Date: 5/16/2022 Form: 10-Q - Quarterly Report
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

X

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

 

For the quarterly period ended March 31, 2022

 

or

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to _______

 

Commission File Number 333-255266

 

GROVE, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

83-3378978

(State or other jurisdiction of

 incorporation or organization)

 

(IRS Employer

Identification No.)

 

17129 US Hwy 19 N. Clearwater, FL

 

33760

(Address of principal executive offices)

 

(Zip Code)

 

(701353-5425

(Registrant’s telephone number, including area code)

 

1710 Whitney Mesa Drive Henderson, NV 89014

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

GRVI

Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X 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). X Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

X

Smaller reporting company

X

 

 

Emerging growth company

X

 

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. X

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES X NO

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of May 13, 2022, there were 16,926,369 common shares issued and 16,783,631 outstanding.

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Interim Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition or Plan of Operation

 

21

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

24

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

26

 

 

 

 

 

 

Item 1A.

Risk Factors

 

26

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

27

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

27

 

 

 

 

 

 

Item 5.

Other Information

 

27

 

 

 

 

 

 

Item 6.

Exhibits

 

28

 

 

 

 

 

 

SIGNATURES

 

29

 

 
2

Table of Contents

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may”, "should”, "expects”, "plans”, "anticipates”, "believes”, "estimates”, "predicts”, "potential” or "continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

 

We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

 

Our unaudited condensed consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

 

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares” refer to shares of our common stock.

 

As used in this quarterly report, the terms "we”, "us”, "our” and "our company” mean Grove, Inc., unless otherwise indicated.

 

 
3

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GROVE, INC.

 

Interim Unaudited Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended March 31, 2022

 

 

 

Page

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021 (Unaudited)

 

 F-1

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2022 and 2021 (Unaudited)

 

 F-2

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2022 and 2021 (Unaudited)

 

F-3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022 and 2021 (Unaudited)

 

F-4

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

F-5

 

 
4

Table of Contents

 

 

GROVE, INC.

CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED)

 

 

 

  

 

 

March 31,

 

 

June 30,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$4,502,986

 

 

$14,534,211

 

Accounts receivable, net of allowance for doubtful accounts of $57,500 and $57,500, respectively

 

 

1,481,137

 

 

 

1,277,662

 

Inventory

 

 

3,560,955

 

 

 

2,094,952

 

Prepaid expenses and other receivables

 

 

716,129

 

 

 

386,258

 

Total current assets

 

 

10,261,207

 

 

 

18,293,083

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,681,640

 

 

 

2,832,400

 

Intangible assets, net

 

 

4,771,685

 

 

 

1,845,166

 

Goodwill

 

 

8,533,923

 

 

 

2,413,813

 

Deferred tax asset

 

 

1,247,387

 

 

 

1,403,591

 

Other assets

 

 

69,068

 

 

 

49,068

 

Right-of-use asset

 

 

588,133

 

 

 

417,443

 

Total other assets

 

 

22,891,836

 

 

 

8,961,481

 

 

 

 

 

 

 

 

 

 

                   Total assets

 

$33,153,043

 

 

$27,254,564

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$1,289,218

 

 

$1,604,723

 

Accrued compensation

 

 

722,060

 

 

 

1,020,936

 

Deferred revenue

 

 

257,018

 

 

 

485,973

 

Accrued liabilities

 

 

755,704

 

 

 

296,021

 

Acquisition payable

 

 

600,000

 

 

 

1,764,876

 

Current portion of notes payable

 

 

506,275

 

 

 

447,100

 

     Current portion of operating lease payable

 

 

242,866

 

 

 

199,532

 

Total current liabilities

 

 

4,373,141

 

 

 

5,819,161

 

 

 

 

 

 

 

 

 

 

     Operating lease payable, net of current portion

 

 

338,241

 

 

 

217,430

 

Notes payable, net of current portion

 

 

25,167

 

 

 

-

 

Total long-term liabilities

 

 

363,408

 

 

 

217,430

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 100,000,000 shares authorized, and 500,000 and 500,000 shares issued and outstanding, respectively

 

 

500

 

 

 

500

 

Common stock, $0.001 par value, 100,000,000 shares authorized, and 16,108,323 and 15,262,394 shares issued and outstanding, respectively

 

 

16,108

 

 

 

15,262

 

Additional paid in capital

 

 

32,046,045

 

 

 

25,372,247

 

Accumulated deficit

 

 

(3,646,159)

 

 

(4,170,036)

Total stockholers' equity

 

 

28,416,494

 

 

 

21,217,973

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$33,153,043

 

 

$27,254,564

 

   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-1

Table of Contents

 

GROVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

Three Month's Ended March 31,

 

 

Nine Month's Ended March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

  Revenue

 

 

10,271,588

 

 

 

6,347,514

 

 

 

29,388,123

 

 

 

13,449,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Cost of Revenue

 

 

4,184,782

 

 

 

2,950,802

 

 

 

11,208,516

 

 

 

6,804,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

6,086,806

 

 

 

3,396,712

 

 

 

18,179,607

 

 

 

6,645,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

1,788,689

 

 

 

656,151

 

 

 

5,152,494

 

 

 

1,480,855

 

General and administrative expenses

 

 

2,734,777

 

 

 

1,302,180

 

 

 

8,725,566

 

 

 

3,943,183

 

Share-based compensation

 

 

1,062,753

 

 

 

225,984

 

 

 

2,333,306

 

 

 

453,302

 

Amortization of acquired identifiable intangible assets

 

 

417,549

 

 

 

125,237

 

 

 

1,085,481

 

 

 

544,647

 

   Depreciation

 

 

143,537

 

 

 

71,856

 

 

 

390,116

 

 

 

211,671

 

 Total Operating expenses

 

 

6,147,305

 

 

 

2,381,408

 

 

 

17,686,963

 

 

 

6,633,658

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(60,499)

 

 

1,015,304

 

 

 

492,644

 

 

 

11,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (expense) income, net

 

 

(19,138)

 

 

(48,541)

 

 

(61,699)

 

 

(133,281)

Settlement of cancelled lease

 

 

-

 

