We have audited the accompanying balance
sheets of Freedom Leaf Inc. and subsidiaries as of June 30, 2017 and 2016, and the related statements of operations, changes in
shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Freedom Leaf Inc. as of June 30,
2017 and 2016, and the results of its operations and its cash flows for the years in the periods ended June 30, 2017 and 2016 in
conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial
statements, the Company reported a net loss of $910,650 in 2017, and used cash for operating activities of $435,450. At June 30,
2017, the Company had a working capital, shareholders’ equity and accumulated deficit of $467,659, $187,818 and $4,920,988,
respectively. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans as to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Notes to Consolidated Financial Statements
June 30, 2017
NOTE 1 – NATURE OF OPERATIONS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Freedom Leaf Inc. (the “Company,”
“we,” “us,” “our,” or “Freedom Leaf”) was incorporated in the State of Nevada on
February 21, 2013, under the name of Arkadia International, Inc. The Company was originally engaged in the business of the acquisition
of in demand equipment, cars, and goods with the intent to resale these in the U.S. territory or export to overseas countries.
On October 3, 2014, the Company experienced
a change in control. Richard C. Cowan acquired a majority of the issued and outstanding common stock of the Company in accordance
with stock purchase agreements by and between Mr. Cowan and Vladimir and Galina Shekhtman (“Sellers”). On the closing
date, October 3, 2014, 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 consolidated financial statements of the Company
prior to the merger are those of the Private Company, and were recorded at the historical cost basis of the Private Company, and
the consolidated financial statements after completion of the merger include the assets and liabilities of both the predecessor
public company and Private Company, the historical operations of Private Company, and the operations of both companies from the
date of the merger.
Cannabis Business Solutions Inc. (“Cannabis
Business Solutions”), a Nevada corporation, was formed on February 5, 2014, and is a wholly-owned subsidiary of the Company.
This subsidiary had no activity until the agreement with Valencia Web Technology S.L., B-97183354 (see Note 2).
Leafceuticals Inc. (“Leafceuticals”),
formerly known as Cannabiz U, Inc., a Nevada corporation, was formed on February 13, 2014, and is a wholly-owned subsidiary of
the Company. This subsidiary has had no activity to date.
Freedom Leaf Cares Inc. (“Freedom
Leaf Cares”), a Nevada corporation, was formed on October 1, 2014, and is a wholly-owned subsidiary of the Company. Freedom
Leaf Cares was dissolved in 2016. Until dissolution, this subsidiary had no activity.
Freedom Leaf International Inc. (“Freedom
Leaf International”), a Nevada corporation, was formed on November 27, 2015, and is a wholly-owned subsidiary of the Company.
This subsidiary has had no activity to date.
Nature of Operations
The Company is focused on being the premium
national and international news source for the Cannabis/Industrial Hemp industry. Through our online and print media channels,
our efforts are in dissemination of current legislation and legal news, arts and entertainment. Additional websites and online
partnerships are in the development stage that are intended to give the Freedom Leaf brand greater exposure. The Company generates
revenue from paid advertising on both online and print publications as well as consulting fees and incubator fees for companies
that want to participate in the Cannabis/Industrial Hemp industry. Another operating revenue class by the Company is brand management
for both profit and non-profit organizations. An example is the contract with NORML which was entered into on May 26, 2015. This
contract authorizes the Company to undertake all of the commercial activities of NORML, earning income for both the non-profit
and the Company. The Company also sells licenses to use the Freedom Leaf brand in different countries and states. We have entered
into two license agreements: for Spain and Portugal, for The Netherlands, and for Florida.
Basis of Presentation
The Company prepares its consolidated financial
statements in conformity with generally accepted accounting principles in the United States of America.
Principles of Consolidation
The consolidated financial statements include
the accounts of Freedom Leaf and its wholly-owned subsidiaries, Cannabis Business Solutions, Leafceuticals, Freedom Leaf Cares,
and Freedom Leaf International. All significant inter-company balances and transactions have been eliminated in consolidation.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets
in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment
or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell.
Fair Value of Financial Instruments
The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including
cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.
We follow accounting guidance for financial
and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires
certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based
payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach
(present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement
cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices
that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market
participant would use.
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 June 30, 2017 and 2016:
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
Balance at
|
|
|
Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
June 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2017
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
10,820
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
10,820
|
|
Total Financial Assets
|
|
$
|
10,820
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
10,820
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
Balance at
|
|
|
Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
June 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2016
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
7,464
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
7,464
|
|
Total Financial Assets
|
|
$
|
7,464
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
7,464
|
|
Following is a summary of activity through
June 30, 2017 of the fair value of intangible assets valued using Level 3 inputs:
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Asset
|
|
|
Amortization
|
|
|
Net
|
|
Balance at June 30, 2016
|
|
|
$
|
8,148
|
|
|
$
|
(684
|
)
|
|
$
|
7,464
|
|
Additions
|
|
|
|
4,097
|
|
|
|
–
|
|
|
|
4,097
|
|
Amortization
|
|
|
|
–
|
|
|
|
(741
|
)
|
|
|
(741
|
)
|
Balance at June 30, 2017
|
|
|
$
|
12,245
|
|
|
$
|
(1,425
|
)
|
|
$
|
10,820
|
|
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 June 30, 2017:
|
|
Balance at June 30, 2017
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
52,757
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
52,757
|
|
Total Financial Assets
|
|
$
|
52,757
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
52,757
|
|
Following is a summary of activity through
June 30, 2017 of the fair value of derivative liabilities valued using Level 3 inputs:
Balance at June 30, 2016
|
|
$
|
–
|
|
Note inception date fair value
|
|
|
(2,559
|
)
|
Change in fair value during 2017
|
|
|
55,316
|
|
Balance at June 30, 2017
|
|
$
|
52,757
|
|
Stock-Based Compensation
The Company accounts for stock-based instruments
issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations
the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of
an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line
attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition
provisions ASC Topic 505-50. The Company estimates the fair value of stock options at the grant date by using the Black-Scholes
option-pricing model.
Use of Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include
the amortization period for intangible assets, valuation and impairment valuation of intangible assets, depreciable lives of the
web site and property and equipment, valuation of warrants and beneficial conversion feature debt discounts, valuation of derivatives,
valuation of share-based payments and the valuation allowance on deferred tax assets.
