UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended: June 30, 2020
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from [ ] to [ ]:
Commission File Number: 000-53548
GROW CAPITAL, INC.
(Exact name of registrant as specified in its
charter)
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Nevada
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86-0970023
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|
(State or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer Identification No.)
|
2485 Village View Drive, Suite
180
Henderson, NV 89074
(Address of principal executive offices)
702-830-7919
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Title of each
class Trading
Symbol(s) Name
of each exchange
None
Not applicable
Not
applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
Yes
[ ] No [X]
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
[ ] No [X]
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.
Yes [X] No [ ]
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post such files).
Yes
[X] No [ ]
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a 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
|
o
|
Accelerated filer
|
o
|
|
Non-accelerated
filer
|
o
|
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.
Yes [ ] No [X
]
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes [ ] No [X]
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price
of such common equity, as of the last business day of the
registrant's most recently completed second fiscal quarter was
$8,591,603.
As of October 7, 2020, the
Issuer had 22,696,645 common shares issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
2
TABLE OF CONTENTS
3
PART
I
ITEM 1. BUSINESS
Forward Looking
Statements
In
this Annual Report, references to "Grow Capital," the "Company,"
"we," "us," "our" and words of similar import) refer to Grow
Capital, Inc., a Nevada corporation, the registrant and, when
appropriate, its subsidiary.
Statements made in this Form 10-K which are not purely historical
are forward-looking statements with respect to the goals, plan
objectives, intentions, expectations, financial condition, results
of operations, future performance and business of Grow Capital.
Such forward-looking statements include those that are preceded by,
followed by or that include the words "may", "would", "could",
"should", "expects", "projects", "anticipates", "believes",
"estimates", "plans", "intends", "targets" or similar
expressions.
These forward-looking statements include, but are not limited
to:
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●
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statements of our
goals, intentions and expectations;
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●
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statements regarding
our business plans, prospects, growth and operating strategies;
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●
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statements regarding
the quality of our loan and investment portfolios; and
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●
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estimates of our
risks and future costs and benefits.
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Forward-looking statements involve inherent risks and
uncertainties, and important factors (many of which are beyond our
control) that could cause actual results to differ materially from
those set forth in the forward-looking statements, including the
following, in addition to those contained in this Annual
Report:
·general
economic or industry conditions nationally and/or in the
communities in which we conduct business;
·legislation
or regulatory requirements, including environmental requirements;
·conditions
of the securities markets;
·competition;
·our
ability to raise capital;
·changes
in accounting principles, policies or guidelines;
·financial
or political instability;
·acts
of war or terrorism; and other economic, competitive, governmental,
regulatory and technical factors affecting our operations,
products, services and prices.
Accordingly, results actually achieved may differ materially from
expected results in these statements. Forward-looking statements
speak only as of the date they are made. Grow Capital does not
undertake, and specifically disclaims, any obligation to update any
forward-looking statements to reflect events or circumstances
occurring after the date of such statements.
COVID 19
PANDEMIC
The recent COVID-19 pandemic could have an adverse impact on our
ongoing operations. To date the Company’s primary operating
segment, Bombshell Technologies Inc., has not experienced a decline
in sales as a result of the impact of COVID 19. The Company’s
operations in the FinTech sector are carried out with a limited
amount of person to person contact and we do not expect an impact
on these operations as a result of COVID 19, however, the full
effect of the COVID-19 outbreak continues to evolve as of the date
of this report, is highly uncertain and subject to change.
Operations of the Company’s Resort at Lake Selmac property were
delayed until July 2020 when the government permitted the resort to
reopen. Management does not expect the delay in opening the
resort for the 2020-2021 season to substantially impact profitable
operations for this business in the long term. Management is
actively monitoring the situation but given the daily evolution of
the COVID-19 outbreak, the Company is not able to estimate the
effects of
4
the COVID-19 outbreak on its operations or financial condition in
the next 12 months. While significant uncertainty remains, the
Company does not believe the COVID-19 outbreak will have a negative
impact on its ability to raise additional financing, conclude
the acquisition of targeted business operations or reach profitable
operations.
Description of
Business
Historical
Grow
Capital, Inc. was incorporated on October 22, 1999 as Calibrus, in
the State of Nevada. From its inception, the Company was a call
center that contracted out as a customer contact center for a
variety of business clients throughout the United States. Over time
our main business became a third-party verification
service. After making a sale on the telephone, a company
would send the call to a Company operator to confirm the
order. This process protected both the customer and the
company selling services from telephone sales fraud.
While
continuing to operate as a call center, in 2008 we expanded our
business plan to include the development of a social networking
site called JabberMonkey (Jabbermonkey.com) and the development of
a location based social networking application for smart phones
called Fanatic Fans.
In
June 2014 we acquired WCS Enterprises, LLC ("WCS Enterprises"), an
Oregon limited liability company which was formed on September 9,
2013, in exchange for shares of our common stock. WCS became a
wholly owned subsidiary of the Company. The acquisition
of WCS Enterprises resulted in a change of control of the Company
and at, or shortly after the closing of such acquisition, the
persons designated by WCS Enterprises became the officers and
directors of the Company. As a result of our acquisition
of WCS Enterprises in June 2014, we became engaged in the business
of being a real estate purchaser, developer and manager of specific
use industrial properties business providing "Condo" style turn-key
grow facilities to support cannabis growers in the United States
cannabis industry. In 2013 WCS acquired real estate in Eagle Point
in Jackson County, Oregon representing our sole condominium
operating location. The building of 15,000 square feet
was zoned to meet the requirements for specific purpose industrial
use and divided into four 1,500-2,000 square feet condo style grow
rooms and one 7,500 square foot grow facility. WCS offered tenants
the option to lease, lease to purchase or buy their condo warehouse
and each condo unit was uniquely designed with all necessary
resources as an optimum stand-alone grow facility. We leased the
smaller condo units to individual tenants and the larger 7,500 sq
ft grow facility to our former CEO and Chairman. The Company was
not directly involved in the growing, distribution or sale of
cannabis.
We
acquired a second development site in 2016 located in the Pioneer Business Park near Eugene,
OR, which we intended to develop, however the Company faced
hostility from the local county government regarding the intended
operations of the site, and the Company abandoned its plans for
this site in late calendar 2017 and listed the property. In
September 2018, the site was sold, and the Company received proceeds of
approximately $74,000 after payment of expenses of the sale and
full retirement of the attached mortgage of approximately $250,000.
The Resort at
Lake Selmac (Formerly Smoke on the Water, Inc.) (“RLS”), was
incorporated on October 21, 2016, in the State of Nevada as a
second wholly owned subsidiary. RLS was originally intended to
capitalize on the country's growing level of recreational marijuana
acceptance. In March 2017, RLS acquired the Lake Selmac
Resort located at 2700 Lakeshore Drive, Selma, Oregon. The
Lake Selmac resort offers recreational facilities including
fishing, swimming, boating, RV parking, tent camping &
cabin accommodation, as well as a small convenience store for
sundry supplies.
On June 22,
2018, the Board of Directors of the Company approved an amendment
to our articles of incorporation to increase our authorized capital
to 180,000,000 shares, consisting
of 175,000,000 shares of common stock (“Common Stock”),
par value $0.001, and 5,000,000 shares of preferred stock
(“Preferred Stock”), par value $0.001 (the “Recapitalization”) and
to change the name of the Company to “Grow Capital, Inc.” as we
intended to expand our business focus into the financial technology
(“FinTech”) sector. The Company filed articles of amendment with
the State of Nevada to effect the aforementioned changes on July
10, 2018 and August 28, 2018, respectively. The Company received
approval from the Financial Industry Regulatory Authority ("FINRA")
for the above noted corporate actions on August 8, 2019.
5
In connection
with its name change, the Company adopted a business plan focused
on shifting the Company’s strategy away from rental activities
focused in cannabis industry and into FinTech and related sectors.
In connection with this strategy, the Company hired a new
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
and appointed a new chairman of the Company’s board of directors,
all of whom have significant experience in the FinTech sector.
The Company determined to acquire FinTech companies with a
clear niche and strong leadership and use its experience and
understanding of the FinTech sector and access to the public
markets to help build a portfolio of profitable operations.
Current
Operations
In
line with our change of operational focus, on June 26, 2019 the Company entered into a
stock exchange agreement (the “Exchange Agreement”) with Bombshell
Technologies, Inc. (“Bombshell”) and the shareholders of Bombshell
(the “Bombshell Holders”). Pursuant to the Exchange
Agreement, which closed on July 23, 2019, the Company acquired 100%
of the outstanding shares of Bombshell (the “Bombshell Shares”) in
exchange for the Bombshell Holders receiving the right to
receive 5,533,773 shares (the “Consideration Shares”) of
unregistered shares of the Company’s Common Stock on a pro rata
basis (the “Exchange”), 1,650,000 of which were issued to the Bombshell
Holders (the “Closing Shares”) at the Closing on a pro rata basis.
The remaining 3,883,773 Consideration Shares (the “Secondary
Shares”) were issued on September 3, 2019 upon approval of the
increase to the Company’s authorized common stock to 550,000,000
shares, consisting of 500,000,000 shares of Common Stock and
50,000,000 shares of Preferred Stock, effective August 29, 2019.
The Bombshell Holders are also eligible to receive
earn-out consideration of up to an additional 1,838,461 shares of
Common Stock (the “Earn-out Shares”) earnable in tranches of
612,820 shares of Common Stock in each of the second, third and
fourth years after the Closing, based on whether Bombshell is able
to meet certain Earnings Before Interest and Taxes thresholds in
each year. The Bombshell Holders include certain limited
liability companies owned by (i) Jonathan Bonnette, (ii) Joel
Bonnette, and (iii) Terry Kennedy. At the date of this report it
remains uncertain whether the EBIT targets which permit the earn
out of the first tranche of the additional shares of common stock
will be achieved as at the first valuation date. The shares
issued in the Exchange are subject to certain registration rights
with no liquidated damages for failure to complete registration by
a specific date.
With the
acquisition of Bombshell, Grow Capital has shifted its operational mandate to
becoming a solution-oriented company focused on software,
technology and financial services business (i.e. FinTech).
Our current management team
consists of consultants and entrepreneurs that have combined
decades of experience in this sector. Fintech is a term used
to describe financial technology, an industry encompassing any kind
of technology in financial services. This includes businesses and
consumers and generally includes companies that provide financial
services through software or other technology and ranging from
mobile payment apps to cryptocurrency.
On July 8, 2019,
the Company entered into a non-binding letter of intent (the “LOI”)
to acquire Encompass More Group, Inc. (“Encompass”), a Nevada
corporation. In connection with the LOI, Encompass issued a
promissory note (the “Note”) to the Company pursuant to a loan
agreement (the “Loan Agreement”), dated July 22, 2019, by and
between Encompass and the Company, in exchange for a loan of
$100,000 (the “Loan”). Pursuant to the Loan Agreement, the
proceeds of the Loan were to be used by Encompass for working
capital and general corporate purposes. The Note had a
twelve-month term, an interest rate of 5.0%, and was payable in
monthly installments of $2,000, with all remaining principal and
interest due on the maturity date, unless paid earlier by
Encompass. The Board of Directors have subsequently
determined not to proceed with the acquisition as contemplated
under the LOI. On September 25, 2020, effective June 30, 2020, the
Company negotiated an addendum to the Loan (the “Addendum”) in
respect to an outstanding balance due under the Loan.
Encompass paid a lump sum payment of $ and the Company and
Encompass executed a new promissory note in the amount of $72,000
effective July 1, 2020 (the New Loan”). The New Loan requires
twelve equal payments of $6,000 per month. Interest accrued
as at June 30, 2020 on the Loan plus interest accrued on the New
Loan at 5% per annum is due and payable at maturity, June 30, 2021.
In connection
with the shift in the Company’s strategy away from rental
activities focused in cannabis industry, the Company sold WCS on
September 30, 2019 by way of a membership interest purchase
agreement (the “Purchase Agreement”) with the Zallen Trust.
Under the terms of the Purchase Agreement, the Company sold
all of the Company’s membership interests in WCS for an aggregate
purchase price of $782,450. The Zallen Trust paid the purchase
price by transferring to the Company 434,694 shares of the
Company’s Common Stock, valued at $2.00 per share. The Purchase
Agreement also provided that Mr. Zallen transfer to the Company an
additional 20,000 shares of
6
Common Stock to
settle $36,000 in back rent owed at the time of the sale. The
Company retired all of the shares received as a result of the
transaction. In connection with the sale of WCS, the Company
and Mr. Zallen entered into a separation and release of claims
agreement pursuant to which the Company and Mr. Zallen provided a
mutual release of claims against the other party and such party’s
affiliates, including all claims related to Mr. Zallen’s service as
an officer, employee, and director of the Company. The release of
claims by Mr. Zallen resulted in the forgiveness of salary accruals
of approximately $367,000 for services provided up to June 30,
2018. Mr. Zallen was the former CEO, Chairman and President
of the Company. The Company reversed related payroll taxes of
approximately $61,000 and included the amount in the gain on
sale.
Further, despite
originally listing the Resort at Lake Selmac property for sale
during September 2019 upon expiry of the listing agreement March
31, 2020, the Company determined to delay the sale, and to continue
to operate the rebranded Resort at Lake Selmac as a family friendly
RV resort facility in fiscal 2020.
On February 12,
2020, the Company entered into a compensation agreement with its
CFO, Trevor Hall beginning January 1, 2020 through December 31,
2020. Pursuant to the consulting agreement, Mr. Hall’s compensation
will consist of a fixed fee of Sixty Thousand (60,000) shares of
the Company’s unregistered restricted common stock for his
providing chief financial officer services. The shares are to be
issued at a rate of Fifteen Thousand (15,000) shares per quarter,
and vest immediately upon issuance.
On April 1,
2020, Jonathan Bonnette, who had been the President and Chief
Executive Officer of Grow Capital since July 1, 2018, transitioned
out of his role as President and Chief Executive Officer and become
the Company’s Chief Technology Officer and the Chief Executive
Officer of Bombshell Technologies.
