See accompanying
notes to unaudited condensed consolidated financial statements.
See accompanying
notes to unaudited condensed consolidated financial statements.
See accompanying
notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
March 31, 2018
(unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
Freedom Leaf Inc. (the “Company,”
“we,” “us,” “our,” “Freedom Leaf” or “FRLF”) was incorporated in the
State of Nevada on February 21, 2013, under the name of Arkadia International, Inc. The Company originally was 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 (“Cowan”)
acquired a majority of the issued and outstanding common stock of the Company in accordance with stock purchase agreements by
and between Cowan and Vladimir and Galina Shekhtman (“Sellers”). On the closing date, October 3, 2014, Cowan purchased
from the Sellers 6,950,100 shares of the Company’s outstanding restricted common stock for $100,000, representing 93% of
the then-outstanding common stock of the Company.
On November 6, 2014, the Company merged
with Freedom Leaf Inc., a private Nevada corporation. The Company changed its name from Arkadia International, Inc., to Freedom
Leaf Inc. As a result of the merger, the private company was dissolved, the sole officer, director and shareholder of the private
company, Clifford J. Perry, became an officer and director of the Company, and Mr. Perry received approximately 48.1% of the Company’s
common stock post-merger. See Note 2 for related discussion.
For financial reporting
purposes, the merger was accounted for as a "reverse merger" and recapitalization rather than a business combination,
and the private company was deemed to be the accounting acquirer in the transaction, with the Company deemed to be the acquired
company for financial reporting purposes. Consequently, the assets and liabilities and the operations that are reflected in the
historical consolidated financial statements of the Company prior to the merger are those of the private company, and were recorded
at the historical cost basis of the private company, and the consolidated financial statements after completion of the merger include
the assets and liabilities of both the predecessor public company and private company, the historical operations of private company,
and the operations of both companies from the date of the merger.
Cannabis Business Solutions Inc (“Cannabis
Business Solutions”), a Nevada corporation, was formed on February 5, 2014, and is a subsidiary of the Company. This subsidiary
had nominal activity until it purchased the LaMarihuana.com assets from Valencia Web Technology S.L., B-97183354, effective April
8, 2017 (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 began active operations in January 2018.
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.
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.
Nature of Operations
Freedom Leaf Inc.
is a Company that is dedicated to health and wellness products derived from legal Hemp. It is comprised of a group of diversified,
international, vertically-integrated hemp businesses and cannabis media companies. Freedom Leaf Inc. has been working since 2014
to build a diverse portfolio of related hemp businesses through strategic acquisitions across the industry.
FRLF’s
portfolio of acquisitions includes our recently acquired hemp CBD product line Irie CBD; our wholly-owned hemp extraction division
Leafceuticals, Inc.; our exclusive health and wellness CBD brand “Hempology;” our hemp greenhouse cultivation with
recent acquisition of a facility in Valencia, Spain; our hemp-based rolling paper company Plants to Paper; two of the largest
Spanish-speaking cannabis web portals in the world
LaMarihuana.com
and
Marihuana-Medicinal.com
; and, of course,
our flagship publication,
Freedom Leaf Magazine
.
Through our targeted
acquisitions and growth plan execution, the Company has built a solid foundation for our vertically-integrated hemp and cannabis
media company to enhance both revenue growth and shareholder value. Our cultivation and extraction divisions allow FRLF to grow
and source our own hemp CBD, which allows lower production costs for our wholly-owned CBD product lines, and better gross profit,
for our CBD product sales. In addition, our domestic and international media companies permit us to direct organic traffic to our
eCommerce sites and retail locations.
|
·
|
Freedom Leaf does not handle, grow, sell, or dispense marijuana or
related products in the United States.
|
|
·
|
Freedom Leaf believes that its European activities are in compliance
with relevant EU laws.
|
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 subsidiaries, Cannabis Business Solutions, Leafceuticals, Freedom Leaf Cares, and
Freedom Leaf International. All significant inter-company balances and transactions have been eliminated in consolidation.
Fair Value Measurements
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 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.
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.
Inventory
Inventory is recorded at the lower of cost
or market and the cost of sales are recorded utilizing the first in first out (“FIFO”) method.
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
In May 2014, the FASB issued ASU
2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition
model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount
that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts. We have early adopted this update. We do not believe this guidance will impact the recognition of our primary
source of revenue. The adoption of this guidance did not have a material impact on our 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 4,618,167 shares of common
stock at March 31, 2018. Equivalent shares are not utilized when the effect is anti-dilutive.
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 adopted this update. We do not believe this guidance will impact the recognition of our primary
source of revenue. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires
a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration
it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts. We have adopted this update. We do not
believe this guidance will impact the recognition of our primary source of revenue. The adoption of this guidance did not have
a material impact on our consolidated financial statements.
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.
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 –DEFINITIVE AGREEMENTS
On November 6, 2014, Freedom Leaf
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, 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 of March 31, 2018, the Company has written the receivable off to bad debt. 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 12.
|
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 8 and 12. As of March 31, 2018, the Company
has written the receivable off to bad debt.
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 8 and 12. As of March 31, 2018, the Company
has written the receivable off to bad debt.
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, 2018, 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 that date. To-date,
ownership rights have not been transferred.
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, 2018, 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, 2018, there
were no sales.
LaMarihuana Purchase
On May 30, 2017, with an effective date
of April 8, 2017 as per the Bill of Sale, 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,” or “Valencia”)
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
(October 8, 2017) 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. On October 8, 2017, the Company removed the previously recorded contingent liability and recorded 4,142,857
shares of common stock as issuable, with a value of $126,000. On February 7, 2018, the Company and the Buyer agreed that because
of the increase in the value of the Company’s common stock, the Buyer had waived its right to additional shares of common
stock as stated herein. Therefore, on February 7, 2018, the Company reversed its recording of the 4,142,857 shares of common stock
recorded as issuable. See Note 17.
The Company is in the process of meeting
international requirements for the complete use of the web sites by the Company. This process is expected to be completed before
the end of this fiscal year.