Reclassifications
Certain amounts in the prior period consolidated
financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect
on reported losses, total assets, or stockholders’ equity as previously reported.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to be cash equivalents.
Accounting for Derivatives
The Company evaluates its convertible debt,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the
derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded
as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion
or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value
is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under
this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Revenue Recognition
The Company recognizes revenue for our
services in accordance with ASC 605-10, "Revenue Recognition in Financial Statements." Under these guidelines, revenue
is recognized on transactions when all of the following exist: persuasive evidence of an arrangement did exist, delivery of service
has occurred, the sales price to the buyer is fixed or determinable and collectability is reasonably assured. The Company has five
primary revenue streams as follows:
|
·
|
Consulting services.
|
|
·
|
Advertising services.
|
|
·
|
Branding, marketing and selling products for companies.
|
|
·
|
Educational seminars.
|
|
·
|
Selling branded products.
|
Advertising and Marketing
Advertising and marketing is expensed as
incurred and is included in selling, general and administrative expenses on the accompanying statement of operations. For the years
ended June 30, 2017 and 2016 advertising expense was $41,712 and $18,335, respectively.
Income Taxes
The Company adopted the provisions of ASC
740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the
merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance
of ASC 740-10, the benefit of a tax position is recognized in the consolidated financial statements in the period during which,
based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other
positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit
that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of
the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability
for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be
payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld
upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of June 30, 2017, all previous
tax years remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
The Company adopted ASC 740-10,
“
Definition
of Settlement in FASB Interpretation No. 48,” (“ASC 740-10”), which was issued on May 2, 2007. ASC
740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately
settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms
“ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under
ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing
authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full
amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis
of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying
consolidated financial statements.
Net Earnings (Loss) Per Share
In accordance with ASC 260-10, “Earnings
Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by
the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using
the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common
stock equivalent shares which may dilute future earnings per share consist of warrants to purchase 1,918,167 shares of common stock
at June 30, 2017 and convertible notes convertible into 4,529,832 common shares. Equivalent shares are not utilized when the effect
is anti-dilutive.
Segment Information
In accordance with the provisions of ASC
280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial
and descriptive information about its reportable operating segments. The Company does not have any operating segments as of June
30, 2017 and 2016.
Effect of Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09 (“ASU No. 2014-09”), which requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue
recognition guidance in GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after
December 15, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative
effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements
and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard
on its ongoing financial reporting.
In August 2014, the FASB issued ASU No.
2014-15,
Presentation of Financial Statements (Topic 205) Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern.
The guidance requires management to perform an evaluation each annual and interim reporting
period of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within the one-year period after the date that the financial statements are issued. If such
conditions are identified, the guidance requires an entity to provide certain disclosures about the principal conditions or events
that gave rise to the substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation
of the significance of those conditions or events in relation to the entity’s ability to meet its obligations and management’s
plans to alleviate or mitigate substantial doubt about the entity’s ability to continue as a going concern. The guidance
is effective for the first annual period ending after December 15, 2016 and interim periods thereafter. The Company currently does
not expect the adoption of ASU 2014-15 to have a material impact on its financial statements and does not anticipate early adoption
of this pronouncement.
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued an ASU on lease accounting. The ASU requires the lease rights and obligations arising
from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet.
The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is
still evaluating the ASU, the Company expects the adoption of the ASU to have a material effect on the Company’s financial
condition due to the recognition of the lease rights and obligations as assets and liabilities. The Company does not expect the
ASU to have a material effect on the Company’s results of operations, and the ASU will have no effect on cash flows.
The Company has evaluated all other recent
accounting pronouncements and believes that none of them will have a significant effect on the Company’s financial statement.
NOTE 2 – ENTRY INTO A DEFINITIVE
AGREEMENT
Freedom Leaf Inc. f/k/a Arkadia International,
Inc., a Nevada corporation and the public company (the “Company,” “Public Company,” “we,” “us,”
“our”) entered into a merger agreement with a private Nevada corporation, Freedom Leaf Inc. (the “Private Company”).
Prior to the reverse merger, Richard C. Cowan, the officer and director of the Public Company, had acquired the majority of its
outstanding common stock. Clifford J. Perry, the Private Company’s sole officer and director pre-merger (“Perry”),
was the owner of record of all of the outstanding common shares of the Private Company (the “Private Company Stock”)
prior to the merger. Pursuant to the merger, the Private Company was merged into the Public Company, and Perry, the Private Company’s
shareholder, received 83,401.2 shares of Public Company common stock for each share of Private Company stock pre-merger, or 83,401,200
total shares of the Company’s common stock.
The closing of the merger was conditioned
upon certain, limited customary representations and warranties, as well as the satisfaction or waiver of specified conditions
to closing. As the parties satisfied all of the closing conditions, we filed Articles of Merger in Nevada consummating the merger,
and shareholders of the Private Company pre-merger (Perry) owned approximately 48.1% of our issued and outstanding common stock
post-merger. Following the merger, the Company focused on pursuing Private Company’s historical businesses.
The foregoing description of the merger
agreement and transaction does not purport to be complete and is qualified in its entirety by the merger agreement, a copy of which
has been filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q/A for the period ended December 31, 2014, which is incorporated
herein by reference.
Accounting Treatment of the Merger
For financial reporting purposes, the merger
represents a “reverse merger” rather than a business combination, and Private Company is deemed to be the accounting
acquirer in the transaction. The merger is being accounted for as a reverse-merger and recapitalization. Private Company is the
acquirer for financial reporting purposes and the Public Company (Freedom Leaf Inc., f/k/a Arkadia International, Inc.) is the
acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial
statements prior to the merger will be those of the Private Company and will be recorded at the historical cost basis of the Private
Company, and the financial statements after completion of the merger will include the assets and liabilities of the Public Company
and the Private Company, the historical operations of the Private Company and operations of both companies from the closing date
of the Merger.