 

 

-

 

 

 

-

 

 

 

387,860

 

Gain (loss) on sale of property and equipment

 

 

5,500

 

 

 

-

 

 

 

5,500

 

 

 

(6,292)

Gain on SBA PPP loan extingushment

 

 

-

 

 

 

-

 

 

 

300,995

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

(13,638)

 

 

(48,541)

 

 

244,796

 

 

 

248,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income tax

 

 

(74,137)

 

 

966,763

 

 

 

737,440

 

 

 

260,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

 

21,470

 

 

 

-

 

 

 

(213,563)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(52,667)

 

 

966,763

 

 

 

523,877

 

 

 

260,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share

 

$(0.00)

 

$0.07

 

 

$0.03

 

 

$0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per share

 

$(0.00)

 

$0.07

 

 

$0.03

 

 

$0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

16,426,399

 

 

 

13,657,013

 

 

 

16,080,699

 

 

 

11,876,780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully diluted weighted average shares outstanding

 

 

17,821,810

 

 

 

13,962,569

 

 

 

17,586,030

 

 

 

12,182,336

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-2

Table of Contents

 

 

GROVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

Preferred

 

 

Preferred

 

 

Common

 

 

Common

 

 

Additional

 

 

 

 

 

Non-

 

 

Total

 

 

 

 Stock

 

 

Stock

 

 

 Stock

 

 

 Stock

 

 

Paid

 

 

Accumulated

 

 

controlling

 

 

Shareholders'

 

 

 

 Shares

 

 

Par

 

 

 Shares

 

 

Par

 

 

In Capital

 

 

Deficit

 

 

Interest

 

 

Equity

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

 

 

-

 

 

$-

 

 

 

10,222,223

 

 

$10,223

 

 

$7,314,341

 

 

$(7,098,984)

 

$1,953,801

 

 

$2,179,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Trunano subsidiary stock into Grove common stock

 

 

-

 

 

 

-

 

 

 

1,277,778

 

 

 

1,278

 

 

 

1,952,523

 

 

 

-

 

 

 

(1,953,801)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Infusionz

 

 

-

 

 

 

-

 

 

 

222,223

 

 

 

223

 

 

 

339,777

 

 

 

-

 

 

 

-

 

 

 

340,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition costs

 

 

-

 

 

 

-

 

 

 

83,334

 

 

 

83

 

 

 

127,417

 

 

 

-

 

 

 

-

 

 

 

127,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

93,193

 

 

 

-

 

 

 

-

 

 

 

93,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(809,073)

 

 

-

 

 

 

(809,073)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

-

 

 

$-

 

 

 

11,805,558

 

 

$11,807

 

 

$9,827,251

 

 

$(7,908,057)

 

$-

 

 

$1,931,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

134,125

 

 

 

-

 

 

 

-

 

 

 

134,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Infusionz

 

 

-

 

 

 

-

 

 

 

101,387

 

 

 

100

 

 

 

155,025

 

 

 

-

 

 

 

-

 

 

 

155,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

102,520

 

 

 

-

 

 

 

102,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

-

 

 

$-

 

 

 

11,906,945

 

 

$11,907

 

 

$10,116,401

 

 

$(7,805,537)

 

$-

 

 

$2,322,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

225,984

 

 

 

-

 

 

 

-

 

 

 

225,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Infusionz

 

 

-

 

 

 

-

 

 

 

101,394

 

 

 

101

 

 

 

155,029

 

 

 

-

 

 

 

-

 

 

 

155,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of preferred stock for cash

 

 

500,000

 

 

 

500

 

 

 

-

 

 

 

-

 

 

 

49,500

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

966,763

 

 

 

-

 

 

 

966,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

500,000

 

 

$500

 

 

 

12,008,339

 

 

$12,008

 

 

$10,546,914

 

 

$(6,838,774)

 

$-

 

 

$3,720,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

500,000

 

 

$500

 

 

 

15,262,394

 

 

$15,262

 

 

$25,372,247

 

 

$(4,170,036)

 

$-

 

 

$21,217,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Infusionz

 

 

-

 

 

 

-

 

 

 

306,945

 

 

 

307

 

 

 

1,764,569

 

 

 

-

 

 

 

-

 

 

 

1,764,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of VitaMedica

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

100

 

 

 

481,900

 

 

 

-

 

 

 

-

 

 

 

482,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition costs

 

 

-

 

 

 

-

 

 

 

7,000

 

 

 

7

 

 

 

33,733

 

 

 

-

 

 

 

-

 

 

 

33,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

593,098

 

 

 

-

 

 

 

-

 

 

 

593,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

35,000

 

 

 

35

 

 

 

174,965

 

 

 

-

 

 

 

-

 

 

 

175,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

511,711

 

 

 

-

 

 

 

511,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

500,000

 

 

$500

 

 

 

15,711,339

 

 

$15,711

 

 

$28,420,512

 

 

$(3,658,325)

 

$-

 

 

$24,778,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

677,455

 

 

 

-

 

 

 

-

 

 

 

677,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Interactive Offers

 

 

-

 

 

 

-

 

 

 

666,667

 

 

 

667

 

 

 

3,999,333

 

 

 

-

 

 

 

-

 

 

 

4,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

64,833

 

 

 

-

 

 

 

64,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

500,000

 

 

$500

 

 

 

16,378,006

 

 

$16,378

 

 

$33,097,300

 

 

$(3,593,492)

 

$-

 

 

$29,520,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

670,098

 

 

 

-

 

 

 

-

 

 

 

670,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase common stock

 

 

-

 

 

 

-

 

 

 

(467,765)

 

 

(468)

 

 

(1,975,420)

 

 

-

 

 

 

-

 

 

 

(1,975,888)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for exercise of options

 

 

-

 

 

 

-

 

 

 

36,582

 

 

 

36

 

 

 

(36)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for stock compensation

 

 

-

 

 

 

-

 

 

 

91,500

 

 

 

92

 

 

 

183,823

 

 

 

-

 

 

 

-

 

 

 

183,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for stock compensation for building remodel

 

 

 

 

 

 

 

 

 

 

70,000

 

 

 

