticals Inc. (“Leafceuticals”),
formerly known as Cannabiz U, Inc., a Nevada corporation, was formed on February 13, 2014, and is a wholly-owned subsidiary of
the Company. This subsidiary has had no activity to date.
Freedom Leaf Cares Inc. (“Freedom Leaf
Cares”), a Nevada corporation, was formed on October 1, 2014, and is a wholly-owned subsidiary of the Company. Freedom Leaf
Cares was dissolved in 2016. Until dissolution, this subsidiary had no activity.
Freedom Leaf International Inc. (“Freedom
Leaf International”), a Nevada corporation, was formed on November 27, 2015, and is a wholly-owned subsidiary of the Company.
This subsidiary has had no activity to date.
Nature of Operations
The Company is focused on being the premium
national and international news source for the Cannabis/Industrial Hemp industry. Through our online and print media channels,
our efforts are in dissemination of current legislation and legal news, arts and entertainment. Additional websites and online
partnerships are in the development stage that are intended to give the Freedom Leaf brand greater exposure. The Company generates
revenue from paid advertising on both online and print publications as well as consulting fees and incubator fees for companies
that want to participate in the Cannabis/Industrial Hemp industry. Another operating revenue class by the Company is brand management
for both profit and non-profit organizations. An example is the contract with NORML which was entered into on May 26, 2015. This
contract authorizes the Company to undertake all of the commercial activities of NORML, earning income for both the non-profit
and the Company. The Company also sells licenses to use the Freedom Leaf brand in different countries and states. We have entered
into two license agreements: for Spain and Portugal, for The Netherlands, and for Florida.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
Basis of Presentation
The Company prepares its consolidated financial
statements in conformity with generally accepted accounting principles in the United States of America.
Principles of Consolidation
The consolidated financial statements include
the accounts of Freedom Leaf and its wholly-owned subsidiaries, Cannabis Business Solutions, Leafceuticals, Freedom Leaf Cares,
and Freedom Leaf International. All significant inter-company balances and transactions have been eliminated in consolidation.
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.
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.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
We currently measure and report at fair value
our intangible assets (due to our impairment analysis) and derivative liabilities. The fair value of intangible assets has been
determined using the present value of estimated future cash flows method. The fair value of derivative liabilities is measured
using the Black-Scholes option pricing method. The following table summarizes our non-financial assets and liabilities measured
at fair value on a recurring basis as of September 30, 2017 and June 30, 2017:
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
Balance at
|
|
|
Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
September 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2017
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
14,053
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
14,053
|
|
Total Financial Assets
|
|
$
|
14,053
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
14,053
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
Balance at
|
|
|
Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
June 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2017
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
10,820
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
10,820
|
|
Total Financial Assets
|
|
$
|
10,820
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
10,820
|
|
Following is a summary of activity through
September 30, 2017 of the fair value of intangible assets valued using Level 3 inputs:
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Asset
|
|
|
Amortization
|
|
|
Net
|
|
Balance at June 30, 2017
|
|
$
|
12,245
|
|
|
$
|
(1,425
|
)
|
|
$
|
10,820
|
|
Additions
|
|
|
3,437
|
|
|
|
–
|
|
|
|
3,437
|
|
Amortization
|
|
|
–
|
|
|
|
(204
|
)
|
|
|
(204
|
)
|
Balance at September 30, 2017
|
|
$
|
15,682
|
|
|
$
|
(1,629
|
)
|
|
$
|
14,053
|
|
The Company evaluates its convertible debt,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the
derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded
as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion
or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value
is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under
this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
The following table summarizes our financial
assets and liabilities measured at fair value on a recurring basis at September 30, 2017:
|
|
Balance at
September 30,
2017
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
157,743
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
157,743
|
|
Total Financial Assets
|
|
$
|
157,743
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
157,743
|
|
The following table summarizes our financial
assets and liabilities measured at fair value on a recurring basis at June 30, 2017:
|
|
Balance at
June 30,
2017
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
52,757
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
52,757
|
|
Total Financial Assets
|
|
$
|
52,757
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
52,757
|
|
Following is a summary of activity through
September 30, 2017 of the fair value of derivative liabilities valued using Level 3 inputs:
Balance at June 30, 2017
|
|
$
|
52,757
|
|
Note inception date fair value
|
|
|
107,090
|
|
Change in fair value during fiscal year 2018
|
|
|
(2,104
|
)
|
Balance at September 30, 2017
|
|
$
|
157,743
|
|
Stock-Based Compensation
The Company accounts for stock-based instruments
issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations
the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of
an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line
attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition
provisions ASC Topic 505-50. The Company estimates the fair value of stock options at the grant date by using the Black-Scholes
option-pricing model.
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.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
Reclassifications
Certain amounts in the prior period consolidated
financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect
on reported losses, total assets, or stockholders’ equity as previously reported.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash equivalents.
Accounting for Derivatives
The Company evaluates its convertible debt,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the
derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded
as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion
or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value
is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under
this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Revenue Recognition
The Company recognizes revenue for our services
in accordance with ASC 605-10, "Revenue Recognition in Financial Statements." Under these guidelines, revenue is recognized
on transactions when all of the following exist: persuasive evidence of an arrangement did exist, delivery of service has occurred,
the sales price to the buyer is fixed or determinable and collectability is reasonably assured. The Company has five primary revenue
streams as follows:
|
·
|
Consulting services.
|
|
·
|
Advertising services.
|
|
·
|
Branding, marketing and selling products for companies.
|
|
·
|
Educational seminars.
|
|
·
|
Selling branded products.
|
Advertising and Marketing
Advertising and marketing is expensed as incurred
and is included in selling, general and administrative expenses on the accompanying statement of operations. For the three months
ended September 30, 2017 and 2016 advertising expense was $2,583 and $13,794, respectively.
Income Taxes
The Company adopted the provisions of ASC 740-10,
“Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions
taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of
the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10,
the benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits
in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities
upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the
Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2017, all previous tax years remain open for
IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
The Company adopted ASC 740-10,
“
Definition
of Settlement in FASB Interpretation No. 48,” (“ASC 740-10”), which was issued on May 2, 2007. ASC
740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately
settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms
“ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under
ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing
authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full
amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis
of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying
consolidated financial statements.
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 which may dilute future earnings per share consist of warrants to purchase 1,918,167 shares of common stock
at September 30, 2017 and convertible notes convertible into 7,310,824 common shares. Equivalent shares are not utilized when the
effect is anti-dilutive.
Segment Information
In accordance with the provisions of ASC 280-10,
“Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial
and descriptive information about its reportable operating segments. The Company does not have any operating segments as of September
30, 2017 and June 30, 2017.