Licensing Rights
On February 8, 2016, the Company and
Freedom Leaf Netherlands, B.V. (“FLNL”), a company located in the Netherlands, executed a Memorandum of Understanding
(“MOU”), wherein the Company granted FLNL a right of first refusal to license certain rights from the Company described
below in exchange for a payment of $25,000, and the parties agreed to negotiate a definite license agreement for such rights with
the terms of the definitive agreement incorporating the material terms set forth in the MOU. Such rights include FLNL’s
rights to use various trademarks of the Company, primarily “Freedom Leaf,” and other related rights, for use in the
Netherlands by FLNL, including FLNL’s right to publish a Freedom Leaf magazine in the Netherlands, sell Freedom Leaf products
and perform other activities related to the business of the Company. FLNL is a shareholder (common stock and warrants to purchase
additional common stock) of the Company. On December 15, 2016, the Company and FLNL executed the license agreement. The agreement
provided for a licensing fee of $250,000 with a payment schedule as follows: $70,869 which has been paid from the date of the
MOU until the date of the agreement; $25,000 payment every two months, commencing on April 10, 2017 with the last payment on April
10, 2018, and a final payment of $4,131 on June 10, 2018. As the Company is allowing for progress payments, the balance is shown
net of imputed interest on the balance sheet. The Company also provided FLNL with warrants to purchase up to 1,000,000 shares
of common stock. The warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000 warrants between
June 2017 and August 2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between December 2017 and
February 2018; and 250,000 warrants between March 2018 and May 2018. See Notes 7 and 11.
On December 15, 2016, the Company and
Freedom Leaf Iberia, B.V. (“FLI”), a company incorporated under the laws of the Netherlands, executed a license agreement.
The licensing agreement provides FLI the distribution rights to the Company’s magazine and other “Freedom Leaf”
branded merchandise. The territory of the agreement is Spain and Portugal. The agreement provided for a license fee of $250,000
payable to the Company. The payment schedule provides for a $25,000 payment every two months, beginning on April 20, 2017, concluding
on April 20, 2018, with a final payment of $75,000 on June 20, 2018. As the Company is allowing for progress payments, the balance
is shown net of imputed interest on the balance sheet. The Company also provided FLI with warrants to purchase up to 1,000,000
shares of common stock. The warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000 warrants
between June 2017 and August 2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between December
2017 and February 2018; and 250,000 warrants between March 2018 and May 2018. See Notes 7 and 11.
On March 31, 2017, the Company entered
into a license agreement with BBD Healthcare Strategies, LLC, a Florida limited liability company (“BBDHS”), pursuant
to which BBDHS received distribution rights to the Company’s magazine and other “Freedom Leaf” branded merchandise
for the State of Florida, in consideration of (1) a license fee of $250,000, paid $25,000 at execution, and $25,000 due August
2017, October 2017, December 2017, February 2018, March 2018, April 2018, May 2018 and concluding June 2018, with a final payment
of $50,000, (2) ongoing royalties of 5% for sales of Company merchandise purchased from the Company, (3) ongoing royalties of
10% for sales of Company merchandise purchased from a third party supplier, and (4) ongoing royalties of 33% for Company seminars
and conferences. As the Company is allowing for progress payments, the balance is shown net of imputed interest on the balance
sheet. The Company also provided BBDHS with warrants to purchase 1,200,000 shares of Company common stock at an exercise price
of $0.05, exercisable as follows: 240,000 shares between September 1, 2017 and October 31, 2017, 240,000 shares between November
1, 2017 and December 31, 2017, 240,000 shares between January 1, 2018 and February 28, 2018, 240,000 shares between March 1, 2018
and May 30, 2018, and 240,000 shares between June 1, 2018 and July 30, 2018. See Notes 7 and 11.
Incubation Agreement
On January 18, 2016, the Company and Plants
to Paper, LLC (“PTP”), a New Jersey limited liability company, executed an Incubation Agreement. PTP owned the patent
pending application 62/245,153 (the “Patent”) with the title being “Rolling Papers and Blunt Wraps made from
100% Marijuana.” PTP agreed to transfer its ownership rights in the patent application to the Company, as well as PTP’s
Medical Marijuana / Cannabis / Hemp Industry Incubator program. The Company agreed to supply management services and to fund the
early stage development of PTP. The Incubation Agreement is for a period of twelve months. PTP will provide the Company with 20%
of the outstanding membership shares of PTP in exchange for its services. The costs of patent registrations in the United States
and other countries will be the liability of PTP. As of June 30, 2017, PTP had no activity. On February 1, 2017, the Agreement
was modified for the following items: a) to provide 25% of the outstanding membership shares of PTP; b) require that the Patent
be assigned to PTP; and c) acknowledge that the ownership rights have not been transferred to the Company as of 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 June 30, 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 June 30, 2017, there were
sales of $210,000.
LaMarihuana Purchase
On May 30, 2017, Cannabis Business Solutions
Inc. (the “Buyer”), a wholly-owned Nevada subsidiary of the registrant, Freedom Leaf Inc., entered into an Asset Purchase
Agreement with Valencia Web Technology S.L., B-97183354, a Spanish limited liability company (Sociedad de Responsabilidad Limitada)
(the “Seller”) to purchase the Seller’s assets, including its cash and cash equivalents, equipment, inventory,
receivables, and two of its websites www.lamarihuana.com and www.marihuana-medicinal.com (but not including the Seller’s
website cannabislandia.com), for a purchase price consisting of a 10% interest in the Buyer, and 3,000,000 shares of common stock
of the registrant, valued at $300,000 (the “Initial FRLF Shares”), with additional shares of the registrant’s
common stock due six months following closing if, at such time, the average closing price of the registrant’s common stock
during the previous five trading days is less than $0.10/share. Such additional shares shall be calculated as follows: $300,000
minus the product of (a) the Initial FRLF Shares multiplied by (b) the average closing price of the registrant’s common stock
during the five trading days immediately preceding the True-Up Date (the “True-Up Price”), with such difference divided
by the True-Up Price. As of June 30, 2017, the common stock issued was valued at $184,500 therefore a contingent liability
of $150,000 was recorded (see Note 4).
NOTE 3 – GOING CONCERN
The Company has a net loss for the
year ended June 30, 2017 of $910,650 and working capital as of June 30, 2017 of $467,659, and has used cash in operations of $435,450
for the year ended June 30, 2017. In addition, as of June 30, 2017, the Company had a stockholders’ equity and accumulated
deficit of $187,818 and $4,920,988, respectively. These conditions raise substantial doubt about the Company’s ability to
continue as a going concern.
