UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
_______________________________________________________________
(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 |
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. ☒
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). ☒
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 | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of February 11, 2022, there were 16,576,088 common shares issued and
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition or Plan of Operation |
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| 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.
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| Table Of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GROVE, INC.
Interim Unaudited Condensed Consolidated Financial Statements
For the Three and Six Month Periods Ended December 31, 2021
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Condensed Consolidated Balance Sheets as of December 31, 2021 and June 30, 2021 (Unaudited) |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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GROVE, INC. | |||
CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED) |
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ASSETS |
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Current assets |
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Cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventory |
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Prepaid expenses and other receivables |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Deferred tax asset |
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Other assets |
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Right-of-use asset |
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Total other assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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Accrued compensation |
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Deferred revenue |
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Accrued liabilities |
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Acquisition payable |
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Current portion of notes payable |
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Current portion of operating lease payable |
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Total current liabilities |
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Operating lease payable, net of current portion |
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Notes payable, net of current portion |
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Total long-term liabilities |
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Commitments and contingencies |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total stockholers' equity |
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Total liabilities and stockholders' equity |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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| Table of Contents |
GROVE, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
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Revenue |
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Revenue |
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Cost of Revenue |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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General and administrative expenses |
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Income (loss) from operations |
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Other income (expense), net |
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Interest (expense) income, net |
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Other (expense) income, net |
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Settlement of cancelled lease |
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Gain on SBA PPP loan extingushment |
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Other income (expense), net |
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Income (loss) before income tax |
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Income tax expense |
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Net income (loss) |
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Basic income (loss) per share |
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Diluted income (loss) per share |
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Weighted average shares outstanding |
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Fully diluted weighted average shares outstanding |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
GROVE, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) |
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| Preferred Stock |
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| Common Stock |
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2020 |
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Balance, June 30, 2020 |
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Conversion of Trunano subsidiary stock into Grove common stock |
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Issuance of common stock for acquisition of Infusionz |
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Issuance of common stock for acquisition costs |
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Stock based compensation |
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Net loss |
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Balance, September 30, 2020 |
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Stock based compensation |
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Issuance of common stock for acquisition of Infusionz |
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Net income |
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Balance, September 30, 2020 |
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2021 |
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Balance, June 30, 2021 |
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Issuance of common stock for acquisition of Infusionz |
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Issuance of common stock for acquisition of VitaMedica |
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Issuance of common stock for acquisition costs |
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Stock based compensation |
|
| - |
|
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|
| - |
|
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| ||||||
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|
Issuance of common stock for services |
|
| - |
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| |||||||
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Net income |
|
| - |
|
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| - |
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Balance, September 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||||
|
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|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
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|
|
Stock based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
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| ||||||
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|
Issuance of common stock for acquisition of Interactive Offers |
|
| - |
|
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Net income |
|
| - |
|
|
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|
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| - |
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|
|
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|
Balance, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
GROVE, INC. | |||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
|
|
|
|
| Six Month's Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income (loss) |
| $ |
|
| $ | ( | ) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) |
|
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Inventory write-offs |
|
|
|
|
|
| ||
Issuance of common stock for acquisition costs |
|
|
|
|
|
| ||
Shares issued for services |
|
|
|
|
|
| ||
Shares issued for finder fee |
|
|
|
|
|
| ||
Bad debt expense |
|
|
|
|
|
| ||
Loss on sale of equipment |
|
|
|
|
|
| ||
Gain on forgiveness of SBA PPP loan |
|
| ( | ) |
|
|
| |
Stock based compensation |
|
|
|
|
|
| ||
Changes in assets and liabilities, net of acquiried amounts |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
| ( | ) | |
Inventory |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses and other assets |
|
|
|
|
| ( | ) | |
Change in deferred tax asset |
|
|
|
|
|
| ||
Accounts payable and accrued liabilities |
|
| ( | ) |
|
| ( | ) |
Deferred revenue |
|
| ( | ) |
|
| ( | ) |
Net cash provided by (used in) operating activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
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|
|
Acquisition of VitaMedica |
|
| ( | ) |
|
|
| |
Acquisition of Infusionz, Inc., net of cash acquired |
|
|
|
|
|
| ||
Acquisition of Interactive Offers, net of cash acquired |
|
| (1,854,193 | ) |
|
| - |
|
Proceeds from sale of property and equipment |
|
|
|
|
|
| ||
Acquisition of property and equipment |
|
| ( | ) |
|
| ( | ) |
Net cash (used in) provided by investing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
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|
|
Proceeds from issuance of related party note payable |
|
|
|
|
|
| ||
Repayment of notes payable |
|
| ( | ) |
|
| ( | ) |
Net cash (used in) provided by financing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash |
|
| ( | ) |
|
|
| |
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Interest paid |
| $ |
|
| $ |
| ||
Income tax paid |
| $ |
|
| $ |
| ||
Non-cash financing activities |
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of Infusionz |
| $ |
|
| $ |
| ||
Issuance of common stock for acquisition of VitaMedica |
| $ |
|
| $ |
| ||
Repayment of Infusionz LLC debt to Grove, Inc. |
| $ |
|
| $ |
| ||
Issuance of debt for acquisition of VitaMedica |
| $ |
|
| $ |
| ||
Liabilities assumed from acquisition of Infusionz |
| $ |
|
| $ | ( | ) | |
Liabilities assumed from acquisition of VitaMedica |
| $ | ( | ) |
| $ |
| |
Issuance of stock for acquisition of Interactive |
| $ |
|
| $ |
| ||
Liabilities assumed from acquisition of Interactive |
| $ | ( | ) |
| $ |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
| 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 December 31, 2021 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 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, the Financial Accounting Standards Board (“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.
