Freedom Leaf Inc.

On or about June 20, 2019, a former Company consultant, Richard Bolandz, filed a complaint against the Company in the District Court for Clark County, Nevada (Richard A. Bolandz, individually and d/b/a International Consultants Consortium LLC v. Freedom Leaf Inc., Case No. A-19-797130-C, Dept. No. XXVII), alleging that the Company breached its consulting agreement with Mr. Bolandz by attempting to terminate the agreement improperly and failing to pay Mr. Bolandz amounts due thereunder, and seeking an award of monetary damages in excess of $15,000 as well as recovery of attorney fees. On or about August 8, 2019, the Company answered the complaint and filed a counterclaim against Mr. Bolandz, alleging that Mr. Bolandz breached the consulting contract by repeatedly missing deadlines, delivering unusable work product, and acting in an unprofessional manner including showing up at the Company’s office intoxicated. The Company is seeking an award of monetary damages in an amount to be determined at trial along with attorney fees. The parties are currently scheduling a settlement conference regarding the matter. 

ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, Management used the Company’s collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The lease payment terms may include fixed payment terms and variable payments. Fixed payment terms and variable payments that depend on an index (i.e., Consumer Price Index, or “CPI”) or rate are considered in the determination of the operating lease liabilities. While lease liabilities are not remeasured because of changes to the CPI, changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Variable payments that do not depend on an index or rate are not included in the lease liabilities determination. Rather, these payments are recognized as variable lease expense when incurred. Expenses related to leases with a lease term of one month or less are recognized as variable lease expense when incurred. Variable lease payments are included within operating costs and expenses in the condensed consolidated statement of operations.

Rich Maturo, VP, Cannabis Practice at The Nielsen Corporation, a global provider of market research and analysis of media, has stated his belief that a battle will emerge in retail as traditional brick-and-mortar CPG retail channels will steal share from online CBD retailers local specialty CBD retailers, and vape and tobacco shops. “Compared with current hemp-CBD users,” Maturo says, “our survey data shows that new CBD consumers who say they’re likely to consume CBD products in the next 12 months but have yet to consume are more than twice as likely to state that they’ll shop for CBD products at a grocery chain or mass merchandiser. These same consumers are more than 3.5 times more likely to state that they’ll purchase hemp-CBD products from a chain drug store.”

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, including a new holding company name, which was implemented on November 20, 2019, a new 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 remaining item to complete is the acquisition of a new stock symbol, the process of which is under way. The Company will continue to leverage first-mover advantage to fully penetrate the Mexican market. The Company completed its inaugural shipment of topical hemp CBD products to Mexico on July 31, 2019 and has since followed this with two additional shipments. The Company expects to start shipping additional SKU’s beginning in Q2 of calendar 2020 as part of a larger $26 million order already placed with the Company.

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. The Company has honored the terms of the settlement agreement. On or about June 20, 2019, a former Company consultant, Richard Bolandz, filed a complaint against the Company in the District Court for Clark County, Nevada (Richard A. Bolandz, individually and d/b/a International Consultants Consortium LLC v. Freedom Leaf Inc., Case No. A-19-797130-C, Dept. No. XXVII), alleging that the Company breached its consulting agreement with Mr. Bolandz by attempting to terminate the agreement improperly and failing to pay Mr. Bolandz amounts due thereunder, and seeking an award of monetary damages in excess of $15,000 as well as recovery of attorney fees. On or about August 8, 2019, the Company answered the complaint and filed a counterclaim against Mr. Bolandz, alleging that Mr. Bolandz breached the consulting contract by repeatedly missing deadlines, delivering unusable work product, and acting in an unprofessional manger including showing up at the Company’s office intoxicated. The Company is seeking an award of monetary damages in an amount to be determined at trial along with attorney fees. The parties are currently scheduling a settlement conference regarding the matter. In early December 2019, the Company received a demand letter from a former employee for employment-related claims. This claim is being disputed. In mid-December 2019, the Company received a demand letter from a former employee for employment-related claims. This claim is also being disputed.