See accompanying notes to unaudited condensed financial statements.
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
NOTE 1 – NATURE
OF BUSINESS, PRESENTATION AND GOING CONCERN
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, pursuant to the terms of the agreements with the Sellers, 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 (“Private Company”). The Company changed its name from Arkadia International,
Inc., to Freedom Leaf Inc. As a result of the merger, the Private Company was dissolved. See Note 2 for related discussion.
For financial reporting purposes,
the acquisition of the Private Company via the merger transaction 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 treated as the acquirer for financial reporting purposes, and the
predecessor public company (Freedom Leaf Inc., f/k/a Arkadia International, Inc.) is treated as the acquired company. Consequently,
the assets and liabilities and the operations that are reflected in the historical 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 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.
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 segment of income generation 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, and for The Netherlands.
Basis of Presentation
The accompanying unaudited condensed financial
statements of Freedom Leaf Inc. have been prepared in accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The results of operations for the interim period
ended December 31, 2016 shown in this report are not necessarily indicative of results to be expected for the full fiscal year
ending June 30, 2017. In the opinion of the Company’s management, the information contained herein reflects all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s results of operations, financial
position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited financial statements
in the Company’s Form 10-K for the year ended June 30, 2016 filed on October 7, 2016 and Management’s Discussion and
Analysis of Financial Condition and Results of Operations therein.
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.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
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.
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 December 31, 2016:
|
|
Balance
at December 31,
|
|
|
Quoted Prices
in Active
Markets for
Identical
|
|
|
Significant
Other
Observable
|
|
|
Significant
Unobservable
|
|
|
|
2016
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
11,419
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
11,419
|
|
Total Financial Assets
|
|
$
|
11,419
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
11,419
|
|
Following is a summary of activity through
December 31, 2016 of the fair value of intangible assets valued using Level 3 inputs:
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Asset
|
|
|
Amortization
|
|
|
Net
|
|
Intangibles - June 30, 2016
|
|
$
|
8,148
|
|
|
$
|
(684
|
)
|
|
$
|
7,464
|
|
Additions
|
|
|
3,271
|
|
|
|
–
|
|
|
|
3,271
|
|
Amortization
|
|
|
–
|
|
|
|
(370
|
)
|
|
|
(370
|
)
|
Intangibles - December 31, 2016
|
|
$
|
11,419
|
|
|
$
|
(1,054
|
)
|
|
$
|
10,365
|
|
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.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
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.
Going Concern
While the Company generated revenues for
the six months ended December 31, 2016 of $569,120, it has recurring net losses for the six months ended December 31, 2016 of
$513,253 and working capital as of December 31, 2016 of $40,630, and has used cash in operations of $174,349 for the six months
ended December 31, 2016. In addition, as of December 31, 2016, the Company had a stockholders’ deficit and accumulated deficit
of $97,356 and $4,523,591, respectively. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern.
The accompanying condensed 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.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the 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 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.
Reclassifications
Certain amounts in the prior period 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.
Development Stage Company
Since inception, the Company became a “development
stage company” as defined in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) Topic 915 “Development Stage Entities.” On June 10, 2014 the FASB issued authoritative guidance
which eliminates the concept of a development stage entity. The incremental reporting requirements for presenting the development
stage operations and cash flows since inception will no longer apply to development stage entities. The amendments of Topic 915
are to be applied retrospectively and are effective for fiscal years beginning after December 15, 2014. The Company has elected
early adoption of this guidance effective with the filing of its previous quarterly report.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
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. See Note 2 for related discussion.
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 convertible notes convertible into 6,827,788 common
shares as of December 31, 2016. 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 December
31, 2016 and 2015.