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.
| 9 |
| Table of Contents |
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 $
A finder’s fee of $
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 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 |
| $ |
| |
Intangible Assets |
|
|
| |
Goodwill |
|
|
| |
Liabilities Acquired |
|
| ( | ) |
Total Purchase Price |
| $ |
|
The Company’s condensed consolidated financial statements for the six months ended December 31, 2021, include the actual results of VitaMedica for the period August 1, 2021, to December 31, 2021.
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.
| 10 |
| Table of Contents |
The Company purchased all the outstanding membership interests of Interactive as of October 1, 2021. The purchase price for the sale was $
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
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 |
| $ |
| |
Intangible Assets |
|
|
| |
Goodwill |
|
|
| |
Liabilities Acquired |
|
| ( | ) |
Total Purchase Price |
| $ |
|
The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2021, include the actual results of Interactive for the period October 1, 2021, to December 31, 2021.
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.
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 six months ended December 31, 2021 and the three and six months ended December 31, 2020 as if the acquisition occurred on July 1, 2020 as both acquisitions operations were included in the three months ended December 31, 2021. 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 $
| 11 |
| Table of Contents |
Pro Forma, Unaudited |
|
|
|
|
|
|
|
|
|
| Proforma |
|
|
|
| |||||
Three months ended December 31, 2020 |
| Grove, Inc. |
|
| VitaMedica |
|
| Interactive |
|
| Adjustments |
|
| Proforma |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ |
|
| $ | 936,582 |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Operating expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Net income (loss) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||
Basic income (loss) per common share |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
Weighted average shares outstanding |
|
|
|
|
|
|
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| ||||
|
|
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|
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|
|
|
Pro Forma, Unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
| Proforma |
|
|
|
|
| |
Six months ended December 31, 2021 |
| Grove, Inc. |
|
| VitaMedica |
|
| Interactive |
|
| Adjustments |
|
| Proforma |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of sales |
| $ |
|
| $ |
|
| $ | - |
|
| $ |
|
| $ |
| ||||
Operating expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Net income (loss) |
| $ |
|
| $ |
|
| $ | (795,507 | ) |
| $ | ( | ) |
| $ | ) | |||
Basic income (loss) per common share |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||
Weighted average shares outstanding |
|
|
|
|
|
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| ||||
|
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|
Pro Forma, Unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
| Proforma |
|
|
|
|
| |
Six months ended December 31, 2020 |
| Grove, Inc. |
|
| VitaMedica |
|
| Interactive |
|
| Adjustments |
|
| Proforma |
| |||||
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Net sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Operating expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Net income (loss) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
Basic income (loss) per common share |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) | |||
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
The Company estimated the annual VitaMedica amortization expense at $
The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2021, include the actual results of VitaMedica for the period August 1, 2021, to December 31, 2021. Revenue for VitaMedica included in the statements of operations for the three and six months ended December 31, 2021, was $
The Company estimated the annual Interactive amortization expense at $
The Company’s condensed consolidated financial statements for the three and six months ended December 31, 2021, include the actual results of Interactive for the period October 1, 2021, to December 31, 2021. Revenue and net loss for Interactive included in the statement of operations for the six months ended December 31, 2021, was $
| 12 |
| Table of Contents |
Note 3. Inventory
Inventory consisted of the following:
|
| December 31, 2021 |
|
| June 30, 2021 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
The Company writes off the value of inventory deemed excessive or obsolete. During the three and six months ended December 31, 2021, the Company wrote off inventory valued at $
Note 4. Property and Equipment
Property and equipment consist of the following:
|
| December 31, 2021 |
|
| June 30, 2021 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Computer equipment |
|
|
|
|
|
| ||
Manufacturing equipment |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Building |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Property and equipment, gross |
|
|
|
|
|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
| ||
Deposits on equipment |
|
|
|
|
|
| ||
Property and equipment, net |
| $ |
|
| $ |
| ||
During the three and six months ended December 31, 2020, the Company sold manufacturing equipment with a carrying value of $
Depreciation expense for the three months ended December 31, 2021, and 2020 was $
Note 5. Goodwill and Intangible Assets
Goodwill
The following table sets forth activity in goodwill from June 30, 2020, through December 31, 2021. See Note 2 for details of acquisitions that occurred during the six months ended December 31, 2021, and the year ended June 30, 2021.