Mr. Terry
Kennedy was appointed to succeed Mr. Bonnette as the President and
Chief Executive Officer of the Company, effective April 1, 2020.
Mr. Kennedy will serve as the President and Chief Executive Officer
until his successor is appointed by the Board, or until his earlier
resignation, removal or death. In connection with Mr. Kennedy’s
appointment, the Company and Mr. Kennedy entered into an
executive compensation agreement (the “Compensation Agreement”)
with an effective date of April 1, 2020. Pursuant to the
Compensation Agreement, Mr. Kennedy will have the duties and
responsibilities as are commensurate with the positions of
President and Chief Executive Officer, as reasonably and lawfully
directed by the Board. Mr. Kennedy will continue to provide
services to clients of Appreciation Financial, a business
Mr. Kennedy founded and owns, as well as to otherwise be
individually employed by another entity or entities.
Mr. Kennedy will, however, be required to devote his time and
apply his attention, skill and best efforts to the faithful
performance of his duties as President and Chief Executive Officer
of the Company in a professional manner. Mr. Kennedy shall receive
a fixed fee of 50,000 shares of unregistered, restricted common
stock for his services. If a permanent executive compensation
or employment agreement is not consummated prior to July 1, 2020,
the Compensation Agreement will automatically renew for one
additional three-month period beginning on July 1, 2020, with Mr.
Kennedy entitled to receive up to an additional 50, 000
unregistered, restricted shares of the Company’s common stock, with
the actual number of shares being prorated for the portion of the
extended period actually served until the more permanent executive
compensation/employment agreement is consummated.
On May 13, 2020
the Company’s Board of Directors approved a 1 for 20 reverse split
whereby shareholders would receive one (1) post reverse split share
of Common Stock for each twenty (20) pre-split shares of Common
Stock. The Company would pay cash to shareholders who
were left with only a fractional share and would round up any other
partial shares to the nearest whole share. The corporate
action was approved by FINRA and become effective on July 30, 2020
and all share and per share data included in this Annual Report has
been retroactively impacted to reflect the share split.
Subsequently on
May 15, 2020 the Company entered into new compensation contracts
with each of Jonathan Bonnette, CTO and Director and Carl Sanko,
Director and Secretary, for a further term of one year whereunder
they shall earn $320,000 and $270,000 respectively, such salaries
to be settled by the issuance of unregistered, restricted shares of
common stock. .
On August 19, 2020, the Company acquired PERA LLC, a Nevada
limited liability company (“PERA”), pursuant to an exchange
agreement (the “Exchange Agreement”), effective as of August 3,
2020 (the “Effective Date”), by and between PERA, the members
of PERA (the “PERA Members”), and the Company (the
“Closing”), which was
7
previously disclosed on the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission (“SEC”) on August
11, 2020. At the Closing, PERA became a wholly-owned subsidiary of
the Company. Eric Tarno, the current President of PERA, will
continue to serve as the President of PERA.
Pursuant to the Exchange Agreement, at the Closing, the Company
acquired 100% of the outstanding membership interests of PERA
(the “PERA Ownership Interests”) in exchange for 9,358,185
unregistered restricted shares of the Company’s common stock on a
pro rata basis (the “Exchange”). At the Closing, the PERA
Members conveyed all of the right, title and interest in and to the
PERA Ownership Interests in exchange for the right to receive a
number of shares of GC Common Stock equal to an exchange ratio (the
“Exchange Ratio”). The Exchange Ratio is calculated by dividing (a)
the Exchange Shares (as defined below) by (b) the total number of
shares of PERA Ownership Interests outstanding immediately prior to
the Effective Date.
“Exchange Shares” means the number of shares of GC Common Stock
obtained by dividing (a) $10,000,000 by (b) the 10-day volume
weighted average price per share (“VWAP”) calculated immediately
before the date that the previously announced reverse stock split
of GC Common Stock became effective on OTCQB, July 30, 2020.
In addition, if PERA meets certain yearly targeted gross revenues
for each of year one, two, and three following the Closing, the
PERA owners may earn a cumulative total of up to $5,000,000 of
shares of GC Common Stock (the “Earn-out Shares”) to be determined
using the applicable 10-day VWAP stock price of the Company’s
common stock preceding each earn-out period calculation date as set
forth in the Exchange Agreement in connection with all of the three
years, subject to certain catch up provisions if such yearly period
targets are not met in the applicable period.
All of the common stock, as well as the Earn-out Shares, if any,
have or will be issued in reliance on the exemption from
registration set forth in Section 4(a)(2) of the Securities Act of
1933, as amended. At the Closing the Company also entered into a
registration rights agreement (the “Registration Rights Agreement”)
with the PERA Members to register the GC Common Stock to
be issued in connection with the Exchange. Pursuant to the
Registration Rights Agreement, the Company has granted certain
demand and piggy-back registration rights whereby the Company will
register the resale of the Common Stock issued in the Exchange.
The PERA Members include certain limited liability companies owned
by (i) Terry Kennedy, the CEO of the Company, (ii) Jonathan
Bonnette, the CTO of the Company and the CEO of Bombshell
Technologies, Inc., a subsidiary of the Company, (iii) Joel
Bonnette, brother of Jonathan Bonnette, and (iv) Carl Sanko, a
director and Secretary of the Company, and (v) Jared Bonnette,
brother of Jonathan Bonnette.
Grow Capital
expects to identify additional suitable acquisitions during fiscal
2021, complete those acquisitions, and expand our footprint as a
Fintech company, achieving profitable operations. Any potential
acquisitions or divestitures remain subject to final agreements,
due diligence, and typical closing conditions.
Operating
Subsidiaries
Resort at Lake
Selmac
While the
Company entered into a listing agreement for the divestiture of
this operating location during fiscal 2020, it was subsequently
determined by management to continue to operate the property
upon the expiration of the
listing agreement on March 31, 2020. As a result of
the current decline in real estate transactions in the United
States as a result of the pandemic, the Company will review the
sale of this property when appropriate at a future date. Due
to the COVID-19 pandemic, the scheduled opening date for the resort
of April 1, 2020 was postponed. The resort was able to be reopened
in July 2020 once the local State guidelines permitted a return to
operations. The Company intends to operate the resort year
round and does not expect the delayed opening to have a subsequent
impact on our operations. The resort is currently operated as a
family friendly resort destination.
8
Bombshell Technologies, Inc.
Bombshell was formed as Bombshell Technologies, LLC on November 5,
2018 and converted into a corporation on June 24, 2019.
Bombshell is a full-service design and software development
company focused on developing and selling software to financial
services firms and advisors and was our first acquisition as part
of our strategic shift into the FinTech sector and related
sectors.
Bombshell Technologies has operations in both Nevada and
Louisiana, providing software to several large financial services
organizations and leading the way on innovative industry-specific
solutions for sales teams and management.
Bombshell Technologies is a solution-oriented company focused on
software, technology and financial services business (i.e.
FinTech). Our current
management team consists of consultants and entrepreneurs that have
combined decades of experience in this sector. Fintech is a
term used to describe financial technology, an industry
encompassing any kind of technology in financial services.
This includes businesses and consumers and generally includes
companies that provide financial services through software or other
technology and ranging from mobile payment apps to
cryptocurrency.
Any company
using the internet, mobile devices, software technology or cloud
services to perform or connect with financial services are involved
in FinTech. Key industries making use of this financial technology
include insurance, blockchain and crypto currency, mobile payment
processing, crowd funding, budgeting, stock trading and
robo-advising apps. [
https://www.thestreet.com/technology/what-is-fintech-14885154]
Software as a
service or “SaaS” is a key component of the FinTech industry and
represents a method of software distribution where a third-party
hosts applications and makes them available to customers over the
internet. Saas is one of the three main categories of cloud
computing.
[https://searchcloudcomputing.techtarget.com/definition/software-as-a-Service]
Bombshell's current software suite delivers customized back office
compliance, sophisticated multi-pay commission processing, and a
unique new client application submission system, along with digital
engagement marketing services centric to financial services. In
addition to our software customization, licensing and subscription
service contracts which generate revenue through user subscriptions
as well as ongoing customization services and maintenance, we offer
ad hoc services including web hosting and website development and
other complementary professional services which are invoiced on an
“as-provided” basis.
The
Company has expanded its core business during our most recent
fiscal year, increasing gross revenues from $814,928 for the
partial year ended June 30, 2019 to $2,239,285 in the fiscal year
ended June 30, 2020. At the present time, the majority of
Bombshell’s revenue generating customers are controlled by
affiliates and/or officers of the Company.
Bombshell earns
revenue from a combination of activities including monthly user
fees for access to customized back end software, website
development, and other professional services including maintenance
and ongoing customization of its SAAS product offerings.
PERA
LLC
PERA LLC,
acquired in August 2020, provides public employee retirement
assistance and currently works with employees of school districts,
colleges, universities, and other public institutions nationwide.
Every state licensed representative is appointed with one or more
of the institution’s approved vendors.
Headquartered in
Nevada, PERA connects retirement professionals and public employees
who want help during school and government building closures. PERA
has over 5,000 trusted advisors in its network to help public
employees and has successfully set near half a million appointments
for its’ clients since its inception.
PERA has
continued assisting in the public employee sector of financial and
retirement planning during COVID 19 as everyone is working from
home and only taking online meetings. PERA’s use of technology,
with its back office running Bombshell Technologies software, has
been helping employees achieve their goals of getting
retirement
9
ready and kept agents in business. Serving major
insurance and financial service companies, PERA intends to expand
its client base through new ownership by Grow Capital.
PERA provides
vetted appointments - not leads - to agents. PERA began as a way to
put safety of public employees and students first - minimizing
campus “walk-ons” by using an electronic scheduling program to
ensure only licensed representatives with scheduled appointments
visited your campus.
In our current
virtual world, PERA offers fully electronic appointments through
their live interactive meeting platform. Their virtual meetings
allow employees to receive the expert, honest and reliable
financial advice they deserve on their own time. PERA’s
approach to the market is reflected in their significant growth
over the last year. They have established a network of
advisors who understand public employee’s professional lives and
how to make their income last a lifetime.
Market and
competition
Bombshell
Technologies Inc.
Bombshell is a full-service design and software development company
that competes primarily in software as a service (“SaaS”) sector.
SaaS removes the organizations need to install and run applications
on their own computers or in their own data centers. This
eliminates the expense of hardware acquisition, provisioning and
maintenance as well as software licensing, installation and
support. Other benefits of the SaaS model include flexible
payments, scalable usage, automatic updates and accessibility.
[https://seachcloudcomputing.techtarget.com/definition/software-as-a-service]
The
global SaaS market is estimated to grow to $117 billion by the end
of 2022, with a compound annual growth rate of roughly 21 percent.
[https://www.marketresearchfuture.com/reports/software-as-a-service-market-2003]
North
America is dominating the SaaS industry due to various factors
including, but not limited to the presence of global players, its
rich entertainment industry, and its high adoption of on-demand
software. Currently the major players operating in the SaaS
industry include the following: Salesforce; Linkedin; Concur
Technologies, Workaday, Inc.; IBM Corporation, Oracle Corporation,
Netsuite Inc., Medidata Solutions; Service Now, Inc., Microsoft
Inc., Google, Inc. and Zuora.
[https://www.marketresearchfuture.com/reports/software-as-a-service-market-2003]
PERA LLC
Recently acquired
subsidiary, PERA LLC is a third-party marketing organization that
facilitates meetings between state-licensed representatives and
public employees who have individual retirement related questions.
PERA currently works with employees of school districts, colleges,
universities, and other public institutions nationwide. While there
are numerous organizations that offer retirement planning related
services, such as Morneau Shepell, Allianz, National Life Group,
and Fidelity, to name a few, PERA is one of a limited number of
organizations that offer targeted services for public employees by
using proprietary electronic scheduling programs and software,
In this way, PERA is able to offer fully electronic
appointments. Through a live interactive meeting platform, a vendor
approved licensed representative can “virtually” meet with staff
and employees without ever stepping foot on campus. The virtual
meetings allow employees to receive the expert, honest and reliable
financial advice they deserve on their own time. PERA has a
understanding of public service employee's professional background
allowing a customized experience.
Intellectual
property
Bombshell entered into two Intellectual Property Assignment
Agreements with related parties under which we acquired 100%
ownership of certain created, developed and/or programmed
patentable and/or copyrightable technology, software applications,
code, technical information, data, and trade secrets which are
integral to our suite of SaaS solutions. Presently we operate these
solutions as trade secrets.
The
Company has not yet filed any patents or copyright applications in
respect of our acquired intellectual property.
10
Employees
Our
subsidiary, Bombshell currently has 4 employees, one of whom is an
officer. Grow Capital has 4 employees, all of which are
officers and/or directors of the Company. Pera LLC has 12
employees, one of whom is an officer. The Resort at Lake Selmac has
1 employee. Our employees are not represented by unions and we
consider our relationship with our employees to be good.
Facilities
Our
office is located at a business center known as Green Valley
Corporate Center South at 2485 Village View Drive, Suite 180,
Henderson, NV 89074 and our telephone number is
702-830-7919, email: info@growcapital.com. We have two corporate
websites: www.growcapitalinc.com and
www.bombshelltechnologies.com.
We
also maintain an office for Bombshell Technologies located at 130
Lakeland Blvd, Denham Springs, LA 70726.
Further recently acquired subsidiary Pera LLC maintains business
offices at 2200 Paseo Verde Dr. Parkway, Henderson NV 89052.
Available
information
Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all
amendments to those reports that we file with the Securities and
Exchange Commission, or SEC, are available at the SEC's public
reference room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains reports, proxy and
information statements and other information regarding reporting
companies.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are
not required to provide the information required by this
Item.