Effect of Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards
Update No. 2014-09 (“ASU No. 2014-09”), which requires an entity to recognize the amount of revenue to which it expects
to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition
guidance in GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after December
15, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect
transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and
related disclosures. The Company has not yet selected a transition method, nor has it determined the effect of the standard on its
ongoing financial reporting.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation
of Financial Statements (Topic 205) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
The guidance requires management to perform an evaluation each annual and interim reporting period of whether there are conditions
or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern
within the one-year period after the date that the financial statements are issued. If such conditions are identified, the guidance
requires an entity to provide certain disclosures about the principal conditions or events that gave rise to the substantial doubt
about the entity’s ability to continue as a going concern, management’s evaluation of the significance of those conditions
or events in relation to the entity’s ability to meet its obligations and management’s plans to alleviate or mitigate
substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for the first annual
period ending after December 15, 2016 and interim periods thereafter. The Company did not adopt ASU 2014-15 as it would not have
a material impact on its financial statements.
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued an ASU on lease accounting. The ASU requires the lease rights and obligations arising
from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet.
The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is
still evaluating the ASU, the Company expects the adoption of the ASU to have a material effect on the Company’s financial
condition due to the recognition of the lease rights and obligations as assets and liabilities. The Company does not expect the
ASU to have a material effect on the Company’s results of operations, and the ASU will have no effect on cash flows.
The Company has evaluated all other recent
accounting pronouncements and believes that none of them will have a significant effect on the Company’s financial statement.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
NOTE 2 – ENTRY INTO A DEFINITIVE AGREEMENT
Freedom Leaf Inc. f/k/a Arkadia International,
Inc., a Nevada corporation and the public company (the “Company,” “Public Company,” “we,” “us,”
“our”) entered into a merger agreement with a private Nevada corporation, Freedom Leaf Inc. (the “Private Company”).
Prior to the reverse merger, Richard C. Cowan, the officer and director of the Public Company, had acquired the majority of its
outstanding common stock. Clifford J. Perry, the Private Company’s sole officer and director pre-merger (“Perry”),
was the owner of record of all of the outstanding common shares of the Private Company (the “Private Company Stock”)
prior to the merger. Pursuant to the merger, the Private Company was merged into the Public Company, and Perry, the Private Company’s
shareholder, received 83,401.2 shares of Public Company common stock for each share of Private Company stock pre-merger, or 83,401,200
total shares of the Company’s common stock.
The closing of the merger was conditioned upon
certain, limited customary representations and warranties, as well as the satisfaction or waiver of specified conditions to closing.
As the parties satisfied all of the closing conditions, we filed Articles of Merger in Nevada consummating the merger, and shareholders
of the Private Company pre-merger (Perry) owned approximately 48.1% of our issued and outstanding common stock post-merger. Following
the merger, the Company focused on pursuing Private Company’s historical businesses.
The foregoing description of the merger agreement
and transaction does not purport to be complete and is qualified in its entirety by the merger agreement, a copy of which has been
filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q/A for the period ended December 31, 2014, which is incorporated herein
by reference.
Accounting Treatment of the Merger
For financial reporting purposes, the merger
represents a “reverse merger” rather than a business combination, and Private Company is deemed to be the accounting
acquirer in the transaction. The merger is being accounted for as a reverse-merger and recapitalization. Private Company is the
acquirer for financial reporting purposes and the Public Company (Freedom Leaf Inc., f/k/a Arkadia International, Inc.) is the
acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial
statements prior to the merger will be those of the Private Company and will be recorded at the historical cost basis of the Private
Company, and the financial statements after completion of the merger will include the assets and liabilities of the Public Company
and the Private Company, the historical operations of the Private Company and operations of both companies from the closing date
of the Merger.
Licensing Rights
On February 8, 2016, the Company and Freedom
Leaf Netherlands, B.V. (“FLNL”), a company located in the Netherlands, executed a Memorandum of Understanding (“MOU”),
wherein the Company granted FLNL a right of first refusal to license certain rights from the Company described below in exchange
for a payment of $25,000, and the parties agreed to negotiate a definite license agreement for such rights with the terms of the
definitive agreement incorporating the material terms set forth in the MOU. Such rights include FLNL’s rights to use various
trademarks of the Company, primarily “Freedom Leaf,” and other related rights, for use in the Netherlands by FLNL,
including FLNL’s right to publish a Freedom Leaf magazine in the Netherlands, sell Freedom Leaf products and perform other
activities related to the business of the Company. FLNL is a shareholder (common stock and warrants to purchase additional common
stock) of the Company. On December 15, 2016, the Company and FLNL executed the license agreement. The agreement provided for a
licensing fee of $250,000 with a payment schedule as follows: $70,869 which has been paid from the date of the MOU until the date
of the agreement; $25,000 payment every two months, commencing on April 10, 2017 with the last payment on April 10, 2018, and a
final payment of $4,131 on June 10, 2018. As the Company is allowing for progress payments, the balance is shown net of imputed
interest on the balance sheet. The Company also provided FLNL with warrants to purchase up to 1,000,000 shares of common stock.
The warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000 warrants between June 2017 and
August 2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between December 2017 and February 2018;
and 250,000 warrants between March 2018 and May 2018. See Notes 7 and 11.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
On December 15, 2016, the Company and
Freedom Leaf Iberia, B.V. (“FLI”), a company incorporated under the laws of the Netherlands, executed a license
agreement. The licensing agreement provides FLI the distribution rights to the Company’s magazine and other
“Freedom Leaf” branded merchandise. The territory of the agreement is Spain and Portugal. The agreement provided
for a license fee of $250,000 payable to the Company. The payment schedule provides for a $25,000 payment every two months,
beginning on April 20, 2017, concluding on April 20, 2018, with a final payment of $75,000 on June 20, 2018. As the Company
is allowing for progress payments, the balance is shown net of imputed interest on the balance sheet. The Company also
provided FLI with warrants to purchase up to 1,000,000 shares of common stock. The warrants have an exercise price of $0.05.
The warrants can be exercised as follows: 250,000 warrants between June 2017 and August 2017; 250,000 warrants between
September 2017 and November 2017; 250,000 warrants between December 2017 and February 2018; and 250,000 warrants between
March 2018 and May 2018. See Notes 7 and 11.
On March 31, 2017, the Company entered into
a license agreement with BBD Healthcare Strategies, LLC, a Florida limited liability company (“BBDHS”), pursuant to
which BBDHS received distribution rights to the Company’s magazine and other “Freedom Leaf” branded merchandise
for the State of Florida, in consideration of (1) a license fee of $250,000, paid $25,000 at execution, and $25,000 due August
2017, October 2017, December 2017, February 2018, March 2018, April 2018, May 2018 and concluding June 2018, with a final payment
of $50,000, (2) ongoing royalties of 5% for sales of Company merchandise purchased from the Company, (3) ongoing royalties of 10%
for sales of Company merchandise purchased from a third-party supplier, and (4) ongoing royalties of 33% for Company seminars and
conferences. As the Company is allowing for progress payments, the balance is shown net of imputed interest on the balance sheet.
The Company also provided BBDHS with warrants to purchase 1,200,000 shares of Company common stock at an exercise price of $0.05,
exercisable as follows: 240,000 shares between September 1, 2017 and October 31, 2017, 240,000 shares between November 1, 2017
and December 31, 2017, 240,000 shares between January 1, 2018 and February 28, 2018, 240,000 shares between March 1, 2018 and May
30, 2018, and 240,000 shares between June 1, 2018 and July 30, 2018. See Notes 7 and 11.