Goodwill as of June 30, 2020 |
| $ |
| |
Acquisition of Infusionz |
|
|
| |
Goodwill as of June 30, 2021 |
| $ |
| |
Acquisition of VitaMedica |
|
|
| |
Acquisition of Interactive Offers |
|
|
| |
Goodwill as of December 31, 2021 |
| $ |
|
During the three and six months ended December 31, 2021 and 2020 the Company did not record any impairment of goodwill.
| 13 |
| Table of Contents |
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 December 31, 2021:
|
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Customer relationships |
| $ |
|
| $ |
|
| $ |
| |||
Trade name |
|
|
|
|
|
|
|
|
| |||
Non-compete agreements |
|
|
|
|
|
|
|
|
| |||
Intellectual property |
|
|
|
|
|
|
|
|
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
Intangible assets as of June 30, 2021:
|
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Customer relationships |
| $ |
|
| $ |
|
| $ |
| |||
Trade name |
|
|
|
|
|
|
|
|
| |||
Non-compete agreements |
|
| 76,592 |
|
|
| 38,295 |
|
|
| 38,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
| |||
For the three and six months ended December 31, 2021, the Company amortized $
Future amortization of intangible assets are as follows: |
|
|
| |
|
|
|
| |
June 30, 2022 |
| $ | 835,096 |
|
June 30, 2023 |
|
|
| |
June 30, 2024 |
|
|
| |
June 30, 2025 |
|
| 959,750 |
|
June 30, 2026 |
|
|
| |
Thereafter |
|
|
| |
|
| $ |
| |
| 14 |
| Table of Contents |
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other assets consist of the following:
|
| December 31, 2021 |
|
| June 30, 2021 |
| ||
Insurance |
| $ |
|
| $ |
| ||
Prepayment to vendors |
|
|
|
|
|
| ||
Deposits on services |
|
|
|
|
|
| ||
Prepaid monthly rent |
|
|
|
|
|
| ||
Subscriptions and services being amortized over the service period |
|
|
|
|
|
| ||
Other deposits |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Note 7. Operating Leases
The Company has operating leases for corporate offices,
Effective October 1, 2021, the Company entered into a
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 December 31, 2021:
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Total undiscounted future minimum lease payments |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease obligation |
|
|
|
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of December 31, 2021 are:
Weighted average remaining lease term |
|
| ||
Weighted average incremental borrowing rate |
|
| % | |
| 15 |
| Table of Contents |
For the three and six months ended December 31, 2021, 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 December 31, 2021 |
|
| Six Months Ended December 31, 2021 |
| ||
Operating lease cost: |
|
|
|
|
|
| ||
Operating lease cost |
| $ |
|
| $ |
| ||
Amortization of ROU assets |
| $ |
|
| $ |
| ||
Interest expense |
|
|
|
|
|
| ||
Total lease cost |
| $ |
|
| $ |
| ||
Note 8. Accrued Liabilities
Accrued liabilities consist of the following:
|
| December 31, 2021 |
|
| June 30, 2021 |
| ||
Accrued expenses for loyalty program |
| $ |
|
| $ |
| ||
Accrued interest |
|
|
|
|
|
| ||
Accrued federal and state tax |
|
|
|
|
|
| ||
Accrued expenses on credit cards |
|
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Note 9. Convertible Promissory Notes and Notes Payable
Convertible promissory notes and notes payable outstanding as of December 31, 2021 are summarized below:
|
| Maturity Date |
| December 31, 2021 |
| |
6% $500,000 Note Payable |
|
| $ |
| ||
6% $500,000 Note Payable, convertible to common shares at $5.00 per share |
|
|
|
| ||
5% $33,967 Note Payable |
|
|
|
| ||
Total notes payable |
|
|
|
|
| |
Less current portion of notes payable |
|
|
|
|
| |
Notes payable, net of current portion |
|
|
| $ |
| |
Future payments on notes payable are as follows: |
|
|
| |
|
|
|
| |
For the year ended June 30: |
|
|
| |
2022 |
| $ |
| |
2023 |
|
| 506,350 |
|
2024 |
|
| 6,668 |
|
2025 |
|
|
| |
2026 |
|
| 7,351 |
|
Thereafter |
|
| 2,532 |
|
|
| $ |
| |
During the three and six months ended December 31, 2021, the Company entered into a note payable in connection with the acquisition of VitaMedica for $
| 16 |
| Table of Contents |
During the six months ended December 31, 2021, the Company entered into a convertible note payable in connection with the acquisition of VitaMedica for $
Note 10. Related Party Transactions
During the three and six months ended December 31, 2020, the Company repaid a note from one of the members of management. The loan was $
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. 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
Common Stock
During the six months ended December 31, 2020, the Company issued