None
ITEM
2: PROPERTIES
(1)The
Company entered into a sublease agreement to lease approximately
1,338 square feet of office space at a business center known as
Green Valley Corporate Center South located in Henderson, Nevada
(the “Henderson Property”), effective October 19, 2018, for use as
the Company’s new headquarters. The lease has a term of 123 months,
an abatement of the first four months of rent during which time the
Company would complete certain required leasehold improvements and
escalating base monthly rent per square foot ranging between $2.00
to $3.00 per square foot. The Company commenced occupation of the
premises in February 2019. Appreciation, LLC, a related party
entity, holds the master lease from which the Company derives its
sublease for its headquarters.
(2)Up
until its divesture in September 2019, we owned a building at 722
W. Dutton Road, Eagle Point, OR 97524 representing our
first operating location for former subsidiary, WCS
Enterprises. The building is 15,000 square feet and
zoned to meet the requirements for specific purpose industrial use
and is divided into four 1,500 square feet condo style grow rooms
and one 7,500 square feet grow facility. Until relocation to
our new corporate headquarters in Henderson, NV we occupied one
1,500 sq. ft. unit to use as an office space.
(3)
In April 2016, the Company purchased a parcel of land near Eugene,
Oregon within the Pioneer Business Park from a private seller in
the amount of $326,629 plus closing costs. The property is on 2.65
acres located
11
in the
Pioneer Business Park. The original plans were for building
33-1500 square foot units or approximately 50,000 square feet of
warehouse condominiums on the site. In late 2017, the Company
engaged a broker and listed the parcel of land for sale.
In September 2018, the
Company completed the sale of its land held in the Pioneer Business
Park. The Company received proceeds of approximately $74,000 after
payment of expenses of the sale and full retirement of the attached
mortgage of approximately $250,000.
(4)In
March 2017, the Company acquired a RV and campground park in Selma,
Oregon. The property is located just 20 miles of Grants Pass,
Oregon and 2.5 miles east of the Redwood Highway in Selma, Oregon
and is known as the Lake Selmac Resort. The Resort facilities
include fishing, swimming, boating, and in addition to RV parking,
has tent camping & cabin locations established for
accommodation. The Company had previously listed the property
for sale on September 4, 2019, however, it was determined not to
renew its listing for the sale . As a result of the COVID-19
pandemic, the scheduled opening date of April 1, 2020 was pushed
back to July 2020, however, the resort is now open for regular
business operations.
(5)We
have an operating lease for Bombshell located in
Louisiana. The commercial lease agreement with option to renew
was effective on January 6, 2020. The lease term is set for a period
of one year and includes an option to extend the lease each year.
Management has determined that it is reasonably certain that
the option will be exercised based on the facts and circumstances
at lease commencement, for a period of at least three (3) years.
The monthly lease payment is $2,250.
(6)Pera
LLC has an operating lease in Henderson, Nevada. The
commercial lease agreement has a term of 60 months commencing
November 2017 and the associated office space occupies
approximately 2,317 square feet with escalating base monthly rent
per square foot ranging between $2.45 and $2.76 over the term of
the lease.
ITEM 3: LEGAL
PROCEEDINGS
On December 13,
2019, Trendsic Corporation, Inc. (“Trendsic”), a related party
entity which is 49% controlled by Joel A. Bonnette (former CEO of
our wholly-owned subsidiary Bombshell Technologies, Inc.) filed a
lawsuit in the 19th Judicial District Court in East Baton Rouge
Parish, Louisiana against Joel A. Bonnette, Jared Bonnette,
Bombshell Software, LLC and Bombshell Technologies, Inc. The
plaintiff is disputing the ownership of certain intellectual
property of Bombshell Technologies, Inc. and alleging
misappropriation of trade secrets of Trendsic. Trendsic is seeking
an unspecified amount of damages in excess of $75,000 and treble
damages under the Louisiana Uniform Trade Secrets Act, as well as
injunctive relief. The Company believes the claims by
Trendsic are without merit and intends to vigorously defend against
such claims. Presently the Company and Trendsic are continuing
discussions regarding an amicable resolution. Bombshell has not yet
answered the lawsuit but has been granted extensions of time to
respond. At the time of this report, the Company is unable to
determine or quantify potential losses in respect of the
aforementioned action.
Other
than as set out above, the Company is not the subject of any
pending legal proceedings and, to the knowledge of management, no
proceedings are presently contemplated.
ITEM
4: MINE SAFETY DISCLOSURES
Not applicable.
12
PART II
ITEM
5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Penny
Stock
The SEC has
adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Penny stocks are generally
equity securities with a market price of less than $5.00, other
than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and
volume information with respect to transactions in such securities
is provided by the exchange or system. The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock,
to deliver a standardized risk disclosure document prepared by the
SEC, that: (a) contains a description of the nature and level of
risk in the market for penny stocks in both public offerings and
secondary trading; (b) contains a description of the broker’s or
dealer’s duties to the customer and of the rights and remedies
available to the customer with respect to a violation of such
duties or other requirements of the securities laws; (c) contains a
brief, clear, narrative description of a dealer market, including
bid and ask prices for penny stocks and the significance of the
spread between the bid and ask price; (d) contains a toll-free
telephone number for inquiries on disciplinary actions; (e) defines
significant terms in the disclosure document or in the conduct of
trading in penny stocks; and (f) contains such other information
and is in such form, including language, type size and format, as
the SEC shall require by rule or regulation.
The
broker-dealer also must provide, prior to effecting any transaction
in a penny stock, the customer with (a) bid and offer quotations
for the penny stock; (b) the compensation of the broker-dealer and
its salesperson in the transaction; (c) the number of shares to
which such bid and ask prices apply, or other comparable
information relating to the depth and liquidity of the market for
such stock; and (d) a monthly account statement showing the market
value of each penny stock held in the customer’s account.
In addition, the
penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser’s
written acknowledgment of the receipt of a risk disclosure
statement, a written agreement as to transactions involving penny
stocks, and a signed and dated copy of a written suitability
statement.
These disclosure
requirements may have the effect of reducing the trading activity
for our common stock. Therefore, stockholders may have difficulty
selling our securities.
Market
Information
Our shares of
common stock are quoted by the OTC Markets Group Inc. on the OTCQB
Venture Market under the symbol "GRWC". Only a limited
market exists for our common stock. There is no assurance that a
regular trading market will develop, or if developed, that it will
be sustained. Therefore, a stockholder may be unable to resell his
securities in our Company.
On October 9,
2020, the last reported sales price per share of our common stock
on the OTCQB was $1.31.
13
Set
forth below are the high and low closing bid prices for our common
stock for each quarter of the last two fiscal years ended June 30,
2020 and 2019. These bid prices were obtained from OTC
Markets Group Inc. All prices listed herein reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions.
|
Period(1)
|
High
|
Low
|
|
|
|
|
|
July 1, 2018 through
September 30, 2018
|
$4.76
|
$2.00
|
|
|
|
|
|
October 1, 2018
through December 31, 2018
|
$2.66
|
$0.95
|
|
|
|
|
|
January 1, 2019
through March 31, 2019
|
$0.2.05
|
$.1.16
|
|
|
|
|
|
April 1, 2019 through
June 30, 2019
|
$0.5.00
|
$1.60
|
|
|
|
|
|
July 1, 2019 through
September 30, 2019
|
$4.60
|
$1.42
|
|
|
|
|
|
October 1, 2019
through December 31, 2019
|
$2.62
|
$0.80
|
|
|
|
|
|
January 1, 2020
through March 31, 2020
|
$1.996
|
$0.80
|
|
|
|
|
|
April 1, 2020 through
June 30, 2020
|
$1.50
|
$0.80
|
(1)All
share data reflects the impact of a one (1) for twenty (20) reverse
split which became effective on July 30, 2020
Record
Holders
The
number of record holders of the Company's common stock as of
October 7, 2020 is approximately 224, not including an
indeterminate number who may hold shares in "street name."
Dividend Policy
The
Company has not declared any cash dividends with respect to its
common stock and does not intend to declare dividends in the
foreseeable future. There are no material restrictions limiting, or
that are likely to limit, our ability to pay dividends on our
common stock.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is Colonial
Stock Transfer Inc., with an address at 66 Exchange Place, Suite
100, Salt Lake City, UT 84111.
Authorized Capital
The Company's authorized capital consists of 550,000,000 shares,
consisting of 500,000,000 shares of Common Stock par value $0.001
and 50,000,000 shares of Preferred Stock, par value $0.001.
Recent Sales of Unregistered Securities
Except as set
forth below, there were no sales of equity securities during the
period covered by this Report that were not registered under the
Securities Act and were not previously reported in a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K filed by the
Company.
14
On May 15, 2020 the
Company issued 245,834 fully vested unregistered shares of Common
Stock to officers and directors of the Company as compensation
under the terms their respective consulting contracts for services
as CTO and Secretary, for the period May 15, 2020 through August
15, 2020. The Company valued those issuances at the closing
price of the Company’s Common Stock as traded on the OTCMarkets as
of the date of the board resolution approving the issuances.
On June 2, 2020
the Company issued 23,678 fully vested unregistered shares of
Common Stock to a company controlled by the spouse of one of its
officers for services rendered with a value of $20,363. The
Company valued those issuances at the closing price of the
Company’s Common Stock as traded on the OTCMarkets as of the date
of the board resolution approving the issuance.
On June 24, 2020 the Company issued 155,000 unregistered shares of
Common Stock to two companies controlled by officers and directors
in respect to private placements for total gross proceeds of
$155,000.
On July 1, 2020
the Company issued a total of 80,495 unregistered,
restricted common shares to officers and directors as part of their
respective executive and/or board compensation package. The Company
valued the issuances at the closing price of the Company’s stock as
traded on the OTCMarket on the date of the board resolution
approving the issuance of the shares.
On July 9, 2020
the Company issued 15,000 unregistered, restricted common shares to
our CFO, Trevor Hall under the terms of a consulting agreement
under which Mr. Hall provides services as our Chief Financial
Officer. The Company valued the issuance at the closing price of
the Company’s stock as traded on the OTCMarket on the date of the
board resolution approving the issuance of the shares.
On July 13, 2020
the Company issued 50,000 unregistered, restricted shares of the
Company’s common stock to the Company’s CEO, Terry Kennedy, as
compensation for the three-month period commencing July 1, 2020.
The shares were valued at the closing price of the Company’s Common
Stock as traded on the OTCMarkets on the date of the board
resolution approving the issuance of the shares.
On September 4,
2020 the Company issued 17,104 shares of unregistered, restricted
common stock as compensation for services for the three month
period ended August 31, 2020. The shares were valued at the closing
price of the Company’s Common Stock as traded on the OTCMarkets on
the date of the board resolution approving the issuance of the
shares.
On October 1,
2020 the Company issued 50,000 unregistered, restricted shares of
the Company’s common stock to the Company’s CEO, Terry Kennedy,
concurrent with approving a three month extension to his executive
compensation contract, as compensation for the three-month period
commencing October 1, 2020. The shares were valued at the closing
price of the Company’s Common Stock as traded on the OTCMarkets on
the date of the board resolution approving the issuance of the
shares.
On October 1,
2020 the Company issued a total
of 106,870 unregistered, restricted common shares to
officers and directors as part of their respective executive and/or
board compensation package. The Company valued the issuances at the
closing price of the Company’s stock as traded on the OTCMarket on
the date of the board resolution approving the issuance of the
shares.
The above
issuances did not involve any underwriters, underwriting discounts
or commissions, or any public offering and we believe is exempt
from the registration requirements of the Securities Act of 1933 by
virtue of Section 4(2) thereof and/or Regulation D promulgated
thereunder. The purchasers represented to us that he/they were
accredited investor(s) and were acquiring the shares for investment
purposes only and not with a view to, or for sale in connection
with, any distribution thereof and that he could bear the risks of
the investment.
ITEM
6: SELECTED FINANCIAL DATA
Not required for
smaller reporting companies.
15
ITEM
7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
discussion summarizes the significant factors affecting the results
of operations and financial condition of the Company during the
fiscal years ended June 30, 2020 and 2019 and should be read
in conjunction with our consolidated financial statements and
accompanying notes thereto included elsewhere herein. Certain
information contained in this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” are
“forward-looking statements.” Statements that are not
historical in nature and which may be identified by the use of
words like “expects,” “assumes,” “projects,” “anticipates,”
“estimates,” “we believe,” “could be” and other words of similar
meaning, are forward-looking statements. These
statements are based on management’s expectations and assumptions
and are subject to risks and uncertainties that may cause actual
results to differ materially from those expressed. Our actual
results may differ materially from the results discussed in this
section because of various factors, including those set forth
elsewhere herein. See “Forward-Looking Statements” included in this
report.
Financial
Statements
The
audited consolidated financial statements form a part of this
Report include results for our fiscal years ended June 30, 2020 and
2019. The consolidated financial statements include the accounts of
Grow Capital, Inc., and its wholly-owned subsidiaries, Resort at
Lake Selmac, Inc. and Bombshell Technologies, Inc. as of June 30,
2020. All significant intercompany accounting transactions have
been eliminated as a result of consolidation.
Following is management's discussion and analysis of those
financial statements. This discussion and analysis should be read
in conjunction with our financial statements and notes thereto
included elsewhere in Report on Form 10-K for the fiscal years
ended June 30, 2020 and 2019.
RESULTS OF OPERATIONS
Results of Operations from Continuing Operations
The Company shifted its focus to the FinTech sector during the
current fiscal year and acquired an operating, revenue generating
subsidiary, Bombshell Technologies, Inc. Further, the Company
divested WCS effective September 30, 2019. While the Resort
at Lake Selmac site location was classified as “held for sale” in
the first two quarters of fiscal 2020, management determined to
continue to operate the property until further notice, and its
operations have been returned to continuing operations in the these
fiscal year end financials. During the fiscal year ended,
2020, the Resort at Lake Selmac generated reduced revenues as
compared to fiscal 2019, as we took several months to
re-brand the site as a resort destination location and attend to
minor repairs and site upgrades during January and February 2020.
Subsequently in March 2020 the Resort remained closed as a result
of local state orders preventing its re-opening due to COVID 19.
The resort was able to reopen as of July 2020. Financial
results for the fiscal year ended June 30, 2020 are
“combined” with respect to the operations of Bombshell
Technologies, Inc. under the requirements of ASC 850-50-45, which
results impact the statements of profit and loss and statements of
cash flows to include operations of Bombshell Technologies Inc. as
though it had been acquired on inception.
