Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549










FORM 10-K










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

For the fiscal
year ended June 30, 2019



OR



☐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.)
|                                                               |  |                                  
|3939 Beltline Road, Suite 350, Addison, Texas                  |  | 75001                            
|(Address of principal executive offices)                       |  | (Zip
Code)                       



Registrant’s telephone number, including
area code: (888) 811-4367








Securities
registered pursuant to Section 12(b) of the Act:



|Title of each class | Trading Symbol(s) | Name of each exchange on which registered
|------------------- | ----------------- | -----------------------------------------
|Not applicable.     | Note applicable.  | Not applicable.                          



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



Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒Yes ☐
No



Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ | Accelerated filer ☐        
|------------------------- | ---------------------------
|Non-accelerated filer ☒   | Smaller reporting company ☒
|                          | Emerging growth company ☐  



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. ☐



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



On December 31, 2018, the
last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant was approximately $42,611,581, based upon the closing price on that date
of the common stock of the registrant on the OTC Link alternative quotation system of $0.2189. 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
to be affiliates of the registrant.



As of November 14, 2019, the
registrant had 310,600,203 shares of its common stock, $0.001 par value, outstanding.

















TABLE OF CONTENTS



|          |                                                                                                              | Page
|--------- | ------------------------------------------------------------------------------------------------------------ | ----
|PART I.   |                                                                                                              |     
|Item 1.   | Business                                                                                                     | 1   
|Item 1A.  | Risk Factors                                                                                                 | 9   
|Item 1B.  | Unresolved Staff Comments                                                                                    | 13  
|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 | 14  
|Item 6.   | Selected Financial Data                                                                                      | 15  
|Item 7.   | Management’s Discussion and Analysis of Financial Condition and Results of Operation                         | 15  
|Item 7A.  | Quantitative and Qualitative Disclosures About Market Risk                                                   | 20  
|Item 8.   | Consolidated Financial Statements and Supplementary Data                                                     | 21  
|Item 9.   | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         | 24  
|Item 9A.  | Controls and Procedures                                                                                      | 24  
|Item 9B.  | Other Information                                                                                            | 25  
|          |                                                                                                              |     
|PART III. |                                                                                                              |     
|Item 10.  | Directors, Executive Officers and Corporate Governance                                                       | 26  
|Item 11.  | Executive Compensation                                                                                       | 29  
|Item 12.  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 32  
|Item 13.  | Certain Relationships and Related Transactions, and Director Independence                                    | 32  
|Item 14.  | Principal Accounting Fees and Services                                                                       | 33  
|          |                                                                                                              |     
|PART IV.  |                                                                                                              |     
|Item 15.  | Exhibits, Financial Statement Schedules                                                                      | 35  
|          |                                                                                                              |     
|          | Signatures                                                                                                   | 36  
|          |                                                                                                              |     
|          | Exhibits                                                                                                     |     









i






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.



































ii






PART I



Item
1. Business



Business Overview



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
Company’s products are differentiated from our competitors by: (a) rigorous testing and quality control; (b) premium branding
and packaging; (c) white-glove treatment for consumers and businesses; and (d) informative, educational web content. The Company’s
target market is health-conscious consumers who are becoming more interested in and better educated on plant-based wellness alternatives.
This growing segment of the population is driven to pursue a healthier lifestyle, and the Company believes that a worldwide acceleration
of consumer awareness with respect to hemp and CBD products uniquely positions Freedom Leaf to capitalize on this change in consumer
sentiment. The Company’s goal is to become the world’s leading hemp consumer packaged goods company. Over the past
several years, the Company has built the foundation for growth, and is poised to take full advantage of the hemp CBD market opportunity.



Corporate History



The Company was incorporated in the state
of Nevada on February 21, 2013, under the name of Arkadia International. On November 6, 2014, the Company merged with Freedom Leaf
Inc., a private Nevada corporation, and the Company changed its name to Freedom Leaf Inc.



On May 31, 2019, the Company closed the
acquisition of Dallas, Texas-based ECS Labs LLC (the “Acquisition”), including its two-wholly owned operating subsidiaries,
B&B Labs, LLC, and Texas Wellness Center, LLC, which constitute the “Green Lotus” premium hemp CBD products brand
(collectively “Green Lotus”). As part of the transaction, the Company’s Board of Directors (the “Board”)
named Carlos Frias, the founder and CEO of Green Lotus, as the Chief Executive Officer of the Company.



The new senior management team and all
corporate functions, including accounting and finance, sales and marketing are now domiciled at Green Lotus’ headquarters
in Dallas, Texas. Upon the closing of the Acquisition and in conjunction with announcement that the finance team would be relocated
from Las Vegas to Green Lotus’ Dallas, Texas headquarters, Larry Ruhe, the Company’s former CFO, resigned. Mr. Ruhe’s
duties were assumed on an interim basis by Mr. John Kalkanian, who began serving as the Company’s CFO at closing. An extensive
search for a new Dallas, Texas-based CFO was conducted, and in September of 2019, the Company hired Brian Moon, who has over 30
years of accounting and CFO experience, as its CFO.



Mr. Daniel Nguyen, former partner in acquired
Green Lotus, serves as Chief Science Officer of the Company and oversee R&D and production.



The Company is an audited and reporting
publicly traded company under the symbol (OTCQB:FRLF) with corporate headquarters located at 3939 Beltline Rd., Suite 350, Addison,
Texas.



The Company’s Mission



The Company’s mission is to improve
the wellbeing of individuals and communities by providing access to natural, organic hemp oil products, and to drive awareness
of the benefits of hemp oil by crafting informative and educational content for consumers.



The Company’s Market Opportunity



The Company’s long-term objective
is to become the leading global hemp consumer packaged goods company. The Company believes that all the necessary components and
capabilities are in place to accomplish this objective. The Company intends to achieve this goal by driving organic growth supported
by a diverse product portfolio of healthy and functional lifestyle products in leading product categories across all distribution
channels through an aligned network of retailers and distribution partners.











1






We believe that the hemp CBD industry has
the potential to disrupt the pharmaceutical, alcohol, tobacco, textile, and food and beverages sectors. Traditional consumer packaged
companies recognize the rapid adoption of cannabis products and have responded by forming partnerships and or have made investments
in some of the leading cannabis players in North America. We are already witnessing this phenomenon in the beer industry. It is
no coincidence that the first non-cannabis consumer packaged goods companies to make major investments in the sector were beer
manufacturers, with Constellation Brands leading the way with its $4.0 billion investment in Canadian-based Canopy Growth Corp.
in 2018. This was followed by AB InBev’s investment in a joint venture with Tilray to research cannabis-infused drinks for
the Canadian market, and Molson Coors Canada’s joint venture agreement with Hydropothecary Corp. to develop non-alcoholic,
cannabis-infused beverages. Big tobacco has joined with Altria Group, Inc.’s $1.8 billion investment in Canadian-based Cronos
Group, Inc.



Food and beverages that contain vitamins
and other additives and ingredients to enhance health and well-being will see increased competition from products containing cannabinoids
including CBD. For example, we believe that many consumers will replace traditional sports or energy drinks with cannabinoid-enhanced
beverages. As an example of our ability to meet the anticipated demand for the aforementioned beverages, Green Lotus released a
suite of hemp CBD carbonated beverages in Q1 of fiscal 2020.



The Company’s Growth Strategies



| | o | Rebranding and creating a leading consumer packaged goods company
| | - | -----------------------------------------------------------------

| | o | Partnering with established distributors and retailers
| | - | ------------------------------------------------------

| | o | Focus on operational excellence and product quality
| | - | ---------------------------------------------------

| | o | Establish greater transparency and higher level of communication with the capital markets
| | - | -----------------------------------------------------------------------------------------

| | o | New strategic plan and corporate restructuring
| | - | ----------------------------------------------



Rebranding and Creating a Leading Consumer
Packaged Goods Company.The Company is building a robust hemp CBD consumer packaged goods platform with industry-leading brands
in the U.S. and Mexico. These are early days in the development of the hemp CBD sector, and the Company believes that firms that
can scale, develop strong distribution networks, and offer high-quality brands will emerge as the industry leaders. The Company
is in the final stages of a planned rebranding, which will include a new holding company name, stock symbol, and a marketing and
e-commerce plan that will reflect a “house of brands” strategy, providing the Company with a more effective platform
to organically develop or acquire additional brands to further our growth. The Company will also leverage first-mover advantage
to fully penetrate the Mexican market.



Partnering with established distributors
and retailers. As the industry evolves, the distribution of hemp products has increasingly mirrored the distribution of wellness
and other consumer packaged goods. To efficiently and rapidly increase our scale, the Company
has formed partnerships with established distributors and leading regional and national retailers to expand our domestic footprint.
Through these partnerships and an aggressive marketing outreach, the Company has gained traction with some of the largest distributors
in the United States and is in advanced talks to partner with leading traditional retailers and state-licensed cannabis players.
In addition, as an example, the Company is supporting its omnichannel selling approach throughout North America in the following
ways:



| | o | Retail – scale internal sales force while securing deals with established distributors to
reach growth segments.
| | - | ----------------------------------------------------------------------------------------------------------------

| | o | E-Commerce – the Company is augmenting its internal team and working with media, analytics,
and public relations firms who specialize in cannabis to enhance our brand awareness and drive online sales.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Medical – establish brand credibility through partnerships with companies collecting patient
data and medical practitioners, including participation in prospective clinical trials.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Focus on operational excellence and
product quality. To support the Company’s robust sales pipeline in the United States and Mexico, the Company has made
strategic investments in operations, including supply chain, manufacturing capabilities, product development, research and development,
and multi-channel distribution. In doing so, the Company has developed a quality management
system that enables it to meet the requirements of the regulatory agencies in the markets where the
Company exports products, while consistently delivering high-quality and compliant products in all jurisdictions in which
we operate.



Establish greater transparency and higher
level of communication with the capital markets. In Q3 of fiscal 2019, the Company hired KCSA, a leading investor relations
and public relations firm in the cannabis space, to assist in communications and to support the underserved and much needed investor
relations functions at the Company. The Company intends to aggressively market its story to both investors and retail consumers.



Strategic Plan & Corporate Restructuring.Following the Acquisition of Green Lotus, the Board of Directors of the Company (the “Board”) approved a strategic
plan with the following objectives: (a) to transform the Company into a leading consumer packaged goods hemp CBD company with a
concentration on the Green Lotus and IrieCBD brands in the United States and Mexico, rather than building a vertically-integrated
hemp company in the U.S. and Europe; (b) sell or shut down non-core and non-accretive business segments; (c) consolidate the Company’s
manufacturing, sales, distribution and corporate functions into the newly acquired Green Lotus infrastructure, resulting in operational
synergies and cost savings; and (d) formulate a comprehensive corporate rebranding plan for the Company.











2






The following actions have been executed
or are underway as part of the Company’s Board-approved strategic review and restructuring plan:



| | o | IrieCBD Operations:Immediately following the Acquisition, all IrieCBD manufacturing and
distribution operations in Oakland, California, were transitioned to Green Lotus’ facilities in Dallas, Texas. IrieCBD has
already begun realizing the benefit of Green Lotus’ experienced internal sales team, gaining access to multiple medium-to-large
accounts throughout the U.S. Staff redundancies have been addressed, and full staff integration was completed in Q4 of fiscal 2019.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Leafceuticals Europe:The Company exercised its option to terminate its Spanish greenhouse
lease in May 2019, eliminating its remaining $4.3 million of payment obligations. In 2018, Leafceuticals Europe S.L.U. (“Europe”),
a subsidiary of the Company, purchased a 430,000 sq. ft. indoor grow facility located in Valencia, Spain. Consistent with the Company’s
plan to more efficiently leverage resources and focus capital on building its family of brands in North America, as of June 2019,
all operations of Leafceuticals Europe ceased.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Tierra Science Global:Tierra Science Global, LLC (“Tierra”) was acquired in
2018 and became a wholly owned subsidiary of the Company. Tierra offers health care supplements and wellness products through direct
sales teams in Asia, Europe, and North America. Tierra was sold back to its original owners in July 2019.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Hempology: To focus on the Company’s core brands, the Company sold Hempology to San
Francisco Distribution Company. The Hempology brand was developed internally. Its portfolio included organic herbal vapeables,
tinctures, topicals, and edibles, with a focus on all-natural and locally sourced ingredients. The Board determined that further
investment in Hempology was unnecessary given the line of organic products offered by Green Lotus.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Leafceuticals Inc. (US): Because the Company is not pursuing a strategy of developing a
fully integrated processing and extraction capability, the Board determined that Leaufceuticals is a non-core asset. Accordingly,
the Company has sold all extraction equipment domiciled in its Las Vegas facility and will be out of the space by the end of calendar
2019. Leafceuticals is the Company’s wholly owned extraction and processing division, with a manufacturing facility located
in Las Vegas, Nevada. Leafceuticals Inc. is the holder of a Nevada Department of Agriculture Hemp Handler’s License, allowing
for the legal extraction and processing of industrial hemp cannabinoids.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Cicero Transact Group, LLC and Cicero Platform, LLC: The Company’s stake in Cicero
was sold to Sinclair Inc. effective June 27, 2019. In 2018, the Company purchased a minority stake in: (1) Cicero
Transact Group, LLC, an online business-to-business deal platform, and (2) Cicero Platform Group LLC, a crypto-focused
company. The Board determined this was a non-core asset. The Company’s stake in both Cicero entities was sold for $145,000
in July of 2019.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Accuvape: Acquired by the Company
in November 2018 as part of its vertical integration initiative, Accuvape, Inc. served as a consumer hardware company compatible
with the Company’s Hempology vape cartridges. Accuvape is a non-core asset. On October 10, 2019, the Company and the former
owner entered into a settlement agreement regarding the disposition of Accuvape. The agreement requires the Company to deposit
up to $10,000 into the account of Accuvape for payment of business expenses, pay the net sums of $8,000 to the former owner and
$4,000 to another Accuvape employee as severance of their employment with the Company, and issue a note payable of $42,000 to the
former owner bearing interest at 12% per annum if not paid in full by November 15, 2019. The Company additionally assumed vendor
obligations totaling a minimum of $35,830. Additional obligations relating to a lease termination are required to be paid by the
Company; the cost of these obligations is not expected to be material.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Plants to Paper LLC: The Board determined that Plants to Paper is a non-core asset, and
the Company is engaged in discussions with the owners to sell back its minority stake. The Company owns 25% of Plants to Paper
LLC. Plants to Paper LLC holds a provisional patent for the first organic, toxin-free hemp “wraps” to replace chemically
treated paper for smoking.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Media Properties: FreedomLeaf.com is the online website for the Company’s print publication,
“Freedom Leaf Magazine.” The Board has determined that this publication is inconsistent with the Company’s strategy
of developing leading consumer product brands and is a non-core asset. The Company is engaged in discussions with several interested
parties, and the Company expects a sale of these properties by the end of Q4 of fiscal
2020.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s Consumer Product
Brands



Green LotusTM Hemp (“Green
LotusTM”) is a rapidly growing premium hemp oil products brand that manufactures and distributes premium cannabinoid products
including tinctures, gel caps, edibles, topicals, vape cartridges, and beverages made from organic industrial hemp. Green LotusTM has
grown rapidly since its inception in 2016 and now has a national presence in over 1,200 locations in the U.S. and is a first mover
in the Mexican CBD market, with 4,000 points of initial distribution.











3






IrieCBD (“Irie”) –Founded in 2014, Irie’s mission is to provide full-spectrum, natural solutions for health and wellness. Irie is a premium-priced
hemp brand, distributing full-spectrum hemp CBD tinctures, edibles, topicals and capsules to over 300 high-end retailers and health
and wellness chains in the United States and abroad.



The Company’s Capabilities



Supply Chain:Over the past several
years, the Company has been developing and solidifying its national supply chain relationships in recognition that the industry
would become more competitive and increasingly consolidated. The Company has structured mutually beneficial relationships with
its dry goods and packaging suppliers, developed a pipeline of premium hemp biomass with cultivators in Colorado and Oregon, and
invested in its internal production and manufacturing teams, as well as its
strategic contract manufacturing partners.



Processing and Extraction:The Company
purchases biomass directly from cultivators on the spot market and through futures contracts. The Company does not own land or
grow its own hemp. With the passage of the 2018 Farm Bill, the Company believes that the number of acres dedicated to hemp cultivation
will increase dramatically, leading to more supply and lower prices for isolates and extract, which is currently the case. The
Company maintains a tolling arrangement with Mile High Labs in Colorado, who produces the Company’s raw extract, which the
Company then further refines and processes in its facilities.



Lab Capabilities:The Company’s
Dallas, Texas lab is managed by Chief Science Officer Daniel Nguyen, who has 19 years of experience in pharmaceuticals, nutraceuticals,
cosmetics, compounding and manufacturing. Mr. Nguyen manages an experienced team of R&D and product development specialists
who have extensive experience in product creation and nutraceutical manufacturing.



Manufacturing:In addition to the
Company’s 10,000 sq. ft. manufacturing facility in Dallas, Texas, which is utilized primarily to produce tinctures for the
Green Lotus and IrieCBD brands, the Company works with an additional eight contract manufacturers across the United States. These
additional manufacturers have expertise in specific product lines, allowing for product specialization and reducing the need for
the Company to invest in costly production and manufacturing facilities.



Sales & Marketing:As a
result of the Green Lotus acquisition, the Company has acquired a highly skilled and experienced internal sales, account
management, and merchandising team numbering 16 professionals. This team focuses on new account sales, account retention,
education, and customer service. Each team member touches an average of approximately 100 accounts per day. Now, with a
broader product line, the Company’s sales team can expand its reach. Senior members of the revenue team focus on large
accounts and face-to-face account management, as well as acting as brand ambassadors at leading industry trade shows to
generate sales leads. Each sales team member has individual targets for increasing “base” volume
through distribution expansion and “incremental” volume through promotions and other in-store merchandising
and display activity. Compensation is variable and performance based.



The Company markets its hemp products using
a content strategy focused on high-value education distributed through a range of marketing mediums, including in-store merchandising
and promotions, experiential marketing, events, and sponsorships, digital marketing and social media, direct marketing, and traditional
media including print, radio, outdoor, and TV.



Distribution:The Company wholesales
its brands through a network of approximately 10 distributors nationwide. In fiscal Q3 2019, the Company finalized a one-year distribution
agreement with Greenlane Holdings (ticker GNLN), the leading wholesaler for premium cannabis and CBD products, serving approximately
11,000 vape and head shops nationwide. Green Lotus currently distributes its products to approximately 1,000 vape and head shops,
and this new partnership will significantly expand the Company’s nationwide reach and sales potential.



The Company is in advanced discussions
with several leading grocery, convenience and specialty food store distributors in the U.S., as well as several large national
and regional grocery and specialty food operators, and non-grocery retail operators. The Company is confident that it will close
one or more of these potential distribution contracts over the next twelve months.



E-Commerce Platform:The Company
has historically targeted the B2B market, and the Company believes there is significant untapped potential in fully developing
its e-commerce capabilities, which is a top priority. Direct-to-consumer e-commerce revenue represents approximately 10% of consolidated
revenue, with 75% of total e-commerce revenue generated by the IrieCBD brand. Currently, Green Lotus generates a de minimis amount
of revenue through its e-commerce channel.



By fiscal year-end 2020, the Company expects
to more than double its e-commerce revenue on a monthly basis. This untapped potential represents a significant opportunity and
major area of focus for the Company, as direct-to-consumer sales generate much higher margins than are available through wholesale
channels.











4






Websites/Media: The Company’s
customer-facing websites include GreenLotusHemp.com, FreedomLeaf.com, IrieCBD.com, and LaMarihuana.com. These websites offer brand-specific
products directly to consumers and provide product and cannabinoid education, which is an important element of the Company’s
marketing strategy.



LaMarihuana.com, the largest Spanish language
cannabis website in the world, is currently underutilized from an advertising revenue standpoint. The Company sees significant
opportunities to drive consumers to the Green Lotus and IrieCBD e-commerce platforms through links and banner ads, as well as to
display promotions for the Company’s full line of CBD products. The Company is in the process of finalizing a strategy to
fully monetize this asset in partnership with CBD Life SA. The Company expects to implement its new strategy beginning in Q2 of
fiscal 2020.



Key Strategic Partner – CBD Life SA



The Company completed its inaugural shipment
of $600,000 of topical hemp CBD products to Mexico on July 31, 2019, with an additional $1.2 million in topical products shipped
in fiscal Q3 2019. These products will be distributed by Green Lotus' partner in Mexico, CBD Life SA, in up to 4,000 locations
initially and expanding to upwards of 40,000 locations by the end of 2020.



This shipment represents the first-ever
commercial order of hemp CBD retail products in Mexico through regular distribution channels. The initial shipment included three
topical SKUs labeled as “Heat,” “Freeze,” and “Salve.” Product labels read, "Manufactured
by Green Lotus." The Company has an exclusive contractual relationship with CBD Life SA that extends through March 2021, and
the Company is engaged in discussions to extend the contractual relationship well beyond 2021. All Mexican import licenses are
registered in the name of Green Lotus and CBD Life SA.



The Company is a first mover in the Mexican
market, and Green Lotus is set to expand its catalog of products, with $26 million in purchase orders from CBD Life SA for tinctures,
gel caps, edibles, and beverages, which the Company began shipping on July 31, 2019.



Over the past three years, Green Lotus
has worked closely with CBD Life SA and the Mexican government to obtain the necessary permits and meet the appropriate regulatory
requirements to reach this milestone. Obtaining these permits was a difficult, time-consuming process. The Company believes that
the challenges inherent in meeting regulatory requirements represent a significant barrier to entry for its competitors, translating
to a strategic advantage for the Company.



The Endocannabinoid System and Benefits of CBD



Discovered in the early 1990s, the endocannabinoid
system (“ECS”) is an internal regulatory system that maintains homeostasis in human and animal physiology. The endocannabinoid
system consists of molecules produced by the human body and are found at almost every pain pathway from nerves and immune cells
to the spinal cord and brain. Endocannabinoid receptors allow endocannabinoids – like CBD – to bind and signal to the
body’s ECS to address any bodily functions that are out of balance. The ECS helps regulate a variety of functions in the
body, both physiological and cognitive, including appetite, mood, inflammatory responses, stress response, memory, and pain.



