Notes to Condensed
Financial Statements
March 31, 2017
(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, for The Netherlands, and for Florida.
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 March 31, 2017 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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
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 March 31, 2017:
|
|
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
|
|
$
|
12,244
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
12,244
|
|
Total Financial Assets
|
|
$
|
12,244
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
12,244
|
|
Following is a summary of activity through
March 31, 2017 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
|
|
|
4,096
|
|
|
|
–
|
|
|
|
4,096
|
|
Amortization
|
|
|
–
|
|
|
|
(570
|
)
|
|
|
(570
|
)
|
Intangibles - March 31, 2017
|
|
$
|
12,244
|
|
|
$
|
(1,254
|
)
|
|
$
|
10,990
|
|
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
The following table summarizes our financial assets and liabilities
measured at fair value on a recurring basis at March 31, 2017:
|
|
Balance at March 31, 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
|
|
$
|
23,918
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
23,918
|
|
Total Financial Assets
|
|
$
|
23,918
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
23,918
|
|
Following is a summary of activity through
March 31, 2017 of the fair value of derivative liabilities valued using Level 3 inputs:
Balance at June 30, 2016
|
|
$
|
–
|
|
Note inception date fair value
|
|
|
21,013
|
|
Change in fair value during 2017
|
|
|
2,905
|
|
Balance at March 31, 2017
|
|
$
|
23,918
|
|
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
The accompanying financial statements
and the factors within it, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business and the substantial doubt of the Company to continue as a going concern for a
reasonable period of time. The Company sustained net losses of $539,008 and cash used in operating activities of $222,898 for
the nine months ended March 31, 2017. The Company had working capital, stockholders’ equity and accumulated deficit of $52,435,
$93,610 and $4,549,346, respectively, at March 31, 2017. The Company’s continuation as a going concern is dependent upon
its ability to generate revenues and its ability to continue receiving investment capital and loans from third parties to sustain
its current level of operations. The Company is in the process of securing working capital from investors for common stock, convertible
notes payable, and/or strategic partnerships. No assurance can be given that the Company will be successful in these efforts.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
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 and warrants convertible into 6,172,169 common shares as of March 31, 2017. 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 March
31, 2017.
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 March 31, 2017 through the date these unaudited financial statements were issued.
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 no
revenue streams at this time.
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 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 March 31, 2017, tax years 2012
- 2016 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.
Notes to Condensed
Financial Statements
March 31, 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 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.
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 Note 6.
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 Note 6.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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 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 March 31, 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 February 1, 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 March 31, 2017, there have been no sales or commissions earned.
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 March 31, 2017, there
were sales of $210,000.
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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
Future minimum lease payments under these leases are as follows:
2017
|
|
$
|
5,982
|
|
2018
|
|
|
23,928
|
|
2019
|
|
|
18,943
|
|
|
|
|
|
|
Total
|
|
$
|
48,853
|
|
Rent expense for the nine months ended
March 31, 2017 and 2016 was $28,021 and $31,721, 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 $203,190 and $100,000 as of March 31, 2017
and June 30, 2016, 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 $116,405
and $34,500 as of March 31, 2017 and June 30, 2016, respectively. Imputed interest is immaterial.
Raymond P. Medeiros (“Medeiros”),
a director of the Company, has payables and accruals due to him of $42,070 and $10,500 as of March 31, 2017 and June 30, 2016,
respectively. Imputed interest is immaterial.
A shareholder of the Company is owed $0
and $10,000 as of March 31, 2017 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 2,226,154 shares of common stock. The conversion was at a 50% discount or $0.09 per share. As of
March 31, 2017, these shares had not been issued and were recorded as issuable. The shares were issued in May 2017. See Note 6.
NOTE 5 – CONVERTIBLE NOTES PAYABLE,
NET OF PREMIUMS AND NOTES PAYABLE
Convertible notes payable, all classified
as current at March 31, 2017, consist of the following:
Convertible notes, net of discounts and notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
Swiss Allied Trust, Inc. (a)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
50,000
|
|
|
$
|
(24,794
|
)
|
|
$
|
25,206
|
|
Swiss Allied Trust, Inc. (a)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
50,000
|
|
|
|
(30,685
|
)
|
|
|
19,315
|
|
Adar Bays, LLC (a)
|
|
|
25,000
|
|
|
|
(4,799
|
)
|
|
|
20,201
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Eagle Equities, LLC (a)
|
|
|
25,000
|
|
|
|
(7,089
|
)
|
|
|
17,911
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,000
|
|
|
$
|
(11,888
|
)
|
|
$
|
38,112
|
|
|
$
|
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 March 31, 2017. 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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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 March 31, 2017. 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 March 31, 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 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 March 31, 2017. For the second tranche, the Company has recorded accrued interest of $2,739 as of March
31, 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 March 31, 2017, had recorded $11,712 of amortization. The note matures
on October 10, 2017 and bears interest at 8%. As of March 31, 2017, the accrued interest was $1,320. On April 6, 2017, the Company
prepaid Adar $38,400 for full settlement of this note (see Note 8).
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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 March 31, 2017, had recorded $10,274 of amortization.
The note matures on November 1, 2017 and bears interest at 8%. As of March 31, 2017, the accrued interest was $1,100. On April
26, 2017, Eagle sold its convertible note to PureEnergy 714 LLC with no change in terms (see Note 8).
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 designating 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 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.
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 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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
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, 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 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 2,226,154 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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
On January 30, 2017, the Company entered
into an agreement with CorporateAds.com, LLC 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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
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. 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 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 5 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.
FREEDOM LEAF INC.
Notes to Condensed
Financial Statements
March 31, 2017
(unaudited)
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.
NOTE 7 – REVENUE CLASSES
Selected financial information for the
Company’s operating revenue classes as of March 31, 2017 and 2016, are as follows:
|
|
For the nine months ended
|
|
Revenues:
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Magazine related
|
|
$
|
29,939
|
|
|
$
|
72,112
|
|
Referral fees
|
|
|
11,474
|
|
|
|
3,300
|
|
Licensing fees
|
|
|
763,549
|
|
|
|
25,000
|
|
Equipment sales commissions
|
|
|
18,242
|
|
|
|
–
|
|
Total
|
|
$
|
823,204
|
|
|
$
|
100,412
|
|
|
|
For the nine months ended
|
|
Direct costs of revenue:
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Magazine related
|
|
$
|
88,792
|
|
|
$
|
96,398
|
|
Referral fees
|
|
|
–
|
|
|
|
–
|
|
Licensing fees
|
|
|
–
|
|
|
|
–
|
|
Equipment sales commissions
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
88,792
|
|
|
$
|
96,398
|
|
The Company’s four revenue classes
are magazine related, referral fees, licensing fees (see Note 2) and equipment sales commissions (see Note 2).
NOTE 8 – 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 April 1, 2017, the Company entered into
a one year agreement with Eighth Day Create to provide creative services for the Company’s magazine and web site and prepare
the advertisements for the advertisers of the magazine. The Company will compensate the vendor with monthly cash payments of $2,000
and an additional $6,000 in cash or the Company’s common stock, valued at $0.10 per share.
On April 6, 2017, the Company prepaid Adar
$38,400 for full settlement of this note (see Note 5).
On April 26, 2017, Eagle sold its convertible
note to PureEnergy 714 LLC with no change in terms (see Note 5).
On May 10, 2017, the Company executed a
convertible promissory note with Power Up Lending Group Ltd. in the amount of $75,000. The note matures on February 20, 2018 and
bears interest at 12%. The note is convertible with a 35% discount. The applicable discounts and derivative calculations will be
recorded.