Incubation Agreement
On January 18, 2016, the Company and Plants
to Paper, LLC (“PTP”), a New Jersey limited liability company, executed an Incubation Agreement. PTP owned the patent
pending application 62/245,153 (the “Patent”) with the title being “Rolling Papers and Blunt Wraps made from
100% Marijuana.” PTP agreed to transfer its ownership rights in the patent application to the Company, as well as PTP’s
Medical Marijuana / Cannabis / Hemp Industry Incubator program. The Company agreed to supply management services and to fund the
early stage development of PTP. The Incubation Agreement is for a period of twelve months. PTP will provide the Company with 20%
of the outstanding membership shares of PTP in exchange for its services. The costs of patent registrations in the United States
and other countries will be the liability of PTP. As of June 30, 2017, PTP had no activity. On February 1, 2017, the Agreement
was modified for the following items: a) to provide 25% of the outstanding membership shares of PTP; b) require that the Patent
be assigned to PTP; and c) acknowledge that the ownership rights have not been transferred to the Company as of September 30, 2017.
Sales Representation Contract
On December 22, 2016, the Company and NuAxon
BioScience, Inc. (“NuAxon”), a Delaware corporation, executed a Sales Representation Contract. NuAxon is a manufacturer
and distributor for bulk extracts, Rebel Herbs brand products, and Intelligence Tree brand products. The contract appoints the
Company as NuAxon’s sales representative worldwide. The contract is for a period of one year and shall automatically renew
for successive terms of the same duration. The contract provides a commission for sales by the Company at rates as follows: a)
bulk extracts is 9% with a 2% bonus on annual sales above $500,000; b) Rebel Herbs and Intelligence Tree brand products is 10%
with a 3% bonus on annual sales above $1,000,000. As of September 30, 2017, there have been no sales or commissions earned.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
Equipment Sales Representative Contract
On December 22, 2016, the Company and NuAxon
executed an Equipment Sales Representative Contract. NuAxon is a manufacturer and distributor for extraction equipment. The contract
appoints the Company as NuAxon’s equipment sales representative worldwide. The contract is for a period of one year and shall
automatically renew for successive terms of the same duration. The contract provides a commission for sales by the Company at various
rates ranging from 3% to 10%, dependent on the cumulative annual sales. On March 15, 2017, the Company entered into an Exclusive
Distribution Agreement with NuAxon to sell NuAxon’s CO2 extraction equipment pursuant to which the Company would be paid
increasing commissions depending on gross sales of the equipment. On March 16, 2017, the Company issued a purchase order (the “Purchase
Order”) to NuAxon to purchase extraction equipment for one of the Company’s customers. As of September 30, 2017, there
were no sales.
LaMarihuana Purchase
On May 30, 2017, Cannabis Business Solutions
Inc. (the “Buyer”), a wholly-owned Nevada subsidiary of the registrant, Freedom Leaf Inc., entered into an Asset Purchase
Agreement with Valencia Web Technology S.L., B-97183354, a Spanish limited liability company (Sociedad de Responsabilidad Limitada)
(the “Seller”) to purchase the Seller’s assets, including its cash and cash equivalents, equipment, inventory,
receivables, and two of its websites www.lamarihuana.com and www.marihuana-medicinal.com (but not including the Seller’s
website cannabislandia.com), for a purchase price consisting of a 10% interest in the Buyer, and 3,000,000 shares of common stock
of the registrant, valued at $300,000 (the “Initial FRLF Shares”), with additional shares of the registrant’s
common stock due six months following closing if, at such time, the average closing price of the registrant’s common stock
during the previous five trading days is less than $0.10/share. Such additional shares shall be calculated as follows: $300,000
minus the product of (a) the Initial FRLF Shares multiplied by (b) the average closing price of the registrant’s common stock
during the five trading days immediately preceding the True-Up Date (the “True-Up Price”), with such difference divided
by the True-Up Price. As of September 30, 2017, the common stock issued was valued at $184,500 therefore a contingent liability
of $174,000 was recorded (see Note 4).
The Company is in the process of meeting
international requirements for the complete use of the web sites by the Company. This process is expected to be completed before
the end of this fiscal year.
NOTE 3 – GOING CONCERN
The Company has a net loss for the three
months ended September 30, 2017 of $707,584 and working capital deficit as of September 30, 2017 of $87,018, and has used cash
in operations of $101,805 for the three months ended September 30, 2017. In addition, as of September 30, 2017, the Company had
a stockholders’ deficit and accumulated deficit of $58,439 and $5,628,572, respectively. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements
have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization
of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its operations
is dependent on the execution of management’s plans, which include the raising of capital through the debt and/or equity
markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If the Company
were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying
value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial statements.
There can be no assurances that the Company
will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The consolidated
financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities
that might be necessary. Based on the Company’s current resources, the Company will not be able to continue to operate without
additional immediate funding. Should the Company not be successful in obtaining the necessary financing to fund its operations,
the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
NOTE 4 – 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. As of November 14, 2017, there were no pending
or threatened lawsuits.
Lease Commitment
We lease approximately 2,800 square feet of
office space in Las Vegas, Nevada, pursuant to a lease that will expire on December 31, 2019. This facility serves as our corporate
headquarters. After December 31, 2017, the Company has the option to opt out of the lease.
Future minimum lease payments under these leases
are as follows:
2018
|
|
$
|
17,946
|
|
2019
|
|
|
18,943
|
|
|
|
|
|
|
Total
|
|
$
|
36,889
|
|
Rent expense for the three months ended September
30, 2017 and 2016 was $8,724 and $10,511, respectively.
NOTE 5 – RELATED PARTIES
Richard C. Cowan (“Cowan”), a former
director and officer of the Company, has payables and accruals due to him of $321,885 and $269,225 as of September 30, 2017 and
June 30, 2017, respectively. The payable, as agreed upon, is greater than one year, without any other set terms for repayment.
Imputed interest is immaterial.
Clifford J. Perry (“Perry”), Chief
Executive officer, Chief Financial Officer, and a director of the Company, has payables and accruals due to him of $19,486 and
$133,944 as of September 30, 2017 and June 30, 2017, respectively. Imputed interest is immaterial. On July 31, 2017, the Company
issued 5,784,061 shares of common stock to Cliff Perry for accrued compensation of $112,500. See Note 14.
Raymond P. Medeiros (“Medeiros”),
a director of the Company, has payables and accruals due to him of $10,500 and $52,500 as of September 30, 2017 and June 30, 2017,
respectively. Imputed interest is immaterial. On July 31, 2017, the Company issued 2,699,228 shares of common stock to Raymond
Medeiros for accrued compensation of $52,500. See Note 14.
On May 25, 2016, Perry converted 68,401,200
shares of common stock into 684,012 shares of Series A preferred stock. See Note 7.