The plant Cannabis sativa L. contains over
113 phytocannabinoids, with two most prevalent being THC (tetrahydrocannabinol) and CBD (cannabidiol). Unlike THC, CBD is non-intoxicating.
CBD isolate contains no THC, while full-spectrum hemp oil, a whole-plant extract, has trace amounts of THC (less than 0.3%).



Given the current legal status of cannabis
and the recent legalization of hemp, there have been limited studies and clinical trials that measure the benefits and risks associated
with the use of CBD. To date, the FDA has approved one drug, Epidiolex, of which CBD is a primary constituent. Manufactured by
GW Pharmaceuticals, Epidiolex is effective in treating rare forms of epilepsy. There is a tremendous amount of anecdotal evidence
on the positive benefits of CBD, which the Company believes is used by consumers to address a range of health and wellness issues,
including chronic pain, inflammation, arthritis, sleep disorders, anxiety, depression, and acne, to name a few.



The Hemp CBD Market Opportunity



In the wake of the passage of the 2018
Farm Bill, the interest in and demand for hemp-derived CBD consumer products has exploded. In 2018, the CBD market in the U.S.
is estimated to have generated revenue of approximately $600 million to $2.0 billion. Today, hemp products are sold in the U.S.
through multiple distribution channels, including online at Amazon and direct from manufacturers, leading national and regional
drug chains (including CVS), grocery stores, natural and health stores, smoke and head shops, department stores and malls. In a
proprietary consumer survey, Cowen & Co. found that in January 2019 close to 7% of respondents indicated that they used CBD
as a supplement, indicating significant upside potential as consumer awareness increases.











5






A Gallup poll released in June 2019 indicated
that nearly two in three Americans have some familiarity with CBD oils, and that includes 14% who say they are very familiar, 33%
somewhat familiar and 17% not too familiar. And 4 in 10 Americans think CBD oils should be legally available for adults as an over-the-counter
purchase, while another 21% think people should be able to buy them with a doctor’s prescription. Confidence in CBD is also
much greater the more people know about it – 64% of those who say they are very familiar with CBD believe it has significant
health benefits.



According to the Brightfield Group, approximately
80% of CBD consumers use the products at least once a week and more than one third of users do so daily. A recent study published
by the U.S. National Library of Medicine found that 62% of CBD users were attempting to treat an existing medical condition. And
a study performed by Brightfield Group and HelloMD found that 50%+ of respondents indicated that hemp CBD relieved their medical
conditions “more effectively or much more effectively” than over-the-counter products. What this data indicates is
that a large number of CBD consumers use the product frequently, find that hemp CBD ameliorates a variety of medical conditions,
and are replacing over-the-counter pain medications with hemp CBD products. All of these trends bode well for the continued strong
growth in the market.



By 2025, Cowen & Co. estimates that
CBD offerings in all categories could conservatively generate $16 billion in retail sales. Canaccord Genuity, in a report released
in September 2019, estimated U.S. retail sales of $18.4 billion by 2024, a 45% CAGR. To put this in perspective, spending on over-the-counter
pain medications in the U.S., including Tylenol and Advil, was $18 billion in 2018 and estimated to grow to $19 billion in 2019.



Based on Cowen’s consumer survey,
the top four retail product categories are tinctures (44%), topicals (26%), capsules, (22%), and beverages, (19%). The largest
category is nutraceuticals, which includes tinctures, capsules, and gummies, followed by topicals, beverages, skin care/beauty,
food, and vape products.



|Cowen CBD Market Estimates *                       |  |        |  |           |  |          
|-------------------------------------------------- |  | ------ |  | --------- |  | ---------
|                                                   |  |        |  |           |  |          
|$ in Millions                                      |  | 2018   |  | 2019 Est. |  | 2020 Est.
|Nutraceuticals                                     |  | $1,100 |  | $1,800    |  | $2,400   
|Topicals                                           |  | $500   |  | $1,000    |  | $1,500   
|Beverages                                          |  | $240   |  | $600      |  | $900     
|Skin Care                                          |  | $60    |  | $240      |  | $420     
|Food                                               |  | $60    |  | $200      |  | $420     
|Vapor                                              |  | $40    |  | $160      |  | $360     
|_____                                              |  |        |  |           |  |          
|*Cowen’s Collective
View of CBD, February 25, 2019 |  |        |  |           |  |          



We believe that the more educated the consumer
is, the more likely he or she will try a variety of CBD products and remain loyal to a specific brand. Consumer education is a
key pillar of our marketing strategy, and we work closely with our distributors and vendors to educate them on the benefits of
CBD and its impact on human physiology. The Company offers a full suite of CBD products that appeal to various demographics and
which the Company believes are being used by consumers to address multiple health and wellness issues.



Competition



The market for hemp-derived CBD products
is highly competitive, consisting of publicly-trade and privately-owned companies, many of whom are better capitalized than the
Company. The publicly listed competitors included market leader Charlotte’s Web, CV Sciences, Elixinol, Abacus, and Green
Growth Brands, and private companies such as Mary’s, Papa & Barkley, Lord Jones, and Bluebird. In addition, both public
and private U.S. multi-state operators and Canadian LP’s have entered the hemp-derived CBD consumer market or have announced
plans to do so. The market is highly fragmented, and the vast majority of industry participants generate less than ~$2 million
of annual revenue, according to the Hemp Business Journal. The Company believes that most of these small industry players will
not have enough capital or will lack the manufacturing and distribution breadth to survive in the medium-to-long-term.



By virtue of its highly integrated supply
chain and manufacturing footprint, high quality product offerings, and extensive distribution network in both the U.S. and Mexico,
the Company is well-positioned to continue its rapid growth and become a leading consumer packaged goods company in the hemp CBD
product market in North America.



U.S. Hemp Regulatory Framework



The cultivation
of industrial hemp was first officially re-legalized in the United States through Section 7606 of the Agricultural Act of 2014,
which defined industrial hemp as any Cannabis sativa L. (“hemp”) plant with less than 0.3% THC, on a dry weight
basis. The legislation opened the door for state-level agricultural pilot programs in states that have legalized industrial hemp.











6






In 2017, the United
States passed the Appropriations Act of 2017, which included a section further protecting the industrial hemp section of the Agricultural
Act of 2014. A key provision of this section prevents the federal government from using any appropriations funds in contravention
of Section 7606 and allows for interstate transport of industrial hemp.



The Agricultural
Improvement Act of 2018, referred to as the 2018 Farm Bill (the “Farm Bill”), was signed into law on December 20, 2018.
The Farm Bill removes hemp from the Controlled Substances Act, providing it contains no more than 0.3% THC on a dry-weight basis.
This applies to any and all parts of the plant. The Farm Bill guarantees that hemp and hemp products can be moved from state to
state and imported the same as any other crop. The Bill directed the U.S. Department of Agriculture (USDA) to come up with national
hemp regulations “as expeditiously as practicable.”



In May 2019, the USDA (in a legal opinion)
said that hemp can be transported across state lines – even through states that have not enacted laws allowing the crop’s
production – and that the de-scheduling of the plant and its derivatives under the 2018 Farm Bill are already in effect because
they are self-executing and do not require further action by federal agencies.



The Farm Bill specifically notes that the
FDA retains its authority over food, drugs, and cosmetics. The FDA’s position continues to be that CBD cannot be used in
food or in dietary supplements because CBD is listed as “an active ingredient in a drug product,” which refers to Epidiolex,
an FDA-approved treatment for rare types of epilepsy, manufactured by GW Pharmaceuticals. Following the passage of the Farm Bill,
the FDA announced plans to hold hearings and review the inclusion of CBD in food, drugs, and cosmetics. With the announcement of
a public hearing on May 31, 2019, the FDA took its first step to establish regulatory guidelines and set up a high-level internal
working group to explore pathways for CBD products to be lawfully marketed. Timing on final regulations is unclear, but a progress
report is expected to be released in the fall of 2019.



As it did before the passage of the 2018
Farm Bill, the FDA continues to monitor health claims made by CBD manufacturers. On July 23, 2019, the FDA announced that it had
issued a warning letter to Curaleaf, Inc. for illegally selling unapproved products containing CBD online with unsubstantiated
claims that the products treat cancer, Alzheimer’s, opioid withdrawal, pain and pet anxiety, among other conditions and diseases.



A recent Gallup poll found that the medicinal
value of marijuana is one of the main points that supporters of broader legalization of marijuana give for their position. As awareness
and use of CBD continues to increase, the Company believes there will be enormous pressure on the FDA to develop a regulatory framework
to ensure that safe and effective CBD products are available to the public.



Employees



As of the filing date, the Company employed
57 full-time employees, the majority of which are in sales and marketing and are based in its Dallas, Texas offices. There are
12 employees in research, product development, engineering, operations and logistics in the Company’s production facility
and 8 employees in general and administrative functions. None of the Company’s employees are represented by a labor union
or subject to a collective bargaining agreement.



Operating Locations



Corporate Headquarters: The Company
leases approximately 8,000 sq. ft. in Addison, Texas, a suburb of Dallas, where the Company’s senior leadership team and
corporate functions are located.



Production & Warehousing: In
neighboring Carrolton, Texas, another suburb of Dallas, the Company leases a 10,000 sq. ft. manufacturing, fulfillment, lab and
R&D facility. The lab follows GMP compliance guidelines and is built to scale with the Company’s operations through 2020.
An adjacent 5,000 sq. ft. bay will be available at the end of 2019, and the Company expects to utilize this space to meet its future
fulfillment needs.



Accounting & Finance: Currently,
most of the Company’s finance functions are based in its former corporate headquarters in Las Vegas, Nevada, where the Company’s
leases 2,500 sq. ft. of office space. In September of 2019, the Company hired a new Dallas-based CFO, and the entire finance team
will be redomiciled in the Dallas headquarters. The Company expects to complete this transition by the end of 2019.



Trademarks



The Company has 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”, “IRIE CBD”, “IRIE CBD LIVE LIFE IRIE”,
“Green Lotus Hemp”, “Green Lotus”, and “Let’s Grow Together”; and with the State of Nevada
for “CannaBizU,” and “CannaBiz.” Internationally, the Company has filed for “Freedom Leaf”
trademark protection in European Union, Columbia, China, Mexico, Jamaica, and Uruguay.









7






Government Regulations



Management
believes that the Company is and will continue to be fully compliant in all material respects with applicable statutes
and regulations in the United States and Mexico. There are no current orders or directions relating to the Company with respect
to the foregoing laws and regulations. Many of the Company’s products are regulated by the U.S. Food and Drug Administration
(the “FDA”) as dietary supplements, and the Company is prohibited from marketing products that are adulterated or misbranded.



Environmental Regulations



By moving away from vertical integration,
more specifically exiting extraction and large-scale manufacturing, the Company mitigates its exposure to costly environmental
regulation. The Company is in compliance with the manufacturing and environmental regulations that govern its business. While the
Company’s products and business activities do not currently violate any laws, any regulatory changes that impose additional
restrictions or requirements on contract manufacturers could adversely affect its product margins.



Board of Directors



The Company’s newly constituted Board
includes the following four members: Chairman of the Board David Goldburg, a senior partner at Merida Capital; David Vautrin, an
independent director; Carlos Frias, the Company’s CEO; and Daniel Nguyen, the Company’s CSO.



Conversion of Preferred Stock



On May 25, 2016, Clifford Perry and Richard
Cowan converted 68,401,200 and 26,401,010 common shares into 684,012 and 264,010 shares of Series A Preferred Stock. Each share
of the Series A Preferred Stock was entitled to 500 votes and was convertible into 100 shares of Company common stock. On or about
August 22, 2019, the preferred shares held by Clifford Perry and Richard Cowan were converted into common shares, and the Series
A Preferred Stock was cancelled. Going forward, the Company plans to have one class of capital stock: common shares with equal
voting rights.



Reports to Security Holders



The Company intends to furnish its stockholders
with annual reports containing consolidated financial statements audited by its 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. The Company files 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 its timely and continuous disclosure requirements. The Company may also
file additional documents with the Commission if those documents become necessary in the course of its operations.



The public may read and copy any materials
that the Company files 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 site address is www.sec.gov.



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.











8






Item 1A. Risk Factors.



The Company, as a smaller reporting company
(as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item. However, the following
important factors among others, could cause our actual operating results to differ materially from those indicated or suggested
by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time.



There are numerous and varied risks,
known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial
condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could
decline, and investors could lose all or part of their investment.



There is substantial doubt about our ability to continue
as a going concern.



We had a net loss for the year ended June
30, 2019, in the amount of approximately $12.9 million. We expect that our operating expenses will increase over the next twelve
months as we continue to increase our growth and development activities while increasing efficiencies from combination. Based on
our average monthly expenses and current burn rate, we estimate that our cash on hand will not sufficiently support our operation
for the next twelve months. If we cannot raise the money that we need in order to continue to operate our business, we will be
forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial
risk that our business would fail. If we are unsuccessful in raising additional financing, we may need to curtail, discontinue
or cease operations.



We have had a history of losses and
may incur future losses, which may prevent us from attaining profitability.



We have had a history of operating losses
since our inception, and, as of June 30, 2019, we had an accumulated deficit of approximately $22 million. We may incur operating
losses in the future, and these losses could be substantial and impact our ability to attain profitability. We expect to significantly
increase expenditures for product development, general and administrative expenses, and sales and marketing expenses, and there
is no guarantee that we will ever generate revenues, or that we ever achieve or sustain profitability or positive operating cash
flows. Even if we achieve profitability and positive operating cash flows, we may not be able to sustain or increase profitability
or positive operating cash flows on a quarterly or annual basis.



Federal drug regulation and enforcement
may adversely impact our operations.



Currently, there are approximately 30 states
plus the District of Columbia that have laws and/or regulation that recognize in one form or another legitimate medical uses for
marijuana and consumer use of marijuana in connection with medical treatment, and there are approximately 8 states and the District
of Columbia that have more expansive laws legalizing marijuana for recreational use. Conversely, under the Controlled Substances
Act (the “CSA”), the policy and regulations of the Federal government and its agencies is that marijuana has little
or no medical benefit and a range of activities including cultivation and use of marijuana for personal use is prohibited. Until
Congress amends the CSA with respect to medical marijuana, there is a risk that federal authorities may enforce current federal
law.



While our operations are hemp-related instead
of marijuana-related, our operations could be adversely affected by greater stigma associated with marijuana, and federal enforcement
of federal law would adversely affect the cannabis industry in general and could adversely affect the Company’s planned operations
and sales. Active enforcement of the current federal regulatory position on marijuana may thus indirectly and adversely affect
revenues and profits of the Company.



Our products may become subject to greater
regulation by the FDA, which would materially increase the costs associated with developing and selling our products.



Many of our products, as nutraceutical
products for human consumption, are subject to regulation by the FDA as dietary supplements. However, our products are not intended
to diagnose, mitigate, treat, cure or prevent any disease, and they are not regulated as drugs by the FDA.



The process for obtaining regulatory
approval to market products regulated by the FDA as drugs is expensive, time-consuming, and can vary substantially based on the
type, complexity, and novelty of the product candidates involved. Our ability to generate revenues from the development and sale
of our products would be adversely affected if we are delayed because our products are subject to FDA regulation as drugs, or if
we are unable to successfully develop our products to comply with FDA regulation.



We may not be able to achieve our strategic
initiatives and grow our business as anticipated.



Our strategic initiatives have required
us to devote financial and operational assets to our CBD activities to the exclusion of other historic operational focuses. Our
success depends on our ability to appropriately manage our expenses as we execute on our planned initiatives in our primary areas
of focus. If we are not able to execute on this strategy successfully, our business may not grow as we anticipate, which could
adversely affect our operating results.











9






We have and may discontinue some of
our historic operational focuses, and we will likely retain obligations associated with discontinued activities.



We have determined to focus our operations
on our CBD products, core brands and operations, and to proceed to discontinue operations with respect to some of our geographic
focuses (Europe), some of our legacy non-core brands (Tierra Science Global and Hempology), and some of our non-core operational
focuses (CBD extraction, business-to-business platform development, vaping products, paper products, and print publications). We
will carry liabilities associated with discontinued operations, and there is no guarantee that we will not change our business
plan in the future and discontinue current operations.



Our products may be subject to recalls.



Manufacturers and distributors of nutraceutical
products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such
as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate
labeling disclosure. If our products are recalled due to an alleged product defect or for any other reason, we could be required
to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may
lose a significant amount of sales and may not be able to replace those sales at an acceptable margin, or at all. In addition,
a product recall may require significant management attention and adversely affect our other operations.



Additionally, if any of our products were
subject to recall, the goodwill associated with those product brands and with us could be harmed. A recall would likely lead to
decreased demand for all of our products with similar branding, but it could also materially and adversely affect our other brands,
as well as the perception of our company as a whole. Additionally, product recalls may lead to increased scrutiny of our operations
by regulatory agencies, requiring further management attention and potential legal fees and other expenses. Furthermore, any product
recall affecting the cannabis industry more broadly could lead consumers to lose confidence in the safety and security of products
sold by other participants in the industry, which could have a material adverse effect on our business, financial condition and
results of operations.



Our future success depends on our ability
to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.



We are highly dependent on Carlos Frias,
our Chief Executive Officer, Daniel Nguyen, our Chief Scientific Officer, Brian Moon, our Chief Financial Officer, and Alex Frias,
our Vice President of Finance. Although we have entered into employment agreements with these executive officers providing for
certain benefits, including severance in the event of a termination without cause, these agreements do not prevent our executive
officers from terminating their employment with us. We do not maintain “key person” insurance for any personnel. The
loss of the services of our executive officers could impede the achievement of our development, growth and operational objectives.



In addition, we rely on consultants and
advisors, to assist us in formulating our development and operational strategies. Our consultants and advisors may be employed
by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their
availability to us.



We will need additional funding if we
intend on executing our operational plans and making future acquisitions. If we are unable to raise capital when needed, we would
be forced to delay, reduce or eliminate our planned operations.



We expect our expenses to increase in connection
with our ongoing activities. Accordingly, we will need to obtain substantial additional funding in connection with our continuing
operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate
some or all of our operational plans.



Raising additional capital may cause
dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or other assets.



Until the time, if ever, that we can generate
sufficient cash flow from operations to cover all our operational costs, we plan to finance our cash needs through a combination
of equity offerings, debt financings, collaborations, strategic alliances or other similar arrangements. We do not have any committed
and guaranteed external source of continued funding. To the extent that we raise additional capital through the sale of equity
or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these new
securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Debt financing,
if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends.











10






Because we are not listed on a national
securities exchange, we may not be able to attract the attention of research analysts at major brokerage firms.



Because we trade on the OTC Link alternative
quotation system operated by OTC Markets Group, Inc., and our stock is not traded on a national securities exchange, security analysts
of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite
secondary offerings on our behalf than they might if we were listed on a national securities exchange because they may be less
familiar with our company as a result of more limited coverage by analysts and the media.



Our common stock is subject to the SEC’s
penny stock rules, which may make it difficult for broker-dealers to complete customer transactions and could adversely affect
trading activity in our securities.



The SEC has adopted regulations which generally
define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock is currently less than $5.00 per share and therefore our stock is considered a
“penny stock” according to SEC rules, unless we are listed on a national securities exchange. Under these rules, broker-dealers
who recommend such securities to persons other than institutional accredited investors must:



| | · | make a special written suitability determination for the purchaser;                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | receive the purchaser’s prior written agreement to the transaction;                                                                                                                                                              
| | · | provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
| | · | obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.               



If required to comply with these rules,
broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely
affected.



The market price of our common stock
may be volatile and may fluctuate in a way that is disproportionate to our operating performance.



Our stock price may experience substantial
volatility as a result of a number of factors, including:



| | · | sales or potential sales of substantial amounts of our common stock;                                                                
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| | · | the success of competitive products or technologies;                                                                                
| | · | announcements about us or about our competitors, including new product introductions and commercial results;                        
| | · | the recruitment or departure of key personnel;                                                                                      
| | · | developments concerning our customers, suppliers and/or manufacturers;                                                              
| | · | litigation and other developments;                                                                                                  
| | · | actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
| | · | variations in our financial results or those of companies that are perceived to be similar to us; and                               
| | · | general economic, industry and market conditions.                                                                                   



Many of these factors are beyond our control.
The stock markets in general, and the market for companies related to the cannabis industry in any way in particular, have historically
experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors could reduce the market price of our common stock, regardless
of our actual operating performance.



We have never paid and do not intend
to pay cash dividends.



We have never paid cash dividends on any
of our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business.
As a result, capital appreciation, if any, of our common stock will be our common stockholders’ sole source of gain for the
foreseeable future.











11






Provisions in our articles of incorporation
and by-laws and under Nevada law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and
may prevent attempts by our stockholders to replace or remove our current management.



Provisions in our articles of incorporation
and by-laws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider
favorable (a “Corporate Transaction”), including transactions in which our common stockholders might otherwise receive
a premium price for their shares.



Specifically, our authorized capital stock
in our articles of incorporation includes preferred stock issuable in one or more series. Our board of directors has the authority
to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including
voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued. Issuance
of preferred stock with preferential voting rights or economic rights, could make it more difficult for a third party to acquire
a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock to purchase
common stock at a premium that they might otherwise realize in connection with a proposed acquisition of our company. Similarly,
our bylaws generally state that a majority of our board of directors constitute a quorum for the transaction of business and do
not require that a larger percentage of our directors constitute a quorum. These provisions in our articles of incorporation and
bylaws effectively mean that a simple majority of our board of directors could, without common shareholder approval, designate
a class of preferred stock, and issue shares of that class of preferred stock, in a manner that would discourage, delay or prevent
a Corporate Transaction from occurring.



These provisions could also limit the price
that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our
common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board of directors.



We incur increased costs as a result
of operating as a public reporting company, and our management is required to devote substantial time to compliance initiatives.



As a public reporting company, we incur
significant legal, accounting and other expenses that we did not incur as a non-reporting company. In addition, the Sarbanes-Oxley
Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment
and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel
will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have and
will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example,
we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer
liability insurance.