Effect of Recent Accounting Pronouncements
The Company reviews new accounting pronouncements
as issued. No new pronouncements had any material effect on these unaudited financial statements. The accounting pronouncements
issued subsequent to the date of these unaudited financial statements that were considered significant by management were evaluated
for the potential effect on these unaudited financial statements. Management does not believe any of the subsequent pronouncements
will have a material effect on these unaudited financial statements as presented and does not anticipate the need for any future
restatement of these unaudited financial statements because of the retro-active application of any accounting pronouncements issued
subsequent to December 31, 2016 through the date these unaudited financial statements were issued.
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 Share Exchange, 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.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
Licensing Rights
On February 8, 2016, the Company and Freedomleaf
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. 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 Note 6.
On December 15, 2016, the Company and Freedom
Leaf Iberia, B.V. (“FLI”), a company incorporated under the laws of the Netherlands. 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. 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 Note 6.
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 December 31, 2016, 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 February 1, 2017.
See Note 7.
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 December 31, 2016, there have been no sales or commissions earned.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(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. As of December 31, 2016, there have been no sales or commissions
earned.
NOTE 3 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may become subject
to legal proceedings, claims and litigation arising in the ordinary course of its business. The Company is not currently a party
to any material legal proceedings, nor is the Company aware of any other pending or threatened litigation that would have a material
adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be
resolved unfavorably.
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:
2017
|
|
$
|
11,964
|
|
2018
|
|
|
23,928
|
|
2019
|
|
|
18,943
|
|
|
|
|
|
|
Total
|
|
$
|
54,835
|
|
Rent expense for the six months ended December
31, 2016 and 2015 was $19,309 and $20,208, respectively.
NOTE 4 – RELATED PARTIES
Richard C. Cowan (“Cowan”), a director
and former officer of the Company, has payables and accruals due to him of $129,333 and $100,000 as of December 31, 2016 and June
30, 2016, respectively. There are no set terms for repayment.
Clifford J. Perry (“Perry”), Chief
Executive officer, Chief Financial Officer, and a director of the Company, has payables and accruals due to him of $101,050 and
$34,500 as of December 31, 2016 and June 30, 2016, respectively.
Raymond P. Medeiros (“Medeiros”),
a director of the Company, has payables and accruals due to him of $31,500 and $10,500 as of December 31, 2016 and June 30, 2016,
respectively.
A shareholder of the Company is owed $0 and
$10,000 as of December 31, 2016 and June 30, 2016, respectively.
On May 25, 2016, Perry converted 68,401,200
shares of common stock into 684,012 shares of Series A preferred stock. See Note 6.
On May 25, 2016, Cowan converted 26,401,000
shares of common stock into 264,010 shares of Series A preferred stock. See Note 6.
On June 30, 2016, Cowan converted $225,892
of payables and accruals into 2,509,914 shares of common stock. The conversion was at a 50% discount or $0.09 per share. As of
December 31, 2016, these shares had not been issued and were recorded as issuable. See Note 6.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
NOTE 5 – CONVERTIBLE NOTES PAYABLE,
NET OF PREMIUMS AND NOTES PAYABLE
Convertible notes payable, all classified as
current at December 31, 2016, consist of the following:
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
Swiss Allied Trust, Inc. (a)
|
|
$
|
50,000
|
|
|
$
|
–
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
(24,794
|
)
|
|
$
|
25,206
|
|
Swiss Allied Trust, Inc. (a)
|
|
|
50,000
|
|
|
|
(3,425
|
)
|
|
|
46,575
|
|
|
|
50,000
|
|
|
|
(30,685
|
)
|
|
|
19,315
|
|
Adar Bays, LLC (a)
|
|
|
25,000
|
|
|
|
(19,452
|
)
|
|
|
5,548
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Eagle Equities, LLC (a)
|
|
|
25,000
|
|
|
|
(20,890
|
)
|
|
|
4,110
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
150,000
|
|
|
$
|
(43,767
|
)
|
|
$
|
106,233
|
|
|
$
|
100,000
|
|
|
$
|
(55,479
|
)
|
|
$
|
44,521
|
|
(a) Convertible
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 December 31, 2016. On
April 15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock (see Note 6). 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 December 31, 2016. On
April 15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock (see Note 6). 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
December 31, 2016. 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
6). The accrued interest was not converted.
