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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________

 

FORM 10-K

_______________________________________________

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2017

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______.

 

Commission File Number: 000-55687

______________________________________________

 

FREEDOM LEAF INC.

(Exact name of registrant as specified in its charter)

_______________________________________________

 

Nevada   46-2093679

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification No.)
     

3571 E. Sunset Road, Suite 420

Las Vegas, NV

  89120
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (702) 499-6022

____________________________________________

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 Par Value

(Title of class)

____________________________________________

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   o Yes    x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes    x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes      o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes      o No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    o Accelerated filer   o
Non-accelerated filer    o  (Do not check if a smaller reporting company) Smaller reporting company    x
Emerging growth company    o  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes    x No

 

On December 31, 2016, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $4,595,945, based upon the closing price on that date of the common stock of the registrant on the OTC Bulletin Board system of $0.13. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

 

As of September 29, 2017, the registrant had 126,298,304 shares of its common stock, $0.001 par value, issued, issuable, and outstanding.

 

 

 

 
 

 

 

EXPLANATORY NOTE

 

This Annual Report on Form 10-K (the “Annual Report”) of Freedom Leaf Inc. (the “Company”) is being filed pursuant to the Order under Section 15B, Section 17A and Section 36 of The Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder (the “Order”), dated September 28, 2017, of the Securities and Exchange Commission (available at https://www.sec.gov/rules/other/2017/34-81760.pdf), which extends the Company’s deadline to file this Annual Report. Pursuant to the Order, for companies affected by Hurricane Irma, all reports, schedules or forms must be filed on or before October 19, 2017.

 

The Company’s independent certifying accountant’s office is located in Tampa, Florida, and as a result of Hurricane Irma and its aftermath, was closed for about a week because it lost power and Internet access, which closure delayed the completion of the audit of the Company’s financial statements.  As a result, the Company was not able to file this Annual Report by October 13, 2017, and the Company is therefore relying on the Order.

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

TABLE OF CONTENTS

 

      Page 
        
PART I.        
Item 1.  Business   3 
Item 1A.  Risk Factors   12 
Item 1B.  Unresolved Staff Comments   12 
Item 2.  Properties   13 
Item 3.  Legal Proceedings   13 
Item 4.  Mine Safety Disclosures   13 
         
PART II.        
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   13 
Item 6.  Selected Financial Data   14 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation   15 
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk   19 
Item 8.  Consolidated Financial Statements and Supplementary Data   20 
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   21 
Item 9A.  Controls and Procedures   21 
Item 9B.  Other Information   22 
         
PART III.        
Item 10.  Directors, Executive Officers and Corporate Governance   22 
Item 11.  Executive Compensation   25 
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   25 
Item 13.  Certain Relationships and Related Transactions, and Director Independence   26 
Item 14.  Principal Accounting Fees and Services   26 
         
PART IV.        
Item 15.  Exhibits, Financial Statement Schedules   28 
         
   Signatures   29 
         
   Exhibits     

 

 

 

 

 1 

 

 

FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for Freedom Leaf Inc. Such discussion represents only the best present assessment from our Management.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2 

 

 

PART I

 

Item 1. Business.

 

General Overview

 

Freedom Leaf Inc. (“Freedom Leaf” and the “Company”) 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 resell these in the U.S. territories 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 Stock Purchase Agreement, Cowan purchased from the Sellers 6,950,100 shares of the Company’s outstanding restricted common stock for $100,000, representing 93% of the total issued and outstanding at that time.

 

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.

 

For financial reporting purposes, this merger was accounted for as a "reverse merger" 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 have been reflected in the historical financial statements of the Company prior to the merger are those of the private company, and were be recorded at the historical cost basis of the private company, and the financial statements after completion of the merger include the combined assets and liabilities of the Company and the private company, the historical operations of the private company only, and the operations of both companies from the closing date of the merger.

 

We are currently devoting our efforts to the news, arts and entertainment niche, both in print and online publications, and to providing services to the cannabis/hemp industry. The Company generates revenue through paid advertising in publications, print and online, in the cannabis/hemp marketplace. The Company earns revenue from 1) providing consulting services to companies who are in our industry, 2) contracting with companies to brand, market, and sell their products and/or services, 3) providing seminars in this space, 4) selling branded products for the Company and others the Company represents, 5) selling licenses, both domestic and foreign, for the use of the Freedom Leaf brand that includes the Company’s products and services, and 6) pursuing mergers and/or acquisitions having instituted an accelerator that began working with one company starting during the year ended June 30, 2017.

 

Our corporate headquarters are located at 3571 E. Sunset Road, Suite 420, Las Vegas, Nevada, 89120. The Company’s primary web site is www.freedomleaf.com. This web site is not incorporated in this Form 10-K.

 

Overview

 

Freedom Leaf, The Marijuana Legalization Company, has now published and circulated hundreds of thousands of copies of our twenty-seven editions in thirty-eight states with the assistance of over 160 activist marketers. Freedom Leaf magazine, “The Good News in Marijuana Reform,” reports on arts, fashion, and lifestyle, all of the elements of the burgeoning cannabis movements. Freedom Leaf magazine provides activists, consumers, patients and entrepreneurs with a means to stay informed on the emerging industry's most cutting edge marijuana-related information, innovations and legislation. It is distributed nationally through chapters of the National Organization for the Reform of Marijuana Laws (NORML.org), Students for a Sensible Drug Policy (SSDP.org), and WomenGrow.com, as well as through participating medical and recreational dispensaries, smoke and vape shops, doctors and attorneys’ offices, and others in the marijuana industry. It is also available online at http://www.freedomleaf.com/freedom-leaf-ezines/ and on the Company’s free mobile app available on Apple iOS and the Google Play Store.

 

 

 

 3 
 

 

Freedom Leaf is also expanding its online presence. Freedom Leaf has an entire platform of content suited for every aspect of advertising and marketing to consumers from all businesses in the cannabis industry. These sites incorporate many aspects of the marijuana industry and movement. In May 2017, the Company acquired two Spanish domiciled websites: www.lamarihuana.com and www.marihuana-medicinal.com. This is another expansion of the Freedom Leaf Media Network. The www.lamarihuana.com website has 1.2 million Facebook likes and received in excess of 1 million visitors a month during the last six months, making this website one of the most popular Spanish speaking websites in the world. The content is automatically translated into the language of the country within which the viewer is residing.

 

The Industry

 

The following is a report on the industry, as published in ArcView Group’s State of Legal Marijuana Markets 5th Edition.

 

A Year Of Substantial Gains Across The Industry

 

The legal cannabis industry accelerated at a remarkable pace in 2016. North American consumers spent $6.7 billion on legal cannabis products, up 34% from 2015.

 

Cannabis is now legally sold in state-of-the-art retail dispensaries with computer-based inventory and sales tracking, fully regulated and taxed by their state governments just like any other product category. Entrepreneurs are modernizing the product just as quickly. Many successful brands have launched extracts, edibles, topicals, and other types of products that are leading consumers to spend more and, in cutting-edge Colorado, they have reduced traditional dried flowers to less than 56% of the business. More states passed laws to open new markets and expand existing ones in 2016 than in any previous year. These new markets will drive sustained revenue growth in the years ahead.

 

The legislatures of Pennsylvania and Ohio legalized medical cannabis in those major swing states, while voters in California, Maine, Nevada, and Massachusetts North Dakota, Florida, and Montana voters passed medical cannabis laws. The blistering 34% compound annual growth rate (CAGR) from 2014 to 2016 was driven primarily by Colorado and Washington initiating adult-use sales. This rate of growth will subside somewhat in 2017 to 22%, as the eight states that voted to open or expand their cannabis markets on Election Day in November 2016 work to implement the new programs. But Arcview Market Research forecasts growth will reaccelerate beginning in 2018, as adult use sales ramp up in Canada, California, and Massachusetts along with medical sales in Florida. That will grow the $6.7-billion market of 2016 at a robust 27% CAGR to $22.6 billion in 2021.

