10-K/A: Freedom Holdings Restates Financials, Reveals Material Weaknesses and Auditor Issues Amid Pivot to Alternative Energy

Freedom Holdings, Inc. has restated its financial statements for fiscal years 2024 and 2023 due to material misstatements, revealing significant reductions in reported revenue and an increased net loss, alongside a strategic reverse merger into the alternative energy sector.

Summary

• Freedom Holdings, Inc. (FHLD) has filed a 10-K/A, restating its consolidated financial statements for the fiscal years ended September 30, 2024, and 2023, due to material misstatements.
• The restatement significantly reduced reported revenues for FY2024 from $1,272,800 to $52,400, and increased the net loss from $(20,426) to $(256,362).
• Accounts receivable were overstated by approximately $8.9 million, and fixed assets were understated, requiring substantial adjustments.
• The Company identified material weaknesses in its internal control over financial reporting, including inadequate procedures for transaction recording, insufficient controls over acquisition-related assets/liabilities, and lack of proper review/segregation of duties.
• On September 17, 2024, FHLD completed a reverse merger with The Awareness Group LLC (TAG), an alternative energy company, making TAG a wholly-owned subsidiary.
• As a result of the TAG merger, TAG shareholders obtained control of 89.5% of FHLD through Series A Preferred stock, and TAG's management team, led by CEO Pablo Diaz, took over FHLD's executive and board leadership.
• The Company's auditor, Olayinka Oyebola & Co., and its principal, Olayinka Oyebola, have been charged by the SEC with aiding and abetting anti-fraud violations, potentially leading to penalties and a bar from auditing U.S. public companies.
• The Company's continued operations are subject to substantial doubt as a going concern, dependent on increasing revenues, decreasing costs, and securing additional financing.
• Post-merger, the Company's business focus is on the alternative energy sector, specifically through the TAG GRID platform offering solar services and financing solutions.
• As of September 30, 2024, the Company reported total assets of $29,049,999 and total liabilities of $6,369,698, with an accumulated deficit of $(10,434,110).

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to the severe financial restatement, material weaknesses in internal controls, the auditor being charged by the SEC for anti-fraud violations, and the explicit 'going concern' doubt. While the pivot to alternative energy via the TAG merger offers a new direction, the foundational financial and governance issues present extreme risks and overshadow any potential future positives.

Positives

• The Company has successfully completed a reverse merger with The Awareness Group LLC (TAG), pivoting its business into the growing alternative energy sector.
• The new management team, led by CEO Pablo Diaz, brings significant experience in the alternative energy industry, including structuring over $400 million in projects and overseeing over 14,000 installations.
• The Company reported a working capital surplus of $3.9 million as of September 30, 2024, directly attributable to the TAG merger transaction.
• Net cash provided by operating activities for the year ended September 30, 2024, was $99,214, a positive shift from a cash use of $51,706 in the prior year.
• The Company qualifies as an emerging growth company, allowing for reduced reporting burdens and an extended transition period for new accounting standards.

Negatives

• The Company restated its financial statements for fiscal years 2024 and 2023 due to material misstatements, indicating significant accounting errors and unreliability of previous reports.
• Reported revenues for FY2024 were drastically reduced from $1,272,800 to $52,400, a decrease of $1,220,400, and the net loss increased from $(20,426) to $(256,362).
• Accounts receivable were overstated by approximately $8.9 million, and fixed assets were misclassified, leading to substantial balance sheet corrections.
• Management concluded that disclosure controls and procedures and internal control over financial reporting were not effective as of September 30, 2024, due to identified material weaknesses.
• The Company's auditor, Olayinka Oyebola & Co., and its principal have been charged by the SEC with aiding and abetting anti-fraud violations, posing a significant risk to the Company's audit integrity and reputation.
• The Company has an accumulated deficit of $(10,434,110) as of September 30, 2024, and its auditors expressed substantial doubt about its ability to continue as a going concern.
• The Company has a history of unsuccessful business pivots, having changed its focus five times since inception in 2005, raising concerns about the long-term viability of its new alternative energy strategy.
• The Company's common stock trades on the Over-the-Counter Pink Sheets with a 'Unsolicited Quotes Only' warning, indicating higher risk, wider spreads, increased volatility, and potential difficulty for investors to sell shares.
• The Company has never paid dividends and does not intend to in the foreseeable future, meaning shareholder returns are solely dependent on stock price appreciation.