Fiscal Year ended June 30, 2020 compared to Fiscal Year ended
June 30, 2019
Revenue and costs of revenue
During the fiscal year ended June 30, 2020 we generated gross
revenues of $2,368,504, of which $2,051,355 was derived from
related party customers, compared to $1,065,213 in the comparative
fiscal year ended June 30, 2019, of which $787,919 was derived from
related party customers. Costs of sales in the fiscal year ended
June 30, 2020 totaled $1,267,704 of which $186,354 were costs of
related party services, compared to $561,793 for the fiscal
year ended June 30, 2019 of which $294,613 were costs of related
party services. Gross profit for the comparative fiscal years ended
June 30, 2020 and 2019, respectively totaled $1,100,800 and
$503,420, respectively. We do not yet have sufficient revenues to
meet our ongoing operational overhead. Reported revenues in the
comparative periods were generated by our wholly owned subsidiary
in the FinTech sector, Bombshell which did not form and begin
operations until November 2018, and the Resort at Lake Selmac site
location which provides RV and campsite services.
During the fiscal year ended June 30, 2020 and 2019,
operations of the Resort at Lake Selmac contributed gross profit
of
16
$87,578 and $145,170, while operations of Bombshell contributed
gross profit of $1,013,222 and $353,231, respectively.
Operating expenses
Our operating expenses for the fiscal years ended June 30, 2020 and
2019 were as follows:
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
June 30
|
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
317,149
|
|
$
|
277,294
|
|
Revenue, related
parties
|
|
|
2,051,355
|
|
|
787,919
|
|
Total
revenues
|
|
|
2,368,504
|
|
|
1,065,213
|
|
|
|
|
|
|
|
|
|
Cost of sales,
nonrelated parties
|
|
|
1,081,350
|
|
|
267,180
|
|
Cost of sale, related
parties
|
|
|
186,354
|
|
|
294,613
|
|
Total cost of
sales
|
|
|
1,267,704
|
|
|
561,793
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,100,800
|
|
|
503,420
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
General and
administrative
|
|
|
2,499,094
|
|
|
1,828,643
|
|
General and
administrative, related parties
|
|
|
223,957
|
|
|
82,470
|
|
Professional fees
|
|
|
1,233,071
|
|
|
749,998
|
|
Depreciation,
amortization and impairment
|
|
|
14,624
|
|
|
121,345
|
|
Total operating
expenses
|
|
|
3,970,746
|
|
|
2,782,456
|
|
|
|
|
|
|
|
|
|
Loss from
operations
|
|
|
(2,869,946)
|
|
|
(2,279,036)
|
Fiscal Years ended June 30, 2020 and 2019
Our general and
administrative expenses consist of stock-based compensation, rent,
telephone, internet services, banking charges, salaries, consulting
fees and miscellaneous office costs.
The Company
experienced a substantial increase to operating expenses from
$2,782,456 during the fiscal year ended June 30, 2019 compared to
$3,970,746 during the current fiscal year ended June 30,
2020. The increase in operating expenses is predominantly
attributable to an increase in professional fees and stock-based
compensation. During fiscal 2020 and 2019, the Company issued
common stock to certain
board members, employees and consultants for services rendered at
rates below market, the total combined value of which was
$2,058,341 for the fiscal year ended June 30,
2020 compared to $1,484,059 during the fiscal year
ended June 30, 2019, which amounts are included as part of general
and administrative expenses on our statements of operations.
Professional fees also increased substantially period over period
from $749,998 (2019) to $1,233,071 (2020) as the Company undertook
various corporate actions and acquisitions in the period.
General and administrative fees incurred from related parties also
increased period over period from $82,470 in the fiscal year ended
June 30, 2019 to $223,957 in the fiscal year ended June 30, 2020 as
the Company increased its continuing operation to include
operations of Bombshell. Depreciation, amortization and
impairment decreased from $121,345 (2019) to $14,624 (2020), as the
Company divested certain of its owned properties in fiscal
2020.
We expect
operating expenses to increase in future periods as we continue to
expand our holdings seeking additional areas of operation to
further enhance our existing revenue base.
17
Other Expenses
Other
income/expenses recorded in the fiscal ended June 30, 2020 reflect
other income of $6,304 in the current fiscal year as a result of
interest income related to a short term loan provided by the
Company to a third party, with no similar transaction in the
comparative fiscal year ended June 30, 2019. Interest expenses with
respect to a note payable on the Resort at Lake Selmac totaled
$35,963 and $47,265 respectively in the fiscal years ended June 30,
2020 and 2019.
Net losses from
continuing operations in the fiscal years ended June 30, 2020
totaled $2,899,605 and $2,326,301, respectively.
Discontinued operations
The Company sold
its’ wholly owned subsidiary WCS effective September 30, 2019. The
effect of the sale and operations prior to the sale are included in
discontinued operations. During the fiscal years ended June 30,
2020 and June 30, 2019, the Company reported income discontinued
operations of $552,852 as compared to a loss from discontinued
operations of $2,395. The income from discounted operations
reported in fiscal 2020 relates primarily to the forgiveness of
certain payroll liabilities and salaries by former management
concurrent with the divestiture of approximately $428,000.
Net losses from
continuing and discontinued operations for the fiscal years ended
June 30, 2020 and 2019 totaled $2,346,753 and $2,328,696,
respectively.
Liquidity and Financial Condition
Liquidity and Capital Resources
|
|
|
At
June
30, 2020
|
|
At
June
30, 2019
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
$
|
774,537
|
|
|
$
|
2,950,256
|
|
|
Current
Liabilities
|
|
|
|
1,044,113
|
|
|
|
1,183,995
|
|
|
Working Capital
|
|
|
$
|
(269,576)
|
|
|
$
|
1,766,261
|
|
As of June 30,
2020, the Company had total current assets of $774,537 and a
working capital deficit of $269,576, compared to total current
assets of $2,950,256 (including stock based compensation recorded
as prepaid expenses of $1,380,459) and working capital of
$1,766,261 as of June 30, 2019. The decrease in our working capital
was primarily a result of the disposition of assets held for sale,
the reduction in prepaid expenses, collection of a subscription
receivable and a reduction in cash, offset by an increase in
related party receivables and promissory note receivables.
During the
fiscal ended June 30, 2020, cash used in operating activities
totaled $633,482, primarily as a result of a net loss from
continuing operations of $2,899,605 and a gain from discontinued
operations of $552,852. The net loss from continuing
operations was offset by stock-based compensation of $2,164,782,
depreciation, amortization and impairment expenses of $14,624,
changes in allowance for bad debt of $35,350 and amortization of
right to use assets of $3,976. Further during the fiscal year
ended June 30, 2020 we increased our accounts receivable by
$60,565, our related party accounts receivable decreased by
$25,199, our related party accounts payable increased by $21,551,
and accounts payable increased by $70,984, while reducing our
accrued expenses. Unearned revenue also decreased in the
current period. In the fiscal year ended June 30, 2019, cash
used in operating activities totaled $485,378 with a net loss from
continuing operations of $2,326,301, and a loss from discontinued
operations of $2,395, offset by stock-based compensation of
$1,484,059, non-cash interest of $6,612, and depreciation,
amortization and impairment expenses of $121,345. During the
fiscal year ended June 30, 2019 we increased our accounts
receivable by $44,579, our prepaid expenses by $54,567, and
increased our accrued expenses by $122,468. Our related party
accounts receivable increased by $270,805, while our accounts
payable increased by $306,432 and our related party accounts
payable increased by $118,912. Unearned revenue also
increased in the fiscal year ended June 30, 2019 by $16,570, and
deferred income tax assets increased by $31,800.
18
Net cash
provided by investing activities in the fiscal year ended June 30,
2019 was $9,983, as compared to net cash used of $27,681 in the
fiscal year ended June 30, 2020. Increase to cash due from
related party in the fiscal year ended June 30, 2020 totaled
$16,854 as compared to $23,415 in the prior comparative fiscal year
ended June 30, 2019. During the most recent fiscal year ended
June 30, 2020 the Company loaned a third party $100,000 on a
one-year promissory note and received cash from the acquisition of
Bombshell of $43,975, with no similar transactions in the prior
fiscal year ended June 30, 2019. The loan receivable was offset in
fiscal 2020 by repayments from the borrower of $11,490.
Results for the fiscal year ended June 30, 2019 also include
the purchase of equipment of $13,232 and the acquisition of
intangible assets of $200 with no similar transactions in the
fiscal year ended June 30, 2020.
Net cash
provided by financing activities was $1,822,705 in the fiscal year
ended June 30, 2019 as compared to $429,754 in fiscal 2020.
During the current fiscal year ended June 30, 2020, the
Company closed private placements for total proceeds of $355,000,
compared to total proceeds of $1,765,000 during the comparable
fiscal year ended June 30, 2019. Cash from financing
activities in the fiscal year ended June 30, 2020 was offset by a
repayment to a related party of $66,195 in the current year, as
compared to proceeds from a related party of $66,195 in the prior
comparative fiscal year ended June 30, 2019. The Company reduced
its promissory note on the Resort at Lake Selmac property by $9,051
and $8,490 respectively during the fiscal years ended June 30, 2020
and 2019. During fiscal 2020 the Company recorded a subscription
receivable, with no similar transactions in fiscal 2019.
Net
cash used by discontinued activities totaled $833,796 in the fiscal
year ended June 30,2019, as compared to cash used by discontinued
activities of $5,260 in the fiscal year ended June 30, 2020.
Going Concern
During the
fiscal year ended June 30, 2020 and June 30, 2019, the Company
reported a net loss of $2,346,753 and $2,328,696, respectively.
Working capital deficit totaled approximately $269,576 with
approximately $246,761 of cash on hand. Cash used in
operations was in excess of this amount for the year ended June 30,
2020. The Company believes that as of June 30, 2020 its existing
capital resources are not adequate to enable it to fully
execute its business plan. While the Company successfully acquired
a second operating business subsequent to fiscal year end,
including additional operations complementary to its recently
acquired subsidiary, Bombshell Technologies, management believes we
will require additional capital resources to fully implement our
business plan, which includes the acquisition of additional
operations. While the Company`s subsidiary provided
approximately $1,100,000 in gross profit to offset operational
overhead in the period, revenues are presently not sufficient to
meet the Company’s ongoing expenditures. The Company is actively
working to increase the customer base and gross profit in Bombshell
Technologies in order to achieve net profitability by the close of
fiscal 2021. The addition of another operating entity subsequent to
June 30, 2020, is expected to contribute additional gross profits
to offset operational overheads. The additional growth plans
include the acquisition of several new customers, an increase to
the users currently subscribed to our software, as well as
increased sales of customization services to new and existing
customers. The Company intends to rely on sales of our unregistered
common stock, loans and advances from related parties to meet
operational shortfalls until such time as we achieve profitable
operations. If the Company fails to generate positive
cash flow or obtain additional financing, when required and on
acceptable terms, the Company may have to modify, delay, or abandon
some or all of its business and expansion plans, and potentially
cease operations altogether. Consequently, the aforementioned items
raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date that the financial
statements are issued. The accompanying consolidated financial
statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
Covid-19 Pandemic
The recent COVID-19 pandemic could have an adverse impact on our
ongoing operations. To date the Company’s primary operating
segment, Bombshell, has not experienced a decline in sales as a
result of the impact of COVID 19. The Company’s operations in the
FinTech sector are carried out with a limited amount of person to
person contact and we do not expect an impact on these operations
as a result of COVID 19, however, the full effect of the COVID-19
outbreak continues to evolve as of the date of this report, is
highly uncertain and subject to change. Operations of the Company’s
Resort at Lake Selmac property were delayed until July 2020 when
the government permitted the resort to reopen. Management
does not expect the delay in opening the resort for the 2020-2021
season to substantially impact profitable operations for this
business in the long term. Management is actively monitoring
the
19
situation but given the daily evolution of the COVID-19 outbreak,
the Company is not able to estimate the effects of the COVID-19
outbreak on its operations or financial condition in the next 12
months. While significant uncertainty remains, the Company does not
believe the COVID-19 outbreak will have a negative impact on
its ability to raise additional financing, conclude the
acquisition of targeted business operations or reach profitable
operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates
and judgments which are based on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. The results of their evaluation form the basis for
making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates under
different assumptions and circumstances. Our significant accounting
policies are more fully discussed in the Notes to our Financial
Statements; however, we have identified below certain policies that
have substantial impact on our financial reporting:
Accounts Receivable and Allowance for Doubtful Accounts
The Company
determines the allowance for doubtful accounts by considering a
number of factors, including the length of time the accounts
receivable are beyond the contractual payment terms, previous loss
history, and the customer’s current ability to pay its obligation.
When the Company becomes aware of a specific customer’s inability
to meet its financial obligations to the Company, the Company
records a charge to the allowance to reduce the customer’s related
accounts. At June 30, 2020, the allowance for doubtful accounts
totaled approximately $35,350.
Leases
In February
2016, the Financial Accounting Standards Board (“FASB”) issued ASU
No. 2016-02 – Topic 842 Leases. ASU 2016-02
requires that most leases be recognized on the financial
statements, specifically the recognition of right-to-use assets and
related lease liabilities, and enhanced disclosures about leasing
arrangements. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those
fiscal years. The standard requires using the modified
retrospective transition method and apply ASU 2016-02 either at (i)
latter of the earliest comparative period presented in the
financial statements or commencement date of the lease, or (ii) the
beginning of the period of adoption. The Company has elected to
apply the standard at the beginning period of adoption, July 1,
2019 which resulted in no cumulative adjustment to retained
earnings. On July 30, 2018, the FASB issued ASU 2018-11 to provide
entities with relief from the costs of implementing certain aspects
of the new leasing standard, ASU 2016-02 (codified as ASC 842).