We currently have outstanding, and we
may, in the future issue instruments which are convertible into shares of common stock, which will result in additional dilution
to you.



We currently have outstanding debt and
equity instruments which are convertible into shares of common stock, and we may need to issue similar instruments in the future.
In the event that these convertible instruments are converted into shares of common stock, or that we make additional issuances
of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that
we will be able to issue shares or other securities in any offering at a price per share that is equal to or greater than the price
per share paid by investors or the then-current market price.



We cannot predict every event and circumstance
that may impact our business and, therefore, the risks discussed herein may not be the only ones you should consider.



As we continue to grow our business, we
may encounter other risks of which we are not aware as of the date of this Registration Statement. These additional risks may cause
serious damage to our business in the future, the impact of which we cannot estimate at this time.











12






Item 1B. Unresolved Staff Comments.



None.



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 March 14,
2022. This facility serves as our corporate headquarters. We also lease approximately 8,800 square feet of office, warehouse, and
production space in Carrollton, Texas, pursuant to a lease that will expire on April 21, 2021. This facility serves as our manufacturing
facility. We also lease approximately 5,978 square feet of office space in Addison, Texas, pursuant to a lease that will expire
June 30, 2024. We also lease approximately 1,800 square feet of office and production space in Denver, Colorado, pursuant to a
lease that will expire on September 30, 2019.



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. Other than disclosed
herein, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results
of our operations. In May 2019, the Company received a demand letter from a former employee for employment-related claims, but
this the employee has since signed an agreement waiving all claims. In October of 2019, the Company settled a potential dispute
regarding its Accuvape brand with the original seller of that brand. If the Company is unable to honor the terms of the settlement
agreement, which require the Company to make payments to two Accuvape employees in the aggregate amount of $12,000, and to make
vendor payments in the aggregate amount of approximately $35,000 by the middle of November of 2019, the counterparty’s release
of the Company would not be effective.



Item 4. Mine Safety Disclosures.



Not applicable.







13








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 the OTC Link alternative trading system operated by OTC Markets Group, Inc., under the
symbol “FRLF.” The symbol change from the predecessor company was effective February 24, 2015. As of June 30, 2019,
the Company’s common stock was held by approximately 130 stockholders of record, which does not include stockholders 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, 2019 and 2018:



|               |  | For the Years Ended June 30, |     
|-------------- |  | ---------------------------- | ----
|               |  | 2019                         |     
|               |  | High                         |     
|               |  |                              |     
|First Quarter  |  | $                            | 0.20
|Second Quarter |  | $                            | 0.74
|Third Quarter  |  | $                            | 0.30
|Fourth Quarter |  | $                            | 0.23



Source: www.otcmarkets.com



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



Securities authorized for
issuance under equity compensation plans



The Company established a stock
compensation plan on June 7, 2018. As of October 8, 2018, 5,000,000 shares had been issued under the plan, and no additional shares
are available to be issued under such plan.



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.                                                                                                                                                                                                                                                     









14






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.



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



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.









15






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.











16






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                         |           
|Cash used in operating activities     |  | $                            | (3,442,723
|Cash used in investing activities     |  |                              | (108,289  
|Cash provided by financing activities |  |                              | 3,649,417 
|Effects of exchange rates on cash     |  |                              | 183,050   
|                                      |  |                              |           
|Net changes to cash                   |  | $                            | 281,455   



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.











17






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:











18








|Adjusted Net Loss (Unaudited)                        |  | For the Years Ended |            
|---------------------------------------------------- |  | ------------------- | -----------
|                                                     |  | June 30,            |            
|                                                     |  | 2019                |            
|Net loss attributable to common stockholders         |  | $                   | (12,730,872
|Gain (loss) on settlement of debt                    |  |                     | (100,000   
|Loss on conversion of debt into common stock         |  |                     | –          
|Licensing income – related party                     |  |                     | –          
|Loss on investment                                   |  |                     | 125,000    
|Loss on disposal of assets                           |  |                     | 607,523    
|Change in fair value of embedded conversion features |  |                     | –          
|Beneficial conversion feature expense                |  |                     | –          
|Loss on impairment of assets                         |  |                     | (785,288   
|Adjusted net loss                                    |  | $                   | (11,313,061
|Weighted average shares outstanding                  |  |                     |            
|- basic and diluted                                  |  |                     | 297,077,801
|Adjusted basic and diluted net loss per share        |  | $                   | (0.03      





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:











19






|Adjusted EBITDA (Unaudited)                          |  | For the Years Ended |            
|---------------------------------------------------- |  | ------------------- | -----------
|                                                     |  | June 30,            |            
|                                                     |  | 2019                |            
|Net loss attributable to common stockholders         |  | $                   | (12,730,872
|Interest expense                                     |  |                     | 88,347     
|Interest income                                      |  |                     | (270       
|Depreciation and amortization                        |  |                     | 1,357,446  
|Stock-based compensation                             |  |                     | 380,367    
|Bad debt expense                                     |  |                     | 211,769    
|Gain/loss on settlement of debt                      |  |                     | (100,000   
|Loss on settlement of accounts payable               |  |                     | –          
|Licensing income – related party                     |  |                     | –          
|Loss on investment                                   |  |                     | 125,000    
|Loss on disposal of assets                           |  |                     | 580,458    
|Loss on impairment of assets                         |  |                     | 780,884    
|Change in fair value of embedded conversion features |  |                     | –          
|Beneficial conversion feature expense                |  |                     | –          
|                                                     |  |                     |            
|Adjusted EBITDA                                      |  | $                   | (9,275,382 
|                                                     |  |                     |            
|Weighted average shares outstanding                  |  |                     |            
|- basic and diluted                                  |  |                     | 297,077,801
|                                                     |  |                     |            
|Adjusted basic and diluted net loss per share        |  | $                   | (0.03      



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



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









20






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 and Comprehensive Loss | F-3 
|                                                             |     
|Consolidated Statements of Changes in Stockholders’ Equity   | F-4 
|                                                             |     
|Consolidated Statements of Cash Flows                        | F-6 
|                                                             |     
|Notes
to Consolidated Financial Statements                   | F-7 











21










REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM





To the Board of Directors and Shareholders
of Freedom Leaf Inc.:



We have audited the accompanying
consolidated balance sheets of Freedom Leaf Inc. (“the Company”) as of June 30, 2019 and 2018, the related
consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of
the years in the two-year period ended June 30, 2019 and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of June 30, 2019, and the results of its operations and its cash flows for  each of the
years in the two-year period ended June 30, 2019, in conformity with accounting principles generally accepted in the United
States of America.



Explanatory Paragraph Regarding Going Concern



The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the
Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters are also described in Note 4. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.



Basis for Opinion



These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting, 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.



Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.



/s/ Sadler, Gibb & Associates, LLC



We have served as the Company’s auditor since 2018.



Salt Lake City, UT

November 14, 2019







F-1









FREEDOM LEAF, INC.

and Subsidiaries

Consolidated Balance Sheets

For the Years Ended June 30,



|                                                                                                                                                                                                              |  | 2019 |             |   | 2018 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|ASSETS                                                                                                                                                                                                        |  |      |             |   |      |  
|Current assets                                                                                                                                                                                                |  |      |             |   |      |  
|Cash                                                                                                                                                                                                          |  | $    | 335,835     |   |      | $
|Accounts receivable, net                                                                                                                                                                                      |  |      | 170,371     |   |      |  
|Inventory, net                                                                                                                                                                                                |  |      | 1,084,157   |   |      |  
|Prepaid expenses and other current
    assets                                                                                                                                                                 |  |      | 616,814     |   |      |  
|Other receivables, net of discount                                                                                                                                                                            |  |      | 120,000     |   |      |  
|Due from
    related parties                                                                                                                                                                                  |  |      | –           |   |      |  
|Total current assets                                                                                                                                                                                          |  |      | 2,327,177   |   |      |  
|                                                                                                                                                                                                              |  |      |             |   |      |  
|Property and equipment, net                                                                                                                                                                                   |  |      | 221,722     |   |      |  
|Intangible assets, net                                                                                                                                                                                        |  |      | 549,927     |   |      |  
|Goodwill                                                                                                                                                                                                      |  |      | 15,127,749  |   |      |  
|Cost method investments                                                                                                                                                                                       |  |      | –           |   |      |  
|Total assets                                                                                                                                                                                                  |  | $    | 18,226,575  |   |      | $
|                                                                                                                                                                                                              |  |      |             |   |      |  
|LIABILITIES AND STOCKHOLDERS'
    EQUITY                                                                                                                                                                      |  |      |             |   |      |  
|Current liabilities                                                                                                                                                                                           |  |      |             |   |      |  
|Accounts payable and accrued expenses                                                                                                                                                                         |  | $    | 5,528,851   |   |      | $
|Accounts payable and accrued
    expenses to related parties                                                                                                                                                  |  |      | 109,237     |   |      |  
|Current portion of long-term
    notes payable                                                                                                                                                                |  |      | 6,000       |   |      |  
|Short-term notes payable                                                                                                                                                                                      |  |      | 1,645,672   |   |      |  
|Short-term notes payable - related
    parties                                                                                                                                                                |  |      | 260,310     |   |      |  
|Deferred
    revenue                                                                                                                                                                                          |  |      | 1,698,515   |   |      |  
|Total current liabilities                                                                                                                                                                                     |  |      | 9,248,585   |   |      |  
|                                                                                                                                                                                                              |  |      |             |   |      |  
|Non-current liabilities                                                                                                                                                                                       |  |      |             |   |      |  
|Long-term notes payable, net
    of discounts, net of current portion                                                                                                                                         |  |      | 87,000      |   |      |  
|Total non-current liabilities                                                                                                                                                                                 |  |      | 87,000      |   |      |  
|                                                                                                                                                                                                              |  |      |             |   |      |  
|Total liabilities                                                                                                                                                                                             |  |      | 9,335,585   |   |      |  
|                                                                                                                                                                                                              |  |      |             |   |      |  
|Commitments and contingencies                                                                                                                                                                                 |  |      | –           |   |      |  
|                                                                                                                                                                                                              |  |      |             |   |      |  
|Stockholders' Equity                                                                                                                                                                                          |  |      |             |   |      |  
|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, 2019 and 2018, respectively |  |      | 948         |   |      |  
|Common
    stock, $0.001 par value, 1,000,000,000 shares authorized, 310,600,203 and 185,369,365 shares issued, issuable, and outstanding
    at June 30, 2019 and 2018, respectively                         |  |      | 310,597     |   |      |  
|Additional paid-in capital                                                                                                                                                                                    |  |      | 30,842,385  |   |      |  
|Accumulated comprehensive income                                                                                                                                                                              |  |      | 17,592      |   |      |  
|Accumulated
    deficit                                                                                                                                                                                       |  |      | (22,323,223 | ) |      |  
|Total Freedom Leaf Inc. stockholders'
    equity                                                                                                                                                              |  |      | 8,848,299   |   |      |  
|Non-controlling interest                                                                                                                                                                                      |  |      | 42,691      |   |      |  
|Total stockholders' equity                                                                                                                                                                                    |  |      | 8,890,990   |   |      |  
|Total liabilities and stockholders'
    equity                                                                                                                                                                |  | $    | 18,226,575  |   |      | $





See accompanying notes to consolidated financial
statements.







F-2







FREEDOM LEAF, INC.

and Subsidiaries

Consolidated Statements of Operations

For the Years Ended June 30,



|                                                                           |  | 2019 |             |   | 2018 |  
|-------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|                                                                           |  |      |             |   |      |  
|Revenue, net                                                               |  | $    | 2,318,749   |   |      | $
|                                                                           |  |      |             |   |      |  
|Operating expenses                                                         |  |      |             |   |      |  
|Direct costs of revenue                                                    |  |      | 2,315,070   |   |      |  
|General and administrative                                                 |  |      | 9,105,658   |   |      |  
|Depreciation and amortization                                              |  |      | 1,357,446   |   |      |  
|Bad debt expense                                                           |  |      | 211,769     |   |      |  
|Marketing and selling                                                      |  |      | 636,634     |   |      |  
|Total operating expenses                                                   |  |      | 13,626,577  |   |      |  
|                                                                           |  |      |             |   |      |  
|Loss from operations                                                       |  |      | (11,307,828 | ) |      |  
|                                                                           |  |      |             |   |      |  
|Other income (expense)                                                     |  |      |             |   |      |  
|Interest expense                                                           |  |      | (88,347     | ) |      |  
|Gain (loss) on settlement of debt                                          |  |      | 100,000     |   |      |  
|Interest income                                                            |  |      | 270         |   |      |  
|Licensing income - related party                                           |  |      | –           |   |      |  
|Loss on settlement of accounts payable                                     |  |      | –           |   |      |  
|Loss on investment                                                         |  |      | –           |   |      |  
|Loss on expiration of option                                               |  |      | (125,000    | ) |      |  
|Gain/Loss on disposal of assets                                            |  |      | (580,458    | ) |      |  
|Change in fair value of embedded conversion features                       |  |      | –           |   |      |  
|Loss on impairment of assets                                               |  |      | (780,884    | ) |      |  
|Loss on foreign currency transaction adjustments                           |  |      | –           |   |      |  
|Beneficial conversion feature                                              |  |      | –           |   |      |  
|Total other income (expense)                                               |  |      | (1,474,419  | ) |      |  
|                                                                           |  |      |             |   |      |  
|Provision for income taxes                                                 |  |      | –           |   |      |  
|                                                                           |  |      |             |   |      |  
|Net loss before non-controlling interest                                   |  |      | (12,782,247 | ) |      |  
|Loss attributable to non-controlling interest                              |  |      | 51,375      |   |      |  
|                                                                           |  |      |             |   |      |  
|Net loss attributable to common stockholders                               |  | $    | (12,730,872 | ) |      | $
|                                                                           |  |      |             |   |      |  
|Net loss attributable to common stockholders per share - basic and diluted |  | $    | (0.06       | ) |      | $
|                                                                           |  |      |             |   |      |  
|Weighted average number of shares outstanding - basic and diluted          |  |      | 223,193,519 |   |      |  
|                                                                           |  |      |             |   |      |  
|Foreign currency translation gain                                          |  |      | 13,759      |   |      |  
|                                                                           |  |      |             |   |      |  
|Total comprehensive loss                                                   |  | $    | (12,717,113 | ) |      | $



See accompanying notes to consolidated financial
statements.









F-3









FREEDOM LEAF, INC. and Subsidiaries

Consolidated
Statement of Stockholders' Equity (Deficit)







|                                                           |  |                 |         |  |          |   |     | Common Stock |  |  |            |   |  |        |       
|---------------------------------------------------------- |  | --------------- | ------- |  | -------- | - | --- | ------------ |  |  | ---------- | - |  | ------ | ------
|                                                           |  | Preferred Stock |         |  | Issuable |   |     | Common Stock | 
|                                                           |  | Shares          |         |  | Amount   |   |     | Shares       |  |  | Amount     |   |  | Shares |       
|                                                           |  |                 |         |  |          |   |     |              |  |  |            |   |  |        |       
|Balance at June 30, 2017                                   |  |                 | 948,022 |  |          | $ | 948 |              |  |  | 1,793,195  |   |  | $      | 1,793 
|                                                           |  |                 |         |  |          |   |     |              |  |  |            |   |  |        |       
|Issuance of common stock for cash                          |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock and warrants for cash             |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock for accounts payable              |  |                 | –       |  |          |   | –   |              |  |  | (1,016,163 | ) |  |        | (1,016
|Issuance of common stock in business combinations          |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock for services                      |  |                 | –       |  |          |   | –   |              |  |  | (116,280   | ) |  |        | (114  
|Issuance of common stock for debt                          |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock for inventory and intangibles     |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Vesting of fair value of warrants                          |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock for cost method investment        |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of warrants for prepaid royalties – related party |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock in exercise of warrants           |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Noncontrolling interest                                    |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Accumulated comprehensive income                           |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Net loss for the period ended June 30, 2018                |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|                                                           |  |                 |         |  |          |   |     |              |  |  |            |   |  |        |       
|Balance at June 30, 2018                                   |  |                 | 948,022 |  |          | $ | 948 |              |  |  | 660,752    |   |  | $      | 663   
|                                                           |  |                 |         |  |          |   |     |              |  |  |            |   |  |        |       
|Issuance of common stock and warrants for cash             |  |                 | –       |  |          |   | –   |              |  |  | 895,522    |   |  |        | 895   
|Issuance of common stock for services                      |  |                 | –       |  |          |   | –   |              |  |  | (1,556,274 | ) |  |        | (1,558
|Issuance of common stock in exercise of warrants           |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock in business combinations          |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Issuance of common stock for cost method investment        |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Noncontrolling interest                                    |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Accumulated comprehensive income                           |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Net loss for the period ended June 30, 2019                |  |                 | –       |  |          |   | –   |              |  |  | –          |   |  |        | –     
|Balance at June 30, 2019                                   |  |                 | 948,022 |  |          | $ | 948 |              |  |  | –          |   |  | $      | –     



See accompanying notes to consolidated financial statements.







F-4







FREEDOM LEAF, INC. and Subsidiaries

Consolidated Statement of Stockholders' Equity (Deficit)





|                                                           |  | Additional |            |   |                 |   |        | Accumulated   |  |   |             |  |  |       |             
|---------------------------------------------------------- |  | ---------- | ---------- | - | --------------- | - | ------ | ------------- |  | - | ----------- |  |  | ----- | ------------
|                                                           |  | Paid In    |            |   | Non-Controlling |   |        | Comprehensive |  |   | Accumulated |  |  |       |             
|                                                           |  | Capital    |            |   | Interest        |   |        | Income        |  |   | Deficit     |  |  | Total |             
|                                                           |  |            |            |   |                 |   |        |               |  |   |             |  |  |       |             
|Balance at June 30, 2017                                   |  | $          | 4,996,756  |   |                 | $ | –      |               |  | $ | –           |  |  | $     | (4,920,988  
|                                                           |  |            |            |   |                 |   |        |               |  |   |             |  |  |       |             
|Issuance of common stock for cash                          |  |            | 973,148    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock and warrants for cash             |  |            | 395,556    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for accounts payable              |  |            | 648,223    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock in business combinations          |  |            | 1,285,904  |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for services                      |  |            | 1,190,719  |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for debt                          |  |            | 1,334,255  |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for inventory and intangibles     |  |            | 310,260    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Vesting of fair value of warrants                          |  |            | 114,658    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for cost method investment        |  |            | 989,400    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of warrants for prepaid royalties – related party |  |            | 139,243    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock in exercise of warrants           |  |            | (215       | ) |                 |   | –      |               |  |   | –           |  |  |       | –           
|Noncontrolling interest                                    |  |            | –          |   |                 |   | (8,684 | )             |  |   | –           |  |  |       | –           
|Accumulated comprehensive income                           |  |            | –          |   |                 |   | –      |               |  |   | 3,833       |  |  |       | –           
|Net loss for the period ended June 30, 2018                |  |            | –          |   |                 |   | –      |               |  |   | –           |  |  |       | (4,619,988  
|                                                           |  |            |            |   |                 |   |        |               |  |   |             |  |  |       |             
|Balance at June 30, 2018                                   |  | $          | 12,377,907 |   |                 | $ | (8,684 | )             |  | $ | 3,833       |  |  | $     | (9,540,976  
|                                                           |  |            |            |   |                 |   |        |               |  |   |             |  |  |       |             
|Issuance of common stock and warrants for cash             |  |            | 3,297,903  |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for services                      |  |            | 378,654    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock in exercise of warrants           |  |            | 49,000     |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock in business combinations          |  |            | 14,366,921 |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Issuance of common stock for cost method investment        |  |            | 372,000    |   |                 |   | –      |               |  |   | –           |  |  |       | –           
|Noncontrolling interest                                    |  |            | –          |   |                 |   | 51,375 |               |  |   | –           |  |  |       | –           
|Accumulated comprehensive income                           |  |            | –          |   |                 |   | –      |               |  |   | 13,759      |  |  |       | –           
|Net loss for the period ended June 30, 2019                |  |            | –          |   |                 |   | –      |               |  |   | –           |  |  |       | (12,782,247 
|Balance at June 30, 2019                                   |  | $          | 30,842,385 |   |                 | $ | 42,691 |               |  | $ | 17,592      |  |  | $     | (22,3232,223



See accompanying notes to consolidated financial statements.