NOTE 3 –BUSINESS COMBINATION
Green Market Europe Purchase
On January 5, 2018 as amended on February
5, 2018, with an effective date of January 5, 2018, the Company consummated its previously-announced acquisition of 100% of the
capital stock of Green Market Europe, S.L. (“GME”), a Spanish producer of hemp products. GME’s facilities include:
a 21,000 square foot light deprivation greenhouse; a 43,000 square foot indoor growing research facility, and over 200 acres of
outdoor production space. The light deprivation allows the increase of the number of yearly crops from 3 to 4 crops a year, and
the 43,000 square foot indoor grow facility is used for genetic research and cultivating additional hemp crops. GME is strategically
located in Elche, Alicante, an important Spanish business hub, with great year-round weather conditions for agricultural growing
and a long tradition of growing hemp. From its inception to-date, GME has had negligible operations.
Purchase Consideration:
In consideration for the acquisition, the
Company paid to GME’s seller $320,205 in cash and Company common stock as follows:
|
(i)
|
$24,805 (which amount was paid by a third party, and to whom the Company owes that amount), and
|
|
(ii)
|
4,220,000 shares of the Company’s common stock valued on the Company’s Balance Sheet
at $295,400.
|
Additionally: (i) additional shares will
be issuable if the volume weighted-average price of the Company’s stock between January 5, 2018 and July 3, 2018 is less
than $0.10 per share, and (ii) the sellers of GME have the option to repurchase all of the assets of GME for €100 (and the
assumption of GME’s liabilities) if the volume weighted-average price of the Company’s stock between January 5, 2018
and January 5, 2019 is less than $0.01 per share.
Assets acquired, and liabilities assumed, at fair value:
The provisional fair value of the
purchase consideration issued to the sellers of GME was allocated to the net tangible assets acquired. We accounted for the acquisition
of GME as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired
were recorded as of the acquisition date, at their respective fair values and consolidated with those of our company. The fair
value of the net assets acquired, net of Liabilities assumed, was approximately $20,285. The excess of the aggregate fair value
of the net tangible assets has been treated as Goodwill. The purchase price allocation was based, in part, on management’s
knowledge of GME’s business and is preliminary. Once we complete our analysis to finalize the purchase price allocation,
which includes finalizing the valuation report from a third-party appraiser and a review of potential intangible assets, it is
reasonably possible that, there could be significant changes to the preliminary values below.
Consideration given:
Common stock shares given
|
|
$
|
295,400
|
|
|
|
|
|
|
Total consideration given
|
|
$
|
295,400
|
|
|
|
|
|
|
Fair value of identifiable assets acquired, and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,546
|
|
Accounts receivable
|
|
|
7,430
|
|
Fixed assets, net
|
|
|
64,891
|
|
Intangible assets, net
|
|
|
5,176
|
|
Accounts payable
|
|
|
(71,478
|
)
|
Acquisition payable
|
|
|
(24,805
|
)
|
Payable to shareholders
|
|
|
(5,045
|
)
|
Total identifiable net liabilities
|
|
|
(20,285
|
)
|
Goodwill
|
|
|
315,685
|
|
Total consideration
|
|
$
|
295,400
|
|
During March, April and May of 2018, in
connection with the Company’s preliminary audit of GME, the Company’s management discovered several irregularities
regarding GME’s operations and its sellers’ activities before and after the consummation of the Company’s acquisition
of that business. Based on investigation of these discoveries, the Company, effective June 4, 2018, consummated a termination agreement
with GME’s seller. In connection with that agreement, GME’s sellers returned to the Company the 4,220,000 shares it
had previously issued to the sellers. The Company will write off the approximately $33,000 it had invested cumulatively in GME
in addition to the stock issuance.
NOTE 4– GOING CONCERN
The Company has a net loss attributable
to common stockholders for the nine months ended March 31, 2018 of $3,326,041 and working capital deficit as of March 31, 2018
of $134,341 and has used cash in operations of $520,088 for the nine months ended March 31, 2018. In addition, as of March 31,
2018, the Company had a stockholders’ equity and accumulated deficit of $425,402 and $8,247,029, respectively. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date
of the issuance of these financial statements.
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 5 – 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 the date of this report, 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
|
|
$
|
5,982
|
|
2019
|
|
|
18,943
|
|
|
|
|
|
|
Total
|
|
$
|
24,925
|
|
Rent expense for the nine months ended
March 31, 2018 and 2017 was $23,334 and $28,021, respectively.
NOTE 6 – RELATED PARTIES
Cowan, a former director and officer of the Company, has
payables and accruals due to him of $313,713 and $269,226 as of March 31, 2018 and June 30, 2017, respectively. The payable, as
agreed upon verbally, has a maturity date 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 $0 and
$21,444 as of March 31, 2018 and June 30, 2017, respectively. Imputed interest is immaterial. On July 31, 2017, the Company issued
5,784,061 shares of common stock to Cliff Perry for accrued compensation of $112,500. See Note 12
Raymond P. Medeiros (“Medeiros”),
a director of the Company, has payables and accruals due to him of $0 and $0 as of March 31, 2018 and June 30, 2017, respectively.
Imputed interest is immaterial. On July 31, 2017, the Company issued 2,699,228 shares of common stock to Raymond Medeiros for accrued
compensation of $52,500. See Note 12.
On October 31, 2017, the Company issued
850,000 shares of common stock to Paul F. Pelosi, Jr. (“Pelosi”), in regard to his appointment as Chairman of the Board
on November 1, 2017, for compensation for the period November 1, 2017 through January 31, 2018. The Company was obligated to issue
on February 1, 2018, an additional 1,250,000 options for common stock with an exercise price of $0.04, with an expiration date
eighteen months after the issuance. On February 12, 2018, the Company issued 1,250,000 warrants for common stock to Paul Pelosi
in satisfaction of this obligation. The warrants have an exercise price of $0.04 and expire August 11, 2018 (see Note 12).
On November 10, 2017, the Company sold 967,000
shares of common stock to Pelosi for $14,500, based on a per share price of $0.01499.
On January 18, 2018, the Company appointed
Richard Groberg, via his company, RSGroberg Consulting, LLC, as its Chief Financial Officer to serve for an initial, two-year term.
In consideration of the services to be performed by Groberg, the Company: (i) issued 800,000 shares of common stock, and (ii) $5,000
per month compensation payable: (1) prior to the date that the Company is paying monthly compensation to its directors primarily
in cash, in 600,000 shares of common stock (representing the first 12 months’ compensation), and (2) payable in cash thereafter.