On May 25, 2016, Cowan converted 26,401,000
shares of common stock into 264,010 shares of Series A preferred stock. See Note 7.
On June 30, 2016, Cowan converted $225,892
of payables and accruals into 2,226,154 shares of common stock. The conversion was at a 50% discount or $0.09 per share. See Note
7.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
NOTE 6 – OTHER RECEIVABLES
The Company has three licensing agreements
with the following: FLNL, FLI and BBDHS (see Note 2). The net present value, per entity, as recorded in Other Receivables as of
September 30, 2017, is as follows:
FLNL
|
|
$
|
176,173
|
|
FLI
|
|
|
245,053
|
|
BBDHS
|
|
|
221,754
|
|
Subtotal
|
|
|
642,980
|
|
Less: Allowance
|
|
|
163,533
|
|
Net Balance
|
|
$
|
479,447
|
|
As of September 30, 2017, FLNL, FLI and BBDHS are behind on payments
of $75,000, $75,000, and $25,000, respectively. The Company granted deferment on the payments with each entity. The Company has
recorded an allowance of $163,533.
The balances will be fully amortized by June 30, 2018.
NOTE 7 – FIXED ASSETS
The Company has fixed assets related to equipment.
The depreciation of the fixed assets is over a five-year period. As of September 30, 2017, and June 30, 2017, the Company had fixed
assets, net of accumulated depreciation, of $142,313 and $0, respectively. The fixed assets are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
148,500
|
|
|
$
|
–
|
|
Total fixed assets
|
|
|
148,500
|
|
|
|
–
|
|
Less: Accumulated depreciation
|
|
|
6,187
|
|
|
|
–
|
|
Fixed assets, net
|
|
$
|
142,313
|
|
|
$
|
–
|
|
The depreciation expense for the three months ended September 30,
2017 and 2016, was $6,187 and $0, respectively.
NOTE 8 – INTANGIBLE ASSETS
The Company has intangible assets related to
website development. The amortization of the intangible assets is over a fifteen-year period. As of September 30, 2017, and June
30, 2017, the Company had intangible assets, net of accumulated amortization, of $14,053 and $10,820, respectively. The intangible
assets are as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
Website development
|
|
$
|
15,682
|
|
|
$
|
12,245
|
|
Total intangible assets
|
|
|
15,682
|
|
|
|
12,245
|
|
Less: Accumulated amortization
|
|
|
1,629
|
|
|
|
1,425
|
|
Intangible assets, net
|
|
$
|
14,053
|
|
|
$
|
10,820
|
|
The amortization expense for the three months ended September 30,
2017 and 2016, was $204 and $140, respectively.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
The following table presents the amortization for the next five
years:
2018
|
|
$
|
612
|
|
2019
|
|
|
816
|
|
2020
|
|
|
816
|
|
2021
|
|
|
816
|
|
2022 and thereafter
|
|
|
10,993
|
|
Total
|
|
$
|
14,053
|
|
NOTE 9 – DERIVATIVES
Embedded Conversion Option Derivatives
Due to the conversion terms of certain promissory
notes, the embedded conversion options met the criteria to be bifurcated and presented as derivative liabilities. The Company calculated
the estimated fair values of the liabilities for embedded conversion option derivative instruments at the original note inception
date and as of September 30, 2017 and June 30, 2017, using the Black-Scholes option pricing model using the share prices of the
Company’s stock on the dates of valuation and using the following ranges for volatility, expected term and the risk-free
interest rate at each respective valuation date, no dividend has been assumed for any of the periods:
|
|
|
|
|
|
Note
|
|
|
September 30,
|
|
June 30,
|
|
Inception
|
|
|
2017
|
|
2017
|
|
Date
|
Volatility
|
|
189%
|
|
141%
|
|
170% - 232%
|
Expected Term
|
|
0.09 - 0.99 years
|
|
0.33 - 0.96 years
|
|
0.75 - 1.0 years
|
Risk-Free Interest Rate
|
|
1.31%
|
|
0.84%
|
|
1.07% - 1.33%
|
The following reflects the initial fair value
on the note inception date and changes in fair value through September 30, 2017:
Note inception date fair value allocated to debt discount
|
|
$
|
122,500
|
|
Change in fair value in fiscal year 2016
|
|
|
(122,500
|
)
|
Embedded conversion option derivative liability fair value on June 30, 2016
|
|
|
–
|
|
Note inception date fair value allocated to debt discount
|
|
|
163,000
|
|
Note modifications adjustment
|
|
|
(88,737
|
)
|
Change in fair value in fiscal year 2017
|
|
|
(21,506
|
)
|
Embedded conversion option derivative liability fair value on June 30, 2017
|
|
|
52,757
|
|
Note modifications adjustment
|
|
|
107,090
|
|
Change in fair value in fiscal year 2018
|
|
|
(2,104
|
)
|
Embedded conversion option derivative liability fair value on September 30, 2017
|
|
$
|
157,743
|
|
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
NOTE 10 – CONVERTIBLE NOTES PAYABLE,
NET OF PREMIUMS AND NOTES PAYABLE
Convertible notes, net of discounts and notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
PureEnergy
|
|
$
|
15,475
|
|
|
$
|
(1,436
|
)
|
|
$
|
14,039
|
|
|
$
|
15,475
|
|
|
$
|
(7,489
|
)
|
|
$
|
7,986
|
|
PureEnergy
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,480
|
|
|
|
(5,565
|
)
|
|
|
7,915
|
|
PowerUp
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
75,000
|
|
|
|
(39,330
|
)
|
|
|
35,670
|
|
PowerUp
|
|
|
38,000
|
|
|
|
(12,284
|
)
|
|
|
25,716
|
|
|
|
38,000
|
|
|
|
(18,893
|
)
|
|
|
19,107
|
|
PowerUp
|
|
|
53,000
|
|
|
|
(24,892
|
)
|
|
|
28,108
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
PowerUp
|
|
|
38,000
|
|
|
|
(11,175
|
)
|
|
|
26,825
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
PureEnergy
|
|
|
33,842
|
|
|
|
(16,817
|
)
|
|
|
17,025
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
PureEnergy
|
|
|
78,427
|
|
|
|
(38,972
|
)
|
|
|
39,455
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
LG
|
|
|
42,000
|
|
|
|
(21,258
|
)
|
|
|
20,742
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
298,744
|
|
|
$
|
(126,834
|
)
|
|
$
|
171,910
|
|
|
$
|
141,955
|
|
|
$
|
(71,277
|
)
|
|
$
|
70,678
|
|
On July 7, 2015, the Company executed a convertible
promissory note for $5,000 with Bruce Perlowin. The note is for one year, 12% interest rate, and convertible at $0.10 per share.
The current price at that date was $0.085, which is less than the conversion price. The stock price for our common stock as of
September 30, 2015 was $0.40. Our common stock is thinly traded therefore our price, as management has determined, is not indicative
of our valuation. In October 2015, the Company issued common stock for services to unrelated parties and the common stock was values
at $0.20, therefore, the $0.20 was used for valuation purposes for this note. A beneficial conversion feature of $5,000 was recorded
and subsequently amortized. The Company has recorded accrued interest of $467 as of September 30, 2017. On April 15, 2016, Mr.