Specifically, under the amendments in ASU 2018-11: (i) Entities may
elect not to recast the comparative periods presented when
transitioning to ASC 842 (Issue 1), and (ii) Lessors may elect not
to separate lease and nonlease components when certain conditions
are met (Issue 2).
The Company has
elected to apply the short-term scope exception for leases with
terms of 12 months or less at the inception of the lease and will
continue to recognize rent expense on a straight-line basis. As a
result of the adoption, on July 1, 2019, the Company recognized a
lease liability of approximately $291,753, which represented the
present value of the remaining minimum lease payments using an
estimated incremental borrowing rate of 6.75%. As of July 1, 2019,
the Company recognized a right-to-use asset of approximately
$289,089 million. Lease expense did not change materially as a
result of the adoption of ASU 2016-02.
Share-based compensation
The Company
measures the cost of employee services received in exchange for an
award of equity instruments based on the grant date fair value of
the award. Unregistered stock awards are measured based on the fair
market values of the underlying stock on the dates of grant. For
service type awards, share-based compensation expense is
recognized
20
on a
straight-line basis over the period during which the employee is
required to provide service in exchange for the entire award. For
awards that vest or begin vesting upon achievement of a performance
condition, the Company estimates the likelihood of satisfaction of
the performance condition and recognizes compensation expense when
achievement of the performance condition is deemed probable using
an accelerated attribution model.
The Company
capitalizes the cost of issuance grants that cover a period of
employment or consulting agreement under contract or performance
obligation related to future performance and amortizes the
compensation related to these contracts ratably over the period of
employment or at percentage of completion or other appropriate
method for future performance grants. There were no issuance grants
outstanding with a performance term longer than one year at June
30, 2020 and June 30, 2019. Prepaid expenses for the fiscal
year ended June 30, 2020 and fiscal year ended June 30, 2019
include unamortized costs of issuance grants under employment and
consulting contracts totaling $0 and $1,380,459, respectively.
Revenue
Recognition under ASC 606
The Company has adopted accounting standard, ASC 606
“Revenue from Contracts with Customers” and
all related amendments to the new accounting standard to
contracts.
Revenues from
contracts with customers are recognized when control of promised
goods and services is transferred to customers in an amount that
reflects the consideration the Company expects to be entitled to in
exchange for those goods or services.
The
Company recognizes revenue using the five-step model as prescribed
by ASC 606:
|
1)
|
Identification of the contract, or contracts, with a customer;
|
|
2)
|
Identification of the performance obligations in the contract;
|
|
3)
|
Determination of the transaction price;
|
|
4)
|
Allocation of the transaction price to the performance obligations
in the contract; and
|
|
5)
|
Recognition of revenue when or as, the Company satisfies a
performance obligation.
|
When a contract
with a customer is signed, the Company assesses whether collection
of the fees under the arrangement is probable. The Company
estimates the amount to reserve for uncollectible amounts at the
end of each reporting period based on the aging of the contract
balance, current and historical customer trends, and communications
with its customers. These reserves are recorded against the related
accounts receivable.
The transaction
price is the consideration that the Company expects to receive from
its customers in exchange for its products or services. In
determining the allocation of the transaction price, the Company
identifies performance obligations in contracts with customers,
which may include subscriptions to software and services, support,
professional services and customization. In the case of the
Company’s software contracts and support services prices are
predetermined based on the specific terms of the contract either in
flat fee customization/license fee charges or as hourly support
and/or software customization charges. Charges relative to license
fees are amortized over the term of the license. Charges relative
to customization of the software are charged over the term of the
scope of work on a percentage of completion basis. Charges relative
to support and ongoing services and professional fees are charged
when incurred and control has been transferred or the work has been
completed.
License fees and customization of software
License and
implementation fees are charged as flat fees which are amortized
over the term of the contract. For contracts with elements
related to customized software solutions and certain build-outs or
software systems that require significant modification or
customization, the Company will recognize revenue using the
percentage-of-completion method. In using the
percentage-of-completion method, revenues are generally recorded
based on completion of milestones under a scope of work or based on
total estimated cost of work and percentage completion as at the
balance sheet date.
21
Software Revenue
The Company
generates software revenue monthly on a single fee per subscribed
user basis. The Company recognizes software revenue monthly
on a per user for each user that is able to deploy software and
provided all revenue recognition criteria have been met. If the
revenue recognition criteria has not been met, the revenue is
deferred or not recognized.
Customization, support and maintenance
Revenue from the
Company’s customization of software to meet a particular client’s
needs is recognized on a percentage of completion basis over the
term of the customization work and until control of the goods or
services is transferred to the customer or such date the customer
agrees the scope of work has been completed and the intended
functionality of the software is complete and able to perform the
desired service. Support and maintenance revenue is generated
from recurring monthly support and is invoiced monthly based on
hourly fees at predetermined rates based on each customer
contract.
The Customer is
credited a certain number of services hours monthly based on the
numbers of users actively subscribed to the software which amounts
offset any monthly user fees.
Support and
maintenance services include e-mail and telephone support,
unspecified rights to software fixes and product updates and
upgrades and enhancements available on a when-and-if available
basis.
Professional services and other
Professional
services and other revenue is generated through services including
onsite training, product implementation and other similar
services. Professional services are generally flat fee
services based on a number of hours or scope of work for each
specific service. Depending on the services to be provided, revenue
from professional services and other is generally recognized at the
time of delivery when the services have been completed and control
has been transferred.
Unearned Revenue
Unearned revenue
represents billings or payments received in advance of revenue
recognition and is recognized upon transfer of control. Balances
consist primarily of license fees being amortized over the term of
the customer contract and customization services which have not yet
been concluded and are being deferred using the
percentage-of-completion method.
Campground space rentals and concession sales
Revenues from
our campsite operations from the sales of concession items,
equipment rentals or campsite locations are recoded on the cash
basis due to the nature of collection of campsite fees and
concession items, which occur daily as the site is rented and
sundry items are purchased.
Recent Accounting Pronouncements
There were various
accounting standards and interpretations issued recently, none of
which are expected to have a material effect on the Company’s
operations, financial position or cash flows. Refer to
Note 2 – Summary of Significant Accounting Policies in the
Audited yearend financial statements included herein.
22
ITEM
7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
As a "smaller reporting
company", the Company is not required to provide the information
required by this Item.
ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS FOR
FINANCIAL STATEMENTS
|
|
Page
|
|
Report of Independent
Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Consolidated Balance
Sheets
|
F-2
|
|
|
|
|
Consolidated
Statements of Operations
|
F-3
|
|
|
|
|
Statement of Changes
in Stockholders' Equity
|
F-4
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
|
|
|
Notes to Consolidated
Financial Statements
|
F-6
|
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders of Grow Capital, Inc.
Opinion on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Grow
Capital and its subsidiaries (the “Company”) as of June 30, 2020
and 2019, and the related consolidated statements of operations,
stockholders’ equity (deficit), and cash flows for each of the two
years ended June 30, 2020, and the related notes (collectively
referred to as the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the
Company as of June 30, 2020 and 2019, and the results of its
operations and its cash flows for each of the two years ended June
30, 2020, in conformity with accounting principles generally
accepted in the United States of America.
Explanatory Paragraph on Going Concern
The
accompany consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial
statements, the Company’s significant operating losses raise
substantial doubt about its ability to continue as a going concern.
Management’s plans in regards to this uncertainty are
included in Note 1 to the consolidated financial statements.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As
discussed in Note 2 to the consolidated financial statements, the
Company changed the manner in which it accounts for revenue
recognition in accordance with the adoption of accounting standards
Codification (“ASC”) 606 Revenue from Contracts with Customers and
how it accounts for operating leases with the adoption of ASC 842
Leases.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/L J
Soldinger Associates, LLC
We
have served as the Company’s auditor since 2017
Deer
Park, Illinois United States of America
October 13, 2020
F-1
|
GROW CAPITAL,
INC.
AND
SUBSIDIARIES
|
|
Consolidated Balance Sheets
|
|
|
|
June
30,
|
|
|
June
30,
|
|
ASSETS
|
|
2020
|
|
|
2019
|
|
CURRENT ASSETS:
|
|
|
|
|
|
Cash
|
$
|
246,761
|
|
|
483,430
|
|
Subscription receivable
|
|
-
|
|
|
150,000
|
|
Accounts receivable, net of allowance
|
|
67,197
|
|
|
5,903
|
|
Accounts receivable, related parties
|
|
249,057
|
|
|
-
|
|
Interest receivable
|
|
1,794
|
|
|
-
|
|
Prepaid
expenses
|
|
68,725
|
|
|
1,435,221
|
|
Due
from related party
|
|
-
|
|
|
16,854
|
|
Promissory note receivable
|
|
88,510
|
|
|
-
|
|
Assets
held for sale
|
|
-
|
|
|
858,848
|
|
Right
to use assets, current portion
|
|
48,216
|
|
|
-
|
|
Other
current assets
|
|
4,277
|
|
|
-
|
|
Total
current assets
|
|
774,537
|
|
|
2,950,256
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
842,975
|
|
|
857,599
|
|
Intangible assets
|
|
200
|
|
|
-
|
|
Right
to use assets
|
|
287,429
|
|
|
-
|
|
Deposits
|
|
8,117
|
|
|
5,867
|
|
TOTAL ASSETS
|
$
|
1,913,258
|
|
|
3,813,722
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Accounts payable
|
$
|
498,625
|
|
|
329,980
|
|
Accounts payable, related parties
|
|
140,463
|
|
|
-
|
|
Accrued
liabilities
|
|
172,678
|
|
|
230,755
|
|
Advances from related parties
|
|
105,000
|
|
|
105,000
|
|
Unearned revenue
|
|
25,240
|
|
|
-
|
|
Deferred rent
|
|
-
|
|
|
2,676
|
|
Deferred income tax liability
|
|
31,800
|
|
|
-
|
|
Lease
liability, current portion
|
|
45,957
|
|
|
-
|
|
Promissory Note, current portion
|
|
12,782
|
|
|
8,012
|
|
Liability held for sale
|
|
-
|
|
|
507,572
|
|
Other
current liabilities
|
|
11,568
|
|
|
-
|
|
Total
current liabilities
|
|
1,044,113
|
|
|
1,183,995
|
|
|
|
|
|
|
|
|
Lease
liability
|
|
293,664
|
|
|
-
|
|
Promissory Note, Long Term portion
|
|
583,526
|
|
|
597,347
|
|
TOTAL LIABILITIES
|
|
1,921,303
|
|
|
1,781,342
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 50,000,000 and
5,000,000 shares authorized as at June 30, 2020 and June 30, 2019,
none issued and outstanding
|
$
|
-
|
|
|
-
|
|
Common
stock, $0.001 par value, 500,000,000 shares and
175,000,000 shares
authorized, 13,097,310 and 7,037,241 issued,
issuable and outstanding at June 30, 2020 and June 30, 2019
respectively.
|
|
13,097
|
|
|
7,037
|
|
Additional paid-in capital
|
|
50,066,944
|
|
|
49,766,676
|
|
Accumulated deficit
|
|
(50,088,086)
|
|
|
(47,741,333)
|
|
Total
stockholders' equity (deficit)
|
|
(8,045)
|
|
|
2,032,380
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
1,913,258
|
|
|
3,813,722
|
The accompanying
notes are an integral part of these audited consolidated financial
statements.
F-2
GROW CAPITAL,
INC.
AND
SUBSIDIARIES
Consolidated
Statements of Operations
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
317,149
|
|
|
277,294
|
|
Revenue, related
parties
|
|
|
2,051,355
|
|
|
787,919
|
|
Total
revenues
|
|
|
2,368,504
|
|
|
1,065,213
|
|
|
|
|
|
|
|
|
|
Cost of sales,
nonrelated parties
|
|
|
1,081,350
|
|
|
267,180
|
|
Cost of sale, related
parties
|
|
|
186,354
|
|
|
294,613
|
|
Total cost of sales
|
|
|
1,267,704
|
|
|
561,793
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,100,800
|
|
|
503,420
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
General and
administrative
|
|
|
2,499,094
|
|
|
1,828,643
|
|
General and
administrative, related parties
|
|
|
223,957
|
|
|
82,470
|
|
Professional fees
|
|
|
1,233,071
|
|
|
749,998
|
|
Depreciation,
amortization and impairment
|
|
|
14,624
|
|
|
121,345
|
|
Total operating
expenses
|
|
|
3,970,746
|
|
|
2,782,456
|
|
|
|
|
|
|
|
|
|
Loss from
operations
|
|
|
(2,869,946)
|
|
|
(2,279,036)
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(35,963)
|
|
|
(47,265)
|
|
Interest income
|
|
|
6,304
|
|
|
-
|
|
Total expense,
net
|
|
|
(29,659)
|
|
|
(47,265)
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
|
(2,899,605)
|
|
|
(2,326,301)
|
|
Income (loss) from
discontinued operations
|
|
|
552,852
|
|
|
(2,395)
|
|
Net Loss
|
|
$
|
(2,346,753)
|
|
|
(2,328,696)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per share from continuing operations
|
|
$
|
(0.25)
|
|
|
(0.39)
|
|
Basic and diluted
income (loss) per share from discontinued operations
|
|
$
|
0.05
|
|
|
(0.00)
|
|
Basic and diluted
net loss per share
|
|
$
|
(0.20)
|
|
|
(0.39)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
weighted average common shares outstanding
|
|
|
11,724,996
|
|
|
5,912,446
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these audited consolidated financial
statements.
F-3
GROW CAPITAL,
INC.