The accompanying consolidated financial
statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and
the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue
its operations is dependent on the execution of management’s plans, which include the raising of capital through the debt
and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. If
the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to
the carrying value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial
statements.
There can be no assurances that the Company
will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The consolidated
financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities
that might be necessary. Based on the Company’s current resources, the Company will not be able to continue to operate without
additional immediate funding. Should the Company not be successful in obtaining the necessary financing to fund its operations,
the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in
litigation relating to claims arising out of our operations in the normal course of business. As of October 5, 2017, there were
no pending or threatened lawsuits.
Lease Commitment
We lease approximately 2,800 square feet
of office space in Las Vegas, Nevada, pursuant to a lease that will expire on December 31, 2019. This facility serves as our corporate
headquarters. After December 31, 2017, the Company has the option to opt out of the lease.
Future minimum lease payments under these
leases are as follows:
2018
|
|
|
$
|
23,928
|
|
2019
|
|
|
|
18,943
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
42,871
|
|
Rent expense for the years ended June 30,
2017 and 2016 was $39,600 and $33,919, respectively.
Other Commitment
On May 30, 2017, Cannabis Business
Solutions Inc. (the “Buyer”), a wholly-owned Nevada subsidiary of the registrant, Freedom Leaf Inc., entered into an
Asset Purchase Agreement with Valencia Web Technology S.L., B-97183354, a Spanish limited liability company (Sociedad de Responsabilidad
Limitada) (the “Seller”) to purchase the Seller’s assets, including its cash and cash equivalents, equipment,
inventory, receivables, and two of its websites www.lamarihuana.com and www.marihuana-medicinal.com (but not including the Seller’s
website cannabislandia.com), for a purchase price consisting of a 10% interest in the Buyer, and 3,000,000 shares of common stock
of the registrant, valued at $300,000 (the “Initial FRLF Shares”), with additional shares of the registrant’s
common stock due six months following closing if, at such time, the average closing price of the registrant’s common stock
during the previous five trading days is less than $0.10/share. Such additional shares shall be calculated as follows: $300,000
minus the product of (a) the Initial FRLF Shares multiplied by (b) the average closing price of the registrant’s common stock
during the five trading days immediately preceding the True-Up Date (the “True-Up Price”), with such difference divided
by the True-Up Price. As of June 30, 2017, the common stock issued was valued at $184,500 therefore a contingent liability of $150,000
was recorded (see Note 2).
NOTE 5 – RELATED PARTIES
Richard C. Cowan (“Cowan”),
a former director and officer of the Company, has payables and accruals due to him of $269,225 and $100,000 as of June 30, 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 $133,944
and $34,500 as of June 30, 2017 and June 30, 2016, respectively. Imputed interest is immaterial. On July 31, 2017, the Company
issued 5,784,061 shares of common stock to Cliff Perry for accrued compensation of $112,500. See Note 14.
Raymond P. Medeiros (“Medeiros”),
a director of the Company, has payables and accruals due to him of $52,500 and $10,500 as of June 30, 2017 and June 30, 2016, respectively.
Imputed interest is immaterial. On July 31, 2017, the Company issued 2,699,228 shares of common stock to Raymond Medeiros for accrued
compensation of $52,500. See Note 14.
A shareholder of the Company is owed $0
and $10,000 as of June 30, 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 7.
On May 25, 2016, Cowan converted 26,401,000
shares of common stock into 264,010 shares of Series A preferred stock. See Note 7.
On June 30, 2016, Cowan converted $225,892
of payables and accruals into 2,226,154 shares of common stock. The conversion was at a 50% discount or $0.09 per share. See Note
7.
NOTE 6 – CONVERTIBLE NOTES PAYABLE,
NET OF PREMIUMS AND NOTES PAYABLE
Convertible notes payable, all classified
as current at June 30, 2017, consist of the following:
Convertible notes, net of discounts and notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
Pure Energy (a)
|
|
|
15,475
|
|
|
|
(7,489
|
)
|
|
|
7,986
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Pure Energy (a)
|
|
|
13,480
|
|
|
|
(5,565
|
)
|
|
|
7,915
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Power Up (a)
|
|
|
75,000
|
|
|
|
(39,330
|
)
|
|
|
35,670
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Power Up (a)
|
|
|
38,000
|
|
|
|
(18,893
|
)
|
|
|
19,107
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,955
|
|
|
$
|
(71,277
|
)
|
|
$
|
70,678
|
|
|
$
|
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 June 30, 2017. On April
15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock (see Note 7). The accrued
interest was not converted.
On August 12, 2015, the Company executed
a convertible promissory note for $5,000 with Bruce Perlowin. The note is for one year, 12% interest rate, and convertible at $0.10
per share. The current price at that date was $0.10, which is less than the conversion price. The stock price for our common stock
as of September 30, 2015 was $0.40. Our common stock is thinly traded therefore our price, as management has determined, is not
indicative of our valuation. In October 2015, the Company issued common stock for services to unrelated parties and the common
stock was values at $0.20, therefore, the $0.20 was used for valuation purposes for this note. A beneficial conversion feature
of $5,000 was recorded and subsequently amortized. The Company has recorded accrued interest of $408 as of June 30, 2017. On April
15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock (see Note 7). The accrued
interest was not converted.
On August 20, 2015, the Company executed
a convertible promissory note for $12,500 with Svetlana Ogorodnikova. The note matures on February 19, 2016, 12% interest rate,
and convertible at $0.10 per share. The current price at that date was $0.085, which is less than the conversion price. The stock
price for our common stock as of December 31, 2015 was $0.40. Our common stock is thinly traded therefore our price, as management
has determined, is not indicative of our valuation. In October 2015, the Company issued common stock for services to unrelated
parties and the common stock was values at $0.20, therefore, the $0.20 was used for valuation purposes for this note. A beneficial
conversion feature of $12,500 was recorded and subsequently amortized. The Company has recorded accrued interest of $986 as of
June 30, 2017. On February 19, 2016, Ms. Ogorodnikova granted the Company an extension on the due date to June 30, 2016. On April
15, 2016, Ms. Ogorodnikova converted the principal of this promissory note into 125,000 shares of common stock (see Note 7). The
accrued interest was not converted.