 

 

 

 

 

 4 
 

 

Very few consumer industry categories reach $5 billion in annual spending and then post anything like 25% compound annual growth across the following five years. Cable television came close, growing 19% annually in the late 1980s as national networks like CNN and HBO proved to be wildly popular. Broadband internet subscription spending grew 29% per annum in the early 2000s as it became almost as much of a “must have” utility as electricity or television for the modern home. What became the ubiquitous home video business that birthed the great Blockbuster success story only grew at a 12% CAGR after reaching $5 billion in revenue in 1988.

 

 

 

That 20+% annual growth rate is likely to continue for many years past 2021 as more states and countries legalize cannabis. Arcview includes 30 states plus Canada with active legal markets by 2021 in its model, but in many of the largest markets, like New York and Florida, sales are expected to remain limited to medical-use. In the 2021-2026 period, however, many of these states will build robust legal adult-use markets, and all but a few states will make medical cannabis available legally.

 

It’s also likely that US federal prohibition will be repealed during that period, which would fuel explosive growth.

 

Canada and Mexico are included in Arcview’s North American market projections for the first time and analyzed throughout this 5th Edition of The State of Legal Marijuana Markets. The expected roll-out of Canada’s adult-use market is analyzed. The U.S. northern neighbor may be the world leader in moving toward a well-regulated legal cannabis industry. Countries around the world are already responding to the state-by-state dismantling of prohibition in America — the chief exporter of the “War on Drugs” for decades—by moving to allow medical use (as in Australia, Germany, and Colombia) or to outright legalization (as in Uruguay).

 

Robust growth through 2021 and beyond in the United States is predicted even if the US Justice Department opposes the cannabis industry. Chapter 2 provides a detailed analysis of why that kind of reversal in policy is unlikely, but a major one is the popularity of legal cannabis.

 

Polls show that 80% of Americans approve of legal access to medical cannabis and 60% approve of full adult use legalization. That level of agreement is rare on any policy issue and it’s allowing elected officials across the political spectrum to start to move past the stigma previously associated with this issue.

 

One key reason support for legalization is spreading so rapidly is that it is accomplishing a key goal: the illicit market is shrinking. The illicit market grew steadily throughout the last 40 years of the War on Drugs to what Arcview estimates was a North American total of $46.8 billion when adult-use sales first began in 2014 in Colorado and Washington. Illicit sales are now being rolled back at the fastest rates in those states with the most mature legal adult use markets (see graph, below). Most dramatically, what Arcview estimates was a $1-billion illicit market in Colorado is now less than $500 million, which represents just 27% of a $1.8-billion overall market.

 

 

 

 5 

 

 

Election Results

 

President Donald Trump said in 1991, “You have to legalize drugs to win that war.” He backed away from that position in his campaign for president but was remarkably consistent in his support for medical access to cannabis and his belief that cannabis policy should be up to the states. But once elected he appointed dedicated drug warrior Jeff Sessions for Attorney General. Sessions remarked “Good people don’t smoke marijuana” at a 2015 Congressional hearing. Despite conflicting signals from the new administration, investors and entrepreneurs have many other reasons to be hopeful:

 

• The newly elected Prime Minister of Canada, Justin Trudeau, took office in late 2015 and immediately started the formal process of legalizing adult use.

 

• In the US November elections, voters in eight of the nine states voting on cannabis measures approved them, bringing to 63% the portion of Americans living in medical use states and 21% those in adult-use states.

 

• For the first time, the Presidential nominees of both major U.S. political parties felt free to speak approvingly of the medical use of cannabis and the right of states to experiment with different cannabis policies.

 

• In December, the Mexican Senate voted overwhelmingly (98-7) to send a medical-use legalization bill to the Chamber of Deputies.

 

These developments were inconceivable just a few years ago. The biggest political win of the U.S. election came in California. California pioneered the modern cannabis policy reform movement in 1996 when voters passed Proposition 215, the Compassionate Care Act. Though voters failed to approve adult use in 2010, they voted overwhelmingly in 2016 to make adult use legal in a state that represents the world’s sixth-largest economy. Nevada also voted to legalize adult use, though a similar initiative failed narrowly in Arizona. Massachusetts and Maine also passed voter-generated initiatives to legalize the adult use of cannabis, joining District of Columbia voters in showing the continent-wide breadth of the movement.

 

The formalizing of medical-use rules in Montana, and the approval of medical cannabis sales in Arkansas, North Dakota, and Florida (where it garnered 71% of the vote) showed that cannabis policy reform is hugely popular, even in red and swing states that voted for Trump. Earlier in the year, big swing states Ohio and Pennsylvania saw medical legalization come to pass via legislative action.

 

The two most significant votes may have come in the smallest jurisdictions: citizens of Denver narrowly approved on-site usage in licensed clubs, and Pueblo, CO, voters rejected opponents’ efforts to pass what was essentially an industry shutdown. In both cases, cannabis supporters prevailed against the early betting. These votes show that experience with legalization can lead voters to pass even more open laws, and reject efforts to roll it back.

 

 

 

 

 6 

 

 

According to the England Journal of Medicine, 76% of clinicians polled worldwide believe that the medicinal benefits outweigh the risks and potential harms. Within the next five years, the legal cannabis industry is expected to out-earn the US film industry, the organic foods industry and more than triple the revenues of the NFL.

(Source: http://www.nejm.org/doi/full/10.1056/NEJMclde1305159)

 

53% of Americans support marijuana legalization according to Pew Research.

(Source: http://www.pewresearch.org/fact-tank/2015/04/14/6-facts-about-marijuana/)

 

Marketing Focus and Strategy

 

Our marketing is centered around the Freedom Leaf magazine and website. It is a two-fold strategy. First, the magazine draws businesses that are in the cannabis/hemp industry to speak to us either because they are interested in advertising in the magazine and/or for Freedom Leaf to publicize their business either through us writing an article about their company or for them to write an article about an aspect in the industry that relates to their business (content marketing). Second, Freedom Leaf will undertake cross promotion with operators of different expos, seminars and other public events that extend our reach to companies in the industry. Last of all, we also use the non-profit alliances that we have established to gain a prominent position in our Industry. This has provided Freedom Leaf with considerable credibility and the ability to attract deals with companies to either represent them accelerate them or acquire them.

 

Our Products

 

  · Ads in magazine, on Freedom Leaf owned web sites, and in our email blasts

  · Events, education classes, expos and seminars

  · Marketing contracts with industry businesses

  · Branding contracts with industry businesses

  · Freedom Leaf branded products

  · Magazine subscriptions

  · Branded products and/or services companies that we represent

  · Concerts and musical festivals

  · Licensing the Freedom Leaf brand, products and services

 

Sales Targets

 

Companies within the Cannabis/Hemp Industry for Advertising

 

We target companies in the cannabis/hemp industry to offer our advertising and related services. Some examples are: dispensaries in the 29 states, and Washington, D.C. (https://medicalmarijuana.procon.org/view.resource.php?resourceID=000881&print=true) that have legalized medical marijuana sales; locations that sell recreational marijuana in the 8 states that have legalized recreational marijuana use, companies that make edible food infused with marijuana and/or CBDs, vape manufacturers and wholesalers, websites that sell auxiliary products related to cannabis/hemp use, and other businesses that sell products and or services that wish to reach our market, such as clothing companies, concert organizers, and manufacturers or distributors of cell phones, headsets, soda, energy drinks, health products, etc.