AND
SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders Equity (Deficit)
|
|
|
Preferred Shares
|
|
Common
Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Shareholders
Equity
(Deficit)
|
|
Balance, June 30,
2018
|
|
-
|
|
-
|
|
4,710,303
|
|
4,710
|
|
|
44,902,980
|
|
|
(45,336,236)
|
|
|
(428,546)
|
|
Private
placements
|
|
|
|
|
|
1,292,714
|
|
1,293
|
|
|
1,913,707
|
|
|
|
|
|
1,915,000
|
|
Shares issued to
Officers, Directors and employees
|
|
|
|
|
|
762,634
|
|
763
|
|
|
2,086,609
|
|
|
|
|
|
2,087,372
|
|
Shares issued to
non-employees for services
|
|
|
|
|
|
214,156
|
|
214
|
|
|
766,832
|
|
|
|
|
|
767,046
|
|
Conversion of
accounts payable into stock
|
|
|
|
|
|
57,434
|
|
57
|
|
|
96,548
|
|
|
|
|
|
96,605
|
|
Loss for the
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,405,097)
|
|
|
(2,405,097)
|
|
Balance, June 30,
2019
|
|
-
|
|
-
|
|
7,037,241
|
|
7,037
|
|
|
49,766,676
|
|
|
(47,741,333)
|
|
|
2,032,380
|
|
Shares
issued to acquire related party business
|
|
|
|
|
|
5,533,773
|
|
5,534
|
|
|
70,868
|
|
|
|
|
|
76,402
|
|
Private
placements
|
|
|
|
|
|
318,889
|
|
319
|
|
|
354,681
|
|
|
|
|
|
355,000
|
|
Shares issued to
Officers, Directors and employees for compensation
|
|
|
|
|
|
573,972
|
|
574
|
|
|
648,715
|
|
|
|
|
|
649,289
|
|
Conversion of
accounts payable into stock
|
|
|
|
|
|
88,129
|
|
88
|
|
|
134,938
|
|
|
|
|
|
135,026
|
|
Shares
retired under sale of subsidiary
|
|
|
|
|
|
(454,694)
|
|
(455)
|
|
|
(908,934)
|
|
|
|
|
|
(909,389)
|
|
Loss for the
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,346,753)
|
|
|
(2,346,753)
|
|
Balance, June 30,
2020
|
|
-
|
|
-
|
|
13,097,310
|
|
13,097
|
|
|
50,066,944
|
|
|
(50,088,086)
|
|
|
(8,045)
|
The accompanying
notes are an integral part of these audited consolidated financial
statements.
F-4
GROW CAPITAL,
INC.
AND
SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
Fiscal Year
Ended
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
$
|
(2,346,753)
|
|
|
(2,328,696)
|
|
Loss
(gain) from discontinued operations
|
|
(552,852)
|
|
|
2,395
|
|
Net
Loss from continuing operations:
|
|
(2,899,605)
|
|
|
(2,326,301)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
Depreciation, amortization, and impairment expense
|
|
14,624
|
|
|
121,345
|
|
Non-cash interest
|
|
-
|
|
|
6,612
|
|
Stock
based compensation
|
|
2,164,782
|
|
|
1,484,059
|
|
Right
of use asset amortization
|
|
3,976
|
|
|
-
|
|
Changes
in allowance for bad debt
|
|
35,350
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Prepaid
expenses and other assets
|
|
(20,490)
|
|
|
(54,567)
|
|
Accounts receivable
|
|
(60,565)
|
|
|
(44,579)
|
|
Accounts receivable, related parties
|
|
25,199
|
|
|
(270,805)
|
|
Interest receivable
|
|
(1,794)
|
|
|
-
|
|
Accounts payable
|
|
70,984
|
|
|
306,432
|
|
Account
payable, related parties
|
|
21,551
|
|
|
118,912
|
|
Accrued
expenses
|
|
(5,056)
|
|
|
122,468
|
|
Deferred rent expense
|
|
(2,676)
|
|
|
2,676
|
|
Unearned revenue
|
|
8,670
|
|
|
16,570
|
|
Deferred income tax
|
|
|
|
|
31,800
|
|
Other
current liabilities
|
|
11,568
|
|
|
-
|
|
Net
cash used in operating activities
|
|
(633,482)
|
|
|
(485,378)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Due
from related party
|
|
16,854
|
|
|
23,415
|
|
Cash
received from business combination
|
|
43,975
|
|
|
-
|
|
Purchase of property, plant, and equipment
|
|
-
|
|
|
(13,232)
|
|
Purchase of intangible assets
|
|
-
|
|
|
(200)
|
|
Promissory note receivable
|
|
(100,000)
|
|
|
-
|
|
Partial
repayment of note receivable
|
|
11,490
|
|
|
-
|
|
Net
cash (used in) provided by investing activities
|
|
(27,681)
|
|
|
9,983
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Advances (repayment), related party
|
|
(66,195)
|
|
|
66,195
|
|
Subscription receivable
|
|
150,000
|
|
|
-
|
|
Proceeds from private placement
|
|
355,000
|
|
|
1,765,000
|
|
Repayment of promissory note
|
|
(9,051)
|
|
|
(8,490)
|
|
Net
cash provided by financing activities
|
|
429,754
|
|
|
1,822,705
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
Operating activities
|
|
(3,230)
|
|
|
(2,860)
|
|
Investing activities
|
|
(2,030)
|
|
|
71,774
|
|
Financing activities
|
|
-
|
|
|
(902,710)
|
|
Net
cash used in discontinued activities
|
|
(5,260)
|
|
|
(833,796)
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
(236,669)
|
|
|
513,514
|
|
Cash at
beginning of period
|
|
483,430
|
|
|
13,891
|
|
Cash
at the end of the period
|
$
|
246,761
|
|
$
|
527,405
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flows Information:
|
|
|
|
|
|
|
Cash
paid for interest, discontinued activities
|
$
|
26,867
|
|
$
|
-
|
|
Cash
paid for income taxes
|
$
|
-
|
|
$
|
-
|
|
Cash
paid for operating lease
|
$
|
18,732
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
Stock
issued for prepaid compensation
|
$
|
-
|
|
$
|
2,303,195
|
|
Stock
issued for settlement of accounts payable
|
$
|
106,433
|
|
$
|
25,505
|
|
Stock
settled advances from related party
|
$
|
-
|
|
$
|
67,643
|
|
Stock returned from sale of WCS
|
$
|
909,389
|
|
$
|
-
|
|
Assets
acquired, net of liabilities, Bombshell
|
$
|
76,402
|
|
$
|
-
|
|
Repayment of promissory note, under discontinued operation, from
escrow
|
$
|
-
|
|
$
|
252,141
|
|
|
The accompanying
notes are an integral part of these audited consolidated financial
statements.
F-5
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Organization and Description of Business
Grow
Capital, Inc. (the "Company," “we,” or “us”) (f/k/a Grown Condos,
Inc.) was incorporated on October 22, 1999, in the State of
Nevada.
Our former wholly
owned subsidiary, WCS Enterprises, LLC (“WCS”) is an Oregon limited
liability company which was formed on September 9,
2013 with operations beginning in October 2013. WCS
is a real estate purchaser, developer and manager of specific use
industrial properties providing "Condo" style turn-key aeroponics
grow facilities to support cannabis farmers. WCS owns, leases,
sells and manages multi- tenant properties so as to reduce the risk
of ownership and reduce costs to tenants and owners. WCS
owned a condominium property in Eagle Point, Oregon (the “Eagle
Point Property”). On September 30, 2019, we sold WCS to the Wayne
A. Zallen Trust u/a/d/ 10/24/2014 (the “Zallen Trust”), of which
Wayne Zallen, our former CEO and Chairman, is the trustee and a
beneficiary. See Note 5 for further information.
Our
wholly owned subsidiary, Resort at Lake Selmac, Inc. (formerly
Smoke on the Water, Inc.) was incorporated on October 21,
2016, in the State of Nevada. The name change was effected
February 3, 2020. Resort at Lake Selmac is focused on operating
properties in the RV and campground rental industry and currently
owns the Lake Selmac Resort located at 2700 Lakeshore Drive, Selma,
Oregon (the “Lake Selmac Property”).
Our
wholly owned subsidiary Bombshell Technologies, Inc. (“Bombshell”),
was formed as Bombshell Technologies, LLC on November 5, 2018 and
converted into a C corporation on June 24, 2019. We
acquired Bombshell on July 23, 2019 (See Note 4). Bombshell
is a full-service design and software development company focused
on developing and selling software to financial services firms and
advisors and is the first acquisition as part of our strategic
shift into the financial technology (“FinTech”) sector and related
sectors.
On June
22, 2018, the Board of Directors of the Company approved an
amendment to our articles of incorporation to increase our
authorized capital to 180,000,000 shares, consisting
of 175,000,000 shares of common stock (“Common Stock”),
par value $0.001, and 5,000,000 shares of preferred stock
(“Preferred Stock”), par value $0.001 (the “Recapitalization”) and
to change the name of the Company to “Grow Capital, Inc.” The
Company filed articles of amendment with the State of Nevada to
effect the aforementioned changes on July 10, 2018 and August 28,
2018, respectively. The Company received approval from the
Financial Industry Regulatory Authority ("FINRA") for the above
noted corporate actions on August 8, 2019.
On July
23, 2019, and effective July 25, 2019, the Board of Directors of
the Company and the holders of our outstanding capital stock having
a majority of the voting power, respectively, adopted resolutions
to amend and restate our articles of incorporation to increase our
authorized capital to 550,000,000 shares, consisting of 500,000,000
shares of Common Stock and 50,000,000 shares of Preferred Stock.
The effective date of the aforementioned actions was August 29,
2019.
In
connection with its name change, the Company adopted a business
plan focused on shifting the Company’s strategy away from rental
activities focused in the cannabis industry and into the FinTech
sector and related sectors. In connection with this strategy, the
Company hired a new Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) and appointed a new chairman of the
Company’s board of directors (the “Board”), all of whom have
significant experience in the FinTech sector. The Company
intends to acquire FinTech companies, such as Bombshell (see Note
4), with a clear niche and strong leadership and use its experience
and understanding of the FinTech sector and access to the public
markets to help its acquisitions grow. The Company is
currently in the process of identifying and pursuing suitable
acquisitions. In connection with the shift in the Company’s
strategy away from rental activities focused in the cannabis
industry, the Company sold WCS on September 30, 2019 and its
operations up to the date of sale were included as Assets and
Liabilities’ Held for Sale. (Note 5). While the Company actively
marketed the Resort at Lake Selmac during the first and second
quarters of fiscal 2020, given the current market conditions, the
Company let the listing agreement expire on March 31, 2020 and we
decided to continue operating the business until such time as a
viable exit strategy for the resort is identified. As
the Company looks to continue to expand in the financial technology
and related sectors, Grow Capital expects to identify suitable
acquisitions, complete those acquisitions, and grow those
companies. Any potential acquisitions or divestitures remain
subject to final agreements, due diligence, and typical closing
conditions.
Reverse Stock Split
On May 13, 2020, the Company’s board of directors and stockholders
approved an amended and restated certificate of incorporation to,
among other things, effect a reverse split on the outstanding
shares of the Company’s common stock on a one-for-20 basis (the
“Reverse Stock Split”). The Reverse Stock Split became effective on
July 30, 2020 and has been shown on a retroactive basis within all
periods presented. The par values of the common were not adjusted
as a result of the reverse stock split.
F-6
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Going Concern
During
the fiscal year ended June 30, 2020 and June 30, 2019, the Company
reported a net loss of $2,346,753 and $2,328,696, respectively.
Working capital deficit which totaled approximately $269,576 with
approximately $246,761 of cash on hand. Cash used in
operations was in excess of this amount for the year ended June 30,
2020. The Company believes that as of June 30, 2020 its existing
capital resources are not adequate to enable it to fully
execute its business plan. While the Company successfully acquired
a second operating business subsequent to fiscal year end,
including additional operations complementary to its recently
acquired subsidiary, Bombshell Technologies, management believes we
will require additional capital resources to fully implement our
business plan, which includes the acquisition of additional
operations. While the Company`s subsidiary provided
approximately $1,100,000 in gross profit to offset operational
overhead in the period, revenues are presently not sufficient to
meet the Company’s ongoing expenditures. The Company is actively
working to increase the customer base and gross profit in Bombshell
Technologies in order to achieve net profitability by the close of
fiscal 2021. The addition of another operating entity subsequent to
June 30, 2020, is expected to contribute additional gross profits
to offset operational overheads. The additional growth plans
include the acquisition of several new customers, an increase to
the users currently subscribed to our software, as well as
increased sales of customization services to new and existing
customers. The Company intends to rely on sales of our unregistered
common stock, loans and advances from related parties to meet
operational shortfalls until such time as we achieve profitable
operations. If the Company fails to generate positive
cash flow or obtain additional financing, when required and on
acceptable terms, the Company may have to modify, delay, or abandon
some or all of its business and expansion plans, and potentially
cease operations altogether. Consequently, the aforementioned items
raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date that the financial
statements are issued. The accompanying consolidated financial
statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
Covid-19 Pandemic
The recent COVID-19 pandemic could have an adverse impact on our
ongoing operations. To date the Company’s primary operating
segment, Bombshell, has not experienced a decline in sales as a
result of the impact of COVID 19. The Company’s operations in the
FinTech sector are carried out with a limited amount of person to
person contact and we do not expect an impact on these operations
as a result of COVID 19, however, the full effect of the COVID-19
outbreak continues to evolve as of the date of this report, is
highly uncertain and subject to change. Operations of the Company’s
Resort at Lake Selmac property were delayed until July 2020 when
the government permitted the resort to reopen. Management
does not expect the delay in opening the resort for the 2020-2021
season to substantially impact profitable operations for this
business in the long term. Management is actively monitoring the
situation but given the daily evolution of the COVID-19 outbreak,
the Company is not able to estimate the effects of the COVID-19
outbreak on its operations or financial condition in the next 12
months. While significant uncertainty remains, the Company does not
believe the COVID-19 outbreak will have a negative impact on
its ability to raise additional financing, conclude the
acquisition of targeted business operations or reach profitable
operations.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The accompanying
consolidated financial statements have been prepared by the Company
in accordance with accounting principles generally accepted in the
United States ("GAAP"), and pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC").
F-7
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Consolidation
These
condensed consolidated financial statements include the accounts of
Grow Capital, Inc. and its wholly owned subsidiaries, WCS (up until
disposal in September 2019), Bombshell Technologies Inc. and Resort
at Lake Selmac, Inc, as of June 30, 2020. All significant
intercompany accounting transactions have been eliminated as a
result of consolidation. In addition to consolidation for the
fiscal year ended June 30, 2019 financial results are “combined”
with respect to the operations of Bombshell Technologies, Inc.
under the requirements of ASC 850-50-45, which results impact the
statements of operations and statements of cash flows to include
operations of Bombshell Technologies Inc. as though it had been
acquired on inception.