70

 

 

 

70,280

 

 

 

-

 

 

 

-

 

 

 

70,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(52,667)

 

 

-

 

 

 

(52,667)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2022

 

 

500,000

 

 

$500

 

 

 

16,108,323

 

 

$16,108

 

 

$32,046,045

 

 

$(3,646,159)

 

$-

 

 

$28,416,494

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-3

Table of Contents

 

 

GROVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

Nine Month's Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$523,877

 

 

$260,210

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,475,597

 

 

 

756,318

 

Inventory write-offs

 

 

140,000

 

 

 

272,287

 

Shares issued for services

 

 

358,915

 

 

 

127,500

 

Shares issued for finder fee

 

 

33,740

 

 

 

-

 

Bad debt expense

 

 

35,000

 

 

 

22,421

 

Loss on sale of equipment

 

 

(5,500)

 

 

6,292

 

Gain on forgiveness of SBA PPP loan

 

 

(300,995)

 

 

-

 

Stock based compensation

 

 

1,940,651

 

 

 

453,302

 

Changes in assets and liabilities, net of acquiried amounts

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(32,238)

 

 

(374,977)

Inventory

 

 

(986,166)

 

 

(942,357)

Prepaid expenses and other assets

 

 

405,133

 

 

 

(597,235)

Change in deferred tax asset

 

 

156,204

 

 

 

-

 

Accounts payable and accrued liabilities

 

 

(870,333)

 

 

(154,163)

Deferred revenue

 

 

(707,340)

 

 

268,030

 

Net cash provided by operating activities

 

 

2,166,545

 

 

 

97,628

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

    Acquisition of VitaMedica

 

 

(2,574,589)

 

 

-

 

    Acquisition of Infusionz, Inc., net of cash acquired

 

 

-

 

 

 

137,122

 

    Acquisition of Interactive Offers, net of cash acquired

 

 

(1,854,193)

 

 

-

 

    Proceeds from sale of property and equipment

 

 

6,000

 

 

 

64,000

 

    Acquisition of property and equipment

 

 

(5,649,100)

 

 

(106,168)

Net cash (used in) provided by investing activities

 

 

(10,071,882)

 

 

94,954

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

    Proceeds from issuance of preferred stock

 

 

-

 

 

 

50,000

 

    Proceeds from issuance of related party note payable

 

 

-

 

 

 

750,000

 

    Repayment of related party note payable

 

 

-

 

 

 

(750,000)

    Proceeds from issuance of convertible note payable

 

 

-

 

 

 

1,000,080

 

    Common stock repurchase

 

 

(1,975,888)

 

 

-

 

Repayment of notes payable

 

 

(150,000)

 

 

(12,000)

Net cash (used in) provided by financing activities

 

 

(2,125,888)

 

 

1,038,080

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

 

(10,031,225)

 

 

1,230,662

 

Cash, beginning of period

 

 

14,534,211

 

 

 

887,517

 

Cash, end of period

 

$4,502,986

 

 

$2,118,179

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

   Interest paid

 

$-

 

 

$-

 

   Income tax paid

 

$-

 

 

$-

 

Non-cash financing activities

 

 

 

 

 

 

 

 

   Issuance of common stock for acquisition of Infusionz

 

$1,764,876

 

 

$650,255

 

   Issuance of common stock for acquisition of VitaMedica

 

$482,000

 

 

$-

 

   Repayment of Infusionz LLC debt to Grove, Inc.

 

$-

 

 

$72,000

 

   Issuance of debt for acquisition of VitaMedica

 

$1,000,000

 

 

$-

 

   Liabilities assumed from acquisition of Infusionz

 

$-

 

 

$(680,480)

   Liabilities assumed from acquisition of VitaMedica

 

$(309,574)

 

$-

 

   Issuance of stock for acquisition of Interactive

 

$4,000,000

 

 

$-

 

   Liabilities assumed from acquisition of Interactive

 

$(1,099,993)

 

$-

 

Non-cash investing activities

 

 

 

 

 

 

 

 

   Issuance of common stock for acquisition of building remodel

 

$70,350

 

 

$-

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-4

Table of Contents

 

GROVE, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1. Background Information

 

We are in the business of developing, producing, marketing, and selling raw materials, white label products and end consumer products containing the hemp plant extract, Cannabidiol ("CBD”). We sell to numerous consumer markets including the nutraceutical, beauty care, pet care and functional food sectors. We seek to take advantage of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers.

 

In addition, we have an advertising platform that connects publishers and advertisers, programmatically. The platform is flexible to conduct several types of campaigns for advertisers simultaneously through direct purchases or through a bidding process. The platform provides advertisers options for dedicated/sponsorship emails, SMS, push notifications, and display campaigns.

 

Grove, Inc. (the "Company”) is a Nevada Corporation and has nine wholly owned subsidiaries, Trunano Labs, Inc., a Nevada corporation, Cresco Management, a California corporation, Steam Distribution, LLC, a California limited liability company; One Hit Wonder, Inc., a California corporation; Havz, LLC, d/b/a Steam Wholesale, a California limited liability company, Grove Acquisition Subsidiary, Inc, d/b/a VitaMedica a Nevada corporation, One Hit Wonder Holdings, LLC a California corporation, Infusionz LLC, a Colorado corporation, Interactive Offers LLC, a Delaware corporation, and SWCH, a Delaware corporation.

 

Basis of Presentation and Principles of Consolidation

 

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP”). The consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of March 31, 2022 and June 30, 2021.

 

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results.

 

The significant accounting policies adopted during the 2022 fiscal year are as follows:

 

In August 2020, the Financial Accounting Standards Board ("FASB”) issued ASU 2020-06-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. In addition, the Company will be required to use the if-converted method for calculating diluted earnings per share. We adopted ASU 2020-06 as of the beginning of our 2022 fiscal year. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements as there were no unamortized beneficial conversion features as of June 30, 2021.

 

In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removed certain exceptions related to the approach for intraperiod tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for investments. This guidance also simplified aspects of accounting for recognizing deferred taxes for taxable goodwill. We adopted ASU 2019-12 as of the beginning of our 2022 fiscal year. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements.