On December 14, 2015, the Company executed
a convertible promissory note for $100,000 with Swiss Allied Trust, Inc. (“Swiss Allied”). The note has two funding
dates; December 14, 2015 and January 15, 2016, each for $50,000. On January 26, 2016, the Company received $50,000 from Swiss Allied
as the second tranche of the convertible promissory note. The term on each installment is for one year from the date of receipt
of each tranche. Each installment is recorded and presented separately. For the initial tranche of $50,000, the Company recorded
a beneficial conversion feature of $50,000 and, as of June 30, 2016, $14,795 was amortized. A beneficial conversion feature of
$50,000 was recorded and, as of June 30, 2016, $8,904 has been amortized. For the initial tranche, the Company has recorded accrued
interest of $3,211 as of June 30, 2017. For the second tranche, the Company has recorded accrued interest of $2,739 as of June
30, 2017. The beneficial conversion features were calculated on the conversion price of $0.005, as further discussed below. The
Company maintained the common stock to be valued at $0.20, as discussed in prior notes, as the Company’s common stock continues
to be thinly traded. Additionally, the Company issued Swiss Allied four warrants as an incentive to the note, each for 20,000,000
shares of the Company’s common stock, for a total of 80,000,000 warrants. On March 10, 2017, Swiss Allied and the Company
entered into an agreement to convert all outstanding balances due to Swiss Allied into 3,000,000 shares of common stock.
The four warrants, each for 20,000,000
shares of common stock, mature on March 31, 2016, June 30, 2016, October 31, 2016, and December 31, 2016, respectively. If Swiss
Allied exercises all warrants, the Company would receive an additional $400,000 for said shares of common stock. If Swiss Allied
does not exercise all 80,000,000 warrants, by the maturation dates, as described herein, the exercise price shall be adjusted to
$0.06, an increase of $0.055 per share as a penalty, which is payable to the Company at the time Swiss Allied requests to have
the Rule 144 restriction removed. The interest rate for each loan tranche is 8% and is accrued with a payment date of December
15, 2016 for the first tranche and January 15, 2017 for the second tranche. The conversion price for the $100,000, which may happen
any time prior to December 14, 2016, shall be the greater of $0.03 or 50% of the lowest closing price on the primary trading market
on which the Company’s common stock is quoted for the five trading days immediately prior to, but not including, the conversion
date, assuming that Swiss Allied has not exercised all 80,000,000 warrants for common stock. The conversion price for the $100,000,
assuming that Swiss Allied has exercised all 80,000,000 warrants for common stock, shall be $0.005 per share. Swiss Allied has
a right of first refusal on any future funding to the Company. Swiss Allied has the right to name a party to serve as a member
of the Company’s board of directors if Swiss Allied owns at least 40,000,000 shares of the Company’s common stock.
If Swiss Allied owns at least 80,000,000 shares of the Company’s common stock, they have the right to name two parties to
the Company’s board of directors. The two directors will remain as long as Swiss Allied owns 55,000,000 shares of the Company’s
common stock. As of March 31, 2016, Swiss Allied had not exercised the first warrant therefore, the warrant had expired as of said
date. On April 8, 2016, Swiss Allied converted warrants for 4,800,000 shares of common stock in exchange for $24,000. The Company
agreed to amend the obligations of Swiss Allied to accommodate the extension of the warrant until June 5, 2016. As of June 30,
2016, the warrant had expired.
On October 10, 2016, the Company executed
a collateralized secured promissory note with Adar Bays, LLC (“Adar”) for $25,000. The Company netted $23,000 due to
legal fees of $2,000. The note has a conversion discount of 45% based on the lowest closing price of the 20 days prior to conversion.
The Company recorded a debt discount of $25,000 and as of June 30, 2017, had recorded $12,123 of amortization. The note matures
on October 10, 2017 and bears interest at 8%. On April 6, 2017, the Company prepaid Adar $38,400 for full settlement of this note.
On November 1, 2016, the Company executed
a collateralized secured promissory note with Eagle Equities, LLC (“Eagle”) for $25,000. The Company netted $23,000
due to legal fees of $2,000. The note has a conversion discount of 45% based on the lowest closing price of the 20 days prior
to conversion. The Company recorded a debt discount of $25,000 and as of June 30, 2017, had recorded $7,986 of amortization. The
note matures on November 1, 2017 and bears interest at 8%. On April 26, 2017, Eagle sold its convertible note to PureEnergy 714
LLC (“PureEnergy”) with no change in terms. As of June 30, 2017, there is $376 of accrued interest. On June 29, 2017,
the Company issued 791,140 shares of common stock to PureEnergy for the conversion of $12,501 (see Note 7). On July 19, 2017,
the Company issued 748,934 shares of common stock to PureEnergy related to the conversion of $13,481 (see Note 14).
On May 23, 2017, the Company executed a convertible
promissory note with PureEnergy for $15,475. The note has a conversion discount of 45% based on the lowest closing price of the
20 days prior to conversion. The Company recorded a debt discount of $15,475 and as of June 30, 2017, had recorded $7,986 of amortization.
The note matures on February 23, 2018 and bears interest at 8%. As of June 30, 2017, there is $210 of accrued interest.
On May 10, 2017, the Company executed a convertible
promissory note with Power Up for $75,000. The note has a conversion discount of 35% based on the lowest closing price of the 20
days prior to conversion. The Company recorded a debt discount of $75,000 and as of June 30, 2017, had recorded $35,670 of amortization.
The note matures on February 23, 2018 and bears interest at 8%. As of June 30, 2017, there is $1,282 of accrued interest. On September
28, 2017, Pure Energy purchased the May 10, 2017 convertible promissory note between the Company and Power Up (see Note 14). The
Power Up convertible promissory note was for $75,000. The Company and Pure Energy entered into a revised convertible promissory
note to replace the Power Up convertible promissory note in the amount of $78,427, with a maturity date of September 27, 2018,
and bears interest of 8%. In conjunction with this purchase by Pure Energy, the Power Up had a prepayment penalty of $28,496, which
Pure Energy paid to Power Up. The Company issued a second convertible promissory note for $33,842, which included the prepayment
penalty and legal fees of $5,346. The second convertible promissory note matures on September 27, 2018 and bears interest of 8%.