See Note 17. The 800,000 and 600,000 shares of common stock were issued on January 18, 2018 and valued at $81,200 and $60,900,
respectively.
On January 18, 2018, Pelosi purchased 1,050,000
shares of common stock for $21,000.
NOTE 7 – OTHER RECEIVABLES
The Company has three licensing agreements with the following:
FLNL, FLI and BBDHS (see Note 2). The receivable, per entity, as recorded in Other Receivables as of March 31, 2018, is as follows:
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
FLNL
|
|
$
|
176,779
|
|
|
$
|
173,551
|
|
FLI
|
|
|
246,178
|
|
|
|
240,555
|
|
BBDHS
|
|
|
225,186
|
|
|
|
223,711
|
|
Subtotal
|
|
|
648,143
|
|
|
|
637,817
|
|
Less: Allowance
|
|
|
(648,143)
|
|
|
|
–
|
|
Net Balance
|
|
$
|
–
|
|
|
$
|
637,817
|
|
As of March 31, 2018, FLNL, FLI and BBDHS
are behind on payments of $100,000, $100,000, and $75,000, respectively. The Company and FLI agreed to a legal right of offset
in regards to a balance of $60,000 owed by the Company to FLI. The revenue streams as stated herein have been delayed due to unforeseen
circumstances. Thus, the Company granted deferment on the payments with each entity. Both FLNL and FLI expected to begin making
payment sometime in 2018. As of the date of this report, the Company has not received payment, therefore, the Company has recorded
an allowance of $648,143.
NOTE 8– FIXED ASSETS
The Company has fixed assets related to equipment and capital
improvements. The depreciation of the equipment and capital improvements is over a five-year and two-year period, respectively.
As of March 31, 2018, and June 30, 2017, the Company had fixed assets, net of accumulated depreciation, of $196,631 and $0, respectively.
The fixed assets are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Equipment
|
|
$
|
221,200
|
|
|
$
|
–
|
|
Total fixed assets
|
|
|
221,200
|
|
|
|
–
|
|
Less: Accumulated depreciation
|
|
|
(24,569
|
)
|
|
|
–
|
|
Fixed assets, net
|
|
$
|
196,631
|
|
|
$
|
–
|
|
The depreciation expense for the nine months ended March 31,
2018 and 2017, was $24,569 and $0, respectively.
NOTE 9 – INTANGIBLE ASSETS
The Company has intangible assets related
to website development. The amortization of the intangible assets is over a five-year period. As of March 31, 2018, and June 30,
2017, the Company had intangible assets, net of accumulated amortization, of $316,955 and $10,820, respectively. The intangible
assets are as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Website development
|
|
$
|
401,980
|
|
|
$
|
12,245
|
|
Total intangible assets
|
|
|
401,980
|
|
|
|
12,245
|
|
Less: Accumulated amortization
|
|
|
(85,025
|
)
|
|
|
(1,425
|
)
|
Intangible assets, net
|
|
$
|
316,955
|
|
|
$
|
10,820
|
|
The
amortization expense for the nine months ended March 31, 2018 and 2017, was $83,722 and
$370, respectively.
The following table presents the amortization for the next five
years:
2018
|
|
$
|
5,136
|
|
2019
|
|
|
15,127
|
|
2020
|
|
|
1,044
|
|
2021
|
|
|
1,044
|
|
2022 and thereafter
|
|
|
2,422
|
|
Total
|
|
$
|
24,773
|
|
NOTE 10 – 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 settlement dates and at 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:
|
|
March 31,
2018
|
|
|
June 30,
2017
|
|
|
Note
Inception
Date
|
|
Volatility
|
|
|
N/A
|
|
|
|
141%
|
|
|
|
170% - 232%
|
|
Expected Term
|
|
|
N/A
|
|
|
|
0.33 - 0.96 years
|
|
|
|
0.75 - 1.0 years
|
|
Risk-Free Interest Rate
|
|
|
N/A
|
|
|
|
0.84%
|
|
|
|
1.07% - 1.33%
|
|
The following reflects the initial
fair value on the note inception date and changes in fair value through March 31, 2018, which reflects that all promissory notes
were converted and/or paid leaving no outstanding promissory notes as of March 31, 2018:
Embedded conversion option derivative liability fair value on June 30, 2017
|
|
$
|
52,757
|
|
Note modifications adjustment
|
|
|
43,866
|
|
Adjustment for extinguishment of notes and conversion of notes
|
|
|
(91,653
|
)
|
Change in fair value in fiscal year 2018
|
|
|
(4,970
|
)
|
Embedded conversion option derivative liability fair value on March 31, 2018
|
|
$
|
–
|
|
NOTE 11 – CONVERTIBLE NOTES PAYABLE, NET OF PREMIUMS
AND NOTES PAYABLE
Convertible notes, net of discounts and notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
|
|
Debt
|
|
|
net of
|
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
|
Principal
|
|
|
Discounts
|
|
|
Discounts
|
|
PureEnergy
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
15,475
|
|
|
$
|
(7,489
|
)
|
|
$
|
7,986
|
|
PureEnergy
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,480
|
|
|
|
(5,565
|
)
|
|
|
7,915
|
|
PowerUp
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
75,000
|
|
|
|
(39,330
|
)
|
|
|
35,670
|
|
PowerUp
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
38,000
|
|
|
|
(18,893
|
)
|
|
|
19,107
|
|
Total
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
141,955
|
|
|
$
|
(71,277
|
)
|
|
$
|
70,678
|
|
On July 7, 2015, the Company executed a
convertible promissory note for $5,000 with Bruce Perlowin. The note is for one year, 12% interest rate, and convertible at $0.10
per share. The current price at that date was $0.085, which is less than the conversion price. The stock price for our common stock
as of September 30, 2015 was $0.40. Our common stock is thinly traded therefore our price, as management has determined, is not
indicative of our valuation. In October 2015, the Company issued common stock for services to unrelated parties and the common
stock was values at $0.20, therefore, the $0.20 was used for valuation purposes for this note. A beneficial conversion feature
of $5,000 was recorded and subsequently amortized. The Company has recorded accrued interest of $467 as of March 31, 2018. On April
15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock. 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 March 31, 2018. On April
15, 2016, Mr. Perlowin converted the principal of this promissory note into 50,000 shares of common stock. 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, 2018. 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. The accrued interest
was not converted.