 

F-5

Table of Contents

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements, except for the adoption of ASU 2020-06 and ASU 2019-12 for the current fiscal year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s annual audited consolidated financial statements as of and for the years ended June 30, 2021 and 2020 as filed with the Securities and Exchange Commission on September 28, 2021.

 

Note 2. Acquisitions

 

VitaMedica Corporation

 

Effective August 1, 2021, the Company entered into and closed an asset purchase agreement (the "VitaMedica Agreement”) with Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company and VitaMedica Corporation, a California corporation, David Rahm and Yvette La-Garde ("Seller”). VitaMedica Corporation is a leading online seller of supplements for surgery, recovery, skin, beauty, health and wellness.

 

The Company agreed to purchase substantially all of the assets of the Seller as of August 1, 2021. The transaction was valued at an estimated fair value of $3,556,589. The purchase price consisted of 100,000 shares of the Company’s common stock valued at $482,000, $4.82 per common share, the closing price on August 4, 2021 (close date of the transaction), a non-negotiable promissory note from the Company in favor of the Seller in the original principal amount of $500,000, a non-negotiable convertible promissory note from the Company in favor of the Seller in the original principal amount of $500,000, convertible at $5.00 per share for a total of 100,000 shares of Company Common Stock and a cash payment of $2,000,000 which was paid on August 5, 2021. In addition, a $74,589 cash payment was made on October 29, 2021, for the excess working capital acquired.

 

A finder’s fee of $103,740 was paid by the Company, $70,000 in cash and 7,000 shares of common stock, valued at $33,740, $4.82 per common share, the closing market price on August 4, 2021 (close date of the transaction). These fees were expensed in the nine-month period ended March 31, 2022.

 

Intangibles will be recorded, based on the Company’s preliminary estimate of fair value, which are expected to consist primarily of customer lists with an estimated life of five to ten years and goodwill. Upon completion of a purchase price allocation, the allocation intangible assets will be adjusted accordingly.

 

The assets and liabilities of VitaMedica are recorded at their preliminary respective fair values as of the closing date of the VitaMedica Agreement, and the following table summarizes these values based on the balance sheet on August 1, 2021, the effective closing date.

 

Tangible Assets

 

$860,738

 

Intangible Assets

 

 

1,624,000

 

Goodwill

 

 

1,271,780

 

Liabilities Acquired

 

 

(199,929 )

Total Purchase Price

 

$3,556,589

 

 

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2022, include the actual results of VitaMedica for the period August 1, 2021 to March 31, 2022.

 

F-6

Table of Contents

 

Interactive Offers, LLC

 

Effective October 1, 2021, the Company entered into an Equity Interest Purchase Agreement (the "I/O Agreement”) with Gyprock Holdings LLC, a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company (each an "I/O Seller” and collectively the "I/O Sellers”). The I/O Sellers owned all the membership interests in Interactive Offers, LLC, a Delaware limited liability company ("Interactive”). The Company’s CEO and Chairman, Allan Marshall, was the controlling stockholder and the president of MFA Holdings Corp. MFA Holdings Corp., owning 20% of the outstanding membership interests in Interactive. Interactive provides programmatic advertising with its SaaS platform which allows for programmatic advertisement placement automatically on any partners’ sites from a simple dashboard.

 

The Company purchased all the outstanding membership interests of Interactive as of October 1, 2021. The purchase price for the sale was $6,700,000, which consisted of 666,667 shares of common stock of the Company valued at $4,000,000, the negotiated value of the stock for the transaction, and a cash payment of $2,100,000. Additionally, Sellers will be paid up to an additional cash payment of $600,000 in the form of an earnout payment based on certain revenue milestones. 

 

The intangibles will be recorded, based on the Company’s preliminary estimate of fair value, which are expected to consist primarily of customer lists with an estimated life of five to ten years and goodwill. Upon completion of a purchase price allocation, the allocation intangible assets will be adjusted accordingly.

 

The assets and liabilities of Interactive are recorded at their preliminary respective fair values as of the closing date of the I/O Agreement, and the following table summarizes these values based on the balance sheet on October 1, 2021, the effective closing date.

 

Tangible Assets

 

$563,663

 

Intangible Assets

 

 

2,388,000

 

Goodwill

 

 

4,848,330

 

Liabilities Acquired

 

 

(1,099,993 )

Total Purchase Price

 

$6,700,000

 

 

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2022, include the actual results of Interactive for the period October 1, 2021 to March 31, 2022.

 

Consolidated pro-forma unaudited financial statements.

 

The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, VitaMedica and Interactive after giving effect to the Company’s acquisitions of both companies as if the acquisitions occurred on July 1, 2020.

 

F-7

Table of Contents

 

The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2020, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the nine months ended March 31, 2022 and the three and nine months ended March 31, 2021, as if the acquisition occurred on July 1, 2020 as both acquisitions operations were included in the three months ended March 31, 2022. Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of VitaMedica and Interactive by approximately $413,000 and $531,000 per year, respectively.

 

Pro Forma, Unaudited

 

 

 

 

 

 

 

 

 

 

Proforma

 

 

 

 

Nine months ended March 31, 2022

 

Grove, Inc.

 

 

VitaMedica

 

 

Interactive

 

 

Adjustments

 

 

Proforma

 

Net sales

 

$

29,388,123

 

 

$

384,391

 

 

$

732,519

 

 

$

 

 

 

$

30,505,033

 

Cost of sales

 

$

11,208,516

 

 

$

93,509

 

 

$

-

 

 

$

 

 

 

$

11,302,025

 

Operating expenses

 

$

17,686,963

 

 

$

255,286

 

 

$

1,348,035

 

 

$

166,917

 

 

$

19,457,201

 

Net income (loss)

 

$

523,877

 

 

$

35,596

 

 

$

(795,507

)

 

$

(166,917

)

 

$

(402,951

)

Basic income (loss) per common share

 

$

0.03

 

 

$

0.36

 

 

$

(1.19

)

 

$

 

 

 

$

(0.02

)

Weighted average shares outstanding

 

 

16,080,699

 

 

 

100,000

 

 

 

666,667

 

 

 

 

 

 

 

16,847,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma, Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

Proforma

 

 

 

 

 

Three months ended March 31, 2021

 

Grove, Inc.