On June 20, 2017, the Company executed a convertible
promissory note with Power Up for $38,000. The note has a conversion discount of 35% based on the lowest closing price of the 20
days prior to conversion. The Company recorded a debt discount of $38,000 and as of June 30, 2017, had recorded $19,107 of amortization.
The note matures on February 23, 2018 and bears interest at 8%. As of June 30, 2017, there is $137 of accrued interest.
NOTE 7 – STOCKHOLDERS’ EQUITY
Series A Preferred Stock
On May 24, 2016, the Board of Directors
of the Company authorized amending the Company’s Articles of Incorporation to authorize 10,000,000 shares of “blank
check” preferred stock and designate 1,000,000 of the shares as Series A preferred stock. Each share of the Series A preferred
stock is entitled to 500 votes and is convertible into 100 shares of common stock.
On May 25, 2016, Perry converted 68,401,200
shares of common stock into 684,012 shares of Series A preferred stock. See Note 5.
On May 25, 2016, Cowan converted 26,401,000
shares of common stock into 264,010 shares of Series A preferred stock. See Note 5.
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.
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 6).
On April 15, 2016, Bruce Perlowin converted
the principal ($5,000) of his promissory note into 50,000 shares of common stock (see Note 6).
On April 15, 2016, Svetlana Ogorodnikova
converted the principal ($12,500) of her promissory note into 125,000 shares of common stock (see Note 6).
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 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.
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 5.
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.
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 (“CorporateAds.com”) for services. The compensation provides a minimal
$500 per week payment, 150,000 shares of common stock, and 150,000 warrants for common stock. The warrants have an exercise price
of $0.10 per share with an expiration 18 months after issuance. The agreement is for 15 days and has an auto renewal feature for
an additional 75 days. During the 75-day period, the Company will pay $500 for each additional week. On February 1, 2017, both
parties agreed to an addendum to the agreement to change the exercise price of $0.10 for the warrants to the following: 50,000
of the warrants have an exercise price of $0.10 per share; 50,000 of the warrants have an exercise price of $0.125 per share; and
50,000 of the warrants have an exercise price of $0.15 per share.
On March 10, 2017, the Company issued 3,000,000
shares of common stock to Swiss Allied, as a conversion of notes payable of $100,000. The shares were valued $0.07.
On March 15, 2017, the Company issued
211,267 shares of common stock to one of the Company’s attorneys as settlement of payables of $7,000. The shares were valued
at $0.0699.
On March 17, 2017, the Company issued 224,000
shares of common stock to a consultant of the Company as settlement of payables of $11,230. The shares were valued at $0.0736.
On March 29, 2017, the Company issued 211,267
shares of common stock to a consultant of the Company as settlement of payables of $15,000. The shares were valued at $0.0585.
On April 3, 2017, the Company issued 240,770
shares of common stock to a consultant of the Company for services.
On April 25, 2017, the Company issued
200,000 shares of common stock to CorporateAds.com, in regards to the January 30, 2017 agreement.
On May 30, 2017, the Company issued 3,000,000
shares of common stock to Valencia Web Technology for intellectual property with a value set at $300,000. The shares were valued
at $0.04, or $187,500. The agreement requires for a value at a later date of $300,000. Therefore, the Company recorded a contingent
liability of $112,500.
On May 31, 2017, the Company issued 177,032
shares of common stock to Rene Velez for services.
On June 12, 2017, the Company issued 119,900
shares of common stock to Sandra Newman for the settlement of accounts payable of $5,995.
On June 12, 2017, the Company authorized
the issuance 200,000 shares of common stock to Jason Edwards for services valued at $10,000. The shares were valued at $9,000 and
the Company recognized a gain of $1,000. As of June 30, 2017, the shares remained as issuable.
On June 23, 2017, the Company issued 226,881
shares of common stock to Louis Yovino for the settlement of accounts payable of $8,803.
On June 23, 2017, the Company issued 596,163
shares of common stock to Michael Ostrander for services.
On June 29, 2017, the Company issued 791,140
shares of common stock to PureEnergy in conjunction with a convertible promissory note (see Note 6).
On June 30, 2017, the Company issued 300,000
shares of common stock to Michael Ostrander for services.
On June 30, 2017, the Company issued 400,000
shares of common stock to Jason Edwards for services.
On June 30, 2017, the Company issued 120,000 shares of common
stock to a consultant of the Company for services.
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.
On December 14, 2015, the Company executed
a convertible promissory note for $100,000 with Swiss Allied (see Note 6). The Company issued Swiss Allied four warrants as an
incentive to the note, each for 20,000,000 shares of the Company’s common stock, for a total of 80,000,000 warrants. Each
warrant has an exercise price of $0.005 per share. The four warrants, each for 20,000,000 shares of common stock, mature on March
31, 2016, June 30, 2016, October 31, 2016, and March 31, 2017, respectively. The warrants, as an incentive to the note, should
have a beneficial conversion feature. As the note’s beneficial conversion feature is at the maximum, there is no beneficial
conversion feature to record. If Swiss Allied exercises all warrants, the Company would receive an additional $400,000 for said
shares of common stock. If Swiss Allied does not exercise all 80,000,000 warrants, by the maturation dates, as described herein,
the exercise price shall be adjusted to $0.06, an increase of $0.055 per share as a penalty, which is payable to the Company at
the time Swiss Allied requests to have the Rule 144 restriction removed. The interest rate for each loan tranche is 8% and is accrued
with a payment date of December 15, 2016 for the first tranche and January 15, 2017 for the second tranche. The conversion price
for the $100,000, which may happen any time prior to December 14, 2016, shall be the greater of $0.03 or 50% of the lowest closing
price on the primary trading market on which the Company’s common stock is quoted for the five trading days immediately prior
to, but not including, the conversion date, assuming that Swiss Allied has not exercised all 80,000,000 warrants for common stock.