 

 

 

 7 

 

 

Target Market

 

The State of Colorado completed a survey for the year 2014 which provides helpful information on the demographics related to our target markets:

 

 

Competitive Edge

 

Freedom Leaf’s credibility has been growing in the cannabis/hemp marketplace due to its support of non-profits in the space and for the excellent editorial and other content in our magazine.

 

At least 50% of our magazine distribution is through non-profit activists (to themselves and those they come in contact with) and we believe, industry activists are among the most loyal consumers any company can potentially have. All of the magazine issues are also available on our Web site in addition to other content for viewers.

 

Its digest size (5.5” x 8.5”) is perfect for people to carry around easily.

 

Competitors

 

We compete with companies of all sizes in a variety of geographies that offer solutions that compete with elements of our business plan, such as in print and online printing, advertising, etc. More specifically, however, the medical and recreational marijuana companies are a new, developing and nascent market, resulting in a highly fragmented and fractured marketplace. The federal state and municipal governments have varying degrees of legality that will affect business. Some of the companies we compete with are much larger than us, and such companies have significantly greater resources.

 

 

 

 8 

 

 

Most of our current and potential competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may be able to secure experienced employees, accommodate customers more efficiently and adopt more aggressive pricing policies than we can. Many of these current and potential competitors can devote substantially more resources to advertising, marketing and attracting experienced talent than we can. In addition, larger, more well-established and financed entities may acquire, invest in or form joint ventures with our competitors

 

Our competitors include:

 

Culture Magazine

www.ireadculture.com

Southern & Northern CA, Denver CO, Seattle WA, San Diego CA, Portland OR,

Started in Southern CA in 2009

 

High Times Magazine

www.hightimes.com

Started in 1974, monthly publication, oldest in industry but subscription base has reduced substantially, still the major national magazine.

 

Dope Magazine

www.dopemagazine.com

Approximately 10 months old in eastern Washington, 4 to 6 months in balance of locations (southern CA, northern CA, eastern WA, Portland, OR, Denver, CO)

 

Elevate Magazine

www.elavatenv.com

Local Las Vegas magazine (we have a strategic relationship with them)

 

Intellectual Property

 

Website

 

We assert common law copyright in the contents of our websites, www.FreedomLeaf.com, www.FreedomLeafInc.com, www.MyHempology.com, www.LaMarihuana.com, and www.CannaBizU.com, and common law trademark rights in our business name and related product labels, including “The Marijuana Legalization Company,” “Hemp Inspired,” “CannaBizU,” “CannaBiz,” and “BudFinder.” We have copyrights and trademarked some of our tradenames (see Trademarks section). We expect to copyright and/or trademark additional tradenames in the future, as we deem necessary to protect our business.

 

We plan to develop these other domains, which are owned by Freedom Leaf:

 

www.MarijuanaNews.com

www.LadyCannabis.com

www.CannabisSeminars.com

www.CannabisDebate.com

www.CannaSpa.com

www.Vegasterdam.com

 

 

 

 9 

 

 

 

Other domains owned by Freedom Leaf:

420apps.com

acjmg.com

amstercamera.com

amstercamera.nl

bluegrasscbd.com

budfindr.com

budfindr.net

campuscannabisdebate.com

campuscannabisdebate.net

campuscannabisdebates.com

campuscannabisdebates.net

canapoly.com

cannabisarts.com

cannabisbusinessservices.com

cannabisbusinesssolutions.com

cannabisbusinessuniversity.com

cannabiscene.com

cannabiscentury.com

cannabisdebate.com

cannabisfriendly.com

cannabisgeriatrics.com

cannabishempmuseum.com

cannabishouse.com

cannabisprogress.com

cannabisseminars.com

cannabistcafe.com

cannabistjournal.com

cannabistro.us

cannabisvenues.com

cannabiz.tv

cannabizinc.com

cannabizmapster.com

cannabizmapster.net

cannabizmuseum.com

cannabizsolutions.com

cannabizu.com

cannabizu.net

cannabizuniversity.com

 

 

cannabizwire.com

cannablunt.net

cannacakefactory.com

cannacalendar.com

cannacouture.com

cannadepot.us

cannaderma.com

cannado.com

cannafactory.com

cannagold.com

cannagum.com

cannahookah.com

cannakitchen.com

cannalatte.com

cannalingo.com

cannapachino.com

cannapassion.com

cannapoly.com

cannarollup.com

cannashisha.com

cannaspa.com

cannatreat.com

cannavita.com

cannawellness.com

checkyourweed.com

cliffsight.com

dankdefenders.com

dankdefenders.net

fliagency.com

freedomisnorml.com

freedomleaf.com

freedomleaf.guru

freedomleaf.net

freedomleaf.tv

freedomleaf.vegas

freedomleafaction.com

freedomleafcares.com

freedomleafcares.org

   

 

 

 

 10 

 

 

 

 

freedomleafinc.com freedomleafmagazine.com

freedomleafmagazine.net

freedomleafnetwork.com

freedomleafnetwork.net

freedomleafnetwork.tv

freedomleafseniors.com

freeedomleafinternational.com

freeedomleafinternational.net

freetheleaf.info

freeleaf.com

genuinetics.com

healthyhips.org

hempinspired.com

hempinspired.net

hempinspired.tv

hempleaftoday.com

hempology.co

hempologyproducts.com

highmilehigh.co

highmilehigh.com

highmilehigh.net

highrollup.com

iamwaycool.com

iamwaycool.org

jawpainsolution.com

karmarijuana.com

kingsofpotcomedy.com

kingsofpotcomedytour.com

kybluegrasscbd.com

ladycanna.com

ladycannabis.com

ladycannabis.org

 

ladyhempcbd.com

ladyhempcbd.net

ladyhempglobal.com

lamarihuana.net

lamarihuana.news

lamarihuana.us

lasvegasterdam.com

lasvegasterdam.vegas

lasweedas.com

leafceutical.com

leafvegas.com

mangina.xxx

marijuanalegalizationcompany.com

marijuanalegalizationinc.com

marijuananews.com

marijuananews.tv

marijuanarollup.com

medicinalmarijuanauniversity.com

myhempology.com

naturaltmjcures.com

normllegal.com

nvnorml.com

nvnorml.org

otcfrlf.com

passionhemp.com

ponyboystuff.com

primecommoditylogistics.com

pufftuffstuff.vegas

   

 

Trademarks

 

We have registered or filed for registration with the United States Trademark and Patent Office for the following trademarks: “Freedom Leaf,” “The Marijuana Legalization Company,” “Hemp Inspired,” “Hempology,” and with the State of Nevada “CannaBizU,” and “CannaBiz.” Internationally, we have filed for “Freedom Leaf” trademark protection in European Union, Columbia, China, Mexico, Jamaica and Uruguay.

  

Reports to Security Holders

 

We intend to furnish our shareholders annual reports containing consolidated financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing unaudited consolidated financial statements for each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional documents with the Commission if they become necessary in the course of our company's operations.

 

The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

 

 

 

 11 

 

 

Government Regulations

 

We believe that we are and will continue to be in compliance in all material respects with applicable statutes and the regulations passed in the United States. There are no current orders or directions relating to our company with respect to the foregoing laws and regulations.

 

Continued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our proposed business.

 

Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws. There are currently 25 states and the District of Columbia allowing its citizens to use Medical Marijuana. Additionally, Alaska, Colorado, Oregon, Washington State, as well as Washington D.C., have voted to legalize cannabis for adult recreational use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, the Trump administration has signaled that it may reverse Obama-era guidance, and the current administration may change the prior stated policy regarding the low-priority enforcement of federal marijuana laws. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect our revenues and profits. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis in the United States, we may be irreparably harmed by a change in enforcement by the federal government or state-level regulatory or legislative changes.