During the six months ended December 31, 2021, the Company issued
During the six months ended December 31, 2021, the Company issued
During the six months ended December 31, 2021, the Company issued
During the six months ended December 31, 2021, the Company issued
During the six months ended December 31, 2021, the Company issued
| 17 |
| Table of Contents |
Trunano, Inc. Common Stock
Trunano, Inc. has 10,000,000 shares of common stock authorized with a par value of $
On July 1, 2020 the noncontrolling shareholders of the Company’s subsidiary, Trunano Labs Inc., converted
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
The following table reflects the continuity of stock options for the six months ended December 31, 2021:
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 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Options outstanding at December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Options exercisable at December 31, 2021 (vested) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stock-based compensation expense attributable to stock options was $
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 six months ended December 31, 2021:
|
| December 31, 2021 |
| |
Dividend rate |
|
| - |
|
Risk free interest rate |
|
| % | |
Expected term |
|
|
| |
Expected volatility |
|
| % | |
Grant date stock price |
| $ |
| |
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 it length of time as a publicly trading company and the similarities of the business and industry.
| 18 |
| Table of Contents |
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
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 expense was $26,162 and $235,033 for the three and six months ended December 31, 2021, and no expense or benefit for the three and six months ended December 31, 2020.
The income tax expense for the three and six months ended December 31, 2021, was primarily attributable to federal and, state income taxes and nondeductible expenses for an effective tax rate of approximately
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 December 31, 2021, there was approximately $
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
On January 31, 2022, the Company paid $
After December 31, 2021, the Company repurchased
| 19 |
| 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.
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 and SWCH, a Delaware corporation.
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”) and health and wellness products not containing 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. CBD is derived from hemp stalk and seed.
In addition, we are an operator of an annual tradeshow in the United States related to the CBD industry. The trade show scheduled for November 2020 has been postponed and the Company has not rescheduled this trade show as of the date of this report.
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in 2020 and 2021 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.
Our Growth Strategy
Results of Operations
The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three and six months ended December 31, 2021 and 2020, which are included herein.
Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020
|
| December 31, |
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
Revenue |
| $ | 10,666,781 |
|
| $ | 4,164,894 |
|
| $ | 6,501,887 |
|
Cost of revenue |
|
| 3,956,358 |
|
|
| 2,234,259 |
|
|
| 1,722,099 |
|
Operating expenses |
|
| 6,592,823 |
|
|
| 2,173,930 |
|
|
| 4,418,893 |
|
Other expenses (income) |
|
| 26,605 |
|
|
| (345,815 | ) |
|
| (372,420 | ) |
| Net income |
| $ | 64,833 |
|
| $ | 102,520 |
|
| $ | (37,687 | ) |
Revenues increased by $6,501,887 or 156% compared with the same period last year. $2,149,421 was from the two acquisitions and $4,352,466 was from the increase of direct to consumer, white label and private label CBD product sales. The Company continues to add manufacturing machinery and a newly purchased building in Florida to expand production capabilities.
| 20 |
| Table Of Contents |
Cost of revenue increased by $1,722,099 or 77% compared with the same period last year. $615,308 was the cost of revenue from the two acquisitions and $1,106,791 was from the increase in revenue. Gross margin improved by approximately 16.55% for the three months ended December 31, 2021. This improved gross margin was from the increase in sales using more of the Company’s manufacturing capacity, the increased use of machines in the manufacturing and packaging process and the higher margins in direct-to-consumer sales.