The conversion price for the $100,000, assuming that Swiss Allied has exercised all 80,000,000 warrants for common stock, shall
be $0.005 per share. Swiss Allied has a right of first refusal on any future funding to the Company. Swiss Allied has the right
to name a party to serve as a member of the Company’s board of directors if Swiss Allied owns at least 40,000,000 shares
of the Company’s common stock. If Swiss Allied owns at least 80,000,000 shares of the Company’s common stock, they
have the right to name two parties to the Company’s board of directors. The two directors will remain as long as Swiss Allied
owns 55,000,000 shares of the Company’s common stock. See Note 6 for amendment on the warrant that matured on March 31, 2016.
On October 17, 2016, the Company issued
268,167 shares of common stock and 268,167 warrants for common stock to Weintraub Law Group, LLC for the settlement of payables
of $15,065.
On December 15, 2016, the Company and FLNL
executed a license agreement (see Note 2). As part of the agreement, the Company provided FLNL with warrants to purchase up to
1,000,000 shares of common stock. The warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000
warrants between June 2017 and August 2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between
December 2017 and February 2018, and; 250,000 warrants between March 2018 and May 2018. The warrants will be expensed according
to their respective vesting schedule.
On December 15, 2016, the Company and FLI
executed a license agreement (see Note 2). The Company provided FLI with warrants to purchase up to 1,000,000 shares of common
stock. The warrants have an exercise price of $0.05. The warrants can be exercised as follows: 250,000 warrants between June 2017
and August 2017; 250,000 warrants between September 2017 and November 2017; 250,000 warrants between December 2017 and February
2018, and; 250,000 warrants between March 2018 and May 2018. The warrants will be expensed according to their respective vesting
schedule.
On January 16, 2017, the Company issued
1,000,000 warrants for common stock to Vincent Moreno for future consulting services. The warrants have an exercise price of $0.05
and expire in five years.
On January 30, 2017, the Company entered
into an agreement with CorporateAds.com, LLC for services. The compensation provides a minimal $500 payment, 150,000 shares of
common stock, and 150,000 warrants for common stock. The warrants have an exercise price of $0.10 per share with an expiration
18 months after issuance. The agreement is for 15 days and has an auto renewal feature for an additional 75 days. During the 75-day
period, the Company will pay $500 for each additional 15 days. On February 1, 2017, both parties agreed to an addendum to the agreement
to change the exercise price of $0.10 for the warrants to the following: 50,000 of the warrants have an exercise price of $0.10
per share; 50,000 of the warrants have an exercise price of $0.125 per share; and 50,000 of the warrants have an exercise price
of $0.15 per share.
Stock Option Plan
On June 27, 2016, the Board of Directors
approved the 2016 Stock Option Plan which has reserved 10,000,000 shares of common stock.
NOTE 8 – REVENUE CLASSES
Selected financial information for the
Company’s operating revenue classes as of June 30, 2017 and 2016, are as follows:
|
|
For the years ended
|
|
Revenues:
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Magazine related
|
|
$
|
39,161
|
|
|
$
|
85,675
|
|
Referral fees
|
|
|
10,054
|
|
|
|
7,798
|
|
Licensing fees
|
|
|
750,000
|
|
|
|
25,000
|
|
Equipment sales commissions
|
|
|
18,242
|
|
|
|
–
|
|
Total
|
|
$
|
817,457
|
|
|
$
|
118,473
|
|
|
|
For the years ended
|
|
Direct costs of revenue:
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Magazine related
|
|
$
|
124,290
|
|
|
$
|
132,381
|
|
Referral fees
|
|
|
–
|
|
|
|
–
|
|
Licensing fees
|
|
|
–
|
|
|
|
–
|
|
Equipment sales commissions
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
124,290
|
|
|
$
|
132,381
|
|
The Company’s four revenue classes
are magazine related, referral fees, licensing fees (see Note 2) and equipment sales commissions (see Note 2).
NOTE 9 – INCOME TAX
As of June 30, 2017, and 2016, the
Company has net operating loss carry forwards of $3,196,453 and $3,195,067, respectively. The carry forwards expire through the
year 2034. The Company’s net operating loss carry forwards may be subject to annual limitations, which could reduce or defer
the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.
The Company’s tax expense differs
from the “expected” tax expense for Federal income tax purposes (computed by applying the United States Federal tax
rate of 34% to loss before taxes), as follows:
|
|
For the Years Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Tax expense (benefit) at the statutory rate
|
|
$
|
(309,621
|
)
|
|
$
|
(1,056,037
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
(134
|
)
|
|
|
(15,766
|
)
|
Change in valuation allowance
|
|
|
309,755
|
|
|
|
1,071,803
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
–
|
|
|
$
|
–
|
|
The tax effects of the temporary differences
between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.
The tax years 2014 through 2017 remain
to examination by federal agencies and other jurisdictions in which it operates.
The tax effect of significant components
of the Company’s deferred tax assets and liabilities at June 30, 2017 and 2016, respectively, are as follows:
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
1,073,183
|
|
|
$
|
1,071,797
|
|
Timing differences
|
|
|
908,366
|
|
|
|
908,366
|
|
Total gross deferred tax assets
|
|
|
1,981,549
|
|
|
|
1,980,163
|
|
Less: Deferred tax asset valuation allowance
|
|
|
(1,981,549
|
)
|
|
|
(1,980,163
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment.
Because of the historical earnings history
of the Company, the net deferred tax assets for 2017 were fully offset by a 100% valuation allowance. The valuation allowance for
the remaining net deferred tax assets was $1,981,549 and $1,980,163 as of June 30, 2017 and 2016, respectively.
NOTE 10 – CONCENTRATIONS
Concentration of Credit Risk
Financial instruments, which potentially
subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
The Company places its temporary cash investments
with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of June 30, 2017. There have been
no losses in these accounts through June 30, 2017.
Concentration of Revenue
In 2017, the Company had three customers
that made up 90.3% or more of its revenue. In 2016, the Company had one customer that made up 12% or more of its revenue.
Concentration of Supplier
The Company does not rely on any particular
suppliers for its services.
Concentration of Intellectual Property
The Company owns or has filed for the trademarks
“Freedom Leaf,” “Hemp Inspired,” “Cannabizu,” and “Cannabiz” as filed with the
United States Patent and Trademark Office. The Company has filed for “Freedom Leaf” in Jamaica and Uruguay.