F-5







FREEDOM LEAF, INC. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended June 30,





|                                                                   |  | 2019 |             |   | 2018 |  
|------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | -
|Cash flows from operating activities:                              |  |      |             |   |      |  
|Net loss                                                           |  | $    | (12,730,872 | ) |      | $
|Adjustments to reconcile net loss to net cash used in operations:  |  |      |             |   |      |  
|Depreciation and amortization                                      |  |      | 1,324,413   |   |      |  
|Loss on expiration of option                                       |  |      | 125,000     |   |      |  
|Gain on settlement of debt                                         |  |      | (100,000    | ) |      |  
|Gain on settlement of contingent liabilities                       |  |      | –           |   |      |  
|Gain on licensing to related party                                 |  |      | –           |   |      |  
|Loss on common stock issued for accounts payable                   |  |      | –           |   |      |  
|Amortization of debt discounts                                     |  |      | 20,774      |   |      |  
|Issuance of common stock for services                              |  |      | 380,367     |   |      |  
|Loss on disposition of assets                                      |  |      | 707,523     |   |      |  
|Loss on conversion of debt                                         |  |      | –           |   |      |  
|Vesting of stock-based compensation                                |  |      | –           |   |      |  
|Loss on revaluation of derivative liabilities                      |  |      | –           |   |      |  
|Bad debt expense                                                   |  |      | –           |   |      |  
|Loss on impairment of assets                                       |  |      | 785,288     |   |      |  
|Changes in operating assets and liabilities:                       |  |      |             |   |      |  
|Accounts receivable                                                |  |      | 8,798       |   |      |  
|Inventory                                                          |  |      | 127,164     |   |      |  
|Prepaid expenses and other current assets                          |  |      | 267,743     |   |      |  
|Accounts payable and accrued expenses                              |  |      | 4,714,563   |   |      |  
|Deferred revenue                                                   |  |      | 908,264     |   |      |  
|Due to related parties                                             |  |      | 18,252      |   |      |  
|Net cash used in operating activities                              |  |      | (3,442,723  | ) |      |  
|                                                                   |  |      |             |   |      |  
|Cash flows from investing activities                               |  |      |             |   |      |  
|Net cash paid in acquisitions                                      |  |      | (82,689     | ) |      |  
|Cash received in dispositions of cost method investments           |  |      | 145,000     |   |      |  
|Capitalized website development costs                              |  |      | (170,600    | ) |      |  
|Purchases of property and equipment                                |  |      | –           |   |      |  
|Net cash used in investing activities                              |  |      | (108,289    | ) |      |  
|                                                                   |  |      |             |   |      |  
|Cash flows from financing activities:                              |  |      |             |   |      |  
|Proceeds from the sale of common stock and warrants                |  |      | 3,253,500   |   |      |  
|Proceeds from capital contributed                                  |  |      | –           |   |      |  
|Proceeds from related party                                        |  |      | –           |   |      |  
|Repayments on notes payable                                        |  |      | (777,833    | ) |      |  
|Proceeds from notes payable                                        |  |      | 1,173,750   |   |      |  
|Net cash provided by financing activities                          |  |      | 3,649,417   |   |      |  
|                                                                   |  |      |             |   |      |  
|Effects of exchange rates on cash                                  |  |      | 183,050     |   |      |  
|                                                                   |  |      |             |   |      |  
|Net change in cash                                                 |  |      | 281,455     |   |      |  
|Cash at beginning of period                                        |  |      | 54,380      |   |      |  
|                                                                   |  |      |             |   |      |  
|Cash at end of period                                              |  | $    | 335,835     |   |      | $
|                                                                   |  |      |             |   |      |  
|Supplemental disclosure of cash flow information:                  |  |      |             |   |      |  
|Cash paid for interest                                             |  | $    | –           |   |      | $
|Cash paid for taxes                                                |  | $    | –           |   |      | $
|                                                                   |  |      |             |   |      |  
|Non-cash investing and financing activities:                       |  |      |             |   |      |  
|Issuance of common stock for accounts payable and accrued expenses |  | $    | –           |   |      | $
|Issuance of common stock for inventory                             |  | $    | –           |   |      | $
|Accrued interest reclassified to notes payable                     |  | $    | 40,513      |   |      | $
|Common stock issued for real estate purchase option                |  | $    | 125,000     |   |      | $
|Financed purchases of property and equipment                       |  | $    | –           |   |      | $
|Common stock issued in business combinations                       |  | $    | 17,538,395  |   |      | $
|Exercise of warrants for the issuance of common stock              |  | $    | –           |   |      | $
|Notes assigned between holders                                     |  | $    | –           |   |      | $
|Initial debt discounts                                             |  | $    | –           |   |      | $
|Common stock issued for settlement of debt                         |  | $    | –           |   |      | $
|Common stock issued for rights agreement                           |  | $    | –           |   |      | $
|Common stock issued for cost method investment                     |  | $    | 375,000     |   |      | $
|Common stock issued for patent acquisition                         |  | $    | –           |   |      | $
|Common stock issued for prepaid royalties                          |  | $    | –           |   |      | $





See accompanying notes to consolidated financial statements.







F-6







FREEDOM LEAF INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2019 and 2018



NOTE 1 – NATURE OF OPERATIONS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Organization



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 approximately 93%
of the issued and outstanding common stock of the Company at the time. On November 6, 2014, the Company merged with Freedom Leaf
Inc., a private Nevada corporation, and the Company changed its name to Freedom Leaf Inc. In connection with the merger, the sole
officer, director and stockholder 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 acquisition" 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 were reflected in the historical financial statements
of the Company prior to the merger are those of the private company, and they were 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.



On May 21, 2019, Freedom Leaf Inc. entered
into a Membership Interest Purchase Agreement with Carlos Frias, Daniel Nguyen, Alex Frias, and Chris Fagan to purchase all
of the issued and outstanding membership interests and other ownership or beneficial interests of ECS Labs LLC, a Texas limited
liability company. The transaction closed on May 31, 2019. And as of the closing of, Carlos Frias became Chief Executive Officer
of the Company, and Carlos Frias and Daniel Nguyen joined the Board of Directors of the Company. ECS Labs LLC owns all of
the issued and outstanding membership interests and other ownership or beneficial interests of B&B Labs, LLC, a Texas limited
liability company, and Texas Wellness Center, LLC, a Texas limited liability company.



Freedom Leaf Inc. is an audited and reporting
public company traded under the symbol (OTCQB: FRLF) with corporate headquarters located at 3571 E. Sunset Road, Las Vegas, Nevada,
89120.



Subsidiary Entities:



| | · | 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.                                                                                                                                                                                                                                                                                                                                               
| | · | 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.                                                                                                                                                                                                                                                                                                            
| | · | Leafceuticals Europe, SL, a wholly owned subsidiary of the Company operated our Valencia greenhouse
operations through a lease/purchase agreement. On May 16, 2019, Leafceuticals Europe, SL informed the owner of the facility through
a notarial deed of its intent to withdraw from the agreement. Freedom Leaf Inc. and Leafceuticals Europe, SL have no obligation
relating to the agreed price for the purchase of the greenhouse, as both companies have withdrawn from the contract and the other
party has accepted it.
| | · | ECS Labs LLC, a wholly owned subsidiary of the Company, is a Texas limited liability company and
was formed July 21, 2017.                                                                                                                                                                                                                                                                                                                                                                                                      
| | · | Texas Wellness Center, LLC, a wholly owned Texas limited liability company, was formed March 16,
2016. Texas Wellness Center, LLC conducts sales, market and administrative functions for the Company.                                                                                                                                                                                                                                                                                                                          
| | · | B&B Labs, LLC, a wholly owned Texas limited liability company, was formed July 30, 2015 and
conducts manufacturing and production activities for the Company.                                                                                                                                                                                                                                                                                                                                                                   
| | · | 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.                                                                                                                                                                                                                                                                             
| | · | Tierra Science Global, LLC. (“Tierra”), a Nevada corporation, was formed on August
23, 2017, and, as of its acquisition by Freedom Leaf on July 26, 2018 with an effective date of August 1, 2018. Tierra was sold
back to its original owners in July 2019.                                                                                                                                                                                                                                                                    
| | · | FL – Accuvape, LLC (“Accuvape”) a Nevada corporation, was formed on November
26, 2017, is a wholly owned subsidiary the Company and operates the Accuvape business acquired by the Company effective November
16, 2018.                                                                                                                                                                                                                                                                                                         





F-7







Nature of Operations



Freedom Leaf Inc.
(OTCQB: FRLF), dba Freedom Leaf Health, is a diversified, innovator in plant-based care providing premium Hemp CBD health
products across advanced care, consumer and pet markets to promote greater health and wellness. FRLF is a clean-health company,
establishing a new direction in care with plant-based products designed to naturally restore and revitalize.  FRLF’s
consumer promise of “your health first” underscores its universal commitment to produce premium-quality HEMP-derived
CBD health products.



FRLF is a diverse
enterprise of branded business lines dedicated to meeting the needs of people who face health challenges and those who are healthy.
Freedom Leaf’s “Leafceuticals” brand is the company’s most advanced product line for health care
practitioners, caregivers and patients. “IrieCBD” and “Hempology” are the company’s
flagship lines of premium full-spectrum, Hemp-derived CBD products rich in CBD’s, terpenes and flavonoids and integrated
with potent health botanicals. The Company is soon to launch a THC-free line of Hemp CBD health products under the “NatureBorn”
brand and developing performance CBD beverage and CBD beauty product lines.



For over 30 years,
the founders of FRLF fought for citizen rights to access plant-based care and pioneered premium hemp health products as a first
step to clean health. Today, FRLF produces premium hemp products from seed to shelf using proprietary science-backed formulations
and rigorous product testing FRLF is a socially conscious, vertically-integrated company maintaining all of the highest standards
in quality and safety, with a focus on continual innovation to deliver ever-better plant-based care products.



The Company’s major business lines
are:



| | · | Legal Industrial Hemp Cultivation                
| | - | -------------------------------------------------
| | · | Cannabidiol Extraction, Distillation & Processing
| | · | Expert Product Formulation                       
| | · | Nutraceutical Brand Marketing                    
| | · | Ancillary Products & Niche Markets               
| | · | Affiliate Marketing Programs                     
| | · | E-Commerce Solutions                             
| | · | Global Media & Advertising Networks              



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 Company consolidates any variable interest
entities of which it is the primary beneficiary. Equity investments through which the Company exercises significant influence over
but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using
the equity method. Investments through which the Company is not able to exercise significant influence over the investee and which
do not have readily determinable fair values are accounted for under the cost method. All material inter-company accounts have
been eliminated in the consolidation.



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.







F-8







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. The Company recorded a loss on impairment of assets of $780,884 and $-0- for the years ended June 30, 2019 and 2018, respectively.



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.



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.



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.



Accounts Receivable



Accounts receivable consisted of amounts
due from customers primarily for term sales. The Company considered accounts more than 30 days old to be past due. The Company
used the allowance method for recognizing bad debts. When an account was deemed uncollectible, it was written off against the allowance.
The Company generally does not require collateral for its accounts receivable. Management has recorded an allowance for doubtful
accounts as of June 30, 2019 and 2018 of $129,525 and $20,261, respectively.









F-9







Inventory



Inventory is recorded at the lower of cost
or market and the cost of sales are recorded utilizing the first in first out (“FIFO”) method. The Company periodically
evaluates the value of items in inventory and provides write-downs to inventory based on its estimate of market conditions. The
Company estimated it needed an obsolescence allowance of $21,007 and $36,039 for the years ended June 30, 2019 and 2018, respectively,
which was charged to cost of goods sold.



Investments



The Company uses the cost method to account
for investments in businesses that are not publicly traded and for which the Company does not control or have the ability to exercise
significant influence over operating and financial policies. In accordance with the cost method, these investments are recorded
at lower of cost or fair value, as appropriate, and are classified as long-term.  Under this method, the Company’s share
of the earnings or losses of such investee companies is not included in the consolidated balance sheet or consolidated statements
of operations and comprehensive income or loss. However, impairment charges are recognized in the consolidated statements of operations
and comprehensive income or loss. If circumstances suggest that the value of the investee company has subsequently recovered, such
recovery is not recorded.



Investments held by the Company in businesses
that are not publicly traded and for which the Company has the ability to exercise significant influence over operating and financial
management are accounted for under the equity method. In accordance with the equity method, these investments are originally recorded
at cost and are adjusted for the Company’s proportionate share of earnings, losses and distributions. The Company holds no
such investments as of June 30, 2019 or 2018.



The Company assesses and records impairment
losses when events and circumstances indicate the investments might be impaired. Gains and losses are recognized when realized
and recorded in other income (expense) in the accompanying Consolidated Statements of Operations and Comprehensive Loss.



Property, Equipment, and Depreciation



Property and equipment are recorded at
cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of three
years for computer equipment, five years for office furniture and fixtures, five years for machinery and equipment, thirty-nine
years for buildings, and the lesser of the lease term or the useful life of the leased equipment. Leasehold improvements, if any,
would be amortized over the lesser of the lease term or the useful life of the improvements. Expenditures for maintenance and repairs
along with fixed assets below our capitalization threshold are expensed as incurred. Variances between the two reporting periods
are primarily due to foreign currency translation calculations.



Goodwill and Intangible Assets



In applying the acquisition method of accounting,
amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition,
with the remainder recorded as goodwill. Identifiable intangible assets are initially valued at fair value using generally accepted
valuation methods appropriate for the type of intangible asset. Identifiable intangible assets with definite lives are amortized
over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite
lives are tested for impairment within one year of acquisitions or annually as of March 31, and whenever indicators of impairment
exist. The fair values of intangible assets are compared with their carrying values, and an impairment loss would be recognized
for the amount by which a carrying amount exceeds its fair value. Goodwill is reviewed for impairment annually, and more frequently
as circumstances warrant, and written down only in the period in which the recorded value of such assets exceeds their fair value.
The Company does not amortize goodwill in accordance with Financial Accounting Standards Board (the "FASB") Accounting
Standards Codification ("ASC") 350, "Intangibles—Goodwill and Other" ("ASC 350"). Goodwill
is tested for impairment at the reporting unit level. The Company's operating segments comprise the reporting unit for goodwill
impairment testing purposes.









F-10







The amortization of the intangible assets
is computed using the straight-line method based on the estimated useful lives of the related assets of three years for website
development, fifteen years for trademarks, one year for exclusive rights, nine years for trade names, two years for customer lists,
one year for assembled workforce, and five years for patent.



Revenue Recognition



On July 1, 2018, the Company adopted
Topic 606. The Company elected to use the modified retrospective approach for contracts that were not completed as of July 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.



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.



The Company’s sole revenue type going
forward is product sales, through its primary brands Green Lotus Hemp and IRIE. Advertising and licensing revenues are not expected
to recur.



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.



Advertising and Marketing



Advertising and marketing costs are expensed
as incurred and is included in selling, general and administrative expenses on the accompanying statement of operations. For the
years ended June 30, 2019 and 2018, advertising expense was $636,634 and $49,656, 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, 2019, 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.









F-11







The Company adopted ASC 740-10, “Definition
of Settlement in FASB Interpretation No. 48,” (“ASC 740-10”), which was issued on May 2, 2007. ASC
740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. The term “effectively settled” replaces the term “ultimately
settled” when used to describe recognition, and the terms “settlement” or “settled” replace the terms
“ultimate settlement” or “ultimately settled” when used to describe measurement of a tax position under
ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion of an examination by a taxing
authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full
amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis
of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10 did not have an impact on the accompanying
consolidated financial statements.



Net Earnings (Loss) Per Share



In accordance with ASC 260-10, “Earnings
Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by
the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using
the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common
stock equivalent shares that may dilute future earnings per share consist of warrants to purchase 48,444,444 shares of common stock
at June 30, 2019. Equivalent shares are not utilized when the effect is anti-dilutive.



Foreign Currency Translation and
Transactions



The Euro (“EUR,” or “€”)
is the functional currency of Leafceuticals Europe S.L.U., whereas the consolidated financial statements are reported in United
States Dollar (“USD,” or “$”). Assets and liabilities are translated based on the exchange rates at the
balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the period.
Equity accounts are translated at historical exchange rates. The resulting translation gain and loss adjustments are accumulated
as a component of stockholders’ equity and other comprehensive income.



Comprehensive Income (Loss)



The Company reports comprehensive income
(loss) and its components in its consolidated financial statements. Comprehensive income (loss) consists of net loss and foreign
currency translation adjustments affecting stockholders’ equity that, under U.S. GAAP, are excluded from net loss. As of
June 30, 2019, the exchange rate between U.S. Dollars and the Euro was USD $1.14 = €1.00, and the weighted average exchange
rate for the period (acquisition date to end of fiscal year) ended June 30, 2019 was USD $1.15 = €1.00.



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, 2019 and 2018.



Effect of Recent Accounting Pronouncements



In May 2014, the FASB issued Accounting
Standards Update No. 2014-09 (“ASC 606”), 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 permitted. The standard permits the use of either the retrospective or cumulative effect transition
method.









F-12







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 January 2017, the FASB issued ASU No.
2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent
measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the
excess of a reporting unit’s carrying amount over its fair value. A qualitative assessment may still be completed first for
an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be
adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of
December 1, and whenever indicators of impairment exist.



In February 2016, the FASB issued ASU 2016-02, Leases.
This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional
disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for
those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating
leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to
the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The
ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier
adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at
the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for
election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption
of this guidance on its consolidated financial condition, results of operations and cash flows.



In June 2016, the FASB issued ASU 2016-13 Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement
and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred
loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13
is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. We are currently
in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.



The Company has evaluated all other recent
accounting pronouncements and believes that none of them will have a significant effect on the Company’s financial statement.



NOTE 2 – ENTRY INTO A DEFINITIVE
AGREEMENT



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 stockholder (common stock and warrants to purchase additional common
stock) of the Company. On December 15, 2016, the Company and FLNL executed the license agreement. The agreement provided for a
licensing fee of $250,000 with a payment schedule as follows: $70,869 which has been paid from the date of the MOU until the date
of the agreement; $25,000 payment every two months, commencing on April 10, 2017 with the last payment on April 10, 2018, and a
final payment of $4,131 on June 10, 2018. As of June 30, 2018, the Company has written the receivable of $179,131 off to bad debt.
The Company also provided FLNL with warrants to purchase up to 1,000,000 shares of common stock. The warrants have an exercise
price of $0.05. The warrants were exercisable as follows: 250,000 warrants between June 2017 and August 2017; 250,000 warrants
between September 2017 and November 2017; 250,000 warrants between December 2017 and February 2018; and 250,000 warrants between
March 2018 and May 2018. See Notes 7 and 12. None of the warrants were exercised and, thus, have expired. The agreement was terminated
on April 3, 2018.









F-13







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 $25,000 payment payable 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. The warrants have expired and are unexercised
as of June 30, 2018. See Notes 8 and 12. As of June 30, 2019, the Company has written the receivable of $190,000 off to bad debt.



On March 31, 2017, the Company entered
into a license agreement with BBD Healthcare Strategies, LLC, a Florida limited liability company (“BBDHS”), pursuant
to which BBDHS received distribution rights to the Company’s magazine and other “Freedom Leaf” branded merchandise
for the State of Florida, in consideration of (1) a license fee of $250,000, paid $25,000 at execution, and $25,000 due August
2017, October 2017, December 2017, February 2018, March 2018, April 2018, May 2018 and concluding June 2018, with a final payment
of $50,000, (2) ongoing royalties of 5% for sales of Company merchandise purchased from the Company, (3) ongoing royalties of 10%
for sales of Company merchandise purchased from a third-party supplier, and (4) ongoing royalties of 33% for Company seminars and
conferences. The Company also provided BBDHS with warrants to purchase 1,200,000 shares of Company common stock at an exercise
price of $0.05, exercisable as follows: 240,000 shares between September 1, 2017 and October 31, 2017, 240,000 shares between November
1, 2017 and December 31, 2017, 240,000 shares between January 1, 2018 and February 28, 2018, 240,000 shares between March 1, 2018
and May 30, 2018, and 240,000 shares between June 1, 2018 and July 30, 2018. See Notes 8 and 12. As of June 30, 2018, the Company
has written the receivable of $200,000 off to bad debt. As of June 30, 2019, all warrants are unexercised and expired.



On May 15, 2018, the Company issued to
Cowan a License Agreement that grants him exclusive licensee distribution rights to the Freedom Leaf Inc. magazine, as well as
other “Freedom Leaf” branded merchandise and services in the Southern California area. In consideration of such license,
Cowan cancelled $240,000 of payables owed to him by the Company. Also, in connection with this transaction, the Company issued
to Cowan a warrant, exercisable between July 1, 2018 and November 15, 2019, to acquire 1,000,000 shares at an exercise price of
$0.25 per share. This has been reflected as other income (“Licensing income – related party”) in the consolidated
statement of operations and comprehensive loss.



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, 2019, there have been no sales or commissions earned and the contract
has been canceled.



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, 2019, there has
been one sale and the contract has been canceled. The Company owes $51,735 to NuAxon at June 30, 2019.









F-14







Loss on Disposition of Assets



During the year ended June 30, 2019, the Company disposed of
Freedom Leaf Europe, Tierra Sciences Global, as well as its interests in two cost method investments, Cicero Transact Group and
Cicero Platform Group. As a result of the dispositions, the Company recognized a net loss on disposition of assets of $580,458.



NOTE 3 –BUSINESS COMBINATIONS AND ASSET ACQUISITIONS



IRIE Acquisition



On April 16, 2018,
Leafceuticals consummated the acquisition, with an effective date of April 1, 2018 (date of change in control), of substantially
all of the assets of: Earth Born, Inc., a California corporation (“Earth Born California”), Earth Born, Inc., a Delaware
corporation (“Earth Born Delaware”), Irie Living, a California nonprofit mutual benefit corporation (“Irie”),
and Genesis Media Works, LLC, a Utah limited liability company doing business as “Terra’s Way,” “Irie Hemp
Company,” “Earth Born Botanicals,” and “Santa Cruz Hemp Company” (“Genesis” and together
with Earth Born California, Earth Born Delaware, and Irie, collectively referred to herein as the “Sellers” or IRIE).
Irie CBD is a California-based product line owned by the Sellers that has been operating since 2015 that formulates, manufactures
and distributes CBD tinctures, CBD edibles, CBD topicals and CBD concentrates to retail markets across the country. IRIE leases
a full manufacturing and processing facility in Oakland, California. In addition to the IRIE CBD line and associated assets and
trademarks, the acquisition also includes the product lines, websites and other assets of Earth Born California, Earth Born Delaware,
Irie, and Genesis.



In connection with this acquisition, Leafceuticals
assumed approximately $100,000 of liabilities associated with the assets and paid the Sellers’ principals as follows: $356,080
in cash and $999,000 via the issuance of an aggregate of 8,118,886 shares of the Company’s common stock. The purchase price
is to be reduced if: (i) the Sellers’ aggregate pre-closing revenues for the year ending December 31, 2017, were less than
$1,500,000 or (ii) the Buyer’s average monthly revenues resulting from the Acquisition of the Assets for the three months
following closing are less than $120,000 per month. Additionally, 1,250,000 of the Shares were to be escrowed for four months following
Closing as the Buyer’s security for (i) any indemnification claims against the Sellers pursuant to the Agreement, or (ii)
any pre-closing or post-closing revenue deficiency resulting in the purchase price reductions described above. There was no adjustment
to the purchase price based on this clause.