 

Environmental Regulations

 

We do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.

 

Employees

 

As of June 30, 2017, we had a total of six full time employees. Our employees are not parties to any collective bargaining agreement. We believe our relationships with our employees are good.

 

Property

 

We lease approximately 2,800 square feet of office space in Las Vegas, Nevada, pursuant to a lease that will expire on April 15, 2019. This facility serves as our corporate headquarters.

 

Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

 

 

 12 

 

 

Item 2. Properties.

 

We lease approximately 2,800 square feet of office space in Las Vegas, Nevada, pursuant to a lease that will expire on April 15, 2019. This facility serves as our corporate headquarters.

 

Item 3. Legal Proceedings.

 

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 September 30, 2017, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market for Common Equity

 

Market Information

 

The Company’s common stock is quoted on OTC Markets Group’s OTCPink under the symbol “FRLF.” The symbol change from the predecessor company was effective February 24, 2015. As of June 30, 2017, the Company’s common stock was held by 45 shareholders of record, which does not include shareholders whose shares are held in street or nominee name.

 

The Company’s shares commenced trading on or about February 10, 2014 (for Arkadia International, Inc.). The following chart is indicative of the fluctuations in the stock prices for the fiscal years ended June 30, 2017 and 2016:

 

   For the Years Ended June 30, 
   2017   2016 
   High   Low   High   Low 
                 
First Quarter  $0.195   $0.09   $0.51   $0.10 
Second Quarter  $0.24   $0.0801   $0.51   $0.20 
Third Quarter  $0.1229   $0.0585   $0.35   $0.15 
Fourth Quarter  $0.0674   $0.033   $0.24   $0.17 

 

Source: OTC Markets

 

The Company’s transfer agent is Globex Transfer, LLC, at 780 Deltona Blvd., Suite 202, Deltona, FL 32725.

 

Dividend Distributions

 

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock for the foreseeable future. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy may be modified from time to time by our board of directors.

 

 

 

 13 

 

 

Securities authorized for issuance under equity compensation plans

 

The Company established a stock option plan on June 27, 2016.

  

Penny Stock

 

Our common stock is considered "penny stock" under the rules the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:

 

contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
contains a toll-free telephone number for inquiries on disciplinary actions;
defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:

 

bid and offer quotations for the penny stock;
the compensation of the broker-dealer and its salesperson in the transaction;
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and
monthly account statements showing the market value of each penny stock held in the customer's account.

 

In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

 

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

 

Related Stockholder Matters

 

None.

 

Purchase of Equity Securities

 

None.

 

Item 6. Selected Financial Data.

 

As the Company is a “smaller reporting company,” this item is inapplicable.

 

 

 

 14 

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements and summary of selected financial data for Freedom Leaf Inc. Such discussion represents only the best present assessment from our Management.

 

DESCRIPTION OF COMPANY

 

The Company was a startup company that was incorporated in Nevada under the name Arkadia International, Inc. on February 21, 2013.

 

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 Stock Purchase Agreement, Cowan purchased from the Sellers 6,950,100 shares of the Company’s outstanding restricted common stock for $100,000, representing 93%.

  

On November 4, 2014, the Company's Board of Directors declared a twelve for one forward stock split of all outstanding shares of the Company’s common stock. As the stock split was approved by FINRA, the common share and per common share data in these consolidated financial statements and related notes hereto have been retroactively adjusted to account for the effect of the stock split. The total number of authorized common shares and the par value thereof was not changed by the split.

 

On November 6, 2014, we entered into a merger agreement (the “Merger Agreement”) with Freedom Leaf Inc., a Nevada corporation (“Private Company”), and the Company’s sole officer and director Clifford J. Perry (“Perry”), being the owners of record of all of the issued share capital of Freedom Leaf Inc. (the “FL Stock”). Pursuant to the Merger Agreement, the Shareholders received an aggregate of 83,401,200 shares (48.1%) our common stock (consisting of a new issuance of shares and Mr. Perry’s transfer of all of his shares), and Private Company was merged with and into us. As a result, Freedom Leaf Inc. became our Company whereas the operations of Arkadia International, Inc. ceased, and there was a change of control of the Company.

 

Prior to the merger, we were a startup company that originally intended to engage in the business of the acquisition of in demand equipment, cars, and goods with the intent to resell these in the in the U.S. territories or export to overseas countries.

 

We have had limited operations and have been issued a “going concern” opinion by our auditor, based upon our reliance on the sale of our common stock as the sole source of funds for our future operations.

 

We have been devoting substantially all of our efforts to migrate to the news, arts and entertainment niche, with both “in print” and online publications. The Company is generating revenue through paid advertising in publications, both print and online, in the cannabis/hemp marketplace. The Company will also earn revenue from providing consulting services to companies who are in our industry, contracting with companies to brand, market, and sell their products and/or services, provide seminars in this space, and sell branded products for the Company and others the Company represents.  We have also started incubating other companies in the cannabis industry and have one company that we are currently incubating.

 

The following Management Discussion and Analysis should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K.

 

 

 

 15 

 

 

COMPARISON OF THE YEAR ENDED JUNE 30, 2017 TO THE YEAR ENDED JUNE 30, 2016

 

Results of Operations

 

Revenue. For the year ended June 30, 2017, our revenue was $817,457, compared to $118,473 for the same period in 2016. This increase in revenue was attributable to increased sales related to increased magazine subscriptions and licensing fees.

 

Operating Expenses:

 

Direct costs of Revenue. For the year ended June 30, 2017, direct costs of revenue were $124,290 compared to $132,381 for the same period in 2016. As a percent of revenue, direct costs of revenue were 15.2% and 111.7%, respectively, for 2017 and 2016.

 

General and Administrative Expenses. For the year ended June 30, 2017, general and administrative expenses were $1,421,224 compared to $2,685,025 for the same period in 2016. The increase was due to the increase in operations and stock-based compensation ($750,990 compared to $2,258,863 for the years ended June 30, 2017 and 2016, respectively).

 

Net Loss. We generated net losses of $910,650 for the year ended June 30, 2017, compared to $3,011,220 for the same period in 2016.

 

Liquidity and Capital Resources

 

General. At June 30, 2017, we had cash and cash equivalents of $2,498. We have historically met our cash needs through a combination of cash flows from operating activities and proceeds from private placements of our securities and loans. Our cash requirements are generally for selling, general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities, capital improvements, and partial repayment of debt through the next 12 months.

 

Our operating activities used cash of $435,450 for the year ended June 30, 2017, and we used cash in operations of $50,831 during the same period in 2016. The principal elements of cash flow from operations for the year ended June 30, 2017, included a net loss of $910,650.

 

Cash used in investing activities during the year ended June 30, 2017, was $4,312 compared to $3,235 provided by investing activities during the same period in 2016.

 

Cash generated in our financing activities was $440,502 for the year ended June 30, 2017, compared to cash generated of $54,923 during the comparable period in 2016.

  

As of June 30, 2017, current assets exceeded current liabilities by 3.68 times. Current assets increased from $7,122 at June 30, 2016 to $641,915 at June 30, 2017, whereas current liabilities decreased from $176,310 at June 30, 2016, to $174,256 at June 30, 2017.