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 December 31, 2017, had recorded $25,000 of amortization.
The note matures on November 1, 2017 and bears interest at 8%. On April 26, 2017, Eagle sold its convertible note to PureEnergy
714 LLC (“PureEnergy”) with no change in terms. As of March 31, 2018, there is $0 of accrued interest. On June 29,
2017, the Company issued 791,140 shares of common stock to PureEnergy for the conversion of $12,501. On July 19, 2017, the Company
issued 748,934 shares of common stock to PureEnergy related to the conversion of $13,481.
On May 23, 2017, the Company executed
a convertible promissory note with PureEnergy for $15,475. The note has a conversion discount of 45% based on the lowest
closing price of the 20 days prior to conversion. The Company recorded a debt discount of $8,481. The note matures on
February 23, 2018 and bears interest at 8%. On October 30, 2017, the balance of the note and the accrued interest was converted
into 1,006,768 shares of common stock. See Note 12.
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 note matures on February 23, 2018 and bears interest at 8%. On September 28, 2017,
Pure Energy purchased the May 10, 2017 convertible promissory note between the Company and Power Up. The Power Up convertible
promissory note was for $78,427. The Company and Pure Energy entered into a revised convertible promissory note to replace the
Power Up convertible promissory note as stated below. On November 9, 2017, Pure Energy converted the entire note and accrued interest
into 5,764,490 shares of common stock. See Note 12. On January 26, 2018, the Company issued to Pure Energy 1,933,848 shares of
common stock in consideration of its conversion of a second convertible promissory note for $33,842 (see Note 11) that the Company
issued to Pure Energy on September 27, 2017 in conjunction with Pure Energy’s payoff of the May 10, 2017 Power Up convertible
note.
On June 20, 2017, the Company executed
a convertible promissory note with Power Up for $38,000. The note has a conversion discount of 35% based on the lowest closing
price of the 20 days prior to conversion. The Company recorded a debt discount of $19,611 and as of the date of pay off, had recorded
$6,609 of amortization. The note matures on February 23, 2018 and bears interest at 8%. On December 15, 2017, the principal and
accrued interest was paid in full.
On July 20, 2017, the Company
executed a convertible promissory note with Power Up for $38,000. The note has a conversion discount of 35% based on the
lowest closing price of the 20 days prior to conversion. The Company recorded a debt discount of $14,829 and as of March 31,
2018, had recorded $7,455 of amortization. The note matures on August 11, 2018 and bears interest at 8%. As of March 31,
2018, there is $0 of accrued interest. On January 19, 2018, Pure Energy converted into 2,008,740 shares of Company common
stock: (i) the principal balance of the $38,000 convertible promissory note it previously acquired from Power Up and (ii)
$2,175 of accrued interest in connection with that note ($40,175 in total). That note, executed by the Company on July 20,
2017, had a conversion discount of 35% based on the lowest closing price of the 20 days prior to conversion. In conjunction
with its conversion of that note, on January 19, 2018, Pure Energy also received 800,918 shares of common stock – (i)
$19,826.19 in conjunction with the settlement amount owed by the Company to Power Up at the time Pure Energy acquired that
note from Power Up in connection with that note, and (ii) $3,000 as a transaction fee ($22,826.19 in total).
On August 11, 2017, the Company executed
a convertible promissory note with LG Capital (“LG”) for $42,000. The note has a conversion discount of 35% based on
the lowest closing price of the 12 days prior to conversion. On February 1, 2018, the Company paid LG Capital $58,813 to retire
the convertible promissory note it issued to LG Capital on August 11, 2017 for $42,000. The repayment amount included $1,565 of
accrued interest and a payment premium of $15,248.
On September 26, 2017, the Company executed
a convertible promissory note with Power Up for $53,000. The note has a conversion discount of 35% based on the lowest closing
price of the 10 days prior to conversion. On February 8, 2018, the Company paid Power Up $71,913 to retire in full this convertible
note.
On September 27, 2017, the Company executed
a convertible promissory note with Pure Energy for $78,427 to replace the May 10, 2017 convertible note with Power Up, as reflected
above. The note has a conversion discount of 35% based on the lowest closing price of the 12 days prior to conversion. On November
9, 2018, the principal and accrued interest was converted into 5,765,490 shares of common stock. (See Note 12.) In conjunction
with the payoff of the May 10, 2017 Power Up convertible note, the Company incurred a prepayment penalty of $28,496, which Pure
Energy paid to Power Up. The Company issued a second convertible promissory note to Pure Energy, in consideration of its payment
to Power Up, for $33,842, which included the prepayment penalty and legal fees of $5,346. On January 26, 2018, the Company issued
to Pure Energy 1,933,848 shares of common stock in consideration of its conversion of a second convertible promissory note for
$33,842 (see Note 12).
On January 17, 2018, Pure Energy acquired
from Power Up the $38,000 note executed by the Company on July 20, 2017. On January 19, 2018, Pure Energy converted into 2,008,740
shares of Company common stock: (i) the principal balance of the $38,000 convertible promissory note it acquired from Power Up
on January 17, 2018 and (ii) $2,175 of accrued interest in connection with that note ($40,175 in total) (see Note 12).
NOTE 12 – 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.
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.
In the first quarter of fiscal year 2018,
the Company issued 1,793,195 shares of common stock which were recorded as issuable as of June 30, 2017.
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.
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 6.
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 6.
On August 23, 2017, the Company issued
500,000 shares of common stock to Frank Dobrucki for services valued at $40,750.
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.
The shares were valued at $22,000.
On August 17, 2017, the Company issued
345,451 shares of common stock to Lakeport Business Services, Inc. for accounts payable $9,450. The shares were valued at $24,182.
On August 25, 2017, the Company issued
600,000 shares of common stock to Christopher Thompson as a bonus in August 2017. The shares were valued at $48,900.
On August 25, 2017, the Company issued
550,000 shares of common stock to Joshua Halford for services in August 2017. The shares were valued at $44,825.
On August 28, 2017, the Company issued
1,061,500 shares of common stock to Christopher Sloan for services in May 2017 (661,500 shares) and for accrued expenses of $23,075
(400,000 shares of common stock). The shares were valued at $137,535.