Operating expenses increased by $4,418,893 or 203% compared with the same period last year. $1,841,880 of the increase was related to the two acquisitions. The Company had approximately $589,100 of increased sales and marketing expenses, $407,500 increased payroll expense, $711,746 increased stock compensation expense, $273,000 increased travel and entertainment expenses, $172,900 increased professional fees, $131,822 increased insurance expense, $75,400 increased facilities costs and other increased general and administrative expenses related to the management of the increased revenue.
During the three months ended December 31, 2021, the Company incurred interest expense of $26,605. During the three months ended December 31, 2020, there was a gain on the settlement of a cancelled lease of $387,860 and offset by $42,049 of interest expense.
The Company had net income of $64,833 and $102,520 for the three months ended December 31, 2021, and 2020, respectively. The decrease in net income is primarily related to the above mentioned changes.
Six Months Ended December 31, 2021 Compared to Six Months Ended December 31, 2020
|
| December 31, |
|
|
| |||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
Revenue |
| $ | 19,116,535 |
|
| $ | 7,102,336 |
|
| $ | 12,014,199 |
|
Cost of revenue |
|
| 7,023,734 |
|
|
| 3,853,467 |
|
|
| 3,170,267 |
|
Operating expenses |
|
| 11,539,658 |
|
|
| 4,252,250 |
|
|
| 7,287,408 |
|
Other expenses (income) |
|
| (258,434 | ) |
|
| (296,828 | ) |
|
| (38,394 | ) |
Net income (loss) |
| $ | 576,544 |
|
| $ | (706,553 | ) |
| $ | 1,283,097 |
|
Revenues increased by $12,014,199 or 169% compared with the same period last year. $3,030,994 was from the two acquisitions and $8,983,205 was from the increase of direct to consumer, white label and private label CBD product sales. The Company continues to add manufacturing machinery and a newly purchased building in Florida to expand production capabilities.
Cost of revenue increased by $3,170,267 or 82% compared with the same period last year. $913,681 was the cost of revenue from the two acquisitions and 2,256,586 was from the increase in revenue. Gross margin improved by approximately 17.51% for the six months ended December 31, 2021. This improved gross margin was from the increase in sales using more of the Company’s manufacturing capacity, the increased use of machines in the manufacturing and packaging process and the higher margins in direct-to-consumer sales.
Operating expenses increased by $7,287,408 or 171% compared with the same period last year. $2,306,184 of the increase was related to the two acquisitions. The Company had approximately $1,480,664 of increased sales and marketing expenses, $1,065,374 increased payroll expense, $1,251,976 increased stock compensation expense, $329,370 increased travel and entertainment expenses, $202,014 increased professional fees, $216,622 increased insurance expense, $130,309 increased facilities costs, offset by $73,716 lower acquisition costs and other changes in general and administrative expenses related to the management of the increased revenue.
During the six months ended December 31, 2021, there was a gain on the extinguishment of the SBA PPP loan of $300,995 and offset by $42,561 of interest expense. During the six months ended December 31, 2020, there was a gain on the settlement of a cancelled lease of $387,860 partially offset by $84,740 of interest expense.
The Company had net income of $576,544 and a net loss of $706,553 for the six months ended December 31, 2021, and 2020, respectively.
| 21 |
| Table Of Contents |
Liquidity and Capital Resources
Working Capital
|
| As of December 31, 2021 |
|
| As of June 30, 2021 |
| ||
Current assets |
| $ | 12,097,966 |
|
| $ | 18,293,083 |
|
Current liabilities |
| $ | 5,262,529 |
|
| $ | 5,819,161 |
|
Working capital |
| $ | 6,835,437 |
|
| $ | 12,473,922 |
|
Cash Flows
|
| Six Months Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows provided by (used in) operating activities |
| $ | 1,212,609 |
|
| $ | (669,321 | ) |
Cash flows (used in) provided by investing activities |
|
| (8,999,854 | ) |
|
| 241,785 |
|
Cash flows (used in) financing activities |
|
| (151,004 | ) |
|
| 738,000 |
|
Net (decrease) increase in cash during period |
| $ | (7,938,249 | ) |
| $ | 310,464 |
|
At December 31, 2021, the Company had cash of $6,595,962 or a decrease of $7,938,249 from June 30, 2021.