Use of
Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Significant items subject to
estimates and assumptions include our allowance for doubtful
accounts and useful lives of our fixed assets related to Lake
Selmac. Actual results could differ from those estimates.
Cash
and Cash Equivalents
For
financial accounting purposes, cash and cash equivalents are
considered to be all highly liquid investments with a maturity of
three (3) months or less at the time of purchase.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash deposits.
Accounts at each institution are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to $250,000. At June 30, 2020 and
June 30, 2019, the Company had $0 and $212,985 in excess of the
FDIC insured limit, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
The
Company determines the allowance for doubtful accounts by
considering a number of factors, including the length of time the
accounts receivable are beyond the contractual payment terms,
previous loss history, and the customer’s current ability to pay
its obligation. When the Company becomes aware of a specific
customer’s inability to meet its financial obligations to the
Company, the Company records a charge to the allowance to reduce
the customer’s related accounts. At June 30, 2020, the allowance
for doubtful accounts totaled approximately $35,350.
Lease
Receivables and deferred rent
Lease
receivables are recognized when rents are due, and for the
straight-line adjustment to rents over the term of the lease less
an allowance for expected uncollectible amounts. Inherent in the
assessment of the allowance for doubtful accounts are certain
judgments and estimates including, among others, the customer's
willingness or ability to pay, the Company's compliance with lease
terms, the effect of general economic conditions and the ongoing
relationship with the customer. Accounts with outstanding balances
longer than the payment terms are considered past
due. We do not charge interest on past due balances. The
Company writes off lease receivables when it determines that they
have become uncollectible after all reasonable collection efforts
have been made. If we record bad debt expense, the
amount is reflected as a component of operating expenses in the
statements of operations.
F-8
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”)
issued ASU No. 2016-02 – Topic 842 Leases. ASU
2016-02 requires that most leases be recognized on the financial
statements, specifically the recognition of right-to-use assets and
related lease liabilities, and enhanced disclosures about leasing
arrangements. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those
fiscal years. The standard requires using the modified
retrospective transition method and apply ASU 2016-02 either at (i)
latter of the earliest comparative period presented in the
financial statements or commencement date of the lease, or (ii) the
beginning of the period of adoption. The Company has elected to
apply the standard at the beginning period of adoption, July 1,
2019 which resulted in no cumulative adjustment to retained
earnings. On July 30, 2018, the FASB issued ASU 2018-11 to provide
entities with relief from the costs of implementing certain aspects
of the new leasing standard, ASU 2016-02 (codified as ASC 842).
Specifically, under the amendments in ASU 2018-11: (i) Entities may
elect not to recast the comparative periods presented when
transitioning to ASC 842 (Issue 1), and (ii) Lessors may elect not
to separate lease and nonlease components when certain conditions
are met (Issue 2).
The
Company has elected to apply the short-term scope exception for
leases with terms of 12 months or less at the inception of the
lease and will continue to recognize rent expense on a
straight-line basis. As a result of the adoption, on July 1, 2019,
the Company recognized a lease liability of approximately $291,753,
which represented the present value of the remaining minimum lease
payments using an estimated incremental borrowing rate of 6.75%. As
of July 1, 2019, the Company recognized a right-to-use asset of
approximately $289,089 million. Lease expense did not change
materially as a result of the adoption of ASU 2016-02.
Intangible Assets
The
Company’s intangible assets consist of intellectual property with
minimal value.
Investment In and Valuation of Real Estate Assets
Real
estate assets are stated at cost, less accumulated depreciation and
amortization. Amounts capitalized to real estate assets consist of
the cost of acquisition (excluding acquisition related expenses),
construction costs, and mortgage interest during the period the
facilities are under construction and prior to readiness for
occupancy, and any tenant improvements, major improvements and
betterments that extend the useful life of the real estate assets
and leasing costs. All repairs and maintenance are expensed as
incurred.
The
Company is required to make subjective assessments as to the useful
lives of its depreciable assets. The Company considers the period
of future benefit of each respective asset to determine the
appropriate useful life of the assets. Real estate assets, other
than land, are depreciated on a straight-line basis over the
estimated useful life of the asset.
The
estimated useful lives of the Company's real estate assets by class
are generally as follows:
|
Land
|
Indefinite
|
|
Buildings
|
40 years
|
|
Tenant
improvements
|
Lesser
of useful life or lease term
|
|
Intangible lease assets
|
Lease
term
|
F-9
GROW
CAPITAL, INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Impairment of long-lived assets
The Company monitors
its long-lived assets and finite-lived intangibles for indicators
of impairment. If such indicators are present, the Company assesses
the recoverability of affected assets by determining whether the
carrying value of such assets is less than the sum of the
undiscounted future cash flows of the assets. If such assets are
found not to be recoverable, the Company measures the amount of
such impairment by comparing the carrying value of the assets to
the fair value of the assets, with the fair value generally
determined based on the present value of the expected future cash
flows associated with the assets (See Note 6).
Share-based compensation
The
Company measures the cost of employee services received in exchange
for an award of equity instruments based on the grant date fair
value of the award. Unregistered stock awards are measured based on
the fair market values of the underlying stock on the dates of
grant. For service type awards, share-based compensation expense is
recognized on a straight-line basis over the period during which
the employee is required to provide service in exchange for the
entire award. For awards that vest or begin vesting upon
achievement of a performance condition, the Company estimates the
likelihood of satisfaction of the performance condition and
recognizes compensation expense when achievement of the performance
condition is deemed probable using an accelerated attribution
model.
The
Company capitalizes the cost of issuance grants that cover a period
of employment or consulting agreement under contract or performance
obligation related to future performance and amortizes the
compensation related to these contracts ratably over the period of
employment or at percentage of completion or other appropriate
method for future performance grants. There were no issuance grants
outstanding with a performance term longer than one year at June
30, 2020 and June 30, 2019. Prepaid expenses for the fiscal
year ended June 30, 2020 and fiscal year ended June 30, 2019
include unamortized costs of issuance grants under employment and
consulting contracts totaling $0 and $1,380,459, respectively.
Revenue Recognition under ASC 606
The Company has adopted accounting standard, ASC 606
“Revenue from Contracts with Customers” and
all related amendments to the new accounting standard to
contracts.
Revenues from contracts with customers are recognized when control
of promised goods and services is transferred to customers in an
amount that reflects the consideration the Company expects to be
entitled to in exchange for those goods or services.
The
Company recognizes revenue using the five-step model as prescribed
by ASC 606:
|
1)
|
Identification of the contract, or contracts, with a customer;
|
|
2)
|
Identification of the performance obligations in the contract;
|
|
3)
|
Determination of the transaction price;
|
|
4)
|
Allocation of the transaction price to the performance obligations
in the contract; and
|
|
5)
|
Recognition of revenue when or as, the Company satisfies a
performance obligation.
|
When a
contract with a customer is signed, the Company assesses whether
collection of the fees under the arrangement is probable. The
Company estimates the amount to reserve for uncollectible amounts
at the end of each reporting period based on the aging of the
contract balance, current and historical customer trends, and
communications with its customers. These reserves are recorded
against the related accounts receivable.
F-10
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Revenue Recognition under ASC 606 (cont’d)
The
transaction price is the consideration that the Company expects to
receive from its customers in exchange for its products or
services. In determining the allocation of the transaction price,
the Company identifies performance obligations in contracts with
customers, which may include subscriptions to software and
services, support, professional services and customization.
In the case of the Company’s software contracts and support
services prices are predetermined based on the specific terms of
the contract either in flat fee customization/license fee charges
or as hourly support and/or software customization charges. Charges
relative to license fees are amortized over the term of the
license. Charges relative to customization of the software are
charged over the term of the scope of work on a percentage of
completion basis. Charges relative to support and ongoing services
and professional fees are charged when incurred and control has
been transferred or the work has been completed.
License fees and customization of software
License
and implementation fees are charged as flat fees which are
amortized over the term of the contract. For contracts with
elements related to customized software solutions and certain
build-outs or software systems that require significant
modification or customization, the Company will recognize revenue
using the percentage-of-completion method. In using the
percentage-of-completion method, revenues are generally recorded
based on completion of milestones under a scope of work or based on
total estimated cost of work and percentage completion as at the
balance sheet date.
Software Revenue
The
Company generates software revenue monthly on a single fee per
subscribed user basis. The Company recognizes software
revenue monthly on a per user for each user that is able to deploy
software and provided all revenue recognition criteria have been
met. If the revenue recognition criteria has not been met, the
revenue is deferred or not recognized.
Customization, support and maintenance
Revenue
from the Company’s customization of software to meet a particular
client’s needs is recognized on a percentage of completion basis
over the term of the customization work and until control of the
goods or services is transferred to the customer or such date the
customer agrees the scope of work has been completed and the
intended functionality of the software is complete and able to
perform the desired service. Support and maintenance revenue
is generated from recurring monthly support and is invoiced monthly
based on hourly fees at predetermined rates based on each customer
contract.
The
Customer is credited a certain number of services hours monthly
based on the numbers of users actively subscribed to the software
which amounts offset any monthly user fees.
Support
and maintenance services include e-mail and telephone support,
unspecified rights to software fixes and product updates and
upgrades and enhancements available on a when-and-if available
basis.
Professional services and other
Professional services and other revenue is generated through
services including onsite training, product implementation and
other similar services. Professional services are generally
flat fee services based on a number of hours or scope of work for
each specific service. Depending on the services to be provided,
revenue from professional services and other is generally
recognized at the time of delivery when the services have been
completed and control has been transferred.
F-11
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Revenue Recognition under ASC 606 (cont’d)
Unearned Revenue
Unearned revenue represents billings or payments received in
advance of revenue recognition and is recognized upon transfer of
control. Balances consist primarily of license fees being amortized
over the term of the customer contract and customization services
which have not yet been concluded and are being deferred using the
percentage-of-completion method.
Campground space rentals and concession sales
Revenues from our campsite operations from the sales of concession
items, equipment rentals or campsite locations are recoded on the
cash basis due to the nature of collection of campsite fees and
concession items, which occur daily as the site is rented and
sundry items are purchased.
Fair Value of Financial Instruments
The
Company follows the fair value measurement rules, which provides
guidance on the use of fair value in accounting and disclosure for
assets and liabilities when such accounting and disclosure is
called for by other accounting literature. These rules establish a
fair value hierarchy for inputs to be used to measure fair value of
financial assets and liabilities. This hierarchy prioritizes the
inputs to valuation techniques used to measure fair value into
three levels: Level 1 (highest priority), Level 2, and
Level 3 (lowest priority).
Level 1—Unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the balance sheet date.
Level 2—Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted prices
for similar assets and liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for
the asset or liability (i.e., interest rates, yield curves,
etc.), and inputs that are derived principally from or corroborated
by observable market data by correlation or other means (market
corroborated inputs).
Level 3—Inputs are unobservable and reflect the Company’s
assumptions as to what market participants would use in pricing the
asset or liability. The Company develops these inputs based on the
best information available.
The
carrying amount of receivables and accounts payable and accrued
expenses approximates fair value due to the short-term nature of
those instruments.
The estimated fair values
for financial instruments are determined at discrete points in time
based on relevant market information. These estimates
involve uncertainties and cannot be determined with
precision. The carrying amounts of lease receivables,
accounts payable, and accrued liabilities approximate fair value
given their short-term nature or effective interest rates, which
constitutes level three inputs.
Income
taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and net operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured at
rates expected to apply to taxable income in the years in which
those temporary differences and carryforwards are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement
of
F-12
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Income
taxes (continued)
operations in the period that includes the enactment date. A
valuation allowance is recorded when it is not more likely than not
that all or a portion of the net deferred tax assets will be
realized.
In the
quarter ended September 30, 2019, the Company issued a significant
number of new shares in its acquisition of Bombshell Technologies,
Inc. (see Note 4) and the cancellation of then outstanding shares
upon the sale of WCS Enterprises, LLC (see Note 5). The
effect of these issuances and cancellations is that most likely,
the Company experienced the requisite change of control as
promulgated under the US Internal Revenue Code section 382.
The effect of this will be that going forward, the ability of
the Company to utilize the US Federal net operating loss
carryforwards of Grow Capital, Inc. from prior to these
transactions will be limited in its usage. In order to
determine the specific effect, the Company must perform the
computations required under the Internal Revenue Code, which have
not yet been performed. The Company expects it will perform
the required computations once its evident that profits are
likely.
Net
(loss) income per share
Basic
earnings per share is computed by dividing income available to
common shareholders by the weighted average number of shares of
Common Stock outstanding for the period and contains no dilutive
securities. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an
entity. For the fiscal year ended June 30, 2020 and
2019, all potentially dilutive securities are anti-dilutive due to
the Company's losses from operations.
All
dilutive common stock equivalents are reflected in our earnings
(loss) per share calculations. Anti-dilutive common stock
equivalents are not included in our earnings (loss) per share
calculations.
There
were no potential shares outstanding as of June 30, 2020 and 25,000
potential shares outstanding as of June 30, 2019.
Reclassification
Certain
prior period balances have been reclassified to conform to the
current period presentation in the Company’s consolidated financial
statements and the accompanying notes.
Recent
Accounting Pronouncements
Fair Value
Measurements (“ASU 2018-03”). In August 2018, the FASB issued ASU
2018-13, “Fair Value Measurement (Topic 820) Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value
Measurement.” The amendments in the standard apply to all entities
that are required, under existing GAAP, to make disclosures about
recurring or nonrecurring fair value measurements. ASU 2018-13
removes, modifies, and adds certain disclosure requirements in ASC
820, Fair Value Measurement. The standard is effective for all
entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019.