On August 28, 2017, the Company issued
500,303 shares of common stock to Neil Dutson for services valued at $37,203.
On August 29, 2017, the Company issued
100,000 shares of common stock to Marc Hatch for services valued at $7,430.
On August 29, 2017, the Company issued
100,000 shares of common stock to Marc Hatch for services valued at $7,430.
On October 6, 2017, the Company issued
400,000 shares of common stock to Jason Edwards for services in October 2017 valued at $16,280.
On October 6, 2017, the Company issued
600,000 shares of common stock to Michael Ostrander for services in October 2017 valued at $24,420.
On October 7, 2017, due to the agreement
with Valencia (see Note 2), the Company owed Valencia an additional 4,142,857 shares of common stock, which were recorded as issuable.
The Company recorded a contingent liability of $174,000 associated with this obligation. On January 29, 2018, because of the increase
of the Company’s common stock, Valencia agreed to the accept the initially issued 3,000,000 shares of common stock as satisfaction
of the obligation to pay to Valencia in connection with the Company’s May 30, 2017 Asset Purchase Agreement with Valencia
to acquire certain of its assets without the need to issue additional true-up shares of the Company’s common stock. The January
29, 2018 agreement relieved the Company of the contingent liability of issuing additional shares. See Note 17.
On October 23, 2017, the Company issued
1,001,250 shares of common stock to Timothy Puetz for services in October 2017 valued at $30,038.
On October 23, 2017, the Company issued
1,000,000 shares of common stock to Breadfruit Tree, Inc. for inventory received in October 2017 valued at $27,200.
On October 26, 2017, the Company issued
255,000 shares of common stock to Ronald Voight for services in October 2017 valued at $7,650.
On October 28, 2017, the Company issued
273,333 shares of common stock to Lakeport Business Services, Inc. for services in October 2017 valued at $8,200.
On October 28, 2017, the Company issued
30,000 shares to Neil Dutson for leasehold improvement performed in October 2017 valued at $900.
On October 30, 2017, the Company issued
122,500 shares of common stock to legal counsel for services in October 2017 valued at $8,575.
On October 31, 2017, the Company issued
850,000 shares of common stock to Paul F. Pelosi, Jr. (“Pelosi”) valued at $26,285, in regard to his appointment as
Chairman of the Board on November 1, 2017, for compensation for the period November 1, 2017 through January 31, 2018. The Company
was obligated to issue on February 1, 2018, an additional 1,250,000 options for common stock with an exercise price of $0.04, with
an expiration date eighteen months after issuance. On February 12, 2018, the Company issued 1,250,000 warrants for common stock
to Paul Pelosi in satisfaction of this obligation (see Note 13). The warrants have an exercise price of $0.04 and expire August
11, 2018.
On October 25, 2017, the Company issued
250,000 shares of common stock to Frank Dobrucki for services in October 2017 valued at $7,725.
On November 2, 2017, the Company issued
250,000 shares of common stock to Victor Park, a vendor, for services in October 2017 valued at $6,800.
On November 3, 2017, the Company issued
1,006,768 shares of common stock to PureEnergy for the conversion of $15,475 of a convertible promissory note (see Note 11).
On November 9, 2017, the Company issued
5,764,490 shares of common stock to Pure Energy for the conversion of $80,077 of principal and accrued interest of a convertible
promissory note (see Note 11).
On November 9, 2017, the Company sold 4,785,459
shares of common Stock to Pure Energy for $83,745.53, based on a per share price of $0.0175.
On November 10, 2017, the Company sold
967,000 shares of common stock to Pelosi for $14,500, based on a per share price of $0.01499.
On November 28, 2017, the Company issued
730,769 shares of common Stock to Michael Ostrander for services in October 2017 and November 2017. The shares for October 2017,
which were effective October 1, 2017, were 500,000, whereas the shares for November 2017, which were effective November 1, 2017,
were 230,769. The shares were valued at $40,119.
On November 30, 2017, the Company recorded
600,000 shares of common stock as issuable to Alan Stone & Co. (“Stone”) in connection with various consulting
services provided in 2017. The shares were valued at $29,400.
On January 5, 2018 as amended on February
5, 2018, with an effective date of January 5, 2018, the Company consummated its previously-announced acquisition of 100% of the
capital stock of Green Market Europe, S.L. (“GME”), a Spanish producer of hemp products. In partial consideration for
the acquisition, the Company paid to GME’s seller 4,220,000 shares of the Company’s common stock valued at $295,400.
On January 15, 2018, the Company issued
to Stone 600,000 shares of common stock which were recorded as issuable as of December 31, 2017.
On January 17, 2018, Pure Energy acquired
526,315 shares of the Company’s common stock for $25,000.
On January 18, 2018, in connection with
the Company’s appointment of Richard Groberg (“Groberg”) as its Chief Financial Officer to serve for an initial,
two-year term, the Company (i) issued Groberg’s company, RSGroberg Consulting, LLC, 800,000 shares of common stock, and (ii)
$5,000 per month compensation payable: (1) prior to the date that the Company is paying monthly compensation to its directors primarily
in cash, in 600,000 shares of common stock (representing the first 12 months’ compensation), and (2) payable in cash thereafter.
The common stock received was valued at $81,200 and $60,900, respectively.
On January 19, 2018, Pure Energy converted
into 2,008,740 shares of Company common stock: (i) the principal balance of the $38,000 convertible promissory note it acquired
from Power Up on January 17, 2018 and (ii) $2,175 of accrued interest in connection with that note ($40,175 in total). The Power
Up note, executed by the Company on July 20, 2017, had a conversion discount of 35% based on the lowest closing price of the 20
days prior to conversion. The common stock received was valued at $190,027 and resulted in the Company recording a loss of $157,340.
On January 19, 2018, in conjunction with
its conversion of that note, Pure Energy received 800,918 shares of common stock – (i) $19,826.19 in conjunction with the
settlement amount owed by the Company to Power Up at the time Pure Energy acquired that note from Power Up in connection with that
note, and (ii) $3,000 as a transaction fee ($22,826 in total). The common stock received was valued at $89,703 and resulted in
the Company recording a loss of $66,877.
