10-Q: Freedom Holdings Reports Significant Losses Amidst Financial Restatement and Internal Control Deficiencies

Freedom Holdings, Inc. reported substantial net losses for the quarter ended March 31, 2025, alongside a material restatement of prior financial periods and disclosed ineffective internal controls, raising significant going concern doubts.

Summary

• Freedom Holdings, Inc. (FHLD) reported revenues of $199,478 for the three months ended March 31, 2025, and $677,152 for the six months ended March 31, 2025, primarily from Power Purchase Agreements, compared to no revenue in the prior year periods.
• The company incurred a net loss attributable to the parent of $289,909 for the three months ended March 31, 2025, a significant increase from a $17,435 net loss in the same period last year.
• For the six months ended March 31, 2025, the net loss attributable to the parent was $255,118, compared to a $20,689 net loss in the prior year period.
• Total assets increased significantly to $57,560,359 as of March 31, 2025, from $29,049,999 as of September 30, 2024, driven by increases in fixed assets (solar equipment) and notes receivable.
• Total liabilities also increased substantially to $26,183,229 as of March 31, 2025, from $6,369,698 as of September 30, 2024, mainly due to accrued project costs and deferred revenues.
• The company generated $4,108,606 in cash from operating activities for the six months ended March 31, 2025, a notable improvement from using $13,067 in the prior year period.
• Investing activities used $13,115,979 for the six months ended March 31, 2025, primarily for increasing fixed assets.
• Financing activities provided $8,951,947 for the six months ended March 31, 2025, largely from additional paid-in capital.
• The company restated its consolidated financial statements for the fiscal years ended September 30, 2024, and 2023, correcting material misstatements related to overstated accounts receivable ($8.9 million), understated fixed assets, premature revenue recognition, and incorrect acquisition accounting.
• As of March 31, 2025, the company had an accumulated deficit of $10,689,228 and a working capital surplus of $3,290,611.
• Management concluded that disclosure controls and procedures and internal control over financial reporting were not effective as of March 31, 2025, identifying a material weakness due to lack of segregation of duties.

Sentiment

Score: 3

Explanation: The sentiment is predominantly negative due to the material restatement of prior financials, the explicit 'going concern' warning, and the disclosed ineffectiveness of internal controls and material weaknesses. While new revenue streams and positive operating cash flow are present, these severe underlying issues overshadow any positives, indicating significant financial and operational instability.

Positives

• The company began generating significant revenues from Power Purchase Agreements, with $199,478 for the three months and $677,152 for the six months ended March 31, 2025, compared to no revenue in the prior year periods.
• Total assets increased substantially to $57,560,359 as of March 31, 2025, from $29,049,999, reflecting growth in solar equipment ($20,779,946) and notes receivable ($11,676,591).
• Cash flow from operating activities turned positive, generating $4,108,606 for the six months ended March 31, 2025, compared to a cash usage of $13,067 in the prior year period.
• The company reported a working capital surplus of $3,290,611 at March 31, 2025, which is expected to support near-term operations.

Negatives

• The company reported a significant increase in net loss attributable to the parent, reaching $289,909 for the three months ended March 31, 2025, up from $17,435 in the prior year.
• An accumulated deficit of $10,689,228 as of March 31, 2025, indicates ongoing losses and raises substantial doubt about the company's ability to continue as a going concern.
• Prior period financial statements for September 30, 2024, and 2023, were materially restated due to errors including an $8.9 million overstatement of accounts receivable and premature revenue recognition, indicating past financial reporting inaccuracies.
• Cash and cash equivalents decreased to $40,389 at March 31, 2025, from $95,815 at September 30, 2024.
• Total liabilities significantly increased to $26,183,229 at March 31, 2025, from $6,369,698 at September 30, 2024, primarily due to increased accrued project costs and deferred revenues.
• Operating expenses increased substantially to $616,036 for the three months and $923,142 for the six months ended March 31, 2025, due to the TAG acquisition.