NOTE 11 – OTHER RECEIVABLES
The Company has three licensing agreements
with the following: FLNL, FLI and BBDHS (see Note 2). The net present value, per entity, as recorded in Other Receivables as of
June 30, 2017, is as follows:
FLNL
|
|
$
|
173,551
|
|
FLI
|
|
|
240,555
|
|
BBDHS
|
|
|
223,711
|
|
Total
|
|
$
|
637,817
|
|
The balances will be fully amortized by June 30, 2018.
NOTE 12 – INTANGIBLE ASSETS
The Company has intangible assets related
to website development. The amortization of the intangible assets is over a fifteen-year period. As of June 30, 2017, and 2016,
the Company had intangible assets, net of accumulated amortization, of $10,820 and $7,464, respectively. Variances between the
two reporting periods are primarily due to the currency translation calculation. The intangible assets are as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Website development
|
|
$
|
12,245
|
|
|
$
|
8,148
|
|
Total intangible assets
|
|
|
12,245
|
|
|
|
8,148
|
|
Less: Accumulated amortization
|
|
|
1,425
|
|
|
|
684
|
|
Intangible assets, net
|
|
$
|
10,820
|
|
|
$
|
7,464
|
|
The amortization expense for the years ended August 31, 2017
and 2016, was $741 and $515, respectively.
The following table presents the amortization for the next five
years:
2018
|
|
$
|
816
|
|
2019
|
|
|
816
|
|
2020
|
|
|
816
|
|
2021
|
|
|
816
|
|
2022 and thereafter
|
|
|
7,556
|
|
Total
|
|
$
|
10,820
|
|
NOTE 13 – DERIVATIVES
Embedded Conversion Option Derivatives
Due to the conversion terms of certain
promissory notes, the embedded conversion options met the criteria to be bifurcated and presented as derivative liabilities. The
Company calculated the estimated fair values of the liabilities for embedded conversion option derivative instruments at the original
note inception date and as of June 30, 2017 using the Black-Scholes option pricing model using the share prices of the Company’s
stock on the dates of valuation and using the following ranges for volatility, expected term and the risk-free interest rate at
each respective valuation date, no dividend has been assumed for any of the periods:
|
|
Note Inception
Date
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
170% - 232%
|
|
|
|
141%
|
|
Expected Term
|
|
0.75 - 0.83 years
|
|
|
0.33 - 0.96 years
|
|
Risk Free Interest Rate
|
|
|
1.07% - 1.18%
|
|
|
|
0.84%
|
|
The following reflects the initial fair
value on the note inception date and changes in fair value through June 30, 2017:
Note inception date fair value allocated to debt discount
|
|
$
|
122,500
|
|
Change in fair value in 2016
|
|
|
(122,500
|
)
|
Embedded conversion option derivative liability fair value on June 30, 2016
|
|
|
–
|
|
Note inception date fair value allocated to debt discount
|
|
|
163,000
|
|
Note modifications adjustment
|
|
|
(54,927
|
)
|
Change in fair value in 2017
|
|
|
(55,316
|
)
|
Embedded conversion option derivative liability fair value on June 30, 2017
|
|
$
|
52,757
|
|
NOTE 14 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events
through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined
that there are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein.
On July 5, 2017, the Company issued 200,000
shares of common stock to Jason Edwards for future services.
On July 5, 2017, the Company issued 177,032
shares of common stock to Rene Velez for future services.
On July 19, 2017, the Company issued 748,934
shares of common stock to PureEnergy related to the conversion of $13,481 of a convertible promissory note (see Note 4).
On July 20, 2017, the Company executed
a convertible promissory note with Power Up for $38,000. The note has a conversion discount of 35% based on the lowest closing
price of the 20 days prior to conversion. The Company will record a debt discount accordingly. The note matures on March 20, 2018
and bears interest at 8%.
On July 31, 2017, the Company issued 5,784,061
shares of common stock to Cliff Perry for accrued compensation of $112,500. See Note 5.
On July 31, 2017, the Company issued 2,699,228
shares of common stock to Raymond Medeiros for accrued compensation of $52,500. See Note 5.
On August 14, 2017, the Company issued
400,000 shares of common stock to Jason Edwards for future services.
On August 14, 2017, the Company issued
500,000 shares of common stock to Nuaxon Bioscience as part of the agreement for exclusive rights to market and sell their equipment.
On August 16, 2017, the Company authorized
the issuance of 748,934 shares of common stock to Pure Energy for the conversion of $13,481 of notes payable. The shares are issuable
as of the date of this report.
On August 17, 2017, the Company issued
345,451 shares of common stock to Lakeport Business Services, Inc. for accounts payable of $9,450.
On August 23, 2017, the Company issued
500,000 shares of common stock to Frank Dobrucki for future services.
On August 25, 2017, the Company issued
600,000 shares of common stock to Christopher Thompson for services in August 2017.
On August 25, 2017, the Company issued
550,000 shares of common stock to Joshua Halford for services in August 2017.
On August 28, 2017, the Company issued
1,061,500 shares of common stock to Christopher Sloan for services in August 2017 (600,000 shares of common stock) and for accrued
expenses of $23,075 (461,500 shares of common stock).
On August 28, 2017, the Company issued
530,303 shares of common stock to Neil Dutson for services valued at $17,500.
On August 29, 2017, the Company issued
100,000 shares of common stock to Marc Hatch for services valued at $5,000.
On September 28, 2017, Pure Energy purchased
the May 10, 2017 convertible promissory note between the Company and Power Up (see Note 6). The Power Up convertible promissory
note was for $75,000. The Company and Pure Energy entered into a revised convertible promissory note to replace the Power Up convertible
promissory note in the amount of $78,427, with a maturity date of September 27, 2018, and bears interest of 8%. In conjunction
with this purchase by Pure Energy, the Power Up had a prepayment penalty of $28,496, which Pure Energy paid to Power Up. The Company
issued a second convertible promissory note for $33,842, which included the prepayment penalty and legal fees of $5,346. The second
convertible promissory note matures on September 27, 2018 and bears interest of 8%.
On October 6, 2017, the Company issued
400,000 shares of common stock to Jason Edwards for services valued at $20,000.
On October 6, 2017, the Company issued
600,000 shares of common stock to Michael Ostrander for services valued at $30,000.