The purchase price was allocated as follows:



|Consideration given:                                                 |  |   |          
|-------------------------------------------------------------------- |  | - | ---------
|Cash Consideration                                                   |  | $ | 356,000  
|Common stock shares given                                            |  |   | 999,000  
|Notes Assumed                                                        |  |   | 100,000  
|Total consideration given                                            |  | $ | 1,455,000
|                                                                     |  |   |          
|Fair value of identifiable assets acquired, and liabilities assumed: |  |   |          
|                                                                     |  |   |          
|Current Assets                                                       |  | $ | 226,000  
|Current Liabilities                                                  |  |   | 44,000   
|Net Working Capital                                                  |  |   | 182,000  
|                                                                     |  |   |          
|Property, Plant & Equipment                                          |  |   | 25,000   
|Trade Names/Trademarks                                               |  |   | 327,000  
|Customer Contracts/Relationships                                     |  |   | 712,000  
|Assembled Workforce                                                  |  |   | 139,000  
|Goodwill                                                             |  |   | 70,000   
|Total Consideration                                                  |  | $ | 1,455,000



Revenue
recognized by IRIE from acquisition through June 30, 2018 was $393,480.









F-15







Tierra Science Global, LLC



On July 26, 2018,
the Company acquired 100% of the membership interests of Tierra Science Global, LLC (“Tierra”), a nutraceutical business,
for which it: (i) issued to that Company’s owners 2,000,000 shares of the Company’s common stock, valued at $246,000
based on the closing price of the common stock on that day and (ii) entered into employment agreements with the Company’s
principal executives. Pursuant to those employment agreements, each of the Tierra’s two sellers was contacted to receive:
(i) the greater of $2,000 per month or 2.5% of the prior month’s gross margin from sales and (ii) $25,000 of Company common
stock for each $500,000 in cumulative net profits. The Company intends to expand Tierra’s product offering to include various
cannabidiol products branded as “powered by Freedom Leaf.



Purchase Consideration:



The fair value
of the purchase consideration issued to the sellers of Tierra was allocated to the net tangible assets acquired. We accounted for
the acquisition of Tierra as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities
acquired were recorded as of the acquisition date, at their respective fair values and consolidated with those of our company.
The fair value of the net assets acquired, net of liabilities assumed, and was approximately $430,430. The excess of the aggregate
fair value of the net tangible and intangible assets has been treated as goodwill.

The purchase price was allocated as follows:



Consideration given:



|Cash Consideration        |  |   |        
|------------------------- |  | - | -------
|Common stock shares given |  |   | 300,630
|Notes payable             |  |   | 129,800
|Total consideration given |  | $ | 430,430



Assets acquired and liabilities
assumed at fair value:



|Current assets                       |  | $ | 1,210   | 
|------------------------------------ |  | - | ------- | 
|                                     |  |   |         | 
|Identifiable intangible assets:      |  |   |         | 
|Trade names and trademarks           |  |   | 55,000  | 
|Customer contracts and relationships |  |   | 252,000 | 
|Assembled Workforce                  |  |   | 64,000  | 
|Goodwill                             |  |   | 58,220  | 
|Total Consideration                  |  | $ | 430,430 | 



AccuVape, Inc.



On November 15, 2018, the Company consummated
the acquisition of the assets of AccuVape, Inc. (www.accuvape.net), which produce and sell various vape-related products. AccuVape
was founded in 2013 as a vaporizer company to fill the growing needs of the emerging vape market. Today, AccuVape: distributes
to all 50 states, Canada, the UK and EU and has Midwest and West Coast distribution centers and over 550 authorized retailers that
carry AccuVape products.



In consideration of the transaction the
Company issued to that Company’s owners: (i) $126,000 in cash plus (ii) 496,667 shares of the Company’s common stock,
valued at $155,208 based on the closing price of the common stock on that day. Additionally, the Company entered into a two-year
employment agreement with the Company’s principal executive, pursuant to which she is contacted to receive: (i) $2,000 per
month in cash plus (ii) annual incentive compensation equal to 22% of any “Gross Margin” increase over the prior 12
months, all of which incentive compensation shall be paid in Company common stock. Apart from the purchase price, the company agrees
to reimburse the seller the sum of $27,500 in full satisfaction of itemized expenses.









F-16







Purchase Consideration:



The fair value of the purchase consideration
issued to the sellers of AccuVape was allocated to the net tangible assets acquired. We accounted for the acquisition of AccuVape
as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired were recorded
as of the acquisition date, at their respective fair values and consolidated with those of our company. The fair value of the net
assets acquired, net of liabilities assumed, and was approximately $18,642. The excess of the aggregate fair value of the net tangible
and intangible assets has been treated as goodwill.



The purchase price was allocated as follows:



Consideration given:



|Cash consideration         |  | $ | 126,000 | 
|-------------------------- |  | - | ------- | 
|Accounts payable           |  |   | 72,827  | 
|Fair value of common stock |  |   | 155,208 | 
|Total consideration given  |  | $ | 312,535 | 



Assets acquired and liabilities assumed at fair value:



|Current assets                  |  | $ | 40,407  | 
|------------------------------- |  | - | ------- | 
|Property and equipment          |  |   | 1,871   | 
|Other assets                    |  |   | 33,257  | 
|                                |  |   |         | 
|Identifiable intangible assets: |  |   |         | 
|Patents                         |  |   | 87,000  | 
|Trade Name                      |  |   | 7,000   | 
|Non-Complete Agreement          |  |   | 19,000  | 
|Assembled Workforce             |  |   | 5,000   | 
|Goodwill                        |  |   | 119,000 | 
|Total Consideration             |  | $ | 312,535 | 



Revenue
recognized by AccuVape from acquisition through June 30, 2019 was $72,080.



ECS Labs, LLC Acquisition



On May 31, 2019, the Company closed the
acquisition of Dallas, Texas based ECS Labs LLC (the “Acquisition”), including its two-wholly owned operating subsidiaries,
B&B Labs, LLC, a Texas limited liability company and Texas Wellness Center, a Texas limited liability company, which constitute
the “Green Lotus” premium hemp CBD products brand.



Green LotusTM
Hemp (“Green Lotus”) is a rapidly growing premium hemp oil products brand that manufactures and distributes
premium cannabinoid products including tinctures, gel caps, edibles, topicals vape cartridges, and beverages made
from organic industrial hemp. Green LotusTM has grown rapidly since its inception in 2016 and now has a national
presence with a presence in over 1,200 locations in the U.S. and is a first mover in the Mexican CBD market, with 4,000
points of initial distribution.



The Company has performed a valuation analysis
of the fair market value of Green Lotus’ assets and liabilities. The provisional fair value of the purchase consideration
issued to the sellers of Green Lotus was allocated to the net tangible assets acquired. We accounted for the acquisition of Green
Lotus as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired
were recorded as of the acquisition date, at their respective fair values and consolidated with those of our company. The excess
of the aggregate fair value of the net tangible assets has been allocated to an intangible asset, value of customer accounts and
the remainder to goodwill. The purchase price allocation was based, in part, on management’s knowledge of Green Lotus’
business and is preliminary. Once we complete our analysis to finalize the purchase price allocation, which includes finalizing
the valuation report from a third-party appraiser and a review of potential intangible assets, it is reasonably possible that,
there could be significant changes to the preliminary values below.









F-17







The provisional purchase price was allocated
as follows:



Provisional consideration given:



|                           |  |   |           
|-------------------------- |  | - | ----------
|Cash consideration         |  | $ | –         
|Fair value of common stock |  |   | 14,000,000
|Liabilities assumed        |  |   | 2,795,430 
|Total consideration given  |  | $ | 16,795,430



Assets acquired and liabilities assumed at fair value:



|Current assets         |  | $ | 1,632,348  | 
|---------------------- |  | - | ---------- | 
|Property and equipment |  |   | 105,333    | 
|Goodwill               |  |   | 15,057,749 | 
|Total Consideration    |  | $ | 16,795,430 | 



Revenue recognized by Green Lotus from
acquisition through June 30, 2019 was $204,021.



The following table summarizes our consolidated
results of operations for the years ended June 30, 2019, and 2018, as well as unaudited pro forma consolidated results of operations
as though each acquisition had occurred on July 1, 2017:



|                      |  | For the Year Ended June 30, 2019 |             |   | For the Year Ended June 30, 2018 |  
|--------------------- |  | -------------------------------- | ----------- | - | -------------------------------- | -
|                      |  | As Reported                      |             |   | Pro Forma                        |  
|                      |  |                                  |             |   |                                  |  
|Net sales             |  | $                                | 2,318,749   |   |                                  | $
|Net loss              |  |                                  | (12,605,233 | ) |                                  |  
|Loss per common share |  | $                                | (0.06       | ) |                                  | $



The
unaudited pro forma information set forth above is for informational purposes only and includes adjustments related to the step-up
of acquired inventories, amortization expense of acquired intangible assets, and interest expense on long-term debt. The pro forma
information should not be considered indicative of actual results that would have been achieved if each acquisition had occurred
on July 1, 2017, or results that may be obtained in any future period.



The
goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale we hope to achieve
from combining the acquired assets and operations with our historical operations.



Green Market Europe Purchase



On January 5, 2018 as amended on February
5, 2018, with an effective date of January 5, 2018, the Company consummated its previously announced acquisition of 100% of the
capital stock of Green Market Europe, S.L. (“GME”), a Spanish producer of hemp products. GME’s facilities include:
a 21,000 square foot light deprivation greenhouse; a 43,000 square foot indoor growing research facility, and over 200 acres of
outdoor production space. The light deprivation allows the increase of the number of yearly crops from 3 to 4 crops a year, and
the 43,000 square foot indoor grow facility is used for genetic research and cultivating additional hemp crops. GME is strategically
located in Elche, Alicante, an important Spanish business hub, with great year-round weather conditions for agricultural growing
and a long tradition of growing hemp. From its inception to-date, GME has had negligible operations.









F-18







Purchase Consideration:



In consideration for the acquisition, the
Company paid to GME’s seller $320,205 in cash and Company common stock as follows:



| | (i) | $24,805 (which amount was paid by a third party, and to whom the Company owes that amount), and
| | --- | -----------------------------------------------------------------------------------------------



| | (ii) | 4,220,000 shares of the Company’s common stock valued on the Company’s Balance Sheet at $295,400.
| | ---- | -------------------------------------------------------------------------------------------------



Additionally: (i) additional shares will
be issuable if the volume weighted-average price of the Company’s stock between January 5, 2018 and July 3, 2018 is less
than $0.10 per share, and (ii) the sellers of GME have the option to repurchase all of the assets of GME for €100 (and the
assumption of GME’s liabilities) if the volume weighted-average price of the Company’s stock between January 5, 2018
and January 5, 2019 is less than $0.01 per share.



Assets acquired, and liabilities assumed, at fair value:



The provisional fair value of the purchase
consideration issued to the sellers of GME was allocated to the net tangible assets acquired. We accounted for the acquisition
of GME as the purchase of a business under GAAP under the acquisition method of accounting, the assets and liabilities acquired
were recorded as of the acquisition date, at their respective fair values and consolidated with those of our company. The fair
value of the net assets acquired, net of Liabilities assumed, was approximately $20,285. The excess of the aggregate fair value
of the net tangible assets has been treated as Goodwill. The purchase price allocation was based, in part, on management’s
knowledge of GME’s business and is preliminary. Once we complete our analysis to finalize the purchase price allocation,
which includes finalizing the valuation report from a third-party appraiser and a review of potential intangible assets, it is
reasonably possible that, there could be significant changes to the preliminary values below.



Consideration given:



|Common stock shares given |  | $ | 295,400 | 
|------------------------- |  | - | ------- | 
|Total consideration given |  |   | 295,400 | 



Fair value of identifiable assets acquired, and liabilities
assumed:



|Cash                               |  |   | 3,546   | 
|---------------------------------- |  | - | ------- | 
|Accounts receivable                |  |   | 7,430   | 
|Fixed assets, net                  |  |   | 64,891  | 
|Intangible assets, net             |  |   | 5,176   | 
|Accounts payable                   |  |   | (71,478 | 
|Acquisition payable                |  |   | (24,805 | 
|Payable to stockholders            |  |   | (5,045  | 
|Total identifiable net liabilities |  |   | (20,285 | 
|Goodwill                           |  |   | 315,685 | 
|Total consideration                |  | $ | 295,400 | 



During March, April and May of 2018, in
connection with the Company’s preliminary audit of GME, the Company’s management discovered several irregularities
regarding GME’s operations and its sellers’ activities before and after the consummation of the Company’s acquisition
of that business. Based on investigation of these discoveries, the Company, effective June 4, 2018, consummated a termination agreement
with GME’s seller. In connection with that agreement, GME’s sellers returned to the Company the 4,220,000 shares it
had previously issued to the sellers. The Company wrote off the approximately $33,000 it had invested cumulatively in GME in addition
to the stock issuance and recognized a non-cash loss of $295,400 upon disposition of this business.









F-19







Valencia Purchase



The Company, on May 17, 2018, consummated
the acquisition of an existing, approximately 430,000 square foot facility, that was converted from a dormant Poinsettia production
facility into a light deprivation hemp production greenhouse. The total purchase price was €4,000,000 (approximately US$4.8million).
The purchase consideration will be paid as follows: (i) €20,000 down, which amount already has been paid by the Company; (ii)
€20,000 a month for 25 months, and (iii) €100,000 per month thereafter until paid in full. Located in Valencia, the third
largest city in Spain with an average of 300 days of sun per year and agricultural setting, the facility previously was one of
the biggest Poinsettia producers in Europe. At its peak, it produced millions of Poinsettia clones and had more than 80 greenhouse
workers working 24/7. The Company chose this facility due to the similarities in growing Poinsettias and Hemp and because of its
light cycles and heavy machinery specific to industrial plant production. This turn-key facility includes: approximately 430,000
square feet of light deprivation greenhouse, growing supplies, polished concrete, and triple galvanized steel framework. It its
fully equipped with an automated irrigation system, a mist system, a refrigerated storage area, a light deprivation system to maximize
number of crops per year, a Dutch, hydroponic set up and heating system, its own gas pipe, and five sources of irrigation water
with reservoir. The facility also has office space that the Company intends to utilize to house: (i) our Spanish Media department
(lamarihuana.com) and (ii) a warehouse. The purchase also includes outdoor space and the necessary structural steel sufficient
to erect a new 64,000 sq. ft galvanized steel frame facility the Company intends to build to use as a GMP extraction, formulation
and bottling facility.



The agreement was in the form of a lease/purchase
and included a clause allowing for the cancellation of the agreement with notice and payment of 2 months lease payments. On May
16, 2019, Leafceuticals S.L.U. informed the owner of the facility through a notarial deed of its intent to withdraw from the agreement.
The required €40,000 (approximately US $48,000) was paid. Freedom Leaf Inc. and Leafceuticals S.L.U have no obligation relating
to the agreed price for the purchase of the greenhouse, as both companies have withdrawn from the contract and the other party
has accepted it. Accordingly, the remaining lease obligation no longer appears on the books of the Company



LaMarihuana Purchase



On May 30, 2017, with an effective date
of April 8, 2017 as per the Bill of Sale, Cannabis Business Solutions Inc. (the “Buyer”), a wholly owned Nevada subsidiary
of the registrant, Freedom Leaf Inc., entered into an Asset Purchase Agreement with Valencia Web Technology S.L., B-97183354, a
Spanish limited liability company (Sociedad de Responsabilidad Limitada) (the “Seller,” or “Valencia”)
to purchase the Seller’s assets, including its cash and cash equivalents, equipment, inventory, receivables, and two of its
websites www.lamarihuana.com and www.marihuana-medicinal.com (but not including the Seller’s website cannabislandia.com),
for a purchase price consisting of a 10% interest in the Buyer, and 3,000,000 shares of common stock of the registrant, valued
at $300,000 (the “Initial FRLF Shares”), with additional shares of the registrant’s common stock due six months
(October 8, 2017) following closing if, at such time, the average closing price of the registrant’s common stock during the
previous five trading days is less than $0.10/share. Such additional shares shall be calculated as follows: $300,000 minus the
product of (a) the Initial FRLF Shares multiplied by (b) the average closing price of the registrant’s common stock during
the five trading days immediately preceding the True-Up Date (the “True-Up Price”), with such difference divided by
the True-Up Price. On October 8, 2017, the Company removed the previously recorded contingent liability and recorded 4,142,857
shares of common stock as issuable. On February 7, 2018, the Company and the Buyer agreed that because of the increase in the value
of the Company’s common stock, the Buyer had waived its right to additional shares of common stock as stated herein. Therefore,
on February 7, 2018, the Company reversed its recording of the 4,142,857 shares of common stock recorded as issuable.



International requirements for the complete
use of the web sites by the Company have been met. LaMarihuana is now complete in use by the Company for both advertising and lead
generation.



NOTE 4 – GOING CONCERN



The Company has a net loss attributable
to common stockholders for the year ended June 30, 2019 of $12,730,872 and working capital deficit as of June 30, 2019 of $6,921,408
and has used cash in operations of $3,442,723 for the year ended June 30, 2019. In addition, as of June 30, 2019, the Company had
a stockholders’ equity and accumulated deficit of $8,890,990 and $22,323,223, respectively. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.









F-20







The accompanying consolidated financial
statements have been prepared in conformity with U.S. GAAP, which contemplates the 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.



Management has evaluated these conditions and has developed
a plan which, in part, address these obligations as follows:



| | · | The Company is partnering with established distributors and retailers. Several examples include:
| | - | ------------------------------------------------------------------------------------------------

| | o | The Company has received PO’s in the aggregate amount of $26,425,500, from CBD Life, SA, all of which are deliverable
in the fiscal year ended June 30, 2020. The first delivery of product to CBD Life, SA is reflected in a Form 8-K Current Report
dated August 13, 2019. This arrangement is believed to provide cash flow to satisfy the companies remaining debt service.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | On October 1, 2019 the Company announced that it had entered into a distribution agreement with Greenlane Holdings. Greenlane
distributes to 11,000 retail locations across the United States. The Company has received PO’s totaling $591,159, deliverable
in the fiscal year ended June 30, 2020.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Company has approved a strategic plan and has affected corporate restructuring. These actions include:
| | - | ----------------------------------------------------------------------------------------------------------

| | o | Focusing on the Green Lotus and IrieCBD brands in the United States and Mexico, rather than building a vertically integrated
hemp company in the U.S. and Europe.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Selling or shutting down non-core and non-accretive business segments.
| | - | ----------------------------------------------------------------------

| | o | Consolidating the Company’s manufacturing, sales, distribution and corporate functions into the newly acquired Green
Lotus infrastructure, resulting in operational synergies and cost savings.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Formulating a comprehensive corporate rebranding plan for the Company.
| | - | ----------------------------------------------------------------------

| | · | Taken together, the Management of the Company believes that these actions, along with anticipated capital raises with equity
partners, will mitigate the Going Concern.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



NOTE 5 – COMMITMENTS AND CONTINGENCIES



Legal Matters



From time to time, we may be involved in
litigation relating to claims arising out of our operations in the normal course of business. Other than disclosed herein, there
were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
In May 2019, the Company received a demand letter from a former employee for employment-related claims, but this the employee has
since signed an agreement waiving all claims. In October of 2019, the Company settled a potential dispute regarding its Accuvape
brand with the original seller of that brand. If the Company is unable to honor the terms of the settlement agreement, which require
the Company to make payments to two Accuvape employees in the aggregate amount of $12,000, and to make vendor payments in the aggregate
amount of approximately $35,000 by the middle of November of 2019, the counterparty’s release of the Company would not be
effective.



Lease Commitment



We lease approximately 2,800 square feet
of office space in Las Vegas, Nevada, pursuant to a lease that expired on March 14, 2019 and was extended through March 14, 2022.



Rent expense for the years ended June 30,
2019 and 2018 was $35,703 and $34,128, respectively. There are $107,055 of future minimum lease payments under this lease.









F-21







We also lease approximately 1,777 square
feet of office and production space, used by Irie in Oakland, California, pursuant to a lease that expired on June 1, 2019 and was not renewed.



Rent expense for the years ended June 30,
2019 and 2018 was $44,400 and $10,900, respectively. There are no future minimum lease payments under this lease.



We lease space for our Texas lab in Carrollton,
Texas. This 8,800 square foot facility lease will expire April 30, 2021 and is used predominately for manufacturing and storage
of products under the Green Lotus brand.



Rent expense for the year ended June 30,
2019 (post acquisition) was $3,000.



Future minimum lease payments under these
leases are as follows:



|2020                |  | $ | 36,000 | 
|------------------- |  | - | ------ | 
|2021                |  |   | 30,000 | 
|2022                |  |   | –      | 
|2023                |  |   | –      | 
|2024 and thereafter |  |   | –      | 
|Total               |  | $ | 96,000 | 



An additional lab facility located in Denver,
Colorado, composed of approximately 1,800 square feet, has a lease term through September 30, 2019.



Rent expense for the year ended June 30,
2019 (post acquisition) was $1,890.



Future minimum lease payments under these
leases are as follows:



|2020                |  | $ | 5,670 | 
|------------------- |  | - | ----- | 
|2021                |  |   | –     | 
|2022                |  |   | –     | 
|2023                |  |   | –     | 
|2024 and thereafter |  |   | –     | 
|Total               |  | $ | 5,670 | 



Our headquarters office suite is located
in Addison, Texas and is composed of an original and an expansion space of approximately 3,322 and 2,656 square feet, respectively,
totaling 5,978 square feet. Lease terms expire June 30, 2024 for both leases.



Rent expense for the year ended June 30,
2019 (post acquisition) was $4,291 and $3,431.



Future minimum lease payments under these
leases are as follows:



|2020                |  | $ | 94,541  | 
|------------------- |  | - | ------- | 
|2021                |  |   | 97,530  | 
|2022                |  |   | 100,519 | 
|2023                |  |   | 103,508 | 
|2024 and thereafter |  |   | 106,497 | 
|Total               |  | $ | 502,595 | 



The company has a storage unit in Denver,
Colorado. This 625 square foot facility is leased on a month to month basis.



Rent expense for the year ended June 30,
2019 (post acquisition) was $71. There are no future minimum lease payments under this lease.



Finally, the company has 4 storage units
in Carrollton, Texas that are all leased on month to month terms and each unit is a 625 square feet space.



Rent expense for the year ended June 30,
2019 (post acquisition, cumulatively) was $867. There are no future minimum lease payments under this lease.









