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

Freedom Leaf Inc. (the "Company") is a hemp consumer packaged goods company engaged in the development and commercialization of a portfolio of brands that market and sell responsibly produced cannabinoid-rich products for health and well-being. The Company competes in the growth segments of the hemp industry as a one-stop shop supplier for major retailers and distributors. From traditional retail to e-commerce, from direct-to-consumer to medical, the Company has commercialized hemp CBD across multiple channels. The Company's portfolio of products is robust, with competitive offerings in the tincture, softgel, gummy, sparkling water, vapeable, and topical segments. Products are marketed through direct-to-store sales and direct-to-consumer models and are supported by distribution partnerships at the regional, national, and international levels.

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.









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COMPARISON OF THE YEAR ENDED JUNE 30, 2019 TO THE YEAR ENDED JUNE 30, 2018





Results of Operations

Revenue. For the year ended June 30, 2019, our revenue was $2,318,749, compared to $411,272 for the same period in 2018. This increase in revenue was attributable to increases in product sales from the Irie brands, as well as the newly-acquired Tierra Sciences Global and AccuVape entities. Leafceuticals contributed $1,494,332, Green Lotus contributed $204,021, Tierra Science Global contributed $130,347 and Accuvape contributed $72,080 to this increase in product sales. These increases were offset by a decrease in license revenue. The Company shifted its focus in 2018 from licensing to the sale of products through its acquisitions.





Operating Expenses:

Direct costs of Revenue. For the year ended June 30, 2019, direct costs of revenue were $2.3 million compared to $0.3 million for the same period in 2018. As a percent of revenue, direct costs of revenue were 99% and 76%, respectively, for 2019 and 2018. This increase in direct costs of revenue was attributable to recently acquired entities. The margin is not indicative of the future.

General and Administrative Expenses. For the year ended June 30, 2019, general and administrative expenses were $8,901,380 compared to $2,237,301 for the same period in 2018. The increase was due to the expanded operations, primarily through the acquisitions. Management projects that these expenses, excluding bad debt expense, to be consistent with its operations based on the current operations.

Other Income (Expense). For the year ended June 30, 2019, other income (expense) was a net expense of $1,474,419 compared to a net expense of $1,507,458 for the same period in 2018. The difference was primarily due to the increase of loss on settlement of debt ($1,063,610 for 2018 compared to $100,000 for 2019), loss on conversion of debt into common stock ($263,132 for 2018 compared to $0 for 2019), loss on disposal of assets ($0 for 2018 and $580,458 for 2019), and loss on impairment of assets of ($0 for 2018 compared to $780,884 for 2019) offset by licensing income - related party ($240,000 for 2018 compared to $0 for 2019).

Net Loss Attributable to Common Stockholders. We generated net losses of $12,730,872 for the year ended June 30, 2019, compared to $4,628,763 for the same period in 2018.

Liquidity and Capital Resources

General. At June 30, 2019, we had cash and cash equivalents of $335,835. 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 expanding the business as well as 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 $3,442,723 for the year ended June 30, 2019, and we used cash in operations of $1,100,802 during the same period in 2018. The principal elements of cash flow from operations for the year ended June 30, 2018, included a net loss before non-controlling interest of $12,730,872.

Cash used in investing activities during the year ended June 30, 2019, was $108,289 compared to $384,436 provided by investing activities during the same period in 2018. The increase was primarily due to the acquisitions and subsequent dispositions of Tierra and AccuVape, as well as the sale of the Cicero Transact and Platform entities.

Cash generated in our financing activities was $3,649,417 for the year ended June 30, 2019, compared to cash generated of $1,405,635 during the comparable period in 2018. The increase was primarily due to the sale of common stock and warrants for 2019 of $3,253,500 and net proceeds from notes payable of $395,917.













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As of June 30, 2019, current liabilities exceeded current assets by $6,981,408. Current assets increased from $1,025,514 at June 30, 2018 to $2,327,177 at June 30, 2019, whereas current liabilities increased from $939,230 at June 30, 2018, to $9,248,584 at June 30, 2019.