 

   For the years ended 
   June 30, 
   2017   2016 
         
Cash used in operating activities  $435,450   $50,831 
Cash used in investing activities   4,312    3,235 
Cash provided by financing activities   440,502    54,923 
           
Net changes to cash  $740   $857 

 

 

 

 16 

 

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had sales of $817,457 and net losses of $910,650 for the year ended June 30, 2017, compared to sales of $118,473 and net losses of $3,011,220 for the year ended June 30, 2016. The Company had a working capital, stockholders’ equity, and accumulated deficit of $467,659, $187,818 and $4,920,988, respectively, at June 30, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company is highly dependent on its ability to continue to obtain investment capital from future funding opportunities to fund the current and planned operating levels. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to bring in income generating activities and its ability to continue receiving investment capital from future funding opportunities. No assurance can be given that the Company will be successful in these efforts.

 

Critical Accounting Policies

 

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 warrant and beneficial conversion feature debt discounts, valuation of share-based payments and the valuation allowance on deferred tax assets.

 

Changes in Accounting Principles. No significant changes in accounting principles were adopted during fiscal 2017 and 2016.

 

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.

 

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 and Fair Value Measurements. The Company measures their financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash, accounts payable, accrued expenses escrow liability and short-term loans the carrying amounts approximate fair value due to their short maturities.

 

We have adopted accounting guidance for financial and non-financial assets and liabilities. The adoption did not have a material impact on our results of operations, financial position or liquidity. 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:

  

 

 

 17 

 

 

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.

 

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 operating classes as follows:

 

  Consulting services.
  Advertising services.
  Branding, marketing and selling products for companies.
  Educational seminars.
  Selling branded products.

 

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 Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50. 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 estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.

 

NON-GAAP FINANCIAL MEASURES

 

Adjusted Net Earnings

 

In addition to reporting net loss from operations as defined under generally accepted accounting principles (“GAAP”), the Company presents adjusted net earnings from operations (adjusted net earnings), which is a non-GAAP performance measure. Adjusted net earnings consist of net loss from operations after adjustment for those items shown in the table below. Adjusted net earnings does not represent, and should not be considered an alternative to, GAAP measurements such as net loss from operations (its most comparable GAAP financial measure), and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items shown below, the Company believes that the measure is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies. The Company’s management does not view adjusted net earnings in isolation and also uses other measurements, such as net loss from operation and revenues to measure operating performance. The following table provides a reconciliation of net loss from operations, the most directly comparable GAAP measure, to adjusted net earnings for the periods presented:

 

Adjusted Net Loss   For the Years Ended  
    June 30,  
    2017     2016  
             
Net loss   $ (910,650 )   $ (3,011,220 )
Change in fair value of embedded conversion features     (21,506 )      
Beneficial conversion feature expense     (79,156 )     (290,174 )
                 
Adjusted net loss   $ (809,988 )   $ (2,721,046 )
                 
Weighted average shares outstanding - basic and diluted     100,294,433       171,858,687  
                 
Adjusted basic and diluted net loss per share   $ (0.01 )   $ (0.02 )

 

 

 18 

 

 

Adjusted EBITDA

 

In addition to reporting net loss from operations as defined under GAAP, the Company also presents adjusted net earnings before interest, income taxes, depreciation, depletion, and amortization from operations (adjusted EBITDA), which is a non-GAAP performance measure. Adjusted EBITDA consists of net loss from operations after adjustment for those items shown in the table below. Adjusted EBITDA does not represent, and should not be considered an alternative to, GAAP measurements such as net loss from operations (its most comparable GAAP financial measure), and the Company’s calculations thereof may not be comparable to similarly titled measures reported by other companies.

 

By eliminating the items shown below, the Company believes the measure is useful in evaluating its fundamental core operating performance. The Company also believes that adjusted EBITDA is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies. The Company’s management uses adjusted EBITDA to manage its business, including in preparing its annual operating budget and financial projections. The Company’s management does not view adjusted EBITDA in isolation and also uses other measurements, such as net loss from operations and revenues to measure operating performance. The following table provides a reconciliation of net loss from operations, the most directly comparable GAAP measure, to adjusted EBITDA for the periods presented:

 

 

Adjusted EBITDA   For the Years Ended  
    June 30,  
    2017     2016  
             
Net loss from operations   $ (910,650 )   $ (3,011,220 )
Interest expense     (47,221 )     (3,779 )
Interest income     7,002        
Amortization     (741 )     (515 )
Stock-based compensation     (750,990 )     (2,258,863 )
Change in fair value of embedded conversion features     (21,506 )      
Beneficial conversion feature expense     (79,156 )     (290,174 )
                 
Adjusted EBITDA   $ (18,038 )   $ (457,889 )
                 
Weighted average shares outstanding - basic and diluted     100,294,433       171,858,687  
                 
Adjusted basic and diluted net loss per share   $ (0.00 )   $ (0.00 )

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

As the Company is a “smaller reporting company,” this item is inapplicable.

 

 

 

 19 

 

 

Item 8. Consolidated Financial Statements and Supplementary Data.

  

Freedom Leaf Inc.

 

Table of Contents

 

    Page  
       
Report of Independent Registered Public Accounting Firm     F-1  
         
Consolidated Balance Sheets     F-2  
         
Consolidated Statements of Operations     F-3  
         
Consolidated Statements of Changes in Shareholders’ Equity     F-4  
         
Consolidated Statements of Cash Flows     F-5  
         
Notes to Consolidated Financial Statements     F-6  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 20 

 

 

 

    Green & Company, CPAs
    A PCAOB Registered Accounting Firm

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of:

Freedom Leaf Inc.

 

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.

 

/s/ Green & Company CPAs, Inc.

 

Green & Company CPAs, Inc.

Temple Terrace, Florida

October 19, 2017

 

 

 

10320 N 56 th Street, Suite 330 Temple Terrace, FL 33617 813.606.4388

 

 

 

 F-1 

 

 

FREEDOM LEAF, INC.

and Subsidiaries

Consolidated Balance Sheets

June 30,

 

   2017   2016 
ASSETS        
         
Current assets          
Cash  $2,498   $1,758 
Accounts receivable       500 
Inventory       2,465 
Prepaid expense   1,600     
Other receivable, net of discount   637,817    2,399 
Total current assets   641,915    7,122 
           
Intangible assets, net   10,820    7,464 
Other assets   338,084    3,584 
           
Total assets  $990,819   $18,170 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
           
Current liabilities          
Convertible notes payable, net of discount  $70,678   $44,521 
Notes payable   3,141     
Accounts payable   15,789    46,936 
Accounts payable to related parties       10,000 
Accrued expenses   31,891    29,853 
Accrued expenses to related parties       45,000 
Derivative liabilities   52,757     
           
Total current liabilities   174,256     176,310 
           
Non-current liabilities          
Other payables   188,075     
Payable to related party   290,670    126,250 
           
Total non-current liabilities   478,745    126,250 
           
Total liabilities   653,001     302,560 
           
Commitments and contingencies (Note 4)   150,000     
           
Stockholders' equity (deficit)          
Preferred stock, $0.001 par value, 10,000,000 shares authorized
Series A preferred stock, 1,000,000 shares authorized, 948,022 shares issued and outstanding at June 30, 2017 and 2016, respectively
   948    948 
Common stock, $0.001 par value, 500,000,000 shares authorized,
111,101,795 and 94,438,650 shares issued, issuable, and outstanding at June 30, 2017 and 2016, respectively
   111,102    94,439 
Additional paid-in capital   4,996,756    3,800,699 
Unearned stock compensation       (170,137)
Accumulated deficit   (4,920,988)   (4,010,338)
Total stockholders' equity (deficit)   187,818    (284,390)
           
Total liabilities and stockholders' equity (deficit)  $990,819   $18,170 

 

See accompanying notes to consolidated financial statements.