 

 

VitaMedica

 

 

Interactive

 

 

Adjustments

 

 

Proforma

 

Net sales

 

$

6,347,514

 

 

$

1,033,555

 

 

$

668,403

 

 

$

 

 

 

$

8,049,472

 

Cost of sales

 

$

2,950,802

 

 

$

285,834

 

 

$

-

 

 

$

 

 

 

$

3,236,636

 

Operating expenses

 

$

2,381,408

 

 

$

401,853

 

 

$

1,232,899

 

 

$

236,000

 

 

$

4,252,159

 

Net income (loss)

 

$

966,763

 

 

$

70,190

 

 

$

(624,479

)

 

$

(236,000

)

 

$

176,474

Basic income (loss) per common share

 

$

0.07

 

 

$

0.70

 

 

$

0.94

)

 

$

 

 

 

$

0.01

Weighted average shares outstanding

 

 

13,657,013

 

 

 

100,000

 

 

 

666,667

 

 

 

 

 

 

 

14,423,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma, Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

Proforma

 

 

 

 

 

Nine months ended March 31, 2021

 

Grove, Inc.

 

 

VitaMedica

 

 

Interactive

 

 

Adjustments

 

 

Proforma

 

Net sales

 

$

13,449,850

 

 

$

2,844,427

 

 

$

1,997,925

 

 

$

 

 

 

$

18,292,202

 

Cost of sales

 

$

6,804,269

 

 

$

808,796

 

 

$

-

 

 

$

 

 

 

$

7,613,065

 

Operating expenses

 

$

6,633,658

 

 

$

1,086,450

 

 

$

3,049,363

 

 

$

708,000

 

 

$

11,477,471

 

Net income (loss)

 

$

260,210

 

$

160,717

 

 

$

(1,001,466

)

 

$

(708,000

)

 

$

(1,288,539

)

Basic income (loss) per common share

 

$

0.02

 

$

1.61

 

 

(1.50

 

$

 

 

 

$

(0.10

)

Weighted average shares outstanding

 

 

11,876,780

 

 

 

100,000

 

 

 

666,667

 

 

 

 

 

 

 

12,643,447

 

 

The Company estimated the annual VitaMedica amortization expense at $413,000 annually and $34,417 monthly, based on managements’ preliminary allocation of the purchase price. For the nine months ended March 31, 2022, the proforma adjustment included $137,668, four months of amortization expense. For the three and nine months ended March 31, 2021, the proforma adjustment includes $103,250 and $309,750 of amortization expense, respectively.

 

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2022, include the actual results of VitaMedica for the period August 1, 2021 to March 31, 2022. Revenue for VitaMedica included in the statements of operations for the three and nine months ended March 31, 2022, was $1,393,260 and $3,571,237, respectively. Net income for VitaMedica included in the statements of operations for the three and nine months ended March 31, 2022, was $47,297 and $88,146, respectively. This includes amortization of intangible assets of $103,250 and $275,735, respectively.

 

The Company estimated the annual Interactive amortization expense at $531,000 annually and $44,250 monthly, based on managements’ preliminary allocation of the purchase price. For the nine months ended March 31, 2022, the proforma adjustment included $132,750, three months of amortization expense. For the three and nine months ended March 31, 2021, the proforma adjustment includes $132,750 and $398,250 of amortization expense, respectively.

 

The Company’s condensed consolidated financial statements for the three and nine months ended March 31, 2022, include the actual results of Interactive for the period October 1, 2021 to March 31, 2022. Revenue and net loss for Interactive included in the statement of operations for the nine months ended March 31, 2022 was $1,543,651 and $396,331, respectively and includes amortization of intangible assets of $265,500. Revenue and net loss for Interactive included in the statement of operations for the three months ended March 31, 2022 was $690,634 and $299,031, respectively and includes amortization of intangible assets of $132,750

 

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Table of Contents

 

Note 3. Inventory

 

Inventory consisted of the following:

 

 

 

March 31,

2022

 

 

June 30,

2021

 

Raw materials

 

$2,273,506

 

 

$1,680,471

 

Finished goods

 

 

1,287,499

 

 

 

414,481

 

 

 

$3,560,955

 

 

$2,094,952

 

 

The Company writes off the value of inventory deemed excessive or obsolete. During the three and nine months ended March 31, 2022, the Company wrote off inventory valued at $0 and $140,000, respectively. During the three and nine months ended March 31, 2021, the Company wrote off inventory valued at $115,443 and $272,287, respectively.

 

Note 4. Property and Equipment

 

Property and equipment consist of the following:

 

 

 

March 31,

2022

 

 

June 30,

2021

 

Furniture and fixtures

 

$24,567

 

 

$20,173

 

Computer equipment

 

 

81,354

 

 

 

62,430

 

Manufacturing equipment

 

 

2,182,747

 

 

 

1,867,509

 

Leasehold improvements

 

 

1,804,238

 

 

 

764,225

 

Building

 

 

4,060,004

 

 

 

-

 

Building remodel

 

 

206,843

 

 

 

-

 

Vehicles

 

 

219,262

 

 

 

98,859

 

Property and equipment, gross

 

 

8,579,015

 

 

 

2,813,196

 

Less accumulated depreciation

 

 

(897,375 )

 

 

(515,990 )

 

 

 

7,681,640

 

 

 

2,297,206

 

Deposits on equipment

 

 

-

 

 

 

535,194

 

Property and equipment, net

 

$7,681,640

 

 

$2,832,400

 

 

During the three and nine months ended March 31, 2022, the Company sold vehicles with a carrying value of $500 for cash proceeds of $6,000, which resulted in a gain on the disposal of $5,500.

 

During the three and nine months ended March 31, 2021, the Company sold manufacturing equipment with a carrying value of $79,999 for cash proceeds of $64,000, which resulted in a loss on the disposal of $6,292.

 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $143,537 and $71,856, respectively. Depreciation expense for the nine months ended March 31, 2022 and 2021 was $390,116 and $211,671, respectively.