                                          For the years ended June 30,
                                             2019                2018

Cash used in operating activities $ (3,442,723 ) $ (1,100,802 ) Cash used in investing activities

              (108,289 )        (384,436 )

Cash provided by financing activities 3,649,417 1,405,635 Effects of exchange rates on cash

               183,050           131,485

Net changes to cash                     $       281,455      $     51,882




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 revenue of $2,318,749 and net losses attributable to common stockholders of $12,730,872 for the year ended June 30, 2019, compared to revenue of $411,272 and net losses attributable to common stockholders of $4,628,673 for the year ended June 30, 2018. The Company had a working capital deficit, stockholders' equity, and accumulated deficit of $6,921,408, $8,890,990 and $22,323,223, respectively, at June 30, 2019. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. 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.





Revenue Recognition

On January 1, 2018, the Company adopted Topic 606. The Company elected to use the modified retrospective approach for contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting method under Topic 605. As a result of applying the new standard, there were no changes to any financial statement line items.

Performance Obligations. Our performance obligations include providing product and servicing our product. The Company recognize product revenue performance obligations in most cases when the product is delivered to the customer. Occasionally, the Company ships product on a customer's account. On these occasions, revenue is recognized when the product has been shipped. At that point in time, the control of the product is transferred to the customer. The Company does not engage in transactions for services or in transactions acting as an agent. The Company typically satisfies its performance obligations within a few months of entering into the contract. Depending on the size of the project, the performance obligations could be satisfied sooner or later.











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The Company provides a 30-day warranty on product sales. The amount accrued for expected returns and warranty claims was immaterial as of June 30, 2019.

Significant Judgements. For most revenue contracts, the Company invoices the customer when the performance obligation is satisfied, and payment is due 30 days later. Occasionally, other terms such as progress billings or longer terms are agreed to on a case-by-case basis. The Company does not have significant financing components, non-cash consideration, or variable consideration. The Company estimates the transaction price between performance obligations based on stand-alone product prices. The Company elected the practical expedient by which disclosures are not required regarding the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

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:

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.

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:











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Adjusted Net Loss (Unaudited)                                For the Years Ended
                                                                  June 30,
                                                           2019              2018
Net loss attributable to common stockholders           $ (12,730,872 )   $  (4,628,673 )
Gain (loss) on settlement of debt                           (100,000 )       1,063,610
Loss on conversion of debt into common stock                       -           263,132
Licensing income - related party                                   -          (240,000 )
Loss on investment                                           125,000            12,141
Loss on disposal of assets                                   607,523           295,400
Change in fair value of embedded conversion features               -            59,127
Beneficial conversion feature expense                              -            45,416
Loss on impairment of assets                                (785,288 )               -
Adjusted net loss                                      $ (11,313,061 )   $  (3,129,847 )
Weighted average shares outstanding
- basic and diluted                                      297,077,801       149,199,226

Adjusted basic and diluted net loss per share $ (0.03 ) $ (0.02 )






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:











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Adjusted EBITDA (Unaudited)                                      For the Years Ended
                                                                      June 30,
                                                               2019              2018
Net loss attributable to common stockholders               $ (12,730,872 )   $  (4,628,673 )
Interest expense                                                  88,347            29,105
Interest income                                                     (270 )         (10,345 )
Depreciation and amortization                                  1,357,446           170,916
Stock-based compensation                                         380,367         1,316,873
Bad debt expense                                                 211,769           754,717
Gain/loss on settlement of debt                                 (100,000 )       1,063,610
Loss on settlement of accounts payable                                 -           263,132
Licensing income - related party                                       -          (240,000 )
Loss on investment                                               125,000            12,141
Loss on disposal of assets                                       580,458           295,400
Loss on impairment of assets                                     780,884
Change in fair value of embedded conversion features                   -            59,127
Beneficial conversion feature expense                                  -            45,416

Adjusted EBITDA                                            $  (9,275,382 )   $    (868,581 )

Weighted average shares outstanding
- basic and diluted                                          297,077,801       149,199,226

Adjusted basic and diluted net loss per share              $       (0.03 )   $       (0.01 )

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