Perlowin converted the principal of this promissory note into 50,000 shares of common stock (see Note 7). The accrued interest
was not converted.
On August 12, 2015, the Company executed a
convertible promissory note for $5,000 with Bruce Perlowin. The note is for one year, 12% interest rate, and convertible at $0.10
per share. The current price at that date was $0.10, which is less than the conversion price. The stock price for our common stock
as of September 30, 2015 was $0.40. Our common stock is thinly traded therefore our price, as management has determined, is not
indicative of our valuation. In October 2015, the Company issued common stock for services to unrelated parties and the common
stock was values at $0.20, therefore, the $0.20 was used for valuation purposes for this note. A beneficial conversion feature
of $5,000 was recorded and subsequently amortized. The Company has recorded accrued interest of $408 as of September 30, 2017.
On April 15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock (see Note 7).
The accrued interest was not converted.
On August 20, 2015, the Company executed a
convertible promissory note for $12,500 with Svetlana Ogorodnikova. The note matures on February 19, 2016, 12% interest rate, and
convertible at $0.10 per share. The current price at that date was $0.085, which is less than the conversion price. The stock price
for our common stock as of December 31, 2015 was $0.40. Our common stock is thinly traded therefore our price, as management has
determined, is not indicative of our valuation. In October 2015, the Company issued common stock for services to unrelated parties
and the common stock was values at $0.20, therefore, the $0.20 was used for valuation purposes for this note. A beneficial conversion
feature of $12,500 was recorded and subsequently amortized. The Company has recorded accrued interest of $986 as of September 30,
2017. On February 19, 2016, Ms. Ogorodnikova granted the Company an extension on the due date to June 30, 2016. On April 15, 2016,
Ms. Ogorodnikova converted the principal of this promissory note into 125,000 shares of common stock (see Note 7). The accrued
interest was not converted.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
On December 14, 2015, the Company executed
a convertible promissory note for $100,000 with Swiss Allied Trust, Inc. (“Swiss Allied”). The note has two funding
dates; December 14, 2015 and January 15, 2016, each for $50,000. On January 26, 2016, the Company received $50,000 from Swiss Allied
as the second tranche of the convertible promissory note. The term on each installment is for one year from the date of receipt
of each tranche. Each installment is recorded and presented separately. For the initial tranche of $50,000, the Company recorded
a beneficial conversion feature of $50,000 and, as of June 30, 2016, $14,795 was amortized. A beneficial conversion feature of
$50,000 was recorded and, as of June 30, 2016, $8,904 has been amortized. For the initial tranche, the Company has recorded accrued
interest of $0 as of September 30, 2017. For the second tranche, the Company has recorded accrued interest of $0 as of September
30, 2017. The beneficial conversion features were calculated on the conversion price of $0.005, as further discussed below. The
Company maintained the common stock to be valued at $0.20, as discussed in prior notes, as the Company’s common stock continues
to be thinly traded. Additionally, the Company issued Swiss Allied four warrants as an incentive to the note, each for 20,000,000
shares of the Company’s common stock, for a total of 80,000,000 warrants. On March 10, 2017, Swiss Allied and the Company
entered into an agreement to convert all outstanding balances due to Swiss Allied into 3,000,000 shares of common stock.
The four warrants, each for 20,000,000 shares
of common stock, mature on March 31, 2016, June 30, 2016, October 31, 2016, and December 31, 2016, respectively. If Swiss Allied
exercises all warrants, the Company would receive an additional $400,000 for said shares of common stock. If Swiss Allied does
not exercise all 80,000,000 warrants, by the maturation dates, as described herein, the exercise price shall be adjusted to $0.06,
an increase of $0.055 per share as a penalty, which is payable to the Company at the time Swiss Allied requests to have the Rule
144 restriction removed. The interest rate for each loan tranche is 8% and is accrued with a payment date of December 15, 2016
for the first tranche and January 15, 2017 for the second tranche. The conversion price for the $100,000, which may happen any
time prior to December 14, 2016, shall be the greater of $0.03 or 50% of the lowest closing price on the primary trading market
on which the Company’s common stock is quoted for the five trading days immediately prior to, but not including, the conversion
date, assuming that Swiss Allied has not exercised all 80,000,000 warrants for common stock. The conversion price for the $100,000,
assuming that Swiss Allied has exercised all 80,000,000 warrants for common stock, shall be $0.005 per share. Swiss Allied has
a right of first refusal on any future funding to the Company. Swiss Allied has the right to name a party to serve as a member
of the Company’s board of directors if Swiss Allied owns at least 40,000,000 shares of the Company’s common stock.
If Swiss Allied owns at least 80,000,000 shares of the Company’s common stock, they have the right to name two parties to
the Company’s board of directors. The two directors will remain as long as Swiss Allied owns 55,000,000 shares of the Company’s
common stock. As of March 31, 2016, Swiss Allied had not exercised the first warrant therefore, the warrant had expired as of said
date. On April 8, 2016, Swiss Allied converted warrants for 4,800,000 shares of common stock in exchange for $24,000. The Company
agreed to amend the obligations of Swiss Allied to accommodate the extension of the warrant until June 5, 2016. As of June 30,
2016, the warrant had expired.
On October 10, 2016, the Company executed a
collateralized secured promissory note with Adar Bays, LLC (“Adar”) for $25,000. The Company netted $23,000 due to
legal fees of $2,000. The note has a conversion discount of 45% based on the lowest closing price of the 20 days prior to conversion.
The Company recorded a debt discount of $25,000 and as of June 30, 2017, had recorded $12,123 of amortization. The note matures
on October 10, 2017 and bears interest at 8%. On April 6, 2017, the Company prepaid Adar $38,400 for full settlement of this note.
On November 1, 2016, the Company executed a
collateralized secured promissory note with Eagle Equities, LLC (“Eagle”) for $25,000. The Company netted $23,000 due
to legal fees of $2,000. The note has a conversion discount of 45% based on the lowest closing price of the 20 days prior to conversion.
The Company recorded a debt discount of $25,000 and as of September 30, 2017, had recorded $25,000 of amortization. The note matures
on November 1, 2017 and bears interest at 8%. On April 26, 2017, Eagle sold its convertible note to PureEnergy 714 LLC (“PureEnergy”)
with no change in terms. As of September 30, 2017, there is $0 of accrued interest. On June 29, 2017, the Company issued 791,140
shares of common stock to PureEnergy for the conversion of $12,501 (see Note 7). On July 19, 2017, the Company issued 748,934 shares
of common stock to PureEnergy related to the conversion of $13,481 (see Note 14). On November 3, 2017, the Company issued 1,006,768
shares of common stock to PureEnergy for the conversion of $14,497 of a convertible promissory note (see Note 14).