Operating activities increased cash from net income and non-cash expenses of $2,233,809 and offset by $1,597,744 in changes in assets and liabilities.
Net cash (used in) provided by investing activities for the six months ended December 31, 2021, and 2020 was ($8,999,854) and $241,785, respectively. For the period ended December 31, 2021, the use of cash was primarily due to the $2,074,589 paid for the acquisition of VitaMedica, $1,854,193 paid for the acquisition of Interactive Offers LLC and $5,071,072 in building and equipment purchases. In the prior year the cash provided by investing activities was from the net cash acquired in the purchase of Infusionz and the sale of fixed assets.
Net cash flows used by financing activities for the six months ended December 31, 2021, was $151,004 compared to $738,000 provided during the six months ended December 31, 2020. The use of cash in both periods was due to the repayment of notes payable. In addition, during the six months ended December 31, 2020, the Company issued a note payable for $750,000 cash.
Related to the acquisition of VitaMedica, the Company issued two notes for a total of $1,000,000. On January 31, 2022, the Company paid $515,188 to the VitaMedica for the principal and interest of the six month note. The remaining note payable to VitaMedica will be paid on or before August 1, 2022.
On October 19, 2021, the Company made a $2,100,000 cash payment for the acquisition of Interactive Offers and committed to an additional $600,000 cash payment in the form of an earnout payment based on certain revenue milestones in accordance with and subject to the terms and conditions of the I/O Agreement within the next 12 months.
After December 31, 2021, the Company repurchased 103,750 shares of common stock for $453,119 or an average of $4.37 per common share.
We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all of our debt obligations.
| 22 |
| Table Of Contents |
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.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2021 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
In performing the above-referenced assessment, our management identified the following material weaknesses:
| (i) | inadequate segregation of duties consistent with control objectives. |
|
|
|
| (ii) | lack of multiple levels of supervision and review. |
We believe the weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible. However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes by the end of the end of 2022 fiscal year as resources allow:
(i) | Appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; and |
(ii) | We will attempt to implement the remediation efforts set out herein by the end of the 2022 fiscal year. |
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended December 31, 2021, are fairly stated, in all material respects, in accordance with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended December 31, 2021, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
| 23 |
| Table Of Contents |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not involved in any pending legal proceeding or litigation, and, to the best of its knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of its properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended December 31, 2021, the Company issued 306,945 shares of common stock for the acquisition of Infusionz. The shares were valued at $1,764,876 or $5.75 per share, as this was the remaining acquisition liability for the Infusionz purchase.
During the six months ended December 31, 2021, the Company issued 100,000 shares of common stock for the acquisition of VitaMedica and 7,000 shares of common stock as a finder’s fee for the completion of the transaction. The shares were valued at $515,740 or $4.82 per share, as this was the closing price of the stock on August 4, 2021.
During the six months ended December 31, 2021, the Company issued 35,000 shares of common stock for a consulting agreement. The shares were valued at $175,000 or $5.00 per share, based on the price of the services to be rendered.
During the six months ended December 31, 2021, the Company issued 666,667 shares of common stock for the acquisition of Interactive Offers, LLC, the shares were valued at $4,000,000.
All of the securities issued by the Company as described above were issued pursuant to the exemption for transactions by an issuer not involved in any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and corresponding state securities laws.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
| 24 |
| Table Of Contents |
Item 6. Exhibits
Exhibit Number |
| Description |
| ||
| ||
| Bylaws (Included as exhibit to our Registration Statement on Form S-1 filed May 21, 2021) | |
Note Conversion Agreement (Included as exhibit to our Current Report on Form 8-K filed July 2, 2021) | ||
| ||
| ||
101** |
| Interactive Data File |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
__________
* | Filed herewith. |
** | Furnished herewith. |
| 25 |
| Table Of Contents |
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| GROVE, INC. |
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Dated: February 14, 2022 |
| /s/ Allan Marshall |
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| Allan Marshall |
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| President, Chief Executive Officer, and Director |
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| (Principal Executive Officer) |
|
Dated: February 14, 2022 |
| /s/ Andrew J. Norstrud |
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| Andrew J. Norstrud |
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| Chief Financial Officer |
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| (Principal Financial Officer and Principal Accounting Officer) |
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26 |