 

Note 5. Goodwill and Intangible Assets

 

Goodwill

 

The following table sets forth activity in goodwill from June 30, 2020 through March 31, 2022. See Note 2 for details of acquisitions that occurred during the nine months ended March 31, 2022 and the year ended June 30, 2021.

 

Goodwill as of June 30, 2020

 

$493,095

 

Acquisition of Infusionz

 

 

1,920,718

 

Goodwill as of June 30, 2021

 

$2,413,813

 

Acquisition of VitaMedica

 

 

1,271,780

 

Acquisition of Interactive Offers

 

 

4,848,330

 

Goodwill as of March 31, 2022

 

$8,533,923

 

 

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Table of Contents

 

During the three and nine months ended March 31, 2022 and 2021 the Company did not record any impairment of goodwill.

 

The acquisition of Infusionz LLC and VitaMedica provided the Company with additional expertise in the CBD industry and expanded our expertise in the Health and Wellness industry, expanded the branded product offerings of the Company, additional manufacturing resources, additional distribution resources and improved gross margin through synergies recognized with the consolidation of the company’s manufacturing and distribution locations. These are the factors of the goodwill recognized in the acquisitions.

 

The acquisition of Interactive provided the Company with a technology platform to expand the Company’s product marketing abilities and provided the Company with the expertise in marketing for both internal products and the ability to provide a new service to its current product customer base. These are the factors of the goodwill recognized in the acquisition.

 

Intangible assets

 

Intangible assets as of March 31, 2022:

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

Book Value

 

Customer relationships

 

$4,187,348

 

 

$1,552,765

 

 

$2,634,583

 

Trade name

 

 

1,175,305

 

 

 

436,943

 

 

 

738,362

 

Non-compete agreements

 

 

176,592

 

 

 

96,185

 

 

 

80,407

 

Intellectual property

 

 

1,470,000

 

 

 

151,667

 

 

 

1,318,333

 

 

 

$7,009,245

 

 

$2,237,560

 

 

$4,771,685

 

 

Intangible assets as of June 30, 2021:

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

Book Value

 

Customer relationships

 

$2,075,347

 

 

$843,636

 

 

$1,231,711

 

Trade name

 

 

845,305

 

 

 

270,147

 

 

 

575,158

 

Non-compete agreements

 

 

76,592

 

 

 

38,295

 

 

 

38,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,997,244

 

 

$1,152,078

 

 

$1,845,166

 

 

For the three and nine months ended March 31, 2022, the Company amortized $417,549 and $1,085,481, respectively, and for the three and nine months ended March 31, 2021, the Company amortized $181,218 and $544,646, respectively, related to the customer list, trade name and non-compete intangible assets. The customer list is being amortized on a straight-line basis over 4 years. The trade names and intellectual property are being amortized on a straight-line basis over 5 years. The employee contracts – non compete agreements are being amortized on a straight-line basis over 2 years.

 

Future amortization of intangible assets are as follows:

 

 

 

 

 

 

 

June 30, 2022

 

$417,547

 

June 30, 2023

 

 

1,606,913

 

June 30, 2024

 

 

1,273,475

 

June 30, 2025

 

 

959,750

 

June 30, 2026

 

 

432,000

 

Thereafter

 

 

82,000

 

 

 

$4,771,685

 

 

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Table of Contents

 

Note 6. Prepaid Expense and Other Current Assets

 

Prepaid and other assets consist of the following:

 

 

 

March 31,

2022

 

 

June 30,

2021

 

Insurance

 

$106,685

 

 

$100,307

 

Prepayment to vendors

 

 

322,925

 

 

 

118,283

 

Deposits on services

 

 

7,268

 

 

 

3,225

 

Prepaid monthly rent

 

 

72,058

 

 

 

66,551

 

Subscriptions and services being amortized over the service period

 

 

207,193

 

 

 

-

 

Other deposits

 

 

-

 

 

 

97,892

 

Total

 

$716,129

 

 

$386,258

 

 

Note 7. Operating Leases

 

The Company has operating leases for corporate offices, warehouses and office equipment that have remaining lease terms of 1 year to 3 years.

 

Effective October 1, 2021, the Company entered into a 3-year lease for a California warehouse. The Company recorded a right of use asset and corresponding lease liability of $295,305. The Company will use this leased facility for assembly and distribution of finished goods.

 

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the condensed consolidated balance sheet as of March 31, 2022:

 

2022

 

$67,036

 

2023

 

 

264,183

 

2024

 

 

245,697

 

2025

 

 

36,564

 

Total undiscounted future minimum lease payments

 

 

613,480

 

Less: Imputed interest

 

 

(32,373 )

Present value of operating lease obligation

 

$581,107

 

 

The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, 2022 are:

 

Weighted average remaining lease term

 

28 Months

 

Weighted average incremental borrowing rate

 

 

5.0%

 

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Table of Contents

 

For the three and nine months ended March 31, 2022, the components of lease expense, included in general and administrative expenses and interest expense in the condensed consolidated statements of operations income, are as follows:

 

 

 

Three

Months Ended

March 31,

2022

 

 

Nine

Months Ended

March 31,

2022

 

Operating lease cost:

 

 

 

 

 

 

Operating lease cost

 

$58,179

 

 

$157,464

 

Amortization of ROU assets

 

 

60,492

 

 

 

147,898

 

Interest expense

 

 

7,328

 

 

 

19,208

 

Total lease cost

 

$125,999

 

 

$324,570

 

 

Note 8. Accrued Liabilities

 

Accrued liabilities consist of the following:

 

 

 

March 31,

2022

 

 

June 30,

2021

 

Accrued expenses for loyalty program

 

$8,978

 

 

$24,768

 

Accrued interest

 

 

19,890

 

 

 

9,817

 

Accrued federal and state tax

 

 

173,618

 

 

 

120,776

 

Accrued expenses on credit cards

 

 

431,325

 

 

 

111,700

 

Other accrued liabilities

 

 

121,893

 

 

 

28,960

 

 

 

$755,704

 

 

$296,021

 

 

Note 9. Convertible Promissory Notes and Notes Payable

 