 

 F-2 

 


 

FREEDOM LEAF, INC.

and Subsidiaries

Consolidated Statements of Operations

For the Years Ended June 30,

 

   2017   2016 
         
Revenue, net  $817,457   $118,473 
           
Operating expenses          
Direct costs of revenue   124,290    132,381 
General and administrative (includes stock-based compensation of $750,990 and $2,258,863 for the years ended June 30, 2017 and 2016, respectively.)   1,421,224    2,685,025 
Marketing and selling   41,712    18,335 
           
Operating loss   

(769,769

)   (2,717,267)
           
Other income (expense)          
Interest expense   (47,221)   (3,779)
Interest income   

7,002

     
Change in fair value of embedded conversion features   (21,506)    
Beneficial conversion feature   (79,156)   (290,174)
           
Net loss  $(910,650)  $(3,011,220)
           
Net loss per share - basic and diluted  $(0.01)  $(0.02)
           
Weighted average number of shares outstanding - basic and diluted   100,294,433    171,858,687 

 

See accompanying notes to consolidated financial statements.

 

 

 F-3 

 

 

FREEDOM LEAF, INC.

and Subsidiaries

Consolidated Statement of Shareholders' Deficit

June 30, 2017

 

                           Unearned             
           Common Stock           Stock   Additional         
   Preferred Stock   Issuable   Common Stock   Compen-   Paid In   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   sation   Capital   Deficit   Total 
                                         
Balance at June 30, 2015      $       $    174,181,200   $174,181   $   $594,130   $(999,118)  $(230,807)
                                                   
Contributed capital                               12,000        12,000 
Capital contribution (services)                               58,500        58,500 
Beneficial conversion feature                               122,500        122,500 
Issuance of common stock for services           960,000    960    8,685,000    8,685        1,919,355        1,929,000 
Unearned Stock Comp                           (170,137)           (170,137)
Warrants issued for services                               500,000        500,000 
Warrants exercised into common stock           2,679,736    2,680                31,320        34,000 
Conversion of debt into common stock           2,509,914    2,510    225,000    225        469,040        471,775 
Conversion of common stock into preferred stock   948,022    948            (94,802,200)   (94,802)       93,854         
Net loss for the period ended June 30, 2016                                   (3,011,220)   (3,011,220)
                                                   
Balance at June 30, 2016   948,022   $948    6,149,650   $6,150    88,289,000   $88,289   $(170,137)  $3,800,699   $(4,010,338)  $(284,390)
                                                   
Contributed capital                               21,082        21,082 
Unearned stock compensation                           170,137            170,137 
Issuance of issuable common stock           (1,285,000)   (1,285)   1,285,000    1,285                 
Cancellation of issuable shares           (5,014,650)   (5,015)               (229,842)       (234,857)
Sale of common stock                   3,112,501    3,113        146,887        150,000 
Issuance of common stock for services           1,943,195    1,943    11,479,477    11,479        737,568        750,990 
Issuance of common stock for debt                   1,004,701    1,005        56,182        57,187 
Issuance of 268,167 warrants                               3,319        3,319 
Beneficial conversion feature                               50,000        50,000 
Issuance of 1,150,000 warrants                               68,750        68,750 
Issuance of common stock for conversion of debt                   791,140    791        147,167        147,959 
Issuance of common stock for acquisition of intellectual property                       3,000,000    3,000         181,500         184,500 
Issuance of common stock for settlement of debt                   346,781    347        13,444        13,791 
Net loss for the period ended June 30, 2017                                   (910,650)   (910,650)
                                                   
Balance at June 30, 2017   948,022   $948    1,793,195   $1,793    109,308,600   $109,309   $   $4,996,756   $(4,920,988)  $187,818 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 F-4 

 

FREEDOM LEAF, INC.

and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended June 30,

 

   2017   2016 
Cash flows from operating activities:          
Net loss  $(910,650)  $(3,011,220)
Adjustments to reconcile net loss to net cash used in operations:          
Amortization of intellectual properties   741    515 
Beneficial conversion feature   79,156    290,174 
Issuance of common stock for services   750,990    2,258,863 
Unearned stock compensation   170,137    (170,137)
Change in fair value of embedded conversion features   21,506     
Bad debt expense       5,000 
Issuance and amortization of warrants for services   80,402    500,000 
Changes in operating assets and liabilities:          
Accounts receivable   500    (3,020)
Inventory   2,465    (2,465)
Prepaid expense   (1,600)    
Other receivable   (603,805)   (399)
Accounts payable   (160,406)   42,225 
Accounts payable to related parties   (10,000)   (17,466)
Accrued expenses   2,038    12,099 
Accrued expenses to related parties   143,075    45,000 
Net cash used in operating activities   (435,450)   (50,831)
           
Cash flows used in investing activities          
Intangible asset acquired   (4,312)   (3,235)
Net cash used in investing activities   (4,312)   (3,235)
           
Cash flows from financing activities:          
Proceeds from warrants exercised       34,000 
Proceeds from capital contributed   21,082     
Proceeds from related party   164,420    136,815 
Proceeds from sale of common stock   150,000     
Payments on notes payable   (25,000)     
Issuance of common stock on conversion of debt       (225,892)
Proceeds from notes payable   130,000    110,000 
Net cash provided by financing activities   440,502    54,923 
           
Net increase in cash   740    857 
Cash at beginning of period   1,758    901 
Cash at end of period  $2,498   $1,758 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $13,400   $ 
Cash paid for taxes  $   $ 
           
Non-cash investing and financing activities:          
Conversion of debt into common stock  $239,026   $471,775 
Conversion of common stock into licensing agreement  $(10,209)  $ 
Issuance of common stock for deposit on acquisition   $(184,500)  $ 
Contingent liability for deposit on acquisition  $(150,000)  $ 
Issuance of common stock in settlement of accounts payable  $72,069   $ 
Derivatives liability  $286,504   $ 

 

See accompanying notes to consolidated financial statements.

 F-5 

 

 

Freedom Leaf Inc.

and Subsidiaries

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.

 

 

 

 F-6 

 

 

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.

 

 

 F-7 
 

 

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.

 

 

 

 F-8 
 

 

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.

 

 

 

 F-9 
 

 

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.

  

 

 

 F-10 
 

 

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.

 

 

 F-11 

 

 

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.

  

 

 

 F-12 

 

 

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).

 

 

 

 F-13 

 

 

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).

 

 

 

 F-14 

 

 

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.

 

 

 

 F-15 

 

 

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).

 

 

 

 F-16 

 

 

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.

 

 

 

 F-17 

 

 

 

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.

 

 

 

 F-18 

 

 

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.

 

 

 

 F-19 

 

 

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.

 

 

 

 F-20 

 

 

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.

 

 

 

 F-21 

 

 

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.

 

 

 

 F-22 

 

 

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.

 

 

 

 F-23 
 

 

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  

 

 

 

 

 

 

 F-24 
 

 

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%.

 

 

 

 F-25 
 

 

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.

 

 

 

 F-26 

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

  

Item 9A. Controls and Procedures.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of the CEO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Internal controls over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records which in reasonable detail accurately and fairly reflect the transactions and disposition of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made in accordance with authorizations of management and directors of the issuer; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

 

In evaluating the effectiveness of the Company’s internal control over financial reporting as of June 30, 2017, management used the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the criteria established by COSO, management (with the participation of the CEO and CFO) identified the following material weaknesses in the Company’s internal control over financial reporting as of June 30, 2017, which arose from the limited number of number of staff at the Company and the inability to achieve proper segregation of duties:

 

The Company lacked effective controls for ensuring the accuracy of reporting over significant account balances, including the review, approval, and documentation of related transactions and account reconciliations and other complex accounting procedures.