F-22







Compensation Accruals



On May 31, 2019, the Company entered into
Employment Agreements with the former owners of ECS Labs, LLC, Carlos Frias, Daniel Nguyen and Alex Frias. Each agreement provides
for both cash and equity incentives in consideration for the future performance of services. Compensation expense under these Employment
Agreements to be recognized is as follows:



|2019  |  | $ | 3,873,870  | 
|----- |  | - | ---------- | 
|2020  |  |   | 24,469,574 | 
|2021  |  |   | 5,297,103  | 
|2022  |  |   | 662,138    | 
|Total |  | $ | 34,302,685 | 



|Unrecognized Compensation costs related to stock awards, Carlos Frias  | $10,738,750 
|---------------------------------------------------------------------- | ------------
|Unrecognized Compensation costs related to stock awards, Alex Frias    | $  7,138,750
|Unrecognized Compensation costs related to stock awards, Daniel Nguyen | $  8,938,750



NOTE 6 – RELATED PARTIES



Carlos Frias, CEO and Director of the Company,
has promissory notes payable to him in the amount of $123,657 for various expense reimbursements and $2,400,000 in cash incentives
as part of his employment agreement subject to his continued provision of services to the Company. Imputed interest is immaterial.
The promissory notes are reflected as liabilities on the financial statements as of June 30, 2019.



Alexandro Frias, VP of Finance of the Company,
has promissory notes payable to him in the amount of $83,657 for various expense reimbursements and $1,600,000 in cash incentives
as part of his employment agreement subject to his continued provision of services to the Company. Imputed interest is immaterial.
The promissory notes are reflected as liabilities on the financial statements as of June 30, 2019.



Ngoc “Daniel” Quong Nguyen,
CSO and Director of the Company, has promissory notes payable to him in the amount of $655,000 for various expense reimbursements
and asset purchases and $2,0400,000 in cash incentives as part of his employment agreement subject to his continued provision of
services to the Company. Imputed interest is immaterial. The promissory notes are reflected as liabilities on the financial statements
as of June 30, 2019.



Richard Cowan (“Cowan”), a
former Director and officer of the Company, has payables and accruals due to him of $15,485 as of June 30, 2018, as reflected on
the balance sheet under Accounts Payable and Accrued Expenses. The payable, as agreed upon verbally, has a maturity date greater
than one year, without any other set terms for repayment. Imputed interest is immaterial. On May 15, 2018, the Company issued to
Cowan a License Agreement that grants him exclusive licensee distribution rights to the Freedom Leaf Inc. magazine, as well as
other “Freedom Leaf” branded merchandise and services in southern California. In consideration of such license, Cowan
cancelled $240,000 of payables owed to him by the Company. Also, in connection with this transaction, the Company issued to Cowan
a warrant, exercisable between July 1, 2018 and November 15, 2019, to acquire 1,000,000 shares at an exercise price of $0.01 per
share.



Clifford J. Perry (“Perry”),
former Chief Executive Officer and a former Director of the Company, has compensation due and other payables and accruals due to
him totaling $72,934 and $32,814 as of June 30, 2019 and 2018, respectively, as reflected on the balance sheet under Accounts Payable
and Accrued Expenses. Imputed interest is immaterial.



Raymond P. Medeiros (“Medeiros”),
a former Director of the Company, has compensation due and other payables and accruals due to him totaling $24,423 and $63,000
as of June 30, 2019 and June 30, 2018, respectively, as reflected on the balance sheet under Accounts Payable and Accrued Expenses.
Imputed interest is immaterial.









F-23







On October 31, 2017, the Company issued
850,000 shares of common stock to Paul F. Pelosi, Jr. (“Pelosi”), in regard to his appointment as Chairman of the Board
on November 1, 2017, for compensation for the period November 1, 2017 through January 31, 2018. The Company was obligated to issue
on February 1, 2018, an additional 1,250,000 options for common stock with an exercise price of $0.04, with an expiration date
eighteen months after the issuance. On February 12, 2018, the Company issued 1,250,000 warrants for common stock to Paul Pelosi
in satisfaction of this obligation. The warrants have an exercise price of $0.04 and expire August 11, 2018 (see Note 8). On January
18, 2018, Pelosi purchased 1,050,000 shares of common stock for $21,000. On July 27, 2018, the Company agreed to sell to Paul T.
Pelosi Jr Two Million Two Hundred Thousand (2,200,000) shares of the Company’s 144 common stock for the price of Thirty Eight
Thousand dollars ($38,500), $0.0175 per share, in consideration for which Pelosi agreed to: (1) cancellation and return of the
previously issued to him and exercisable into 1,250,000 shares of Company common stock at $0.04 per share and (2) the cancellation
of the Company’s obligation to issue to him 850,000 shares of Company common stock.



On January 18, 2018, the Company appointed
Richard Groberg, via his company, RSGroberg Consulting, LLC, as its Chief Financial Officer to serve for an initial, two-year term.
In consideration of the services to be performed by Groberg, the Company: (i) issued 800,000 shares of common stock, and (ii) $5,000
per month compensation payable: (1) prior to the date that the Company is paying monthly compensation to its Directors primarily
in cash, in 600,000 shares of common stock (representing the first 12 months’ compensation), and (2) payable in cash thereafter.
The 800,000 and 600,000 shares of common stock were issued on January 18, 2018 and valued at $81,200 and $60,900, respectively.
On May 10, 2018, the Company appointed its CFO, Richard Groberg, as a member of the Company’s Board of Directors. In consideration
of his appointment, the Company agreed to issue to Mr. Groberg’s entity (1) $50,000 in common stock to vest monthly over
a one-year period, at a value of $0.16 per share, for a total of 312,500 shares, and (2) an eighteen-month warrant to acquire 500,000
shares of common stock of the Company at an exercise price of $0.10 per share.



On April 30, 2018, the Company appointed
Nevada State Senator Richard Segerblom as a member of the Company’s Board of Directors and issued to Senator Segerblom (i)
$50,000 in common stock to vest monthly for one year, with a value of $0.159 per share, for a total of 314,465 shares of common
stock, and (ii) an eighteen-month warrant to acquire 500,000 shares of common stock at an exercise price of $0.10 per share.



On May 15, 2018, the Company issued to
Cowan a License Agreement that grants him exclusive licensee distribution rights to the Freedom Leaf Inc. magazine, as well as
other “Freedom Leaf” branded merchandise and services in Southern California. In consideration of such license, Cowan
cancelled $240,000 of payables owed to him by the Company. Also, in connection with this transaction, the Company issued to Cowan
a warrant, exercisable between July 1, 2018 and November 15, 2019, to acquire 1,000,000 shares at an exercise price of $0.01 per
share.



NOTE 7 – INVENTORY



Inventories at June 30, 2019 and 2018 consisted
of the following:



|                                     |  | June 30, |           |   | June 30, |  
|------------------------------------ |  | -------- | --------- | - | -------- | -
|                                     |  | 2019     |           |   | 2017     |  
|Raw materials                        |  | $        | 1,017,291 |   |          | $
|Work in process                      |  |          | –         |   |          |  
|Finished goods                       |  |          | 87,873    |   |          |  
|Allowance for inventory obsolescence |  |          | (21,077   | ) |          |  
|Total inventory                      |  | $        | 1,084,157 |   |          | $



NOTE 8 – PROPERTY AND EQUIPMENT



Property and equipment June 30, 2019 and 2018 consisted of the
following:



|                               |  | June 30, 2019 |         |   | June 30, 2018 |  
|------------------------------ |  | ------------- | ------- | - | ------------- | -
|Property and equipment         |  | $             | 192,944 |   |               | $
|Furniture and office equipment |  |               | 88,330  |   |               |  
|Land                           |  |               | –       |   |               |  
|Building                       |  |               | –       |   |               |  
|Total Fixed Assets             |  |               | 281,274 |   |               |  
|Accumulated depreciation       |  |               | (59,552 | ) |               |  
|Total Fixed Assets, Net        |  | $             | 221,722 |   |               | $



Depreciation expense for the years ended June 30, 2019 and 2018
was $474,682 and $63,698, respectively.









F-24







NOTE 9 – INVESTMENTS



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 was 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. On February 1, 2017, the Agreement was modified for the following items: a) to
provide 25% of the outstanding membership shares of PTP; b) require that the Patent be assigned to PTP; and c) acknowledge that
the ownership rights have not been transferred to the Company as of that date. To date, ownership rights have not been transferred. 
This agreement expired on January 18, 2017.  The Company made no investment in PTP and recorded no investment in that entity.



The Company has investments of $-0- and
$995,400 at June 30, 2019 and 2018, respectively. The investment at June 30, 2018 relates to the 25% investment in Cicero Transact
Group, LLC, a company that is launching an innovative, online business-to-business deal platform. As of June 30, 2018, Cicero Transact
Group, LLC had incurred nominal expenditures and had generated no revenues. The Company has recorded the investment under the cost
method given that the Company does not control or have the ability to exercise significant influence over operating and financial
policies. Its formal development efforts commenced in July 2018. See Notes 8 and 18. As June 30, 2019 the Cicero Transact Group,
LLC investment has been disposed of.



On July 26, 2018, the Company issued 3,000,000
Shares of the common stock to Messers. Michael Woloshin and Joseph Abrams (existing stockholders and owners of the Company’s
25%-owned Cicero Transact Group, LLC), in return of a 25% ownership interest in Cicero Platform Group LLC, a crypto-currency
company. The closing stock price on that date was $0.125 per share, valuing the shares issued at $375,000. The Company has recorded
the investment under the cost method given that the Company does not control or have the ability to exercise significant influence
over operating and financial policies. As June 30, 2019 the Cicero Transact Group, LLC investment has been disposed of.



NOTE 10 – INTANGIBLE ASSETS



Intangible assets at June 30, 2019 and
2018 consisted of the following:



|                                      |  | June 30, |           |   | June 30, |  
|------------------------------------- |  | -------- | --------- | - | -------- | -
|                                      |  | 2019     |           |   | 2018     |  
|Websites and other intangible assets  |  | $        | 174,105   |   |          | $
|Trademarks and trade names            |  |          | 327,000   |   |          |  
|Customer relationships                |  |          | 712,000   |   |          |  
|Patents and intellectual
    property |  |          | –         |   |          |  
|Total intangible assets               |  |          | 1,213,104 |   |          |  
|Accumulated amortization              |  |          | (663,178  | ) |          |  
|Intangible assets, net                |  | $        | 549,927   |   |          | $



The amortization expense for the years ended June 30, 2019 and
2018, was $687,187 and $332,964, respectively. The Company recognized impairment expense on intangible assets for the years ended
June 30, 2019 and 2018, was $780,884 and $-0-, respectively.



The following table presents the amortization for the next five
years:



|2020                |  | $ | 304,552 | 
|------------------- |  | - | ------- | 
|2021                |  |   | 36,333  | 
|2022                |  |   | 36,333  | 
|2023                |  |   | 36,333  | 
|2024 and thereafter |  |   | 136,376 | 
|Total               |  | $ | 549,927 | 









F-25







NOTE 11 – NOTES PAYABLE



Convertible notes payable, all classified
as current at June 30, 2019, consist of the following:





Convertible notes, net of discounts and notes payable



|                                                                                           |  | June 30, |            |   | June 30, |  
|------------------------------------------------------------------------------------------ |  | -------- | ---------- | - | -------- | -
|Notes payable as of June 30, 2019 and June 30, 2018 consist of the following:              |  | 2019     |            |   | 2018     |  
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 12.0%, originated June 18, 2019, due on December 18, 2019 |  | $        | 630,000    |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 12.0%, originated May 21, 2019, due on November 21, 2019  |  | $        | 183,750    |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 18.0%, originated May 14, 2019, due on July 30, 2019      |  | $        | 45,000     |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 12.0%, originated April 15, 2019, due on October 12, 2019 |  | $        | 200,000    |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 40.0%, originated June 30, 2018, due on June 30, 2020     |  | $        | 57,394     |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 40.0%, originated June 30, 2018, due on June 10, 2020     |  | $        | 57,041     |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 0.0%, originated May 31, 2018, due on May 31, 2020        |  | $        | 554,528    |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 40.0%, originated May 31, 2018, due on May 31, 2020       |  | $        | 158,269    |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 1.5%, originated October 23, 2017, due on April 20, 2018  |  | $        | 20,000     |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 0.0%, originated March 3, 2017, due on March 3, 2020      |  | $        | 93,000     |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 5.0%, originated May 17, 2018, due on December 31, 2022   |  | $        | –          |   |          | $
|                                                                                           |  |          |            |   |          |  
|Note payable bearing interest at 0.0%, originated June 5, 2018, due on September 5, 2018   |  | $        | 14,774     |   |          | $
|                                                                                           |  |          |            |   |          |  
|Total notes payable                                                                        |  | $        | 1,905,982  |   |          | $
|Less: current portion                                                                      |  |          | (1,818,982 | ) |          |  
|                                                                                           |  |          |            |   |          |  
|Long-term notes payable                                                                    |  | $        | 87,000     |   |          | $



Notes Payable



On June 4, 2018, the Company borrowed $95,000
from Baytown Holdings, LLC, $10,000 of which was withheld as an original issue discount (“OID”) and the $85,000 of
net proceeds of which was advanced to P2P to fund working capital in connection with orders received by P2P (a cost method
investee of the Company). The loan bears no interest, other than the OID and is due in full on September 5, 2018. At June 30, 2019,
P2P has repaid the Company $95,000; and, the Company has repaid $95,000 to Baytown.









F-26







Effective with the Company’s purchase
of the Valencia, Spain greenhouse on June 30, 2018, for which the Company committed to pay €4,000,000 (approximately US$4.7
million and paid €20,000 down, it committed to pay: (ii) €20,000 a month for 25 months, and (iii) €100,000 per month
thereafter until paid in full. There is 0% interest on the first 25 monthly payments and the interest rate on the remaining balance
is 5%. The principal balance as of June 30, 2018, was $4,348,911. The agreement was in the form of a lease/purchase and included
a clause allowing for the cancellation of the agreement with notice and payment of 2 months lease payments. On May 16, 2019, Leafceuticals
S.L.U. informed the owner of the facility through a notarial deed of its intent to withdraw from the agreement. The required €40,000
(approximately US$48,000) was paid. Freedom Leaf Inc. and Leafceuticals S.L.U have no obligation relating to the agreed price for
the purchase of the greenhouse, as both companies have withdrawn from the contract and the other party has accepted it. Accordingly,
the remaining lease obligation no longer appears on the books of the Company.



In connection with the IRIE acquisition,
the Company assumed a $100,000 Note, which bears no interest and is payable at the rate of $500 per month with the balance due
on March 3, 2020. The principal balance was $93,000.



On March 15, 2019, the Company executed
a promissory note for $300,000 with Paul Pelosi, Jr. a former Director of the Company. The note pays interest of 10% of the note
amount, or $30,000, which amount is payable at the maturing date of the Note – 100 days after availability of funds. This
note was repaid in full June 23, 2019.



In connection with the ECS Labs, LLC acquisition,
on May 31,2019 the Company assumed a $40,000 promissory note payable to Carlos Frias for biomass reimbursement, and promissory
notes payable to Carlos Frias of $75,000 and $8,657 for contributions. The $40,000 note bears interest at 40% and is due June 10,
2020. Each of the notes for contributions were documented in writing.



In connection with the ECS Labs, LLC acquisition,
on May 31,2019 the Company assumed promissory notes payable to Alexandro Frias of $75,000 and $8,657 for contributions. The notes
for contributions were not documented in writing.



In connection with the ECS Labs, LLC acquisition,
on May 31,2019 the Company assumed a $110,000 promissory note payable to Ngoc “Daniel” Quong Nguyen for biomass reimbursement,
and promissory notes payable to Ngoc “Daniel” Quong Nguyen of $45,000 for contributions. The $110,000 note bears interest
at 40% and is due June 10, 2020. The $45,000 note payable requires 18% interest payments each month.



In connection with the ECS Labs, LLC acquisition,
on May 31,2019 the Company assumed a $360,000 promissory note payable to Rachel and Elgin Allen for biomass reimbursement. The
note includes payment to Rachel and Elgin Allen of 12 monthly principal payments in the amount of $30,000 starting at the end of
the 13th month and will continue for the next 11 months. Additionally, the note includes payment of an additional balloon
payment equal to the principal loan amount.



In connection with the ECS Labs, LLC acquisition,
on May 31,2019 the Company assumed a $200,000 promissory note payable to Merida Capital for working capital. The note bears interest
at 12% and is due October 15, 2019.



On May 21, 2019, the Company executed a
promissory note for $183,750 with Merida Capital Partners 2, for working capital. The note bears interest at 12% and is due May
21, 2019.



On June 18, 2019, the Company executed
a promissory note for $630,000 with Merida Capital Partners 3, for working capital. The note bears interest at 12% and is due June
18, 2019.



NOTE 12– STOCKHOLDERS’ EQUITY



Series A Preferred Stock



On May 24, 2016, the Board of Directors
of the Company authorized amending the Company’s Articles of Incorporation to authorize 10,000,000 shares of “blank
check” preferred stock and designate 1,000,000 of the shares as Series A preferred stock. Each share of the Series A preferred
stock is entitled to 500 votes and is convertible into 100 shares of common stock.









F-27







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.



Common Stock



The Company is authorized to issue up to
100,000,000 shares of common stock, par value $0.001 per share. 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. As of June 30, 2019 and 2018 there were 310,600,203 and 185,369,365 shares of common stock were outstanding,
respectively.



The Company made the following issuances during the year ended
June 30, 2018:



|                                                  |  | Shares |            |  | Fair Value |   |           | Average Price per Share | 
|------------------------------------------------- |  | ------ | ---------- |  | ---------- | - | --------- | ----------------------- | 
|                                                  |  |        |            |  |            |   |           |                         | 
|Common stock issued for warrants and cash         |  |        | 21,243,829 |  |            | $ | 1,388,558 |                         | 
|Common stock issued for accounts payable          |  |        | 13,220,275 |  |            |   | 661,443   |                         | 
|Common stock issued in business combinations      |  |        | 8,118,886  |  |            |   | 1,294,023 |                         | 
|Common stock issued for services                  |  |        | 11,494,062 |  |            |   | 1,202,215 |                         | 
|Common stock issued for debt                      |  |        | 12,263,698 |  |            |   | 1,346,519 |                         | 
|Common stock issued for inventory and intangibles |  |        | 3,100,000  |  |            |   | 313,360   |                         | 
|Common stock issued for cost method investments   |  |        | 6,000,000  |  |            |   | 995,400   |                         | 
|Common stock issued for exercise of warrants      |  |        | 215,378    |  |            |   | –         |                         | 
|                                                  |  |        |            |  |            |   |           |                         | 
|Total                                             |  |        | 74,267,570 |  |            | $ | 7,201,518 |                         | 



The Company made the following issuances during the year ended
June 30, 2019:



|                                                |  | Shares |             |  | Fair Value |   |            | Average Price per Share | 
|----------------------------------------------- |  | ------ | ----------- |  | ---------- | - | ---------- | ----------------------- | 
|                                                |  |        |             |  |            |   |            |                         | 
|Common stock issued for warrants cash           |  |        | 29,702,424  |  |            | $ | 3,328,500  |                         | 
|Common stock issued for services                |  |        | 3,272,747   |  |            |   | 380,367    |                         | 
|Common stock issued in exercise of warrants     |  |        | 1,000,000   |  |            |   | 50,000     |                         | 
|Common stock issued for business combinations   |  |        | 88,916,419  |  |            |   | 14,455,838 |                         | 
|Common stock issued for cost method investments |  |        | 3,000,000   |  |            |   | 375,000    |                         | 
|                                                |  |        |             |  |            |   |            |                         | 
|Total                                           |  |        | 125,230,838 |  |            | $ | 7,201,518  |                         | 



Options and Warrants



As of June 30, 2019, the Company had options and warrants to
acquire 48,444,444 shares of common stock were outstanding.









F-28







A summary of the status of the options and warrants granted
as of June 30, 2019 and 2018, and the changes during the years then ended is presented below:



|                                |  | Number of Options and Warrants |            |   | Weighted Average Exercise Price |   |      | Weighted Average Remaining Life | 
|------------------------------- |  | ------------------------------ | ---------- | - | ------------------------------- | - | ---- | ------------------------------- | 
|Outstanding as of June 30, 2017 |  |                                | 4,618,167  |   |                                 | $ | –    |                                 | 
|Granted                         |  |                                | 7,694,444  |   |                                 |   | 0.13 |                                 | 
|Exercised                       |  |                                | (268,167   | ) |                                 |   | 0.06 |                                 | 
|Cancelled or Expired            |  |                                | (3,250,000 | ) |                                 |   | 0.05 |                                 | 
|Outstanding as of June 30, 2018 |  |                                | 8,794,444  |   |                                 | $ | 0.12 |                                 | 
|Granted                         |  |                                | 42,000,000 |   |                                 |   | 0.21 |                                 | 
|Exercised                       |  |                                | (1,000,000 | ) |                                 |   | 0.06 |                                 | 
|Cancelled or Expired            |  |                                | (1,350,000 | ) |                                 |   | 0.06 |                                 | 
|Outstanding as of June 30, 2019 |  |                                | 48,444,444 |   |                                 | $ | 0.20 |                                 | 
|                                |  |                                |            |   |                                 |   |      |                                 | 
|Exercisable as of June 30, 2018 |  |                                | 7,794,444  |   |                                 | $ | 0.10 |                                 | 
|Exercisable as of June 30, 2019 |  |                                | 48,444,444 |   |                                 | $ | 0.20 |                                 | 



A summary of the status of options and warrants outstanding
as of June 30, 2019 is presented below:



|Range of Exercise Prices |  | Number Outstanding |            |  | Weighted Average Remaining Contractual Life |  |      | Number Exercisable |  |  | Weighted Average Exercise Price | 
|------------------------ |  | ------------------ | ---------- |  | ------------------------------------------- |  | ---- | ------------------ |  |  | ------------------------------- | 
|$0.10 - $0.19            |  |                    | 30,444,444 |  |                                             |  | 1.98 |                    |  |  | 30,444,444                      | 
|$0.20 - $0.29            |  |                    | 18,000,000 |  |                                             |  | 2.21 |                    |  |  | 18,000,000                      | 
|TOTAL                    |  |                    | 48,444,444 |  |                                             |  | 2.07 |                    |  |  | 48,444,444                      | 



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. The Board of Directors has no plans to
reserve additional shares for this purpose.