Convertible promissory notes and notes payable outstanding as of March 31, 2022 are summarized below:

 

 

 

Maturity

Date

 

March 31,

2022

 

6% $500,000 Note Payable, convertible to common shares at $5.00 per share

 

August 1, 2022

 

 

500,000

 

5% $33,967 Note Payable

 

November 7, 2026

 

 

31,442

 

Total notes payable

 

 

 

 

531,442

 

Less current portion of notes payable

 

 

 

 

506,275

 

Notes payable, net of current portion

 

 

 

$25,167

 

 

Future payments on notes payable are as follows:

 

 

 

 

 

 

 

For the year ended June 30:

 

 

 

2022

 

$1,540

 

2023

 

 

506,350

 

2024

 

 

6,668

 

2025

 

 

7,001

 

2026

 

 

7,351

 

Thereafter

 

 

2,532

 

 

 

$531,442

 

 

During the three and nine months ended March 31, 2022, the Company entered into a note payable in connection with the acquisition of VitaMedica for $500,000, payable January 31, 2022, and accruing interest at the rate of 6% per annum. During the three months ended March 31, 2022, the Company repaid the note and related accrued interest of $515,188.

 

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Table of Contents

 

During the nine months ended March 31, 2022, the Company entered into a convertible note payable in connection with the acquisition of VitaMedica for $500,000, convertible into the Company’s common shares at $5.00 per common share. The convertible note has an interest rate of 6% per annum. Principal and interest are payable on the maturity date of August 1, 2022. The Company cannot prepay the note and the principal and accrued interest is convertible at the holder’s option with notice that shall not be less than fifteen days prior to maturity.

 

Note 10. Related Party Transactions

 

During the nine months ended March 31, 2021, the Company entered into a note with a member of management. The loan was for $750,000 and had a two year term with an interest rate of 2%. Management repaid the loan and accrued interest during the three months ended March 31, 2021.

 

During the three and nine months ended March 31, 2021, the Company repaid a note from one of the members of management. The loan was $12,000 and was due upon demand.

 

During the nine months ended March 31, 2021, a member of management purchased 500,000 shares of preferred stock for $50,000 cash.

 

Effective October 1, 2021, the Company entered into an Equity Interest Purchase Agreement (the "I/O Agreement”) with Gyprock Holdings LLC, a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company (each an "I/O Seller” and collectively the "I/O Sellers”). The I/O Sellers owned all the membership interests in Interactive Offers, LLC, a Delaware limited liability company ("Interactive”). The Company’s CEO and Chairman, Allan Marshall, is the controlling stockholder and the president of MFA Holdings Corp., which owned 20% of the outstanding membership interests in Interactive.

 

The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties.

 

Note 11. Equity Transactions

 

Preferred Stock

 

The Company’s Board of Directors has authorized 1,000,000 shares of preferred stock with a par value of $0.001 and issued 500,000 shares of preferred stock. On February 2, 2021, the Company sold the 500,000 shares of Preferred Stock to Allan Marshall, CEO and Chairman for net proceeds of $50,000. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all matters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock.

 

Common Stock

 

During the nine months ended March 31, 2021, the Company issued 425,004 shares of common stock for the acquisition of Infusionz, the shares were valued at $650,255 or $1.53 per share, as this was the last transaction price. In addition, the Company issued 83,334 shares of common stock valued at $127,500 for acquisition costs.

 

During the nine months ended March 31, 2022, the Company issued 306,945 shares of common stock for the acquisition of Infusionz, the shares were valued at $1,764,876.

 

During the nine months ended March 31, 2022, the Company issued 100,000 shares of common stock for the acquisition of VitaMedica, the shares were valued at $482,000.

 

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Table of Contents

 

During the nine months ended March 31, 2022, the Company issued 7,000 shares of common stock as a finder’s fee, the shares were valued at $33,740.

 

During the nine months ended March 31, 2022, the Company issued 35,000 shares of common stock for consulting services to be provided over 6 months. The shares were valued at $175,000.

 

During the nine months ended March 31, 2022, the Company issued 666,667 shares of common stock for the acquisition of Interactive, the shares were valued at $4,000,000.

 

During the nine months ended March 31, 2022, the Company issued 91,500 shares of common stock to various employees for services to be rendered over a six-month period. The shares were valued at fair value of $367,830 or $4.02 per share. As of March 31, 2022, $183,915 has been amortized to stock compensation expense. The remaining value of $183,915 will be amortized during the three months ended June 30, 2022.

 

During the nine months ended March 31, 2022, the Company issued 70,000 shares of common stock to a consultant for services related to the remodel of the new building to be rendered over a one year period. The shares were valued at fair value of $281,400 or $4.02 per share. As of March 31, 2022, $70,350 has been capitalized to the building remodel. The remaining value of $211,050 will be capitalized to the building remodel at $23,450 monthly through December 31, 2022.

 

During the nine months ended March 31, 2022, the Company issued 36,582 shares of common stock for the cashless exercise of 55,556 stock options.

 

During the nine months ended March 31, 2022, the Company repurchased 467,765 shares of common stock for $1,975,888 or an average of $4.22 per common share.

 

Trunano, Inc. Common Stock

 

Trunano, Inc. has 10,000,000 shares of common stock authorized with a par value of $0.001. As of June 30, 2020, Trunano, Inc, had 7,261,261 issued and outstanding shares of common stock, of which 5,770,270 is owned by the Company. During the three months ended September 30, 2019, Trunano, Inc. issued 270,270 shares of common stock for cash proceeds of $300,000. Primarily due to the decline in CBD isolate price, there were no operations during the three and nine months ended March 31, 2021 for Trunano, Inc.

 

On July 1, 2020 the noncontrolling shareholders of the Company’s subsidiary, Trunano Labs Inc., converted 1,761,261 shares of Trunano Labs, Inc. stock, representing all the outstanding stock by minority interest holders, into 1,277,778 shares of Company common stock, 10.8% of the then outstanding shares. As of July 1, 2020, Trunano Labs, Inc. is a wholly owned subsidiary of the Company.

 

Note 12. Stock Based Compensation

 

The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares. The options are exercisable for a period of up to 10 years from the date of the grant.