Risks

• Ability to manage the business given continuing operating losses and negative cash flows.
• Ability to obtain sufficient capital to fund operations, development, and expansion plans.
• Challenges in managing competitive factors and developments beyond the company's control.
• Risks related to maintaining and protecting intellectual property.
• Uncertainty in obtaining patents based on current and/or future patent applications.
• Challenges in obtaining and maintaining other rights to technology required or desirable for business expansion.
• Potential for an abrupt economic change resulting in an unexpected downturn in demand for services.
• Impact of governmental restrictions or excessive taxes on services.
• Availability of economic resources to support the development of projects.
• Challenges related to expansion plans, access to potential clients, and advances in technology.
• Lack of working capital that could hinder acquisitions for project development.
• The company's ability to offset future taxable income with net operating loss carryforwards may be limited due to non-filing of tax returns and potential changes in ownership under Internal Revenue Code Section 382.

Future Outlook

The company anticipates future liquidity requirements will arise from funding growth, paying current obligations, and future capital expenditures. Primary funding sources are expected to be cash generated from operations and raising additional funds from private sources and/or debt financing. However, there is no assurance that sufficient cash flow or additional financing will be available on favorable terms, if at all, to remain a going concern. The plan for the next twelve months is to raise capital if necessary to implement strategy.

Management Comments

• "Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements."
• "The Company has only recently begun generating revenues as a result of the TAG transaction on September 17, 2024 and has an accumulated deficit of $10,689,228 at March 31, 2025."
• "Until the Company can consistently generate net income and positive cash flows from operations, it may require additional funding for continuing the development and marketing of products and future growth initiatives. As a result, this raises substantial doubt about the Companys ability to continue as a going concern."
• "Management evaluated the impact of our failure to have segregation of duties in all of our financially significant processes and have concluded that this control deficiency represented a material weakness. We plan to remediate this weakness over the next 12 months."
• "Notwithstanding the assessment that our disclosure controls and procedures and our internal controls over financial reporting were not effective and that there are material weaknesses as identified herein, we believe that our condensed consolidated financial statements contained in this Form 10-Q fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects."

Industry Context

Freedom Holdings, Inc.'s recent merger with The Awareness Group (TAG) and focus on Power Purchase Agreements for solar systems positions it within the growing renewable energy sector. The company's strategy to generate revenue from solar asset utilization and sales aligns with broader industry trends towards sustainable energy development. However, the significant losses and reliance on external funding highlight the capital-intensive nature and competitive pressures within this industry, particularly for smaller or newly operational entities.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• No material, active, pending, or threatened legal proceedings against the company or its subsidiaries were known as of the filing date.

Related Party Transactions

• On December 30, 2013, the Company received a $56,978 Demand Instalment Loan from Bruce Miller, a personal acquaintance of the former CEO, incurring 12% interest per annum.
• On August 7, 2017, the Company obtained an additional unsecured, nonrecourse, and open-ended loan of $50,000 from Mr. Miller, incurring 15% interest per annum.
• Mr. Brian Kistler, a former related party, has also made loans to the Company under similar terms to fund operating activities.
• On April 22, 2025, TAG (a subsidiary) entered into a promissory note with a related party for $196,000, bearing 15% interest per annum, payable monthly at $2,450, and due in full on July 22, 2025. The note is secured by the assets of TAG.

Stakeholder Impact

• **Shareholders**: Face significant risk due to the 'going concern' warning, increased net losses, and the material restatement of prior financials, which could lead to a loss of confidence and share price depreciation. The ineffective internal controls also pose a risk to the reliability of financial reporting.
• **Creditors**: The 'going concern' warning and reliance on future capital raises indicate potential challenges in meeting financial obligations, although the company reported no defaults on senior securities.
• **Management/Employees**: The company's ability to continue operations and expand is dependent on securing additional funding, which could impact job security and growth opportunities if not successful.
• **Customers**: The company's focus on Power Purchase Agreements and solar solutions suggests continued service, but the financial instability could pose long-term risks to service continuity or expansion.

Next Steps

• Management plans to remediate the material weakness in internal controls related to segregation of duties over the next 12 months.
• The company's plan of operation for the next twelve months is to raise capital to implement its strategy if it does not have the necessary cash and revenue to satisfy its cash requirements.

Key Dates

Recommendation

Keywords

Solar energy, Renewable energy, Power Purchase Agreements, SEC filing, 10-Q, Financial restatement, Going concern, Internal controls, Accumulated deficit, Cash flow, Acquisition, TAG, FHLD, Cryptocurrency tokens