 

The Company lacked effective controls because their directors are not independent.

 

As a result of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2017, based on the criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Security and Exchange Commission that permit us to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 21 

 

 

Limitations on the Effectiveness of Controls

 

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

Item 9B. Other Information.

 

None.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth information with respect to persons who are serving as directors and officers of the Company. Each director holds office until the next annual meeting of shareholders or until his successor has been elected and qualified.

 

Name  Age   Position
        
Clifford J. Perry   64   Chief Executive Officer, Chief Financial Officer, Treasurer, Director (1)
Richard C. Cowan   77   Director (2)
Raymond P. Medeiros   68   Director (3)

 

(1) Appointed as Director on November 6, 2014. Appointed as CEO and CFO on March 1, 2015.

(2) Appointed as CEO, CFO and Director on November 6, 2014. Resigned as CEO and CFO on February 28, 2015.  Resigned as Director on September 29, 2017.

(3) Appointed on January 22, 2015.

 

Biographies of Directors and Officers

 

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

 

Clifford J. Perry – Chief Executive Officer, Chief Financial Officer, Treasurer and Director

 

Mr. Perry, co-founder, chief executive officer, chief financial officer, and director, has an extensive entrepreneurial background owning a number of Master Franchise operations with major franchisors, such as The Crab House and Cinnabon. He also took a real estate seminar company from $0 in revenue to over $3 million in gross revenues within one year. In 2009, for that year only, he was Executive Vice President of Business Development for the first U.S. public company in the Marijuana Industry, Medical Marijuana, Inc. (MJNA). He created the first revenue source for Medical Marijuana, Inc., utilizing his expertise in educational training seminars, branding, licensing and event planning to develop and produce the “National Medical Marijuana Educational Expo.” Mr. Perry has been consulting to companies in this space since 2009.  Mr. Perry has, over his business career, been either a consultant or a principle, involved in Franchising, Licensing, Network Marketing, Trademark, Copyright & Patents, Print, Indoor/Outdoor/Digital Advertising, Telephony, Hotel, Resort, Restaurant, Hospitality, Nightclub, Event Production, Concert Promotion, Video & Film Production, Business Aviation, Luxury and High Performance Auto Restoration, Oil & Gas, Mining, Shipping, Counter Trade, Traditional, Alternative & Complimentary Healthcare, Non-Profit Fundraising.

 

 

 

 22 

 

 

Raymond P. Mederios - Director

 

Raymond P. Mederios, 66, director, is an experienced entrepreneur and marketing executive, has focused on successfully investing in the turnaround of financially troubled companies and has founded several start-up companies. Mr. Medeiros has managed many facets of operating a successful business including: operations, finance, human relations, sales and marketing in retail, import, manufacturing, hospitality, financial services and computer technology. Mr. Mederios was involved with Runco International (www.runco.com), a high technology consumer manufacturer, as a Senior Executive for nearly eight years. Mr. Medeiros reported to, and worked with, the CEO, to develop company strategy and manage IT. Additionally, he advised the Vice President of Marketing, and had oversight over the finance and legal operations. The company was sold to a public company, Planar Systems, Inc. In 1992, Medeiros founded NewGate Internet, a pioneer Internet company, which was one of the first companies to market on the Internet and effectively assisted companies, such as the Gap and LEGO, to use the Internet to brand themselves. NewGate was recognized as an industry leader in paid search for online retailers. In 2006, it was sold to iCrossing (www.icrossing.com), a Hearst Corporation. Over the past 40 years, Mr. Medeiros has worked with a number of non-profit organizations as a volunteer and/or board member. In 2012, he founded a new non-profit called Business Cares to match non-profits with businesses developing creative projects that benefit both organizations: raising funds for the non-profit and goodwill for the business. He holds a BS in Business Administration with an emphasis in Marketing from Kent State University.

 

There are no family relationships among any of our directors and executive officers.

 

Our directors are elected at the annual meeting of the shareholders, with vacancies filled by the Board of Directors, and serve until their successors are elected and qualified, or their earlier resignation or removal. Officers are appointed by the board of directors and serve at the discretion of the board of directors or until their earlier resignation or removal. Any action required can be taken at any annual or special meeting of stockholders of the corporation which may be taken without a meeting, without prior notice and without a vote, if consent of consents in writing setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principle place of business, or an officer or agent of the corporation having custody of the book in which the proceedings of meetings are recorded.

 

Indemnification of Directors and Officers

 

Nevada Corporation Law allows for the indemnification of officers, directors, and any corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities, including reimbursement for expenses, incurred arising under the 1933 Act. The Bylaws of the Company provide that the Company will indemnify its directors and officers to the fullest extent authorized or permitted by law and such right to indemnification will continue as to a person who has ceased to be a director or officer of the Company and will inure to the benefit of his or her heirs, executors and Consultants; provided, however, that, except for proceedings to enforce rights to indemnification, the Company will not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred will include the right to be paid by the Company the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition.

 

The Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Company similar to those conferred to directors and officers of the Company. The rights to indemnification and to the advancement of expenses are subject to the requirements of the 1940 Act to the extent applicable.

 

Furthermore, the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another company against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Nevada General Corporation Law.

 

Director Compensation

 

During the fiscal year ended June 30, 2017 and 2016, we did not have an independent director. Directors that were employees were not paid any fees for their role as director.

 

Involvement on Certain Material Legal Proceedings During the Last Five Years

 

No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.

 

 

 

 23 

 

 

No bankruptcy petitions have been filed by or against any business or property of any director, officer, significant employee or consultant of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers.

 

No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.

 

No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.

 

Directors’ and Officers’ Liability Insurance

 

Freedom Leaf does not have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.

 

Code of Ethics

 

We intend to adopt a code of ethics that applies to our officers, directors and employees, including our principal executive officer and principal accounting officer, but have not done so to date due to our relatively small size. We intend to adopt a written code of ethics in the near future.

  

Corporate Governance & Board Independence

 

Our Board of Directors consists of three directors and has not established a Nominating or Governance Committees as standing committees. The Board does not have an executive committee or any committees performing a similar function. We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the board of directors be independent.

 

Due to our lack of operations and size, and since we are not currently listed on a national securities exchange, we are not subject to any listing requirements mandating the establishment of any particular committees; all functions of a nominating/governance committee were performed by our whole board of directors. Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges as necessary. Our board of directors does not believe that it is necessary to have such committees at the early stage of the company’s development, and our board of directors believes that the functions of such committees can be adequately performed by the members of our board of directors.

 

We believe that members of our board of directors are capable of analyzing and evaluating our consolidated financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date.

 

Board Leadership Structure and the Board’s Role in Risk Oversight.

 

The Board of Directors is led by the Chairman who is also the Chief Executive Officer. Although our sole officer is also one of our directors, the Board believes that the most effective leadership structure at this time is not to separate the roles of Chairman and Chief Executive Officer. A combined structure provides the Company with a single leader who represents the company to our stockholders, regulators, business partners and other stakeholders, among other reasons set forth below.

 

  · This structure creates efficiency in the preparation of the meeting agendas and related Board materials as the Company’s Chief Executive Officer works directly with those individuals preparing the necessary Board materials and is more connected to the overall daily operations of the Company. Agendas are also prepared with the permitted input of the full Board of Directors allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company has benefited from this structure, and Mr. Perry's continuation in the combined role of the Chairman and Chief Executive Officer is in the best interest of the stockholders.

 

  · The Company believes that the combined structure is necessary and allows for efficient and effective oversight, given the Company’s relatively small size, its corporate strategy and focus.

 

The Board of Directors does not have a specific role in risk oversight of the Company. The Chairman, President and Chief Executive Officer and other executive officers and employees of the Company provide the Board of Directors with information regarding the Company’s risks.