NOTE 13– REVENUE CLASSES



Selected financial information for the
Company’s operating revenue classes as of June 30, 2018 and 2017, are as follows:



|Revenues:        |  | June
    30, |          
|---------------- |  | ------------ | ---------
|                 |  | 2019         |          
|Magazine related |  | $            | 1,616    
|Product sales    |  |              | 2,317,133
|Total            |  | $            | 2,318,749



|                         |  | For the years ended |          
|------------------------ |  | ------------------- | ---------
|Direct costs of revenue: |  | June 30,            |          
|                         |  | 2019                |          
|Magazine related         |  | $                   | –        
|Product sales            |  |                     | 2,315,070
|Total                    |  | $                   | 2,315,070



The Company’s four revenue classes
are magazine related and product sales.









F-29







NOTE 14 – INCOME TAX



As of June 30, 2019, and 2018, the Company
has net operating loss carry forwards of $11,789,383 and $4,594,669, respectively. The carry forwards expire through the year 2039.
The Company’s net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization
of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code.



The Company’s tax expense differs
from the “expected” tax expense for Federal income tax purposes (computed by applying the United States Federal tax
rate of 21% to loss before taxes for year 2019 and 21% to loss before taxes for fiscal year 2018), as follows:



|                                                      |  | For the Years Ended |           
|----------------------------------------------------- |  | ------------------- | ----------
|                                                      |  | June 30,            |           
|                                                      |  | 2019                |           
|                                                      |  |                     |           
|Tax expense (benefit) at the statutory rate           |  | $                   | 4,665,860 
|State income taxes, net of federal income tax benefit |  |                     | –         
|Change in valuation allowance                         |  |                     | (4,665,860
|                                                      |  |                     |           
|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 2015 through 2019 remain
subject 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, 2019 and 2018, respectively, are as follows:



|                                             |  | June 30, |           
|-------------------------------------------- |  | -------- | ----------
|                                             |  | 2019     |           
|                                             |  |          |           
|Deferred tax assets:                         |  |          |           
|Net operating loss carryforward              |  | $        | 4,468,147 
|Timing differences                           |  |          | 2,203,142 
|Total gross deferred tax assets              |  |          | 6,671,288 
|Less: Deferred tax asset valuation allowance |  |          | (6,671,288
|                                             |  |          |           
|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 2019 were fully offset by a 100% valuation allowance. The valuation allowance for
the remaining net deferred tax assets was $6,671,288 and $2,305,184 as of June 30, 2019 and 2018, respectively.









F-30







NOTE 15 – 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, 2019. There have been
no losses in these accounts through June 30, 2019.



Concentration of Revenue



In 2019, the Company had 11 customers that
together made up 16% of its revenue. None of the customers in 2019 individual comprised more than 2.25% of revenue. In 2018, the
Company had six customers that made up 64.9% or more of its revenue



Concentration of Supplier



The Company relies on several suppliers,
including:

| | · | Mile High Labs - provision of isolate, distillate and mother liquor
| | - | -------------------------------------------------------------------

| | · | Cosmetic Innovations - contract manufacturing of various product lines
| | - | ----------------------------------------------------------------------

| | · | Hammer Enterprises – biomass and crude vendor
| | - | ---------------------------------------------



Other vendors are available to replace
each of the suppliers above, should a replacement or additional capacity beyond what is currently offered be required.



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. The Company
also owns



NOTE 16 – 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 October 15, 2019 the Company executed
a Promissory Note with Merida Capital Partners III LP. The note is in the principal sum of $900,000 plus accrued interest thereon,
bears interest at the rate of twelve per cent (12.0%) per annum and matures April 15, 2020.



On September 24, 2019, the Board of Directors
(the “Board”) of Freedom Leaf Inc. appointed Brian Moon to serve as the Chief Financial Officer of the Company. In
connection with Mr. Moon’s appointment as Chief Financial Officer, on September 24, 2019, the Board approved entering into
an at-will employment agreement (the “Employment Agreement”) with Mr. Moon, dated August 5, 2019, and effective the
first day of Mr. Moon’s employment on September 23, 2019. Under the terms of the Employment Agreement, the Company agreed
to equity incentives consisting of (i) an award of 1,000,000 shares of the Company’s restricted common stock on October 1,
2019, to vest 12 months thereafter on October 1, 2020 (the “first Equity Award”), and (ii) an award of an additional
1.000,000 shares on April 1, 2020 to vest 12 months thereafter on April 1, 2021 (the “Second Equity Award”). On September
24, 2019, the Company also entered into a Restricted Stock Agreement with Mr. Moon pursuant to which the vesting of the First Equity
Award and Second Equity Award was formalized. Pursuant to the Restricted Stock Agreement, (i) the First Equity Award will vest
on October 1, 2020, and the Second Equity Award will vest on April 1, 2021, so long as Mr. Moon is continuously employed by the
Company on such dates.



On September 13, 2019 the Company executed
a Promissory Note with Merida Capital Partners III LP. The note is in the principal sum of $500,000 plus accrued interest thereon,
bears interest at the rate of twelve per cent (12.0%) per annum and matures March 13, 2020.









F-31







On August 28, 2019, the Company also entered
into a Restricted Stock Agreement with Carlos Frias, the Company’s Chief Executive Officer and a member of the Company’s
Board, providing for the issuance of 72,314,814 shares of common stock to Mr. Frias (the “Carlos Frias Common Shares”).
Pursuant to the Restricted Stock Agreement, (i) 29.63% of the Carlos Frias Common Shares will vest on the 12 month anniversary
of the Effective Date (May 31, 2019) if Mr. Frias is continuously employed by the Company on such date, (ii) 29.63% of the Carlos
Frias Common Shares will vest on the 24 month anniversary of the Effective Date if Mr. Frias is continuously employed by the Company
on such date, and (iii) 40.74% of the Carlos Frias Common Shares will vest on upon the occurrence of the milestone. The milestone
means the occurrence of an extension of the Master Manufacturing Agreement, dated as of November 13, 2017,
by and between ECS Labs LLC and CBD LIFE SA DE CV through December 31, 2020.



On August 28, 2019, the Company also entered
into a Restricted Stock Agreement with Alex Frias, the Company’s Vice President of Finance, providing for the issuance of
48,072,390 shares of common stock to Mr. Frias (the “Alex Frias Common Shares”). Pursuant to the Restricted Stock Agreement,
(i) 29.63% of the Alex Frias Common Shares will vest on the 12 month anniversary of the Effective Date (May 31, 2019) if Mr. Frias
is continuously employed by the Company on such date, (Ii) 29.63% of the Alex Frias Common Shares will vest on the 24 month anniversary
of the Effective Date if Mr. Frias is continuously employed by the Company on such date, and (iii) 40.74% of the Alex Frias Common
Shares will vest on upon the occurrence of the milestone. The milestone means the occurrence of an extension of the Master Manufacturing
Agreement, dated as of November 13, 2017, by and between ECS Labs LLC and CBD LIFE SA DE CV through December
31, 2020.



On August 28, 2019, the Company also entered
into a Restricted Stock Agreement with Ngoc Quang (Daniel) Nguyen, the Company’s Chief Science Officer and a member
of the Company’s Board, providing for the issuance of 60,193,602 shares of common stock to Mr. Nguyen (the “Daniel Nguyen
Common Shares”). Pursuant to the Restricted Stock Agreement, (i) 29.63% of the Daniel Nguyen Common Shares will vest
on the 12 month anniversary of the Effective Date (May 31, 2019) if Mr. Nguyen is continuously employed by the Company on such
date, (ii) 29.63% of the Daniel Nguyen Common Shares will vest on the 24 month anniversary of the Effective Date if Mr. Nguyen
is continuously employed by the Company on such date, and (iii) 40.74% of the Daniel Nguyen Common Shares will vest on upon
the occurrence of the milestone. The milestone means the occurrence of an extension of the Master Manufacturing Agreement, dated as of November 13, 2017,
by and between ECS Labs LLC and CBD LIFE SA DE CV through December 31, 2020.



On August 20, 2019 the Company executed
a Promissory Note with Merida Capital Partners III LP. The note is in the principal sum of $400,000 plus accrued interest thereon,
bears interest at the rate of twelve per cent (12.0%) per annum and matures February 20, 2020.



On August 19, 2019,
the Company filed a Certificate of Amendment to its Articles
of Incorporation to increase the Company’s authorized common stock from
500,000,000 shares to 1,000,000,000 shares.



On July 24, 2019 the Company executed a
Promissory Note with Merida Capital Partners III LP. The note is in the principal sum of $200,000 plus accrued interest thereon,
bears interest at the rate of twelve per cent (12.0%) per annum and matures on December 24, 2019.

















F-32







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



There are no reportable events under this
item for the fiscal year ended June 30, 2019.



Item 9A. Controls and Procedures.



Disclosure
Controls and Procedures



The Securities and Exchange Commission
defines the term “disclosure controls and procedures” to mean the company's controls and other procedures of an issuer
that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities
Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files
or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer's management, including its
principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. The Company maintains such a simple system of controls and procedures in an effort to ensure that
all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required
to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions
regarding disclosure.



As of the end of the period covered by
this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and
chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this
evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were
not effective to provide reasonable assurance of achieving the objectives of timely alerting them to material information required
to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported
with the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls
and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance of the achievement
of these objectives.



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.









24







Management assessed the effectiveness of
the Company’s internal control over financial reporting as of June 30, 2019. Based on this assessment, management concluded
that, as of June 30, 2019, the Company’s internal control over financial reporting was not effective based on those criteria.



To remediate our internal control weaknesses,
management intends to implement the following measures:



| | · | The Company plans to add a sufficient number of independent directors to its Board and staff its
audit committee with additional directors that qualify as “independent” directors pursuant to relevant NASDAQ or similar
exchange rules.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Company will add sufficient knowledgeable accounting personnel to properly segregate duties
and to affect a timely, accurate preparation of the financial statements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate
written accounting policies and procedures.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



The additional hiring of accounting personnel
and appointment of independent members of the Board is contingent upon the Company’s operational efforts. Management expects
to hire additional personnel and staff its audit committee with at additional independent directors in the coming fiscal year but
provides no assurances that it will be able to do so.



We understand that remediation of material
weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations.
However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress
and sufficiency of our ongoing initiatives and make adjustments as and when necessary.



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 rules of the SEC that permit us to provide
only management’s report in this annual report. On July 21, 2010, President Obama signed the DoddFrank Wall Street Reform
and Consumer Protection Act. Included in the Act is a provision that permanently exempts smaller public companies that qualify
as either a “NonAccelerated Filer” or “Smaller Reporting Company” from the auditor attestation requirement
of Section 404(b) of the SarbanesOxley Act of 2002.



There was no change in our internal control
over financial reporting during the fiscal quarter ended June 30, 2019, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.



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.





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.







25







PART III



Item 10. Directors, Executive Officers and Corporate Governance.



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



|Name           |  | Age |  | Position                               
|-------------- |  | --- |  | ---------------------------------------
|Carlos Frias   |  | 38  |  | Chief Executive Officer & Director (1) 
|Brian Moon     |  | 57  |  | Chief Financial Officer (2)            
|Daniel Nguyen  |  | 40  |  | Chief Scientific Officer & Director (3)
|Alex Frias     |  | 37  |  | Vice President of Finance (4)          
|David Goldburg |  | 56  |  | Chairman of the Board of Directors (5) 
|David Vautrin  |  | 49  |  | Director (6)                           



|(1) | Appointed on May 31, 2019.                                                                             
|--- | -------------------------------------------------------------------------------------------------------
|(2) | Appointed on September 24, 2019.                                                                       
|(3) | Appointed on May 31, 2019.                                                                             
|(4) | Appointed on June 19, 2019.                                                                            
|(5) | Appointed as Director on October 31, 2018, and Chairman of the Board of Directors on November 21, 2018.
|(6) | Appointed as Director on January 4, 2019.                                                              



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.



Carlos Frias – Chief Executive
Officer and Director

A Marine Corps veteran, Mr. Frias co-founded
and served as the CEO of Green LotusTM prior to its acquisition by the Company on May 31, 2019, when he was appointed as the
CEO and director of the Company in connection with the acquisition. Mr. Frias has been a leader in the cannabis industry for 16
years, particularly in the medical cannabis market—founding an investment fund and a non-profit in Texas and California,
respectively.



Brian Moon – Chief Financial
Officer

Mr. Moon, age 57, was the CFO of Team ProMark,
a sports license development and sales company. Mr. Moon was with the company from 2013 until joining the Company. Previously,
Mr. Moon was the CFO of Ensemble Studios and executed what was at the time the largest video game design company sale to a publisher
(Microsoft) in industry history, and previously in Mr. Moon’s professional career, he worked for Deloitte and Touche. Mr.
Moon has a BBA in Accounting from Baylor University and earned a Texas CPA certificate.



Daniel Nguyen – Chief Scientific
Officer and Director

Mr. Nguyen has 19 years of experience in
pharmaceuticals, nutraceuticals, and cosmetics. In October 2017, Mr. Nguyen was appointed CSO of Green LotusTM, where he oversaw
compounding and production for a premium hemp oil brand that manufactures and distributes hemp-derived products both nationally
and internationally. Prior to his appointment at Green LotusTM, Mr. Nguyen has worked as a research chemist and chemical compounder,
including positions at Access Pharmaceuticals and Fruit of the Earth for more than 3 years.



Alex Frias – Vice President
of Finance

Mr. Frias co-founded and served as Vice
President of Finance for Green Lotus prior to its acquisition by the Company on May 31, 2019, when he was appointed the Vice President
of Finance of the Company in connection with the acquisition. Since 2008, Mr. Frias has been an owner and operator of several medical
cannabis businesses, improving yield efficiencies and overseeing several grow operations as Chief Cultivation Officer in California
before founding Green Lotus.









26







David Goldburg – Chairman
of the Board of Directors

Mr. Goldburg is a Senior Partner of Merida
Capital Partners II, LP, a cannabis-focused private equity fund which was the leading investor in the Company’s private placement
described in the Current Report on Form 8-K filed by the Company on August 3, 2018. Mr. Goldburg has specialized in credit investing
for the past 25 years, managing proprietary investment portfolios at leading Wall Street firms and hedge funds. Mr. Goldburg has
previously served as the senior member of the New York office of Silver Rock Financial, Michael Milken’s family office, and
has filled senior roles at Goldman Sachs, Oak Hill Advisors, Morgan Stanley, and Bear Stearns. Mr. Goldburg began his career as
an analyst in the mergers and acquisitions group at the First Boston Corporation, received a B.A. in History from Brown University
and is a Harry S. Truman Scholar.



David Vautrin – Director

Mr. Vautrin brings invaluable beverage
and cannabis expertise to the Company’s Board of Directors. He has a long successful track record in privately held and publicly
traded, multi-billion dollar Consumer Packaged Goods (CPG) companies, as well as ownership and leadership in mid-cap and emerging
growth organizations. Since March of 2017, Mr. Vautrin has been the Vice President of Sales & Marketing of Origin House (CSE:
OH, OTCQX: ORHOF, formerly known as CannaRoyalty). Origin House provides investors unique access to diverse, high potential, growth-ready
assets in North America’s emerging cannabis market. Prior to his appointment as a member of the Company’s Board of
Directors, Mr. Vautrin had just completed a two-year term as an Independent Director of New Age Beverages Corp. (Nasdaq: NBEV).
NBEV is a healthy functional beverage company with a large portfolio of Beverage Brands sold in approximately 60 countries and
domestically across retail and convenience stores. While on their Board of Directors, he also was on the audit committee and led
the compensation committee for that company. During his tenure, the company successfully up listed from the OTC to the NASDAQ exchange,
raised over $100 million, acquired 5 companies, 4 brands, 11 patents, established robust governance, and increased liquidity of
the stock while significantly expanding the company’s market capitalization. Since January of 2009, Mr. Vautrin has also
been serving as a strategic advisor to DBC, a consumer goods company whose primary brand Pirouline® Rolled Wafer product is
sold in approximately 30 countries and domestically, across retail channels including grocery, drug, export, value, e-commerce,
food service and specialty distributors. Mr. Vautrin has also held other senior level positions, including CEO of Throwdown Industries
Holdings from May 2009 to December 2016 and Senior Vice President of Cott Corporation (NYSE:COTT) from May 2007 to August 2008.
He is a graduate of The State University of New York, Plattsburgh, with a degree in business administration.





There are no family relationships among
any of our directors and executive officers except that Carlos Frias and Alex Frias are brothers.



Our Directors are elected at the annual
meeting of the stockholders, 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 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 as a result of their service
as officers, directors or agents of the Company. 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 similar
successors; 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.









27







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 on directors and officers of the Company. 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 Nevada law.



During the last five years, no director,
officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.



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



The Company currently 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 of the Company.



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 four
Directors and has not established audit, 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 current members of our board of directors.



We believe that members of our board of
directors are currently capable of analyzing and evaluating our consolidated financial statements.



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



The Company has recently separated the
roles of Chief Executive Officer (“CEO”) and Chairman of the Board in recognition of the differences between the two
roles. The CEO is responsible for setting the Company’s strategic direction, providing leadership and driving the performance
of the Company, while the Chairman of the Board provides guidance to the CEO, sets the agenda for Board meetings and presides over
meetings of the full Board. In light of the industry experience and management expertise of David Goldburg, our Chairman, and the
extensive experience and dynamic leadership of Carlos Frias, our CEO, the Board feels that this structure continues to be appropriate
for the Company.



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







28









Item 11. Executive Compensation.



Summary Compensation Table— Fiscal Years Ended June
30, 2019 and 2018



The following table sets forth information concerning all cash
and noncash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the
fiscal years ended June 30, 2019 and 2018.



|                                     |      |        |        |       |   |        |  |        |           | Non-Equity   |   | Non-Qualified |  |              |   |        |  
|------------------------------------ | ---- | ------ | ------ | ----- | - | ------ |  | ------ | --------- | ------------ | - | ------------- |  | ------------ | - | ------ | -
|                                     |      |        |        |       |   |        |  |        |           | Incentive    |   | Deferred      |  |              |   |        |  
|                                     |      |        |        |       |   | Stock  |  | Option |           | Plan         |   | Compensation  |  | All Other    |   |        |  
|Name and                             |      | Salary |        | Bonus |   | Awards |  | Awards |           | Compensation |   | Earnings      |  | Compensation |   | Totals |  
|Principal Position                   | Year | ($)    |        | ($)   |   | ($)    |  | ($)    |           | ($)          |   | ($)           |  | ($)          |   | ($)    |  
|Carlos Frias                         | 2019 | $      | 81,256 |       | $ | 25,945 |  | $      | 1,549,548 |              | $ | 0             |  | $            | 0 |        | $
|Chief Executive Officer(1)           | 2018 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Daniel Nguyen                        | 2019 | $      | 78,641 |       | $ | 0      |  | $      | 1,291,286 |              | $ | 0             |  | $            | 0 |        | $
|Chief Scientific Officer(2)          | 2018 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Alex Frias                           | 2019 | $      | 78,183 |       | $ | 2,500  |  | $      | 1,033,036 |              | $ | 0             |  | $            | 0 |        | $
|Vice President of Finance(3)         | 2018 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Clifford Perry                       | 2019 | $      | 72,291 |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Director of Corporate Development(4) | 2018 | $      | 87,900 |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Raymond Medeiros                     | 2019 | $      | 14,957 |       | $ | 65,003 |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Director of Business Development(5)  | 2018 | $      | 63,000 |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Brian Moon                           | 2019 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Chief Financial Officer(6)           | 2018 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Laurence Ruhe                        | 2019 | $      | 55,521 |       | $ | 11,715 |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Former Chief Financial Officer(7)    | 2018 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Richard Groberg                      | 2019 | $      | 0      |       | $ | 0      |  | $      | 0         |              | $ | 0             |  | $            | 0 |        | $
|Former Chief Financial Officer(8)    | 2018 | $      | 0      |       | $ | 0      |  | $      | 186,892   |              | $ | 0             |  | $            | 0 |        | $

________________________

_________________________________

(1) Carlos Frias was appointed as our Chief Executive Officer
on May 31, 2019.



(2) Daniel Nguyen was appointed as our Chief Scientific Officer
on May 31, 2019.



(3) Alex Frias was appointed as our Vice President of Finance
on June 19, 2019.



(4) Clifford Perry resigned as our Chief Executive Officer,
was appointed as our Director of Corporate Development on May 31, 2019 and resigned from all positions with the Company on October
18, 2019.



(5) Raymond Medeiros resigned as our Executive Vice President
and was appointed as our Director of Business Development on May 31, 2019, and he resigned from all positions with the Company
on October 18, 2019.



(6) Brian Moon was appointed as our Chief Financial Officer
on September 24, 2019.



(7) Mr. Ruhe was appointed as our Chief
Financial Officer on November 21, 2018, and he resigned as our Chief Financial Officer on May 31, 2019.



(8) Mr. Groberg was appointed as our Chief
Financial Officer on January 18, 2018, and he resigned as our Chief Financial Officer on November 24, 2018. Mr. Groberg’s
entity was issued 800,000 shares of common stock and 600,000 shares of common stock on or about January 18, 2018, in consideration
of his appointment as CFO.









29







Outstanding Equity Awards at Fiscal Year End



As of June 30, 2019, the Company did not maintain a current
equity incentive plan or other plan, including but not limited to bonus, deferred compensation or retirement plan under which the
Company’s securities may be issued to its named executive officers as compensation.