On January 22, 2018, the Company issued
60,616 shares of common stock to Joseph Gurreri, an employee, in consideration of $8,550 of accrued wages. The common stock received
had a value of $8,850
On January 22, 2018, Pelosi purchased 1,050,000
shares of common stock for $21,000.
On January 22, 2018, the Company issued
82,192 shares of common stock to Steven Bloom in connection with consulting services provided in 2017 totaling $12,000.
On January 22, 2018, the Company issued
16,952 shares of common stock to the Company’s legal counsel, in connection with services rendered totaling $2,475.
On January 26, 2018, the Company issued
to Pure Energy 1,933,848 shares of common stock in consideration of its conversion of a second convertible promissory note for
$33,842 (see Note 11) that the Company issued to Pure Energy on September 27, 2017 in conjunction with Pure Energy’s payoff
of the May 10, 2017 Power Up convertible note. The common stock received was valued at $580,154 and resulted in the Company recording
a loss of $558,722.
On January 22, 2018, the Company issued
Reliable Steel 229,671 shares of common stock for a portion of its debt of $33,532.
On January 22, 2018, the Company issued
226,497 shares of common stock to Christopher Thompson, an employee, in connection with services provided in 2017 valued at $33,069.
On January 5, 2018 and February, respectively
the Company issued to Michael Ostrander: (i) 150,000 shares of common stock for services performed in December 2017 valued at $10,500,
and (ii) 56,930 shares of common stock for services performed in January 2018 valued at $16,794.
On January 31, 2018, the Company issued
to Stone 600,000 shares of common stock which were recorded as issuable as of December 31, 2017.
On January 31, 2018, the Company issued
122,466 shares of common stock to Christopher Sloan, a former employee of the Company, in connection with services rendered by
him to the Company in 2017 totaling $39,740.
On January 31, 2018, the Company issued
47,945 shares of common Stock to Lakeport Business Services, Inc. in connection with services rendered to the Company in 2018 valued
at $7,000. The stock was valued at $15,558 based on the current stock price.
On January 31, 2018, Pure Energy purchased
838,126 shares of common stock for $83,813.
On February 7, 2018, Neil Dutson acquired 624,000 shares of
common stock for $78,000.
On February 7, 2018, Weintraub Law Group,
LLC (“Weintraub”) surrendered 52,779 warrants at a value of $0.3048 per share, $16,090 in total, to effect the cashless
exercise of warrants to acquire 215,378 shares of common stock at $0.06 per share. The Company had issued to Weintraub 268,167
warrants to acquire common stock and 268,167 shares of common stock on October 17, 2016 for the settlement of payables of $15,065.
On February 9, 2018, Douglas Montgomery,
Greg Montgomery and Lesley Montgomery acquired from the Company 160,000, 80,000 and 160,000, respectively, shares of the Company’s
common stock, in each case for a purchase price of $0.125 per share, for total proceeds of $50,000.
On February 21, 2018, the Company issued
83,760 shares of common Stock to Lakeport Business Services, Inc. in connection with services rendered to the Company in 2018 valued
at 18,000 based on the current stock price.
On March 6, 2018 Vincent Moreno acquired
500,000 shares of common stock for $50,000.
On March 7, 2018, Neil Dutson acquired 909,090 shares of common
stock for $100,000.
On March 7, 2018, Esteemed Consultants
acquired 909,091 shares of common stock for $100,000.
On March 14, 2018, Rex Anthony Carrol acquired
272,727 shares of common stock for $30,000.
On March 15, 2018, Vision Concepts acquired
74,074 shares for $10,000.
During the quarter ended March 31, 2018,
the Company issued 503,535 shares of common stock to NuAxon BioScience, Inc. on behalf of Jason Edwards for services in November
2017 through March 2018 valued at $48,117.
Warrants
On November 2, 2015, the Company issued
1,000,000 warrants for common stock to Freedom Leaf Iberia, B.V., in regard to a contemplated future transaction between the Company
and Freedom Leaf Iberia, B.V. The warrants expire 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 regard to a contemplated future transaction between the
Company and Freedom Leaf Netherlands, B.V. The warrants expire 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. 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.
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
date eighteen months after issuance. The agreement is for 15 days and has an auto renewal feature for an additional 75 days. During
the 75-day period, the Company will pay $500 for each additional 15 days. On February 1, 2017, both parties agreed to an addendum
to the agreement to change the exercise price of $0.10 for the warrants to the following: 50,000 of the warrants have an exercise
price of $0.10 per share; 50,000 of the warrants have an exercise price of $0.125 per share; and 50,000 of the warrants have an
exercise price of $0.15 per share.
On February 12, 2018, the Company issued
1,250,000 warrants for common stock to Paul Pelosi in lieu of a prior agreement for the Company to issue to Pelosi 1,250,000 options
(see Note 12). The warrants have an exercise price of $0.04 and expire August 11, 2018.
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
Warrants Inception Date
|
|
Expected volatility
|
|
|
260%
|
|
|
|
231%
|
|
|
|
193% - 261%
|
|
Expected dividends
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expected term
|
|
|
2 - 9 months
|
|
|
|
21 months
|
|
|
|
0.25 - 1.76
|
|
Risk-free interest rate
|
|
|
1.93%
|
|
|
|
1.15%
|
|
|
|
0.98% - 1.82%
|
|
Stock Option Plan
On June 27, 2016, the Board of Directors
approved the 2016 Stock Option Plan which has reserved 10,000,000 shares of common stock. There are no stock options outstanding
as of March 31, 2018.
NOTE 13 – CONCENTRATIONS
Concentration of Credit Risk
Financial instruments, which potentially
subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
The Company places its temporary cash investments
with financial institutions insured by the FDIC. No amounts exceeded federally insured limits as of March 31, 2018. There have
been no losses in these accounts through, March 31, 2018.
Concentration of Revenue
For the nine months ended March 31, 2018,
the Company had no material customer.
Concentration of Supplier
The Company does not rely on any particular
suppliers for its services.
Concentration of Intellectual Property
The Company owns or has filed for the trademarks
“Freedom Leaf,” “Hemp Inspired,” “Cannabizu,” and “Cannabiz” as filed with the
United States Patent and Trademark Office. The Company has filed for “Freedom Leaf” in Jamaica and Uruguay.
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 April 3, 2018, Esteemed Consultants,
Inc. acquired from the Company 1,000,000 shares of the Company’s common stock for a purchase price of $0.075 per share, for
total proceeds of $75,000.