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 March 31, 2016, $14,795 was amortized. A beneficial conversion feature of
$50,000 was recorded and, as of March 31, 2016, $8,904 has been amortized. For the initial tranche, the Company has recorded accrued
interest of $3,211 as of December 31, 2016. For the second tranche, the Company has recorded accrued interest of $2,739 as of December
31, 2016. 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.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
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
convertible 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 December 31, 2016, had recorded $5,548 of amortization. The note matures
on October 10, 2017 and bears interest at 8%. As of December 31, 2016, the accrued interest was $455.
On November 1, 2016, the Company executed a
convertible 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 December 31, 2016, had recorded $4,110 of amortization. The note matures
on November 1, 2017 and bears interest at 8%. As of December 31, 2016, the accrued interest was $334.
NOTE 6 – STOCKHOLDERS’ DEFICIT
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.
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 it’s authorized 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.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
On November 6, 2014, the Company merged with
Freedom Leaf Inc., a private Nevada corporation (see Note 1). After the completion of the merger, there were 173,401,200 shares
of common stock issued, issuable and outstanding.
On November 10, 2014, the Company issued 780,000
shares of common stock to Vincent Moreno for consulting services from November 10, 2014 through April 10, 2015. The Company’s
stock is thinly traded therefore the valuation of the issuance was based on the value of the services, which was $12,500.
On October 12, 2015, the Company issued 1,700,000
shares of common stock to various employees as part of compensation. The current price at that date was $0.20. Our common stock
is thinly traded therefore our price, as management has determined, may not be indicative of our valuation. Previously, the Company
issued common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued
at $0.20 or $340,000 was recorded.
On October 12, 2015, the Company issued 2,000,000
shares of common stock to Raymond Medeiros, a director of the Company, for his past services. The current price at that date was
$0.20. Our common stock is thinly traded therefore our price, as management has determined, may not be indicative of our valuation.
Previously, the Company issued common stock for services to unrelated parties and the common stock was valued at $0.20, therefore,
the stock was valued at $0.20 or $400,000 was recorded.
On October 12, 2015, the Company issued 3,000,000
shares of common stock to Raymond Medeiros, a director of the Company, for his future services. The issuance will vest over a period
of twelve months. The current price at that date was $0.20. Our common stock is thinly traded therefore our price, as management
has determined, may not be indicative of our valuation. Previously, the Company issued common stock for services to unrelated parties
and the common stock was valued at $0.20, therefore, the stock was valued at $0.20 or $600,000 was recorded.
On October 12, 2015, the Company issued 2,010,000
shares of common stock to various subcontractors for their services. The current price at that date was $0.20. Our common stock
is thinly traded therefore our price, as management has determined, may not be indicative of our valuation. Previously, the Company
issued common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued
at $0.20 or $402,000, was recorded.
In October 2015, the Company issued 50,000
shares of common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued
at $0.20 or $10,000, was recorded.
On November 2, 2015, the Company issued 125,000
shares of common stock to various subcontractors for their services. The current price at that date was $0.45. Our common stock
is thinly traded therefore our price, as management has determined, may not be indicative of our valuation.
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.
On February 15, 2016, the Company issued 750,000
shares of common stock to various subcontractors for their services. The current price at that date was $0.227. Our common stock
is thinly traded therefore our price, as management has determined, may not be indicative of our valuation. Previously, the Company
issued common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued
at $0.20, therefore, the issuance on was valued at $150,000, was recorded.
On February 15, 2016, the Company issued 50,000
shares of common stock to an employee for their services. The current price at that date was $0.227. Our common stock is thinly
traded therefore our price, as management has determined, may not be indicative of our valuation. Previously, the Company issued
common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued at $0.20
or $10,000, was recorded.