 

 

 

 24 

 

 

Item 11. Executive Compensation.

 

The table below sets forth, for our last two fiscal years, the compensation earned by Clifford J. Perry, our director (from November 6, 2014 through June 30, 2017) and as our chief executive officer and chief financial officer (from March 1, 2015 through June 30, 2017), Richard C. Cowan, our director (from November 6, 2014 through June 30, 2017) and as our former chief executive officer and chief financial officer (from November 6, 2014 through February 28, 2015), and Raymond P. Medeiros, our director (from January 22, 2015 through June 30, 2017). The Company has not executed any employment agreements with any executive.

 

Name and         

Deferred

Compen-

       Stock   Option and Warrant  

All Other

Compen-

     
Principal Position  Year   Salary  

sation

   Bonus   Awards   Awards  

sation

   Total 
Richard C. Cowan (1)   2017   $   $   $   $   $   $   $ 
Chief Executive Officer, Chief Financial Officer and Director   2016   $   $   $   $   $   $   $ 
                                        
                                         
Clifford J. Perry (2)   2017   $   $90,000   $   $   $   $   $90,000 
Chief Executive Officer, Chief Financial Officer and Director   2016   $   $22,500   $   $   $   $   $22,500 
                                         
Raymond P. Medeiros (3)   2017   $   $42,000   $   $   $   $   $42,000 
Director   2016   $   $10,500   $   $   $   $   $10,500 

 

(1) Mr. Cowan was appointed as CEO, CFO and Director on November 6, 2014. On February 28, 2015, Mr. Cowan resigned as CEO and CFO.  On September 29, 2017, Mr. Cowan resigned as a Director.

(2) Mr. Perry was appointed as Director on November 6, 2014. On March 1, 2105, he was appointed as CEO and CFO.

(3) Mr. Medeiros was appointed as Director on January 22, 2015.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth information regarding the beneficial ownership of the Company’s common stock (and preferred stock) as of June 30, 2017, for (i) each person or entity who, to our knowledge, beneficially owns more than 5% of our common stock; (ii) each executive officer and named officer; (iii) each director; and (iv) all of our officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each of the stockholders named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is: c/o 3571 E. Sunset Road, Suite 420, Las Vegas, Nevada 89120.

 

      Amount &     
      Nature     
      of Beneficial   Percent of 
Title of Class  Name of Beneficial Owners  Ownership (1)   Class (2) 
            
Common stock, $0.001 par value  Richard C. Cowan (3)   31,259,971    28.1% 
Common stock, $0.001 par value  Clifford J. Perry (4)   5,784,061    5.2% 
Common stock, $0.001 par value  Raymond P. Medeiros (5)   5,000,000    4.5% 
Series A preferred stock, $0.001 par value  Richard C. Cowan (3)   264,010    27.8% 
Series A preferred stock, $0.001 par value  Clifford J. Perry (4)   684,012    72.2% 
              
Common stock, $0.001 par value  All officers and directors as a Group   42,044,032    37.8% 
Series A preferred stock, $0.001 par value  All officers and directors as a Group   948,022    100% 

 

(1) Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power to the shares of the Company's common stock. 
(2) As of June 30, 2016, a total of 111,101,795 shares of the Company's common stock are considered to be outstanding (includes issuable) pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner listed, any options exercisable within 60 days have been also included for purposes of calculating their percent of class. 
(3) Former director and officer.             
(4) Director and officer.             
(5) Director.             

 

 

 

 25 

 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Transactions with Related Persons

 

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.

 

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.

 

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.

 

A shareholder of the Company is owed $10,000 as of June 30, 2017.

 

On May 25, 2016, Perry converted 68,401,200 shares of common stock into 684,012 shares of Series A preferred stock.

 

On May 25, 2016, Cowan converted 26,401,000 shares of common stock into 264,010 shares of Series A preferred stock.

 

On June 30, 2017, Cowan converted $225,892 of payables and accruals into 2,509,914 shares of common stock. The conversion was at a 50% discount or $0.09 per share. As of June 30, 2017, these shares had not been issued and were recorded as issuable.

 

On July 31, 2017, the Company issued 5,784,061 shares of common stock to Cliff Perry for accrued compensation of $112,500.

 

On July 31, 2017, the Company issued 2,699,228 shares of common stock to Raymond Medeiros for accrued compensation of $52,500.

   

Director Independence

 

We currently do not have any independent directors, as the term “independent” is defined in Section 803A of the NYSE Amex LLC Company Guide. Since the Over the Counter Pink (“OTCPK”) does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the rules of the New York Stock Exchange (“NYSE”) and American Stock Exchange (“Amex”).

  

Item 14. Principal Accounting Fees and Services.

 

The following table sets forth the fees billed by our principal independent accountants, Green & Company CPA’s for 2015, for the categories of services indicated.

 

   Years Ended June 30, 
Category  2017   2016 
Audit Fees  $22,500   $18,500 
Audit Related Fees        
Tax Fees        
All Other Fees        
 Total  $22,500   $18,500 

 

 

 26 

 

 

On May 4, 2015, the Company engaged Green & Company, CPAs (“Green”) of Tampa, Florida, as its new registered independent public accountant. During the year ended June 30, 2015, and prior to May 4, 2015 (the date of the new engagement), we did not consult with Green regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit opinion that might be rendered on the Company’s financial statements by Green, in either case where  written or oral advice provided by Green would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).

 

Audit fees.  Consists of fees billed for the audit of our annual consolidated financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.

 

Audit-related fees.  Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.

 

Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.

 

Other fees.  Other services provided by our accountants.

 

 

 

 

 

 

 

 

 

 27 

 

 

PART IV

 

Item 15.   Exhibits, Financial Statement Schedules.

 

Exhibits

 

See the Exhibit Index following the signature page of this Registration Statement, which Exhibit Index is incorporated herein by reference.

 

Number   Description
     
3.1   Articles of Incorporation (incorporated by reference to our Registration Statement on Form S-1, filed on July 22, 2013)
3.2   Bylaws (incorporated by reference to our Registration Statement on Form S-1, filed on July 22, 2013)
3.3   Articles of Merger (incorporated by reference to our Current Report on Form 8-K, filed on February 25, 2015)
3.4   Certificate of Amendment (incorporated by reference to our Current Report on Form 8-K, filed on June 9, 2016)
10.1   Merger Agreement dated November 6, 2014 (incorporated by reference to our Form 10-Q/A for the period ended December 31, 2014, filed on September 11, 2015)
10.2   Audit for the Period Ended November 6, 2014 of Freedom Leaf Inc., the private company (incorporated by reference to our Form 10-Q/A for the period ended December 31, 2014, filed on September 11, 2015)
31.1 (1)   Certification of Principal Executive Officer of Freedom Leaf Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 (1)   Certification of Principal Accounting Officer of Freedom Leaf Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 (1)   Certification of Principal Executive Officer of Freedom Leaf Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 Of 18 U.S.C. 63
32.2 (1)   Certification of Principal Accounting Officer of Freedom Leaf Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 Of 18 U.S.C. 63
101.INS   XBRL Taxonomy Extension Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

__________

(1) Filed herewith

 
Financial Statement Schedules

 

None.

 

 

 

 

 28 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

/s/ Clifford J. Perry   October 19, 2017
Clifford J. Perry, Principal Executive Officer and Principal Accounting Officer   Date

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

/s/ Clifford J. Perry   October 19, 2017
Clifford J. Perry, Director   Date
     

 

/s/ Raymond P. Medeiros   October 19, 2017
Raymond P. Medeiros, Director   Date

 

 

 

 

 

 

 

 

 

 

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