On May 23, 2017, the Company executed a convertible
promissory note with PureEnergy for $15,475. The note has a conversion discount of 45% based on the lowest closing price of the
20 days prior to conversion. The Company recorded a debt discount of $8,481 and as of September 30, 2017, had recorded $14,039
of amortization. The note matures on February 23, 2018 and bears interest at 8%. As of September 30, 2017, there is $502 of accrued
interest.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
On May 10, 2017, the Company executed a convertible
promissory note with Power Up for $75,000. The note has a conversion discount of 35% based on the lowest closing price of the 20
days prior to conversion. The Company recorded a debt discount of $47,865 and as of September 30, 2017, had recorded $23,932 of
amortization. The note matures on February 23, 2018 and bears interest at 8%. As of June 30, 2017, there is $1,282 of accrued interest.
On September 28, 2017, Pure Energy purchased the May 10, 2017 convertible promissory note between the Company and Power Up (see
Note 14). The Power Up convertible promissory note was for $75,000. The Company and Pure Energy entered into a revised convertible
promissory note to replace the Power Up convertible promissory note as stated below.
On June 20, 2017, the Company executed a convertible
promissory note with Power Up for $38,000. The note has a conversion discount of 35% based on the lowest closing price of the 20
days prior to conversion. The Company recorded a debt discount of $19,611 and as of September 30, 2017, had recorded $7,327 of
amortization. The note matures on February 23, 2018 and bears interest at 8%. As of September 30, 2017, there is $1,286 of accrued
interest.
On July 20, 2017, the Company executed a convertible
promissory note with Power Up for $38,000. The note has a conversion discount of 35% based on the lowest closing price of the 20
days prior to conversion. The Company recorded a debt discount of $14,829 and as of September 30, 2017, had recorded $449 of amortization.
The note matures on August 11, 2018 and bears interest at 8%. As of September 30, 2017, there is $912 of accrued interest.
On August 11, 2017, the Company executed a
convertible promissory note with LG Capital (“LG”) for $42,000. The note has a conversion discount of 35% based on
the lowest closing price of the 12 days prior to conversion. The Company recorded a debt discount of $21,707 and as of September
30, 2017, had recorded $3,654 of amortization. The note matures on March 20, 2018 and bears interest at 8%. As of September 30,
2017, there is $469 of accrued interest.
On September 26, 2017, the Company executed
a convertible promissory note with Power Up for $53,000. The note has a conversion discount of 35% based on the lowest closing
price of the 10 days prior to conversion. The Company recorded a debt discount of $14,898 and as of September 30, 2017, had recorded
$9,995 of amortization. The note matures on June 30, 2018 and bears interest at 12%. As of September 30, 2017, there is $87 of
accrued interest.
On September 27, 2017, the Company executed
a convertible promissory note with Pure Energy for $78,427 to replace the May 10, 2017 convertible note with Power Up, as reflected
above. The note has a conversion discount of 35% based on the lowest closing price of the 12 days prior to conversion. The Company
recorded a debt discount of $38,880 and as of September 30, 2017, had recorded $93 of amortization. The note matures on September
27, 2018 and bears interest at 8%. As of September 30, 2017, there is $69 of accrued interest.
On September 27, 2017, in conjunction with
the payoff of the May 10, 2017 Power Up convertible note, the Company incurred a prepayment penalty of $28,496, which Pure Energy
paid to Power Up. The Company issued a second convertible promissory note for $33,842, which included the prepayment penalty and
legal fees of $5,346. The second convertible promissory note matures on September 27, 2018 and bears interest of 8%. The Company
recorded a debt discount of $16,777 and as of September 30, 2017, had recorded $40 of amortization. As of September 30, 2017, there
is $30 of accrued interest.
NOTE 11 – 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.
On May 25, 2016, Perry converted 68,401,200
shares of common stock into 684,012 shares of Series A preferred stock. See Note 5.
On May 25, 2016, Cowan converted 26,401,000
shares of common stock into 264,010 shares of Series A preferred stock. See Note 5.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
Common Stock
The Company was authorized to issue up to 75,000,000
shares of common stock, par value $0.001 per share. On January 21, 2015, the Company increased its authorized capital to 500,000,000
shares of common stock. 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.
On July 1, 2016, the Company hired an employee
and, as a condition of the employment contract, the Company is obligated to issue 500,000 shares of common stock to the employee.
The shares were valued at $0.175 per share. The Company recorded an expense of $87,500.
On July 19, 2016, the Company issued 100,000
shares of common stock to its transfer agent, Globex Transfer, LLC. The shares were valued at $0.194 per share. The Company recorded
an expense of $19,400.
On July 21, 2016, the Company issued 1,385,000 shares of previously
issuable common stock.
On October 17, 2016, the Company issued 268,167
shares of common stock and 268,167 warrants for common stock to Weintraub Law Group, LLC for the settlement of payables of $15,065.
On October 18, 2016, the Company issued 24,000
shares of common stock to William Guarino for consulting. The shares were valued at $0.095. Stock-based compensation of $2,280
was recorded.
On October 18, 2016, the Company issued 24,000
shares of common stock to Anthony Catalano for consulting. The shares were valued at $0.095. Stock-based compensation of $2,280
was recorded.
On October 18, 2016, the Company issued 2,501,000
shares of common stock to Trends Investments, Inc. for consulting. The shares were valued at $0.095. Stock-based compensation of
$237,595 was recorded.
On November 3, 2016, the Company sold 500,000
shares for $25,000 to PB, LLC. The shares were valued at $0.05.
On November 25, 2016, the Company issued 50,000
shares of common stock to Dr. Robert Melamede for consulting. The shares were valued at $0.14. Stock-based compensation of $7,000
was recorded.
On November 25, 2016, the Company issued 50,000
shares of common stock to Dr. David Barton for consulting. The shares were valued at $0.14. Stock-based compensation of $7,000
was recorded.
On November 2, 2016, the Company sold 500,000
shares for $30,000 to Reese. The shares were valued at $0.06.
On November 3, 2016, the Company sold 312,500
shares for $25,000 to Dorothy Herbst. The shares were valued at $0.08.
On January 4, 2017, the Company sold 133,334
shares of common stock for $10,000 to Robert J. Kane at a price of $0.075 per share.
On January 9, 2017, the Company sold 166,667
shares of common stock for $10,000 to Robert J. Kane at a price of $0.06 per share.
On January 11, 2017, the Company sold 1,000,000 shares of common
stock for $25,000 to Felipe Menezes at a price of $0.025 per share.
On January 11, 2017, the Company issued 90,000
shares of common stock to one of the Company’s attorneys as settlement of payables of $7,312. The shares were valued at $0.1122.
On January 18, 2017, the Company sold 1,000,000
shares of common stock for $25,000 to Felipe Menezes at a price of $0.025 per share.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
On January 30, 2017, the Company entered into
an agreement with CorporateAds.com, LLC (“CorporateAds.com”) for services. The compensation provides a minimal $500
per week payment, 150,000 shares of common stock, and 150,000 warrants for common stock. The warrants have an exercise price of
$0.10 per share with an expiration 18 months after issuance. The agreement is for 15 days and has an auto renewal feature for an
additional 75 days. During the 75-day period, the Company will pay $500 for each additional week. On February 1, 2017, both parties
agreed to an addendum to the agreement to change the exercise price of $0.10 for the warrants to the following: 50,000 of the warrants
have an exercise price of $0.10 per share; 50,000 of the warrants have an exercise price of $0.125 per share; and 50,000 of the
warrants have an exercise price of $0.15 per share.