Risks

• The Company's business is difficult to evaluate due to its limited operating history and prior uncertainty regarding business activities.
• There is a risk that the Company will be unable to continue as a going concern unless it can increase revenues, decrease operating costs, and secure additional equity and/or debt financings, which may not be available on reasonable terms.
• The Company's auditor and its principal have been charged by the SEC with aiding and abetting anti-fraud violations, which could lead to the Company needing to find a new auditor, potential restatements, delays in regulatory filings, or reputational harm.
• The time and cost of preparing a private company to become a public reporting company may preclude the Company from entering into mergers or acquisitions with the most attractive private companies.
• Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition.
• The Company may be subject to further government regulation, such as the Investment Company Act of 1940, if it holds passive investment interests, which could incur significant registration and compliance costs.
• There is currently a limited and sporadic trading market for the Company's common stock, and no increased public trading market is expected in the foreseeable future without a registration statement.
• The Company will need to file a resale registration statement to create liquidity in its common stock, and there are no assurances that it can maintain its effectiveness.
• Resale restrictions imposed by Rule 144(i) may apply for one year following the Company no longer being considered a shell company, impacting liquidity.
• The 'Unsolicited Quotes Only' warning on OTC Markets indicates higher risk of wider spreads, increased volatility, and price dislocations, making it difficult for investors to sell stock.
• The Company may be subject to certain tax consequences in its business, which may increase the cost of doing business or deter third parties from entering certain business combinations.
• There is no certainty that the TAG business model will be successful and generate revenues and cash flow sufficient to fund operations.
• The issuance of additional shares for mergers or acquisitions may result in substantial dilution to existing stockholders.
• The Company's principal stockholders may engage in transactions to cause the Company to repurchase their shares, potentially leading to changes in management and the Board of Directors.
• The Company's business focus has changed five times since inception in 2005, and there is no guarantee that the new focus on alternative energy and new leadership will be successful.
• The Company's shares may be subject to penny stock rules, which could reduce trading activity and make it difficult for shareholders to sell their securities.
• There is no assurance that the Company's common stock will ever be listed on any other securities exchange, potentially limiting liquidity and access to capital.
• The authorization of blank-check preferred stock could be used to discourage a takeover transaction.
• Lack of diversification is a substantial risk, as the Company anticipates effecting only one business combination, which will not permit offsetting losses from one venture against gains from another.

Future Outlook

The Company plans to fully integrate and develop the TAG GRID, expanding its residential and commercial customer base in the alternative energy sector and exploring additional acquisition opportunities. It anticipates incurring additional costs to improve internal controls and comply with Section 404 of the Sarbanes-Oxley Act. The Company's continuation as a going concern is dependent on generating sufficient cash flow and securing additional funding, with no guarantees of success.

Management Comments

• "The Company identified errors related primarily to the overstatement of accounts receivable and fixed assets, as well as the premature recognition of revenue and the incorrect accounting for certain acquisition-related transactions."
• "We have begun to implement a remediation plan to address the material weaknesses described above, which includes: Engaging additional qualified financial and accounting personnel; Enhancing our internal documentation and financial review processes; Improving accounting software and implementing additional levels of transaction review; Engaging external advisors to assist in ongoing accounting and control improvements."
• "Our continued operations are highly dependent upon our ability to increase revenues, decrease operating costs, and complete equity and/or debt financings. Such financings may not be available or may not be available on reasonable terms."
• "We are driving innovation in the alternative energy revolution. TAG is raising the bar with the TAG GRID, a groundbreaking national platform offering a unique suite of solar services and financing solutions for both commercial and residential projects."
• "Our growth is fueled by TAG Financial, which operates through two key divisions. TAG Financial Services (TFS) supports TAG GRID members by managing the front-end processes... while providing exclusive access to TAG and third-party lending products and innovative fintech solutions. Meanwhile, TAG Capital, our in-house fund management arm, takes it a step further by directly funding proprietary lending products and maximizing the value of our loan portfolios and investment tax credits (ITCs)."
• "While organic growth is at the core of our strategy, we're also expanding through a proven acquisition strategy, bringing forward-thinking companies under the TAG umbrella."
• "We are presently able to meet our obligations as they come due. At September 30, 2024 we had a working capital surplus of $3.9 million. The working capital surplus is directly related to the TAG transaction that took place on September 17, 2024 and the assets and liabilities that were acquired."

Industry Context

Freedom Holdings, Inc.'s pivot into the alternative energy sector, specifically solar services and financing through the TAG GRID, aligns with the broader global trend towards renewable energy adoption and decarbonization. The industry is experiencing significant growth driven by environmental concerns, government incentives (like ITCs), and decreasing technology costs. The Company aims to capitalize on this by offering comprehensive solar solutions and financing, positioning itself as an emerging player in a competitive but expanding market. Its strategy of organic growth combined with acquisitions is common in fragmented, high-growth industries.