 

The following table reflects the continuity of stock options for the nine months ended March 31, 2022:

 

F-14

Table of Contents

 

A summary of stock option activity is as follows:

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregated

 

 

 

Options

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Outstanding

 

 

Price

 

 

Life (Years)

 

 

Value

 

Outstanding at June 30, 2021

 

 

2,088,333

 

 

$1.55

 

 

 

7.49

 

 

$9,689,865

 

Exercised

 

 

(55,556)

 

$0.68

 

 

 

 

 

 

 

 

 

Granted

 

 

1,900,000

 

 

 

4.18

 

 

 

10

 

 

 

-

 

Options outstanding at March 31, 2022

 

 

3,932,777

 

 

$2.81

 

 

 

7.95

 

 

$8,922,562

 

Options exercisable at March 31, 2022 (vested)

 

 

2,298,930

 

 

$2.26

 

 

 

7.54

 

 

 

8,184,193

 

 

Stock-based compensation expense attributable to stock options was $670,098 and $225,984 for the three months ended March 31, 2022 and 2021, respectively. Stock-based compensation expense attributable to stock options was $1,940,651 and $453,302 for the nine months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, there was $4,426,475 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was approximately 2 years.

 

The value of each grant is estimated at the grant date using the Black-Scholes option model with the following assumptions for options granted during the nine months ended March 31, 2022:

 

 

 

March 31,

2022

 

Dividend rate

 

 

-

 

Risk free interest rate

 

 

0.69%

Expected term

 

 

5

 

Expected volatility

 

 

69%

Grant date stock price

 

$4.18

 

 

The basis for the above assumptions are as follows: the dividend rate is based upon the Company’s history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Company’s historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated based upon historical trends in Charlotte’s Web Holdings, Inc. (CWBHF) stock prices for periods prior to the date the Company’s trading information was available. Management selected Charlotte’s Web Holdings, Inc. for its length of time as a publicly trading company and the similarities of the business and industry.

 

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at 0% for each of the nine months ended March 31, 2022 and 2021, respectively.

 

Note 13. Income Taxes

 

The Company computed the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax income and adjusted for discrete tax items in the period. The Company’s income tax benefit and expense was $21,470 and $213,563 for the three and nine months ended March 31, 2022, respectively and no expense or benefit for the three and nine months ended March 31, 2021.

 

The income tax expense for the three and nine months ended March 31, 2022, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately 29%. For the three and nine months ended March 31, 2022, the difference between the U.S. statutory rate and the Company’s effective tax rate is due to the full valuation allowance on the Company’s deferred tax assets.

 

Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. The Company also considered whether there was any currently available information about future years. The Company determined that it is more likely than not that the Company will have future taxable income to fully realize the Company’s deferred tax asset.

 

As of March 31, 2022, there was approximately $1,993,342 of losses available to reduce federal taxable income in future years and can be carried forward indefinitely.

 

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Table of Contents

 

Note 14. Risks and Uncertainties

 

There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration, or DEA, and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.

 

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company has transition to a combination of work from home and social distancing operations and there has been minimal impact to our internal operations from the transition. The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues.

 

Note 15. Subsequent Events

 

Issuance of Equity

 

Subsequent to March 31, 2022, the Company issued 372,000 stock options with a fair value of $1,152,909.

 

On April 5, 2022, a warrant for 166,667 shares was exercised by an investor on a cashless basis and the Company issued 119,792 shares of the Company’s common stock with a fair value of $651,668 based on the closing price on April 5, 2022 of $5.44 per common share.

 

Acquisition of Cygnet Online LLC

 

Subsequent March 31, 2022, the Company entered into a Securities Purchase Agreement to purchase Cygnet Online, LLC, a Delaware limited liability company effective as of April 1, 2022. The Company purchased 55% of the equity in the business with a purchase price of $6,050,000. The consideration consisted of $1,500,000 in cash, $2,550,000 or 555,489 shares of restricted common stock and a non-negotiable convertible promissory note in the original principal amount of $2,000,000, which can be converted into common stock of the Company at a price of $6.00 per share and is payable in full, to the extent not previously converted, on February 15, 2023. The purchase price is subject to a two-way adjustment based on the amount of Closing Working Capital, as defined in the agreement.

 

Additionally, Seller will be paid up to $700,000 in the form of an earn-out payment based on 7% of Cygnet’s net revenue during the earn-out period, in accordance with and subject to the terms and conditions of the agreement. The earn-out payment, if any, will be paid 50% in immediately available funds and 50% in Company restricted common stock.

 

The Agreement contains customary confidentiality, non-competition, and non-solicitation provisions for the Seller and Seller’s affiliates.

 

 In addition, the Company has the right to purchase Seller’s remaining membership interests in Cygnet. Commencing on October 10, 2022 and continuing for 180 days thereafter, the Company has the right, but not the obligation, to cause the Seller to sell 15% of the membership interests in Cygnet for $1,650,000 in immediately available funds. Commencing on the date that the Company completes its financial statements for the year ended December 31, 2023, and continuing for 120 days thereafter, the Company has the right, but not the obligation, to cause the Seller to sell the remaining 30% of the membership interests in Cygnet for 30% of the amount equal to four times Cygnet’s Adjusted EBITDA (as defined in the Call Agreement) for calendar year 2023, payable by wire transfer of immediately available funds equal to at least 50% of said purchase price with the balance payable through the issuance to Seller of shares of restricted common stock of the Company.

 

The Seller has the right, but not the obligation, at any time commencing on the date that is 120 days after the date the Company completes Cygnet’s financial statements for the year ended December 31, 2023, and continuing for 90 days thereafter, to cause the Company to purchase all of the Seller’s remaining membership interests in Cygnet for a purchase price equal to the product of (i) four times Cygnet’s Adjusted EBITDA (as defined in the Put Agreement) for calendar year 2023, and (ii) the percentage of Cygnet membership interests being sold, payable in shares of restricted common stock of the Company.

 

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Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

 

General Overview

 

As used in this current report and unless otherwise indicated, the terms "we”, "us” and "our” mean Grove, Inc.