On March 10, 2017, the Company issued 3,000,000
shares of common stock to Swiss Allied, as a conversion of notes payable of $100,000. The shares were valued $0.07.
On March 15, 2017, the Company issued 211,267
shares of common stock to one of the Company’s attorneys as settlement of payables of $7,000. The shares were valued at $0.0699.
On March 17, 2017, the Company issued 224,000
shares of common stock to a consultant of the Company as settlement of payables of $11,230. The shares were valued at $0.0736.
On March 29, 2017, the Company issued 211,267
shares of common stock to a consultant of the Company as settlement of payables of $15,000. The shares were valued at $0.0585.
On April 25, 2017, the Company issued 200,000
shares of common stock to CorporateAds.com, in regards to the January 30, 2017 agreement.
On May 30, 2017, the Company issued 3,000,000
shares of common stock to Valencia Web Technology for intellectual property with a value set at $300,000. The shares were valued
at $0.04, or $184,500. The agreement requires for a value at a later date of $300,000. Therefore, the Company recorded a contingent
liability of $112,500.
On June 12, 2017, the Company issued 119,900
shares of common stock to Sandra Newman for the settlement of accounts payable of $5,995. The shares were valued at $5,395 and
the Company recognized a gain of $600.
On June 12, 2017, the Company authorized the
issuance 200,000 shares of common stock to Jason Edwards for services valued at $10,000. The shares were valued at $9,000 and the
Company recognized a gain of $1,000. As of June 30, 2017, the shares remained as issuable.
On June 23, 2017, the Company issued 226,881
shares of common stock to Louis Yovino for the settlement of accounts payable of $8,803. The shares were valued at $8,395 and the
Company recognized a gain of $408.
On June 23, 2017, the Company issued 177,032
shares of common stock to Rene Velez for services valued at $7,500. The shares were valued at $8,586 and the Company recognized
a loss of $1,086.
On June 23, 2017, the Company issued 596,163
shares of common stock to Michael Ostrander for services valued at $22,500. The shares were valued at $22,058 and the Company recognized
a gain of $442.
On June 29, 2017, the Company issued 791,140
shares of common stock to PureEnergy in conjunction with a convertible promissory note (see Note 7).
On June 30, 2017, the Company issued 300,000
shares of common stock to Michael Ostrander for services valued at $15,000. The shares were valued at $15,150 and the Company recognized
a loss of $150.
On June 30, 2017, the Company issued 400,000
shares of common stock to Jason Edwards for services valued at $20,000. The shares were valued at $20,200 and the Company recognized
a loss of $200.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
On July 5, 2017, the Company issued 200,000
shares of common stock to Jason Edwards for services.
On July 19, 2017, the Company issued 748,934
shares of common stock to PureEnergy related to the conversion of $13,481 of a convertible promissory note (see Note 4).
On July 31, 2017, the Company issued 5,784,061
shares of common stock to Cliff Perry for accrued compensation of $112,500. See Note 5.
On July 31, 2017, the Company issued 2,699,228
shares of common stock to Raymond Medeiros for accrued compensation of $52,500. See Note 5.
On August 11, 2017, the Company issued
500,000 shares of common stock to Frank Dobrucki for services.
On August 14, 2017, the Company issued 400,000
shares of common stock to Jason Edwards for services.
On August 14, 2017, the Company issued 500,000
shares of common stock to Nuaxon Bioscience as part of the agreement for exclusive rights to market and sell their equipment.
On August 17, 2017, the Company issued 345,451
shares of common stock to Lakeport Business Services, Inc. for accounts payable of $9,450.
On August 25, 2017, the Company issued 600,000
shares of common stock to Christopher Thompson for services in August 2017.
On August 25, 2017, the Company issued 550,000
shares of common stock to Joshua Halford for services in August 2017.
On August 28, 2017, the Company issued 1,061,500
shares of common stock to Christopher Sloan for services in May 2017 (600,000 shares of common stock) and for accrued expenses
of $23,075 (461,500 shares of common stock).
On August 28, 2017, the Company issued
530,303 shares of common stock to Neil Dutson for services valued at $17,500.
On August 29, 2017, the Company issued 100,000
shares of common stock to Marc Hatch for services valued at $5,000.
Warrants
On November 2, 2015, the Company issued 1,000,000
warrants for common stock to Freedom Leaf Iberia, B.V., in regards to a contemplated future transaction between the Company and
Freedom Leaf Iberia, B.V. The warrants mature on May 2, 2016. The exercise price is $0.02 and the warrant has a cashless exercise
option. The warrants were valued at $0.20 per share, as defined in the section. The Company recorded an expense of $200,000. On
May 2, 2016, Freedom Leaf Iberia exercised a cashless conversion of its 1,000,000 warrants for common stock of the Company into
889,868 shares of common stock of the Company.
On November 2, 2015, the Company issued 1,000,000
warrants for common stock to Freedom Leaf Netherlands, B.V., in regards to a contemplated future transaction between the Company
and Freedom Leaf Netherlands, B.V. The warrants mature on May 2, 2016. The exercise price is $0.02 and the warrant has a cashless
exercise option. The warrants were valued at $0.20 per share, as defined in the section. The Company recorded an expense of $200,000.
On May 2, 2016, Freedom Leaf Netherlands, B.V. exercised a cashless conversion of its 1,000,000 warrants for common stock of the
Company into 889,868 shares of common stock of the Company.
On November 2, 2015, the Company issued 500,000
warrants for common stock to a subcontractor as an incentive to their services. The warrants mature on May 2, 2016. The exercise
price is $0.02 and the warrant has a cashless exercise option. The warrants were valued at $0.20 per share, as defined in the section.
The Company recorded an expense of $100,000. On February 2, 2016, Dobrucki exercised a warrant for 500,000 shares of common stock
for $10,000, the exercise price of the warrants at $0.02 per share.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
On December 14, 2015, the Company executed
a convertible promissory note for $100,000 with Swiss Allied (see Note 6). The Company issued Swiss Allied four warrants as an
incentive to the note, each for 20,000,000 shares of the Company’s common stock, for a total of 80,000,000 warrants. Each
warrant has an exercise price of $0.005 per share. The four warrants, each for 20,000,000 shares of common stock, mature on March
31, 2016, June 30, 2016, October 31, 2016, and March 31, 2017, respectively. The warrants, as an incentive to the note, should
have a beneficial conversion feature. As the note’s beneficial conversion feature is at the maximum, there is no beneficial
conversion feature to record. If Swiss Allied exercises all warrants, the Company would receive an additional $400,000 for said
shares of common stock. If Swiss Allied does not exercise all 80,000,000 warrants, by the maturation dates, as described herein,
the exercise price shall be adjusted to $0.06, an increase of $0.055 per share as a penalty, which is payable to the Company at
the time Swiss Allied requests to have the Rule 144 restriction removed. The interest rate for each loan tranche is 8% and is accrued
with a payment date of December 15, 2016 for the first tranche and January 15, 2017 for the second tranche. The conversion price
for the $100,000, which may happen any time prior to December 14, 2016, shall be the greater of $0.03 or 50% of the lowest closing
price on the primary trading market on which the Company’s common stock is quoted for the five trading days immediately prior
to, but not including, the conversion date, assuming that Swiss Allied has not exercised all 80,000,000 warrants for common stock.