On February 24, 2016, the Company issued 100,000
shares of common stock to various subcontractors for their services. The current price at that date was $0.227. Our common stock
is thinly traded therefore our price, as management has determined, may not be indicative of our valuation. Previously, the Company
issued common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued
at $0.20 or $20,000, was recorded.
On March 17, 2016, the Company issued 50,000
shares of common stock to various subcontractors for their services. The current price at that date was $0.20. Our common stock
is thinly traded therefore our price, as management has determined, may not be indicative of our valuation.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
On March 18, 2016, the Company issued 10,000
shares of common stock to an employee for their services. The current price at that date was $0.20. Our common stock is thinly
traded therefore our price, as management has determined, may not be indicative of our valuation. In October 2015, the Company
issued common stock for services to unrelated parties and the common stock was valued at $0.20, therefore, the stock was valued
at $0.20 or $2,000, was recorded. As of June 30, 2016, the stock was not issued therefore recorded as issuable.
On April 8, 2016, Swiss Allied exercised a
portion of a warrant for common stock into 400,000 shares of common stock of the Company in exchange for $24,000. As of June 30,
2016, the stock was not issued therefore recorded as issuable.
On April 15, 2016, Bruce Perlowin converted
the principal ($5,000) of his promissory note into 50,000 shares of common stock (see Note 5).
On April 15, 2016, Bruce Perlowin converted
the principal ($5,000) of his promissory note into 50,000 shares of common stock (see Note 5).
On April 15, 2016, Svetlana Ogorodnikova converted
the principal ($12,500) of her promissory note into 125,000 shares of common stock (see Note 5).
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.
As of June 30, 2016, the stock was not issued therefore recorded as issuable.
On May 2, 2016, Freedomleaf 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. As of June 30, 2016, the stock was not issued therefore recorded as issuable.
On May 25, 2016, Perry converted 68,401,200
shares of common stock into 684,012 shares of Series A preferred stock. See Note 4.
On May 25, 2016, Cowan converted 26,401,000
shares of common stock into 264,010 shares of Series A preferred stock. See Note 4.
On June 30, 2016, Cowan converted $225,892
of payables and accruals into 2,509,914 shares of common stock. The conversion was at a 50% discount or $0.09 per share. As of
June 30, 2016, these shares had not been issued and were recorded as issuable. See Note 4.
On June 30, 2016, the Company determined that
on February 15, 2016, there was a duplicate issuance to an entity, as they were already issued on October 12, 2015. The Company
cancelled 200,000 shares on June 30, 2016, thereby reducing the stock-based compensation previously recorded by $40,000.
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.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
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. As of December 31, 2016, these shares had not been issued and were
recorded as issuable.
On November 3, 2016, the Company sold 312,500
shares for $25,000 to Dorothy Herbst. The shares were valued at $0.08.
Warrants
On November 2, 2015, the Company issued 1,000,000
warrants for common stock to Freedom Leaf Iberia, in regards to a contemplated future transaction between the Company and Freedom
Leaf Iberia. 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. As of March 31, 2016, the shares were not issued therefore
they are recorded as issuable.
On December 14, 2015, the Company executed
a convertible promissory note for $100,000 with Swiss Allied (see Note 5). 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 December 31, 2016, 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 5 for amendment on the warrant that matured on March 31, 2016.
FREEDOM LEAF INC.
(f/k/a Arkadia International, Inc.)
Notes to Condensed Financial Statements
December 31, 2016
(unaudited)
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.
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.
NOTE 7 – 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 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 stock to one of the Company’s attorneys as settlement of payables of $7,312.
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 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. The stock was valued at $0.1009.
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.
On February 1, 2017, the Incubation Agreement
between PTP and the Company (see Note 2) was amended and 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 February 1, 2017.
On February 13, 2017, Cowan provided
the Company a loan for $60,000.