Employment Agreements



As of June 30, 2019, the Company had employment
agreements with Carlos Frias, Daniel Nguyen, Alex Frias, Clifford Perry, and Raymond Medeiros as follows:



In connection with Mr. Frias’ appointment
as Chief Executive Officer and a director of the Company, the Board approved an Employment Agreement, effective as of the closing
of the Green Lotus Acquisition, by and between the Company and Carlos Frias. Under the terms of the agreement, the Company agreed
to pay Mr. Frias an annual base salary of $130,000 for a term of two years. Subject to Mr. Frias’ continued provision of
services to the Company, the agreement also provides for cash incentives of $2,400,000 and equity incentives of $10,738,750 of
the Company’s restricted common stock, at a share price equal to the VWAP of the Company’s common stock for the 30
trading days prior to its award. The agreement also contains provisions for further cash and equity incentive awards to be determined
based upon the net operating income (as defined in the employment agreement) received by the Company in the twelve months after
the Closing Date pursuant to a Master Manufacturing Agreement, dated as of November 13, 2017, by and between ECS and CBD LIFE SA
DE CV (as amended, restated, modified or supplemented from time to time, the “Master Agreement”). Subject to Mr. Frias’
continued provision of services to the Company, Mr. Frias will receive a cash incentive award equal to 15 percent of such net operating
income and an equity incentive award of the Company’s common stock equal to 25 percent of such net operating income, at a
share price based on the VWAP of the Company’s common stock for the thirty trading days prior to its award. The agreement
is terminable for cause, death or disability.



In connection with Mr. Nguyen’s appointment
as Chief Scientific Officer and as a director of the Company, the Board approved an Employment Agreement, effective as of the closing
of the Green Lotus Acquisition, by and between the Company and Mr. Nguyen. Under the terms of the agreement, the Company agreed
to pay Mr. Nguyen an annual base salary of $100,000 for a term of two years. Subject to Mr. Nguyen’s continued provision
of services to the Company, the agreement also provides for cash incentives of $2,000,000 and equity incentives of $8,938,750 of
the Company’s restricted common stock, at a share price equal to the VWAP of the Company’s common stock for the 30
trading days prior to its award. The agreement also contains provisions for further cash and equity incentive awards to be determined
based upon the net operating income (as defined in the employment agreement) received by the Company in the twelve months after
the Closing Date pursuant to the Master Agreement. Subject to Mr. Nguyen’s continued provision of services to the Company,
Mr. Nguyen will receive a cash incentive award equal to 12.49875 percent of such net operating income and an equity incentive award
of the Company’s common stock equal to 20.83125 percent of such net operating income, at a share price based on the VWAP
of the Company’s common stock for the thirty trading days prior to its award. The agreement is terminable for cause, death
or disability.



In connection with Clifford J. Perry’s
engagement as Director of Corporate Development, the Board approved an Employment Agreement, dated May 31, 2019, by and between
the Company and Clifford J. Perry. Under the terms of the agreement, the Company agreed to pay Clifford J. Perry and annual base
salary of $115,000 for a term of two years. The agreement is terminable for cause, death or disability.



In connection with Raymond Medeiros’
engagement as Director of Business Development, the Board approved an Employment Agreement, dated May 31, 2019, by and between
the Company and Raymond Medeiros. Under the terms of this agreement, the Company agreed to pay Raymond Medeiros and annual base
salary of $100,000 for a term of two years. The agreement is terminable for cause, death or disability.



In connection with Alex Frias’ engagement
as an employee of the Company, the Board approved an Employment Agreement, effective as of the closing of the Green Lotus Acquisition,
by and between the Company and Alex Frias. Under the terms of the agreement, the Company agreed to pay Alex Frias an annual base
salary of $100,000 for a term of two years. Subject to Alex Frias’ continued provision of services to the Company, the agreement
also provides for cash incentives of $1,600,000 and equity incentives of $7,138,750 of the Company’s restricted common stock,
at a share price equal to the VWAP of the Company’s common stock for the 30 days prior to its award. The agreement also contains
provisions for further cash and equity incentive awards to be determined based upon the net operating income (as defined in the
employment agreement) received by the Company in the twelve months after the Closing Date pursuant to the Master Agreement. Subject
to Mr. Frias’ continued provision of services to the Company, Mr. Frias will receive a cash incentive award equal to 10.00125
percent of such net operating income and an equity incentive award consisting of the Company’s common stock equal to 16.66875
percent of such net operating income, at a share price based on the VWAP of the Company’s common stock for the thirty trading
days prior to its award. The agreement is terminable for cause, death or disability.









30







Compensation of Directors



The following table provides information regarding the compensation
of the Company’s non-executive directors for the fiscal years ended June 30, 2019 and 2018. The Company’s executive
directors (Carlos Frias and Daniel Nguyen since their appointments on May 31, 2019, and Clifford Perry and Raymond Medeiros prior
to their resignations from all positions with the Company on October 18, 2019) did not receive any separate compensation for their
services as directors.



Summary Compensation Table



|                      |      |  |        |   |       |   |        |  |        |         | Non-Equity   |   | Non-Qualified |     |              |   |        |  
|--------------------- | ---- |  | ------ | - | ----- | - | ------ |  | ------ | ------- | ------------ | - | ------------- | --- | ------------ | - | ------ | -
|                      |      |  |        |   |       |   |        |  |        |         | Incentive    |   | Deferred      |     |              |   |        |  
|                      |      |  |        |   |       |   | Stock  |  | Option |         | Plan         |   | Compensation  |     | All Other    |   |        |  
|Name and              |      |  | Salary |   | Bonus |   | Awards |  | Awards |         | Compensation |   | Earnings      |     | Compensation |   | Totals |  
|Principal Position    | Year |  | ($)    |   | ($)   |   | ($)    |  | ($)    |         | ($)          |   | ($)           |     | ($)          |   | ($)    |  
|Paul Pelosi, Jr. (1)  | 2018 |  | $      | 0 |       | $ | 0      |  | $      | 26,265  | (2)          | $ | 161,000       | (3) | $            | 0 |        | $
|                      | 2019 |  | $      | 0 |       | $ | 0      |  | $      | 0       |              | $ | 0             |     | $            | 0 |        | $
|Richard Segerblom (4) | 2018 |  | $      | 0 |       | $ | 0      |  | $      | 49,623  | (5)          | $ | 34,400        | (6) | $            | 0 |        | $
|                      | 2019 |  | $      | 0 |       | $ | 0      |  | $      | 0       |              | $ | 0             |     | $            | 0 |        | $
|Richard Groberg (7)   | 2018 |  | $      | 0 |       | $ | 0      |  | $      | 6,986   | (8)          | $ | 34,400        | (9) | $            | 0 |        | $
|                      | 2019 |  | $      | 0 |       | $ | 0      |  | $      | 0       |              | $ | 0             |     | $            | 0 |        | $
|David Vautrin (10)    | 2018 |  | $      | 0 |       | $ | 0      |  | $      | 0       |              | $ | 0             |     | $            | 0 |        | $
|                      | 2019 |  | $      | 0 |       | $ | 0      |  | $      | 80,097  |              | $ | 0             |     | $            | 0 |        | $
|David Goldburg (11)   | 2018 |  | $      | 0 |       | $ | 0      |  | $      | 0       |              | $ | 0             |     | $            | 0 |        | $
|                      | 2019 |  | $      | 0 |       | $ | 0      |  | $      | 125,000 |              | $ | 0             |     | $            | 0 |        | $



(1) Mr. Pelosi was appointed as a member of our Board of Directors
on October 31, 2018, and resigned November 21, 2018.



(2) Represents the fair value as of the grant date of October
27, 2017, of an aggregate of 850,000 shares of the Company’s common stock issued during the year ended June 30, 2018, computed
in accordance with FASB ASC Topic 718.



(3) Represents the fair value as of the grant date of February
1, 2018, of warrants to purchase 1,250,000 shares of the Company's common stock at an exercise price of $0.04, which vested during
the fiscal year ending June 30, 2018, computed in accordance with FASB ASC Topic 718.



(4) Senator Segerblom was appointed as a member of our Board
of Directors on April 30, 2018 and resigned effective May 31, 2019.



(5) Represents the fair value as of the grant dates of April
30, 2018 of an aggregate of 314,465 shares of the Company’s Common Stock issued during the year ended June 30, 2018, computed
in accordance with FASB ASC Topic 718.



(6) Represents the fair value as of the grant date of April
30, 2018 of warrants to purchase 500,000 shares of the Company's common stock at an exercise price of $0.10, which vested during
the fiscal year ending June 30, 2018, computed in accordance with FASB ASC Topic 718.



(7) Mr. Groberg was appointed as a member of our Board of Directors
on May 10, 2018 and resigned effective May 31, 2019.



(8) Represents the fair value of $50,000 in common stock issued
May 10, 2018, to vest monthly over a one-year period, at a value of $0.16 per share, for a total of 312,500 shares.



(9) Represents the fair value as of the grant date of May 10,
2018, of warrants to purchase 500,000 shares of the Company's common stock at an exercise price of $0.10, which vested during the
fiscal year ending June 30, 2018, computed in accordance with FASB ASC Topic 718.



(10) Represents the fair value of 291,262
shares of common stock issued to Mr. Vautrin on January 3, 2019.



(11) Represents the fair value of 426,622
shares of the Company’s common stock issued to Mr. Goldburg on December 3, 2018.









31







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



The following table sets forth certain
information regarding beneficial ownership of our common stock as of November 14, 2019, by (i) each person known by us to be the
beneficial owner of more than 5% of our outstanding Common Stock, (ii) each director and each of our named executive officers and
(iii) all executive officers and directors as a group.



The number of shares of Common Stock beneficially
owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting
power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof,
through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and
voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion
herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.



|Name of Beneficial Owner                                |  | Title of Class |  | Amount and Nature of Beneficial Ownership |               |  | Percent of Outstanding 
Shares (1) | 
|------------------------------------------------------- |  | -------------- |  | ----------------------------------------- | ------------- |  | ---------------------------------- | 
|Executive Officers and Directors                        |  |                |  |                                           |               |  |                                    | 
|Carlos Frias                                            |  | Common Stock   |  |                                           | 95,302,468    |  |                                    | 
|Ngoc Quang (Daniel) Nguyen                              |  | Common Stock   |  |                                           | 83,181,256    |  |                                    | 
|Alexandro Frias                                         |  | Common Stock   |  |                                           | 65,529,180    |  |                                    | 
|Brian Moon                                              |  | Common Stock   |  |                                           | 1,000         |  |                                    | 
|David Goldburg                                          |  | Common Stock   |  |                                           | 17,426,622(2) |  |                                    | 
|David Vautrin                                           |  | Common Stock   |  |                                           | 291,262       |  |                                    | 
|                                                        |  |                |  |                                           |               |  |                                    | 
|Executive officers and directors as a group (6 persons) |  | Common Stock   |  |                                           | 261,731,788   |  |                                    | 
|                                                        |  |                |  |                                           |               |  |                                    | 
|Other Beneficial Owners:                                |  |                |  |                                           |               |  |                                    | 
|Clifford Perry                                          |  | Common Stock   |  |                                           | 80,074,730    |  |                                    | 



(1) As of October 8, 2019, a total of 585,983,209 shares of
the Company's common stock are considered to be outstanding pursuant to Rule 13d-3(d)(1) promulgated under the Securities Exchange
Act of 1934, as amended. For each beneficial owner identified, any shares of common stock issuable upon conversion of that beneficial
owner's other securities, which were convertible into common stock at the election of the beneficial owner within 60 days, have
been also included for purposes of calculating their percent of class.



(2) Includes 426,622 shares of common
stock issued in the name of Mr. Goldburg, as well as 17,000,000 shares issuable in the name of Merida Capital Partners II, LP
("Merida Capital"). Mr. Goldburg shares voting and dispositive power with respect to the shares issued in the name
of Merida Capital.



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



Carlos Frias, CEO and Director of the Company,
has promissory notes payable to him in the amount of $123,657 for various expense reimbursements and $2,400,000 in cash incentives
as part of his employment agreement subject to his continued provision of services to the Company. Imputed interest is immaterial.
The promissory notes are reflected as liabilities on the financial statements as of June 30, 2019.



Alexandro Frias, VP of Finance of the Company,
has promissory notes payable to him in the amount of $83,657 for various expense reimbursements and $1,600,000 in cash incentives
as part of his employment agreement subject to his continued provision of services to the Company. Imputed interest is immaterial.
The promissory notes are reflected as liabilities on the financial statements as of June 30, 2019.









32







Ngoc “Daniel” Quong Nguyen,
CSO and Director of the Company, has promissory notes payable to him in the amount of $655,000 for various expense reimbursements
and asset purchases and $2,0400,000 in cash incentives as part of his employment agreement subject to his continued provision of
services to the Company. Imputed interest is immaterial. The promissory notes are reflected as liabilities on the financial statements
as of June 30, 2019.



Richard C. Cowan a former Director and
officer of the Company, has payables and accruals due to him of $0 and $15,485.47 as of June 30, 2019 and June 30, 2018, respectively.



Clifford J. Perry (“Perry”),
former Chief Executive officer, former Chief Financial Officer, and a former Director of the Company, has compensation due and
other payables and accruals due to him totaling $89,859 and $32,814 as of June 30, 2019 and 2018, respectively, as reflected on
the balance sheet under Accounts Payable and Accrued Expenses. Imputed interest is immaterial.



Raymond P. Medeiros (“Medeiros”),
a Director of the Company, has payables and accruals due to him of $63,000 and $52,500 as of June 30, 2018 and June 30, 2017, respectively.
On July 31, 2017, the Company issued 2,699,228 shares of common stock to Raymond Medeiros for accrued compensation of $52,500.



On October 31, 2017, the Company issued
850,000 shares of common stock to Paul F. Pelosi, Jr. (“Pelosi”), in regard to his appointment as Chairman of the Board
on November 1, 2017, for compensation for the period November 1, 2017 through January 31, 2018. The Company was obligated to issue
on February 1, 2018, an additional 1,250,000 options for common stock with an exercise price of $0.04, with an expiration date
eighteen months after the issuance. On February 12, 2018, the Company issued 1,250,000 warrants for common stock to Paul Pelosi
in satisfaction of this obligation. The warrants have an exercise price of $0.04 and expire August 11, 2018 (see Note 12). On November
10, 2017, the Company sold 967,000 shares of common stock to Pelosi for $14,500, based on a per share price of $0.01499. On January
18, 2018, Pelosi purchased 1,050,000 shares of common stock for $21,000. On July 27, 2018, the Company agreed to sell to Paul T.
Pelosi Jr Two Million Two Hundred Thousand (2,200,000) shares of the Company’s 144 common stock for the price of Thirty Eight
Thousand dollars ($38,500), $0.0175 per share, in consideration for which Pelosi agreed to: (1) cancellation and return of the
previously issued to him and exercisable into 1,250,000 shares of Company common stock at $0.04 per share and (2) the cancellation
of the Company’s obligation to issue to him 850,000 shares of Company common stock.



On January 18, 2018, the Company appointed
Richard Groberg, via his company, RSGroberg Consulting, LLC, as its Chief Financial Officer to serve for an initial, two-year term.
In consideration of the services to be performed by Groberg, the Company: (i) issued 800,000 shares of common stock, and (ii) $5,000
per month compensation payable: (1) prior to the date that the Company is paying monthly compensation to its Directors primarily
in cash, in 600,000 shares of common stock (representing the first 12 months’ compensation), and (2) payable in cash thereafter.
See Note

17. The 800,000 and 600,000 shares of common
stock were issued on January 18, 2018 and valued at $81,200 and $60,900, respectively. On May 10, 2018, the Company appointed its
CFO, Richard Groberg, as a member of the Company’s Board of Directors. In consideration of his appointment, the Company agreed
to issue to Mr. Groberg’s entity (1) $50,000 in common stock to vest monthly over a one-year period, at a value of $0.16
per share, for a total of 312,500 shares, and (2) an eighteen-month warrant to acquire 500,000 shares of common stock of the Company
at an exercise price of $0.10 per share.



On April 30, 2018, the Company appointed
Nevada State Senator Richard Segerblom as a member of the Company’s Board of Directors and issued to Senator Segerblom (i)
$50,000 in common stock to vest monthly for one year, with a value of $0.159 per share, for a total of 314,465 shares of common
stock, and (ii) an eighteen-month warrant to acquire 500,000 shares of common stock at an exercise price of $0.10 per share.



Director Independence



We currently do have
one independent directors as the term “independent” is defined in Nasdaq listing rules.



Item 14. Principal Accounting Fees
and Services.



The following table sets forth the fees
billed by our principal independent accountants for the years indicated, for the categories of services indicated.



|                   |  | Years Ended June 30, |        
|------------------ |  | -------------------- | -------
|Category           |  | 2019                 |        
|Audit Fees         |  | $                    | 89,845 
|Audit Related Fees |  |                      | 39,645 
|Tax Fees           |  |                      | –      
|All Other Fees     |  |                      | –      
|Total              |  | $                    | 129,490







33











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.





















34







PART IV



Item 15. Exhibits, Financial Statement Schedules.





The exhibits listed in
the following Exhibit Index are filed as part of this report:

Exhibit Index

|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)                                                                                                                                                                                                            
|3.5    |  | Certificate of Amendment (incorporated by reference to our Current Report on Form 8-K filed on August 26, 2019)                                                                                                                                                                                                          
|10.1   |  | Asset Purchase Agreement dated with Valencia Web Technology S.L. (incorporated by reference to our Current Report on Form 8-K, filed on May 31, 2017)                                                                                                                                                                    
|10.2   |  | Purchase-Sale of Shares/Equity Purchase Agreement dated January 5, 2018, with Luis Miguel Santos Juan and Ylenia Coves Sansano (incorporated by reference to our Current Report on Form 8-K, filed on February 7, 2018)                                                                                                  
|10.3   |  | Amendment No. 1 to Purchase Agreement, dated January 31, 2018, with Luis Miguel Santos Juan and Ylenia Coves Sansano (incorporated by reference to our Current Report on Form 8-K, filed on February 7, 2018)                                                                                                            
|10.4   |  | Asset Purchase Agreement dated March 3, 2018, by and between Leafceuticals Inc, Earth Born, Inc. (California), Earth Born, Inc. (Delaware), Irie Living, and Genesis Media Works, LLC (incorporated by reference to our Current Report on Form 8-K, filed on March 8, 2018)                                              
|10.5   |  | Securities Purchase Agreement dated July 26, 2018, with Mark Rosales, Marc Vitorillo and Quantum Capital Group, LLC (incorporated by reference to our Current Report on Form 8-K, filed on August 21, 2018)                                                                                                              
|10.6   |  | Securities Purchase Agreement dated September 28, 2018, with Merida Capital Partners II, LP (incorporated by reference to our Current Report on Form 8-K, filed on October 3, 2018)                                                                                                                                      
|10.7   |  | Membership Interest Purchase Agreement dated May 21, 2019, with Carlos Frias, Daniel Nguyen, Alex Frias and Chris Fagan (incorporated by reference to our Current Report on Form 8-K, filed on May 24, 2019)                                                                                                             
|10.8   |  | Voting Agreement dated as of May 31, 2019, by and among Freedom Leaf Inc., Carlos Frias, Ngoc Quang (Daniel) Nguyen, Alex Frias, Chris Fagan, Merida Capital Partners II LP, Clifford Perry, Raymond Medieros and Richard Cowan (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)     
|10.9   |  | Amendment No. 1, dated as of May 31, 2019, to that certain Securities Purchase Agreement, dated as of September 28, 2018, by and among Freedom Leaf Inc., Merida Capital Partners II LP, JM10-FFF, Clifford Perry, and Richard Cowan (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)
|10.10  |  | Employment Agreement of Carlos Frias, dated as of May 31, 2019, by and between Freedom Leaf Inc. and Carlos Frias (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)                                                                                                                   
|10.11  |  | Employment Agreement of Ngoc Quang (Daniel) Nguyen, dated as of May 31, 2019, by and between Freedom Leaf Inc. and Ngoc Quang (Daniel) Nguyen (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)                                                                                       
|10.12  |  | Employment Agreement of Alex Frias, dated as of May 31, 2019, by and between Freedom Leaf Inc. and Alex Frias (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)                                                                                                                       
|10.13  |  | Employment Agreement of Clifford Perry, dated as of May 31, 2019, by and between Freedom Leaf Inc. and Clifford Perry (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)                                                                                                               
|10.14  |  | Employment Agreement of Raymond Medeiros, dated as of May 31, 2019, by and between Freedom Leaf Inc. and Raymond Medeiros (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2019)                                                                                                           
|10.15  |  | Restricted Stock Agreement dated August 28, 2019, between Freedom Leaf Inc. and Carlos Frias (incorporated by reference to our Current Report on Form 8-K, filed on August 29, 2019)                                                                                                                                     
|10.16  |  | Restricted Stock Agreement dated August 28, 2019, between Freedom Leaf Inc. and Alex Frias (incorporated by reference to our Current Report on Form 8-K, filed on August 29, 2019)                                                                                                                                       
|10.17  |  | Restricted Stock Agreement dated August 28, 2019, between Freedom Leaf Inc. and Ngoc Quang (Daniel) Nguyen (incorporated by reference to our Current Report on Form 8-K, filed on August 29, 2019)                                                                                                                       
|10.18  |  | Employment Agreement dated August 5, 2019, between Freedom Leaf Inc. and Brian Moon (incorporated by reference to our Current Report on Form 8-K, filed on September 26, 2019)                                                                                                                                           
|10.19  |  | Restricted Stock Agreement dated October 1, 2019, between Freedom Leaf Inc. and Brian Moon (incorporated by reference to our Current Report on Form 8-K, filed on September 26, 2019)                                                                                                                                    
|31.1*  |  | 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*  |  | 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*  |  | 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*  |  | 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





__________

*Filed herewith.

** To be filed by amendment













35









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/ Carlos Frias                          | November 14, 2019
|----------------------------------------- | -----------------
|Carlos Frias, Principal Executive Officer | Date             
|                                          |                  
|/s/ Brian Moon                            | November 14, 2019
|Brian Moon, 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/ David Goldburg       | November 14, 2019
|------------------------ | -----------------
|David Goldburg, Director | Date             
|                         |                  
|/s/ Carlos Frias         | November 14, 2019
|Carlos Frias, Director   | Date             
|                         |                  
|/s/ David Vautrin        | November 14, 2019
|David Vautrin, Director  | Date             
|                         |                  
|/s/ Daniel Nguyen        | November 14, 2019
|Daniel Nguyen, Director  | Date             











36