The conversion price for the $100,000, assuming that Swiss Allied has exercised all 80,000,000 warrants for common stock, shall
be $0.005 per share. Swiss Allied has a right of first refusal on any future funding to the Company. Swiss Allied has the right
to name a party to serve as a member of the Company’s board of directors if Swiss Allied owns at least 40,000,000 shares
of the Company’s common stock. If Swiss Allied owns at least 80,000,000 shares of the Company’s common stock, they
have the right to name two parties to the Company’s board of directors. The two directors will remain as long as Swiss Allied
owns 55,000,000 shares of the Company’s common stock. See Note 6 for amendment on the warrant that matured on March 31, 2016.
On October 17, 2016, the Company issued 268,167
shares of common stock and 268,167 warrants for common stock to Weintraub Law Group, LLC for the settlement of payables of $15,065.
On December 15, 2016, the Company and FLNL
executed a license agreement (see Note 2). As part of the agreement, the Company provided FLNL with warrants to purchase up to
1,000,000 shares of common stock. The warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000
warrants between June 2017 and August 2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between
December 2017 and February 2018, and; 250,000 warrants between March 2018 and May 2018. The warrants will be expensed according
to their respective vesting schedule.
On December 15, 2016, the Company and FLI executed
a license agreement (see Note 2). The Company provided FLI with warrants to purchase up to 1,000,000 shares of common stock. The
warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000 warrants between June 2017 and August
2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between December 2017 and February 2018, and;
250,000 warrants between March 2018 and May 2018. The warrants will be expensed according to their respective vesting schedule.
On January 16, 2017, the Company issued 1,000,000
warrants for common stock to Vincent Moreno for future consulting services. The warrants have an exercise price of $0.05 and expire
in five years.
On January 30, 2017, the Company entered into
an agreement with CorporateAds.com, LLC for services. The compensation provides a minimal $500 payment, 150,000 shares of common
stock, and 150,000 warrants for common stock. The warrants have an exercise price of $0.10 per share with an expiration 18 months
after issuance. The agreement is for 15 days and has an auto renewal feature for an additional 75 days. During the 75-day period,
the Company will pay $500 for each additional 15 days. On February 1, 2017, both parties agreed to an addendum to the agreement
to change the exercise price of $0.10 for the warrants to the following: 50,000 of the warrants have an exercise price of $0.10
per share; 50,000 of the warrants have an exercise price of $0.125 per share; and 50,000 of the warrants have an exercise price
of $0.15 per share.
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.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
NOTE 12 – REVENUE CLASSES
Selected financial information for the Company’s
operating revenue classes for the three months ended September 30, 2017 and 2016, are as follows:
|
|
For the three months ended
|
|
Revenues:
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Magazine related
|
|
$
|
–
|
|
|
$
|
2,774
|
|
Referral fees
|
|
|
–
|
|
|
|
6,000
|
|
Seminars and training
|
|
|
–
|
|
|
|
838
|
|
Licensing fees
|
|
|
–
|
|
|
|
104,760
|
|
Sale of products
|
|
|
1,327
|
|
|
|
6,182
|
|
Total
|
|
$
|
1,327
|
|
|
$
|
120,554
|
|
|
|
For the three months ended
|
|
Direct costs of revenue:
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Magazine related
|
|
$
|
32,170
|
|
|
$
|
23,718
|
|
Referral fees
|
|
|
–
|
|
|
|
–
|
|
Seminars and training
|
|
|
–
|
|
|
|
–
|
|
Licensing fees
|
|
|
–
|
|
|
|
–
|
|
Sale of products
|
|
|
976
|
|
|
|
1,547
|
|
Total
|
|
$
|
33,146
|
|
|
$
|
25,265
|
|
The Company’s four revenue classes are
magazine related, referral fees, licensing fees (see Note 2) and equipment sales commissions (see Note 2).
NOTE 13 – CONCENTRATIONS
Concentration of Credit Risk
Financial instruments, which potentially subject
the Company to a concentration of credit risk, consist principally of temporary cash investments.
The Company places its temporary cash investments
with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of September 30, 2017. There have
been no losses in these accounts through September 30, 2017.
Concentration of Revenue
For the three months ended September 30, 2017,
the Company had no material customer.
Concentration of Supplier
The Company does not rely on any particular
suppliers for its services.
Concentration of Intellectual Property
The Company owns or has filed for the trademarks
“Freedom Leaf,” “Hemp Inspired,” “Cannabizu,” and “Cannabiz” as filed with the
United States Patent and Trademark Office. The Company has filed for “Freedom Leaf” in Jamaica and Uruguay.
Freedom Leaf Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(unaudited)
NOTE 14 – 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 such events that warrant disclosure or recognition in the financial statements, except as stated herein.
On October 6, 2017, the Company issued 400,000
shares of common stock to Jason Edwards for services in October 2017 valued at $20,000.
On October 6, 2017, the Company issued 600,000
shares of common stock to Michael Ostrander for services in October 2017 valued at $30,000.
On October 25, 2017, the Company issued 1,001,250
shares of common stock to Timothy Puetz for services in October 2017 valued at $20,025.
On October 25, 2017, the Company issued 255,000
shares of common stock to Ronald Voight for services in October 2017 valued at $5,100.
On October 25, 2017, the Company issued 250,000
shares of common stock to Victor Park, a vendor, for services in October 2017 valued at $7,500.
On October 28, 2017, the Company issued 273,333
shares of common stock to Lakeport Business Services, Inc. for services in October 2017 valued at $8,200.
On October 31, 2017, the Company issued 850,000
shares of common stock to Paul F. Pelosi, Jr. (“Pelosi”), in regards to his appointment as Chairman of the Board on
November 1, 2017, for compensation for the period November 1, 2017 through January 31, 2018. The Company is obligated to issue
on February 1, 2018, an additional 1,250,000 options for common stock with an exercise price of $0.04, with an expiration eighteen
months after issuance.
On November 3, 2017, the Company issued 1,006,768
shares of common stock to PureEnergy for the conversion of $14,497 of a convertible promissory note (see Note 10).
On November 9, 2017, the Company issued 122,500
shares of common stock to legal counsel for services in October 2017 valued at $3,675.
On November 9, 2017, the Company issued 250,000
shares of common stock to Frank Dobrucki for services in October 2017 valued at $7,500.
On November 9, 2017, the Company sold 967,000
shares of common stock to Pelosi for $14,500, based on a per share price of $0.01499.