On April 16, 2018,
Leafceuticals consummated the acquisition, with an effective date of April 1, 2018, of substantially all of the assets of: Earth
Born, Inc., a California corporation (“Earth Born California”), Earth Born, Inc., a Delaware corporation (“Earth
Born Delaware”), Irie Living, a California nonprofit mutual benefit corporation (“Irie”), and Genesis Media Works,
LLC, a Utah limited liability company doing business as “Terra’s Way,” “Irie Hemp Company,” “Earth
Born Botanicals,” and “Santa Cruz Hemp Company” (“Genesis” and together with Earth Born California,
Earth Born Delaware, and Irie, collectively referred to herein as the “Sellers” or IRIE). Irie CBD is a California-based
product line owned by the Sellers that has been operating since 2015 that formulates, manufactures and distributes CBD tinctures,
CBD edibles, CBD topicals and CBD concentrates to retail markets across the country. IRIE boasts an inventory of more than 25 different
products and recorded approximately $1.5 million of revenue in 2017. IRIE also leases a full manufacturing and processing facility
in Oakland, California. In addition to the IRIE CBD line and associated assets and trademarks, the acquisition also includes the
product lines, websites and other assets of Earth Born California, Earth Born Delaware, Irie, and Genesis.
In connection with this acquisition, Leafceuticals
assumed approximately $100,000 of liabilities associated with the assets and paid the Sellers’ principals $2,200,000 (subject
to adjustment), as follows: $356,080 in cash and $1,843,920 via the issuance of an aggregate of 8,118,886 shares of the Company’s
common stock. The purchase price is to be reduced if: (i) the Sellers’ aggregate pre-closing revenues for the year ending
December 31, 2017, were less than $1,500,000 or (ii) the Buyer’s average monthly revenues resulting from the Acquisition
of the Assets for the three months following closing are less than $120,000 per month. Additionally, 1,250,000 of the Shares were
to be escrowed for four months following Closing as the Buyer’s security for (i) any indemnification claims against the Sellers
pursuant to the Agreement, or (ii) any pre-closing or post-closing revenue deficiency resulting in the purchase price reductions
described above.
On April 2, 2018, JRKH Investments, LLC
purchased 54,745 shares of common stock of the Company for a purchase price of $0.091 per share, for total proceeds of $5,000.
On April 2, 2018, the Company retained
KSW Group, LLC as an independent contractor to render various services related to launching and managing various eCommerce initiatives
for the Company. In connection with that appointment, the Company: (i) agreed to pay KSW monthly sales commissions based on net
revenues generated by KSW, and (ii) issued to KSW 450,000 shares of the Company’s Rule 144 Common Stock. The closing price
of the Company’s common stock on the issuance date of April 2, 2018 was $0.135 per share.
On April 11, 2018, Kahn Family Partnership
purchased 4,444,444 shares of common stock of the Company for a purchase price of $0.09 per share, for total proceeds of $400,000.
On that date, the Company also issued to Kahn Family Partnership a warrant to acquire 4,444,444 shares of common stock at an exercise
price of $0.13 per share. The warrant expires on April 11, 2020.
On April 30, 2018, the Company appointed
Nevada State Senator Richard Segerblom as a member of the Company’s Board of Directors and issued to Senator Segerblom (i)
$50,000 in common stock to vest monthly for one year, with a value of $0.159 per share, for a total of 314,465 shares of common
stock, and (ii) an eighteen-month warrant to acquire 500,000 shares of common stock at an exercise price of $0.10 per share.
On April 30, 2018, with an effective
date of April 1, 2018, the Company entered into separate consulting agreements with Karen Lane and Ricky Potts, each of whom were
owners of Irie. Pursuant to these two agreements, each agreed to continue to provide senior management services relating to the
operation of Irie under the ownership of the Company for at least nine months. In connection with these two agreements, the Company
granted to each 500,000 shares of common stock of the Company, vesting monthly over a period of nine months, with the vesting beginning
on the effective date. The shares were valued at $61,500 for each based on the closing price of the stock on the most recent trading
day prior to April 1, 2018. The Company also agreed to a monthly compensation to each of $4,000 per month, payable using the Company’s
common stock. The determination of the number of shares of stock will be calculated monthly based on the average of the OTC closing
price based on the last five trading days of each month, as applicable.
On May 10, 2018, the Company
appointed its CFO, Richard Groberg, as a member of the Company’s Board of Directors. In consideration of his appointment,
the Company agreed to issue to Mr. Groberg’s entity (1) $50,000 in common stock to vest monthly over a one-year period, at
a value of $0.16 per share, for a total of 312,500 shares, and (2) an eighteen-month warrant to acquire 500,000 shares of common
stock of the Company at an exercise price of $0.10 per share.
On May 14, 2018, the Company sold 1,250,000
shares to each Caesar Capital Group (“Cesar”) and Joseph W and Patricia G Abrams Family Trust dtd 3/95 (“Abrams”)
for $200,000 in total, based on a per share price of $0.08.
In a related transaction, the Company is
issuing to Caesar and Abrams 6,000,000 shares of the Company’s common stock (based on a value of $0.25 per share, or $1,500,000)
in exchange for a 25% ownership interest in
Cicero Transact Group, LLC (“Cicero”)
,
a company that is launching an innovative, online business-to-business deal platform. The Company intends to work with Cicero in
regard to opportunities in the cannabis industry. Additionally, Michael Woloshin (“Woloshin”), a principal of Caesar,
and Abrams, intend to work with the Company in an advisory capacity.
On May 15, 2018, the Company issued to
Cowan a License Agreement that grants him exclusive licensee distribution rights to the Freedom Leaf Inc magazine, as well as other
“Freedom Leaf” branded merchandise and services. In consideration of such license, Cowan cancelled $240,000 of payables
owed to him by the Company. Also, in connection with this transaction, the Company issued to Cowan a warrant exercisable between
July 1, 2018 and November 15, 2019.
During March through May 2018, in connection
with the Company’s audit of GME, Company’s management discovered several irregularities regarding GME’s operations
and its sellers’ activities before and after the consummation of the Company’s acquisition of that business. Based
on investigation of these discoveries, the Company, effective on June 4, 2018, consummated a termination agreement with GME’s
sellers. In connection with that agreement, GME’s sellers committed to return to the Company the 4,220,000 shares it previously
issued to the sellers. The Company will write off approximately $33,000 it had invested cumulatively in GME in addition to the
stock issuance.