Comparison to Industry Standards

• The Company's restated revenues of $52,400 for FY2024 are extremely low for a publicly traded company aiming to be a significant player in the alternative energy sector, especially when compared to established solar companies like SolarEdge Technologies (SEDG) or Enphase Energy (ENPH) which report billions in annual revenue, or even smaller, rapidly growing private solar installers that often achieve millions in revenue within their first few years.
• The reported net loss of $(256,362) for FY2024, while an improvement from the prior year's larger loss, is still indicative of a company in a very early stage of its new business model, far from the profitability benchmarks of mature industry players.
• The Company's accumulated deficit of over $10 million and the auditor's 'going concern' doubt are significant red flags, contrasting sharply with financially stable industry leaders who typically demonstrate strong balance sheets and consistent positive cash flows.
• The identified material weaknesses in internal controls and the SEC charges against the auditor are severe deviations from standard corporate governance and financial reporting practices expected of public companies, regardless of their size or industry.
• While the acquisition of TAG brings significant assets (e.g., $7.8M in fixed assets, $2.7M in crypto tokens, $14.7M in other assets like solar incentive programs and litigation settlements), the immediate financial results (restated low revenue, high loss) do not yet reflect successful integration or revenue generation comparable to even nascent but well-managed alternative energy startups.
• The proforma revenue of $1,471,230 for FY2024 (if TAG transaction took place Oct 1, 2023) is still very modest for a company with national platform ambitions, suggesting a long path to scale compared to companies like Sunrun or Vivint Solar (now Sunrun) which have achieved massive scale in residential solar.

Management Changes

Corporate Governance

Legal Proceedings

• Presently, there are no material pending legal proceedings to which the Registrant is a party or as to which any of its property is subject, and no such proceedings are known to the Registrant to be threatened or contemplated against it.

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 interest at 12% per annum.
• On August 7, 2017, the Company obtained an additional unsecured, nonrecourse and open-ended loan of $50,000 from Mr. Miller, incurring interest at 15% per annum. The Company has not remained current on all required payments for these loans.
• Mr. Brian Kistler, a former related party, also made loans to the Company under similar terms to fund operating activities.
• On February 3, 2023, MEDcann Industries Inc. (which held 72.0% beneficial ownership as of September 30, 2023) agreed to purchase 40 million common shares for $50,000, of which $30,000 has been paid.
• As of September 30, 2023, Joseph N.P. Mellone held 7.23% beneficial ownership of common stock.
• As of September 30, 2023, RAV Benefit Family Trust held 9.40% beneficial ownership of common stock.
• Shares were transferred to Pablo Diaz as a condition of the September 17, 2024 reverse merger, with the full transfer completed in December 2024.

Stakeholder Impact

• **Shareholders**: Existing shareholders face significant dilution from the TAG merger (TAG shareholders obtained 89.5% control). The restatement of financials, material weaknesses, and going concern doubt severely impact investor confidence and the value of their holdings. The 'Unsolicited Quotes Only' warning and penny stock rules further limit liquidity and marketability of shares. Future capital raises could lead to further dilution.
• **Employees**: The change in business focus and management team (TAG management taking over) could lead to shifts in company culture, roles, and potential restructuring, impacting existing employees.
• **Customers**: The new focus on alternative energy through TAG GRID aims to provide solar services and financing, potentially benefiting new customers seeking these solutions. However, the Company's past instability and financial issues could raise concerns for potential customers regarding long-term reliability.
• **Suppliers**: The Company's going concern doubt and past financial instability could make suppliers cautious about extending credit or engaging in long-term contracts.
• **Creditors**: Lenders like Bruce Miller and Brian Kistler, who have provided loans, face increased risk due to the Company's inability to remain current on payments and the substantial doubt about its ability to continue as a going concern. Any future debt financing will likely come with higher interest rates or stricter terms.
• **Regulatory Authorities (SEC)**: The Company is under increased scrutiny due to the financial restatement, identified material weaknesses, and the SEC charges against its auditor. This will require significant resources and management attention to ensure compliance and remediation.

Next Steps

• Fully integrate and develop the TAG GRID business model.
• Expand residential and commercial customer base for solar services.
• Explore additional acquisition opportunities to grow the business.
• Engage additional qualified financial and accounting personnel to address material weaknesses.
• Enhance internal documentation and financial review processes.
• Improve accounting software and implement additional levels of transaction review.
• Engage external advisors to assist in ongoing accounting and control improvements.
• Secure additional equity and/or debt financing to support operations and address going concern issues.
• Potentially find a new auditor if the current auditor is barred by the SEC.
• File a resale registration statement (Form S-1) to create liquidity for common stock.
• Seek listing of common stock on a more senior OTC exchange or a national exchange like NASDAQ or NYSE.

Key Dates

Recommendation

Keywords

Alternative Energy, Solar Services, SEC Filing, 10-K/A, Financial Restatement, Material Weaknesses, Reverse Merger, Going Concern, Corporate Governance, Risk Factors, Public Company, OTC Markets, TAG GRID, Renewable Energy, Financial Reporting, Auditor Issues, Share Dilution