The Company, on May 17, 2018, entered into
a binding letter of intent to acquire an existing, approximately 430,000 square foot facility, that it intends to convert from
a Poinsettia production facility into a light deprivation hemp production greenhouse. The total purchase price, including approximately
€350,000 of rare, botanical plants and other greenhouse supplies that the Company acquired for €100,000 and intends to
sell, is: €4,100,000 (approximately US$4.8million). The purchase consideration will be paid as follows: (i) €20,000 down,
which amount already has been paid by the Company; (ii) €20,000 a month for 25 months, and (iii) €100,000 per month thereafter
until paid in full. The Company intends to consummate this acquisition on or about July 2, 2018. Located in Valencia, the third
largest city in Spain with an average of 300 days of sun per year and agricultural setting, the facility previously was one of
the biggest Poinsettia producers in Europe. At its peak, it produced millions of Poinsettia clones and had more than 80 greenhouse
workers working 24/7. The Company chose this facility due to the similarities in growing Poinsettias and Hemp and because of its
light cycles and heavy machinery specific to industrial plant production. This turn-key facility includes: approximately 430,000
square feet of light deprivation greenhouse, growing supplies, polished concrete, and triple galvanized steel framework. It its
fully equipped with an automated irrigation system, a mist system, a refrigerated storage area, a light deprivation system to maximize
number of crops per year, a Dutch, hydroponic set up and heating system, its own gas pipe, and five sources of irrigation water
with reservoir. The facility also has office space that the Company intends to utilize to house: (i) our Spanish Media department
(lamarihuana.com) and (ii) a warehouse. The purchase also includes outdoor space and the necessary structural steel sufficient
to erect a new 64,000 sq. ft galvanized steel frame facility the Company intends to build to use as a GMP extraction, formulation
and bottling facility. The Company intends to retain the predecessor operation’s key employees to maintain the growing facilities.
Management’s goal is for this facility to become a leading greenhouse producer of cannabinoids in Europe. The Company’s
goal is to grow up to two million grams of EU-certified Industrial Hemp in its first year of operations and then to expand significantly
in subsequent years. The Company also expects to utilize this facility to increase its Hemp research, tissue culture and extraction
capabilities in the following years.
On June 7, 2018, the Company retained Joseph
Abrams, an individual acting as an independent contractor, to serve as a member of the Company’s Advisory Board and, in connection
with that appointment, issued to Abrams: 312,500 of the Company’s common stock per year. The first year’s stock will
be issued immediately and shall vest monthly over one year and will be valued at $0.16 per share, valuing the grant at $50,000.
For the second year, the stock will be issued on June 9, 2019, and will be based on the closing price of the Company’s common
stock on OTC Markets on June 8, 2019.
On June 21, 2018, the Company consummated
the acquisition of intellectual property relating to a proprietary formula for the compounding of a nutraceutical non-liquid to
inhibit the accumulation of LDL cholesterol (and an underlying patent-pending application regarding the formula) developed by
Healthy Discovery Associates Corp., a Florida corporation. The patent-pending application is for a formula for a dietary supplement,
which should not require a United States Food and Drug Administration (“FDA”) approval. The Company acquired the intellectual
property regarding the formula and patent-pending application for 1,600,000 shares of common stock at a value of $0.25 per share,
subject to a leak-out agreement and a price adjustment if the average trading price of the Company’s common stock for the
five days subsequent to the six-month anniversary of the consummation of this transaction does not exceed $0.25 per share.
NOTE 15 – RESTATEMENT
OF PRIOR PERIOD FINANCIAL STATEMENTS
Balance Sheet and Statement
of Operations
The Company restated its previously
issued consolidated financial statements included in the original Quarterly Report on Form 10-Q for the six months ended December
31, 2017 and the three months ended September 30, 2017 to reflect the effects of accounting and reporting errors resulting from
a deficiency in its accounting and financial statement preparation process. This error and the related adjustments resulted in
an understatement of net loss of $314,903 for the six months ended December 31, 2017 and the overstatement of $29,707 in derivative
liabilities, the understatement of $344,610 in additional paid-in capital and the overstatement of $314,903 in accumulated deficits
as of December 31, 2017. This error and the related adjustments resulted in an understatement of net loss of $143,789 for
the three months ended September 30, 2017 and the overstatement of $115,975 in derivative liabilities, the understatement of $31
in common stock, the overstatement of $259,764 in additional paid-in capital and the overstatement of $143,789 in accumulated deficits
as of September 30, 2017.
The following tables present
the impact of the financial statement error for the consolidated financials of Freedom Leaf Inc.:
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
|
As previously
|
|
|
|
|
|
|
|
|
As previously
|
|
|
|
|
|
|
|
|
|
reported
|
|
|
Adjustments
|
|
|
As restated
|
|
|
reported
|
|
|
Adjustments
|
|
|
As restated
|
|
Liabilities and Stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
47,289
|
|
|
$
|
(29,707
|
)
|
|
$
|
17,582
|
|
|
$
|
157,743
|
|
|
$
|
(115,975
|
)
|
|
$
|
41,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,591
|
|
|
$
|
31
|
|
|
$
|
124,622
|
|
Additional paid-in capital
|
|
$
|
6,110,832
|
|
|
$
|
344,610
|
|
|
$
|
6,455,442
|
|
|
$
|
5,444,594
|
|
|
$
|
259,764
|
|
|
$
|
5,704,327
|
|
Accumulated deficit
|
|
$
|
(6,370,985
|
)
|
|
$
|
(314,903
|
)
|
|
$
|
(6,685,888
|
)
|
|
$
|
(5,628,572
|
)
|
|
$
|
(143,789
|
)
|
|
$
|
(5,772,361
|
)
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended December 31, 2017
|
|
|
For the Three Months Ended September 30, 2017
|
Net loss attributable to common shareholders
|
|
$
|
(1,449,997
|
)
|
|
$
|
(314,903
|
)
|
|
$
|
(1,764,900
|
)
|
|
$
|
(707,584
|
)
|
|
$(143,789)
|
|
$(851,373)
|