The amendments on changes in
unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value
measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal
year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
Early adoption is permitted upon issuance of ASU 2018-13. An entity
is permitted to early adopt any removed or modified disclosures
upon issuance of ASU 2018-13 and delay adoption of the additional
disclosures
F-13
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Summary of Significant Accounting Policies
(continued)
Recent
Accounting Pronouncements (Cont’d)
until their effective date.
The Company is currently assessing the impact that ASU 2018-13 will
have on its financial statements.
Financial Instruments – Credit Losses (“ASU
2016-13”). In June 2016, the FASB issued ASU 2016-13,
“Financial Instruments – Credit Losses” to require the
measurement of expected credit losses for financial instruments
held at the reporting date based on historical experience, current
conditions and reasonable forecasts. The main objective of this ASU
is to provide financial statement users with more decision-useful
information about the expected credit losses on financial
instruments and other commitments to extend credit held by a
reporting entity at each reporting date.
The
standard was originally effective for interim and annual reporting
periods beginning after December 15, 2019 and early adoption is
permitted for interim and annual reporting periods beginning after
December 15, 2018. However, in November 2019, the Financial
Accounting Standard Board (FASB) issued ASU
2019-10, Financial Instruments—Credit Losses, (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic
842) — Effective Dates (“ASU 2019-10”).
ASU 2019-10 deferred the adoption date for (i) public business
entities that meet the definition of an SEC filer, excluding
entities eligible to be “smaller reporting companies” as defined by
the SEC, for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years, and (2) all
other entities for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years. As of June 30,
2020, the Company qualified as a smaller reporting companies as
defined by the SEC. The Company is currently assessing the impact
that ASU 2016-13 will have on its consolidated financial statements
but does not anticipate there to be a material impact.
Note
3 – Prepaid expenses
Prepaid
expenses at June 30, 2020 and 2019 consist of the following:
|
|
June 30,
2020
|
June 30,
2019
|
|
|
|
|
|
Professional fees
|
$
50,000
|
$
50,000
|
|
Share
based compensation
|
-
|
1,380,459
|
|
Insurance
|
2,771
|
3,150
|
|
Other
expenses
|
15,954
|
1,612
|
|
Total
|
$
68,725
|
$
1,435,221
|
Note
4 – Merger
On July
23, 2019, (the “Closing Date”), the Company acquired Bombshell, a
Nevada corporation, pursuant to a stock exchange agreement (the
“Exchange Agreement”), dated June 26, 2019, by and between
Bombshell, the shareholders of Bombshell (the “Bombshell Holders”).
At the Closing, Bombshell became a wholly owned subsidiary of the
Company.
Pursuant to the Amendment, at the Closing, the Company acquired
100% of the outstanding shares of Bombshell (the “Bombshell
Shares”) in exchange for the Bombshell Holders receiving the right
to receive 5,533,773 post reverse split shares (the “Consideration
Shares”) of unregistered shares of the Company’s Common Stock on a
pro rata basis (the “Exchange”), 1,650,000 post reverse split stock
of which were issued to the Bombshell Holders (the “Closing
Shares”) at the Closing on a pro rata basis. The remaining
3,883,773 post reverse split stock Consideration Shares (the
“Secondary Shares”) were issued on September 3, 2019, to the
Bombshell Holders upon the Company filing an effective amended and
restated articles of incorporation (the “Charter Amendment”) that
increased the
F-14
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
4 – Merger (continued)
number
of authorized shares of Common Stock. The Bombshell Holders
are also eligible to receive earn-out consideration of up to an
additional 1,838,461 shares of Common Stock (the “Earn-out Shares”)
earnable in tranches of 612,820 shares of Common Stock in each of
the second, third and fourth years after the Closing, based on
whether Bombshell is able to meet certain Earnings Before Interest
and Taxes thresholds in each year. The Bombshell Holders
include certain limited liability companies owned by (i) Jonathan
Bonnette, (ii) Joel Bonnette, and (iii) Terry Kennedy. At the date
of this report it remains uncertain whether the EBIT targets which
permit the earn out of the first tranche of the additional shares
of common stock will be achieved as at the first valuation date.
The
acquisition of Bombshell was not accounted for under the
acquisition method of accounting in accordance with ASC Topic 805,
Business Combinations. Due to the related party and common control
relationships held between Bombshell and Grow Capital, Inc., the
assets and liabilities of Bombshell transferred over to the Company
at their historical carrying values.
The
following table provides information as of June 30, 2019 of the
assets acquired and the liabilities assumed in the merger:
|
Assets
|
|
|
|
|
Cash
|
|
$
|
43,975
|
|
|
Accounts receivable
|
|
|
36,079
|
|
|
Accounts receivable, related parties
|
|
|
290,230
|
|
|
Intangibles and other assets
|
|
|
200
|
|
|
Total
Assets
|
|
$
|
370,484
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
60,605
|
|
|
Accounts payable and accrued liabilities, related parties
|
|
|
118,912
|
|
|
Advances, related parties
|
|
|
66,195
|
|
|
Unearned revenue
|
|
|
9,070
|
|
|
Unearned revenue, related parties
|
|
|
7,500
|
|
|
Deferred income tax liabilities
|
|
|
31,800
|
|
|
Total liabilities
|
|
|
294,082
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
$
|
76,402
|
|
|
|
|
|
|
|
|
Consideration: 5,533,773 shares
|
|
|
5,534
|
|
|
Additional paid in capital
|
|
$
|
70,868
|
|
Note
5 – Assets Held for Sale
(1)Assets
in Oregon within the Pioneer Business
Park
In
April 2016, the Company purchased a parcel of land near Eugene,
Oregon within the Pioneer Business Park (the “Pioneer Property”)
from a private seller for the amount of $326,629 plus closing
costs. As part of the purchase, the Seller financed through a
note payable $267,129 of the purchase price. The intent of the
Company was to build an industrial condominium building on the
parcel, akin to the Eagle Point Property. The Company was
unable to secure additional funding via debt or equity and due to
the hostility of the local county government towards the intended
operations of the tenants, and consequently, the Company abandoned
those plans in late calendar 2017.
In
December 2017, the Company made the decision to put the Pioneer
Property up for sale, retained a sales agent and listed the Pioneer
Property for sale at a purchase price of $399,000. At that
time the Company impaired all costs
incurred towards development of the land which amounted to
$31,843 The financial statements show the value of the land
and the related mortgage under Assets Held for Sale and Liabilities
Held for Sale on the balance sheet as of June 30, 2018,
respectively. In September 2018, the Company completed the sale of
the Pioneer Property for a gross sales price of $349,000. After
payment of all closing costs, the Company recorded a loss on sale
of approximately $5,400.
F-15
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
5 – Assets Held for Sale (continued)
(2)WCS Enterprises,
Inc.
In the
quarter ended March 31, 2019, the Company began to actively market
WCS for sale and has begun negotiations with certain parties for
the sale of WCS, subject to diligence, negotiation of a purchase
agreement and fulfillment of typical closing conditions. In
connection with these efforts, management determined that it was
appropriate to classify WCS as Assets Held for Sale.
On September 30, 2019, the Company
entered into a membership interest purchase agreement with the
Zallen Trust pursuant to which the Company sold all of the
Company’s membership interests in WCS for an aggregate purchase
price of $782,450. The Zallen Trust paid the purchase price by
transferring to the Company 434,694 shares of the Company’s Common
Stock, valued at $2.00 per share. The Purchase Agreement also
provided that Mr. Zallen transfer to the Company an additional
20,000 shares of Common Stock to settle $36,000 in back rent owed
at the time of the sale. The Company retired all of the shares
received as a result of the transaction. In connection with
the sale of WCS, the Company and Mr. Zallen entered into a
separation and release of claims agreement pursuant to which the
Company and Mr. Zallen provided a mutual release of claims against
the other party and such party’s affiliates, including all claims
related to Mr. Zallen’s service as an officer, employee, and
director of the Company. The release of claims by Mr. Zallen
resulted in the forgiveness of salary accruals of approximately
$367,000 for services provided up to June 30, 2018. The
Company reversed related payroll taxes of approximately $61,000 and
included the amount in the gain on sale. The shares issued in
the Exchange are subject to certain registration rights with no
liquidated damages for failure to complete registration by a
specific date.
After
payment of all closing costs, the Company recorded a gain on sale
of approximately $553,000. (See detail below)
(3)Discontinued
Operation:
(a)The
Results of the Discounted Operations are as
follows:
|
|
|
Fiscal Year
Ended
|
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net
revenues
|
$
|
14,400
|
|
$
|
88,466
|
|
Operating expenses
|
|
|
|
|
|
|
General
and administrative
|
|
7,964
|
|
|
44,360
|
|
Depreciation, amortization and impairment
|
|
6,990
|
|
|
27,960
|
|
Total operating expenses
|
|
14,954
|
|
|
72,320
|
|
Income (Loss) from operations
|
|
(554)
|
|
|
16,146
|
|
Gain
(loss) on sale
|
|
553,406
|
|
|
(5,412)
|
|
Interest expense
|
|
-
|
|
|
(13,129)
|
|
Income (loss) from discontinued operations
|
$
|
552,852
|
|
$
|
(2,395)
|
F-16
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
5 – Assets Held for Sale (continued)
(3)Discontinued
Operation: (cont’d)
(b)Assets
and liabilities disposed of are as
follows
|
|
|
September 30,
|
|
|
|
2019
|
|
|
|
|
|
Assets:
|
|
|
Lease receivable
|
$
|
40,804
|
|
Prepaid expenses
|
|
5,152
|
|
Property, plant and
equipment, net
|
|
809,281
|
|
Other assets
|
|
6,150
|
|
Total
Assets
|
$
|
861,387
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accrued
liabilities
|
|
367,367
|
|
Other liabilities
|
|
140,067
|
|
Total
Liabilities
|
|
507,434
|
|
Net Assets
|
$
|
353,953
|
|
|
|
|
|
Consideration:
|
|
|
|
Purchaser return
454,694 shares of common stock, FMV at $2.00
|
$
|
909,389
|
|
Payment on certain
items during closing
|
|
(2,030)
|
|
Total
consideration
|
$
|
907,359
|
|
|
|
|
|
Gain on sale of
WCS
|
$
|
553,406
|
(c)Groups
of assets and liabilities held for sale as of June 30, 2020 and
June 30, 2019
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
Lease receivable
|
$
|
-
|
|
$
|
26,403
|
|
Prepaid expenses
|
|
-
|
|
|
10,024
|
|
Property, plant and
equipment, net
|
|
-
|
|
|
816,271
|
|
Other assets
|
|
-
|
|
|
6,150
|
|
TOTAL
ASSETS
|
$
|
-
|
|
$
|
858,848
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
-
|
|
$
|
367,367
|
|
Other liabilities
|
|
-
|
|
|
140,205
|
|
TOTAL
LIABILITIES
|
|
-
|
|
|
507,572
|
|
NET ASSETS
|
$
|
-
|
|
$
|
351,276
|
F-17
GROW
CAPITAL, INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 6– Promissory Note
Payable
On
September 4, 2019 the Company entered into a 90-day listing
agreement for the sale of the Resort at Lake Selmac site location
(formerly Smoke on the Water) for an offering price of $850,000,
with expected 6% sales commission. This sales contract was extended
in December 2019 for a further period under the same terms and
conditions, expiring March 31, 2020. At June 30, 2019 the
Company recorded an impairment charge of $112,000 based on the
expected sales price less costs of sale compared to the carrying
value at June 30, 2019. The Company did not renew the listing
agreement on March 31, 2020 and will continue to operate the
property at this time. Management has reviewed the asset for
impairment as at June 30, 2020 and does not believe further
impairment is required at this time.
Promissory note related to Resort at Lake Selmac as
below:
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
Note payable, Resort
at Lake Selmac
|
|
$
|
596,308
|
|
|
$
|
605,359
|
|
In
March 2017, the Company acquired the Lake Selmac Property.
Upon closing, the Company entered into a promissory note
payable with the seller in the amount of $625,000 with a
maturity date of March 6, 2022. The promissory note had an
interest rate of 5% per annum covering the monthly payments of
$3,355 for the initial 12 months, which increased to 6% per annum
for the monthly payments of $3,747 for the following 48
months. Upon maturity, the remaining balance due on the note
is required to be paid through a balloon payment. During the
fiscal year ended June 30, 2020, the Company paid $9,051 to the
principal of promissory note and $35,963 to the interests of the
promissory note. As of June 30, 2020, and June 30, 2019, the
balance on the mortgage was $596,308 and $605,359, respectively.
The Company has irrevocably granted to First American Trust
Company, as the Trustee the power to sell the property with the
sellers as the beneficiaries. The purpose of grant is to secure
performance on the promissory note.
As of
June 30, 2020, the approximate future aggregate principal
payments in respect of our current obligations were as
follows:
|
2021
|
|
12,782
|
|
2022
|
|
583,526
|
|
|
$
|
596,308
|
Note
7 – Property and Equipment, Net
Property and improvements consisted of the following as of June 30,
2020 and June 30, 2019:
|
|
|
June
30,
2020
|
|
|
June
30,
2019
|
|
|
Lake Selmac
Property
|
|
$
|
768,782
|
|
|
$
|
768,782
|
|
|
Leaseholder
improvement
|
|
|
67,644
|
|
|
|
67,644
|
|
|
Furniture, Fixtures
and Equipment
|
|
|
32,964
|
|
|
|
25,892
|
|
|
|
|
|
869,390
|
|
|
|
862,318
|
|
|
Less: accumulated
depreciation and impairment
|
|
|
(26,415)
|
|
|
|
(4,719)
|
|
|
|
|
$
|
842,975
|
|
|
$
|
857,599
|
|
Depreciation expense (excluding impairment) amounted to $14,624 and
$9,345, for the fiscal year ended June 30, 2020 and 2019,
respectively.
The Company recorded an impairment
charge of $112,000 based on the expected sales price less costs of
sale compared to the carrying value on Resort of Selmac as of June
30, 2019.
F-18
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
8 – Promissory Note Receivable
On July
8, 2019, the Company entered into a non-binding letter of intent
(the “LOI”) to acquire Encompass More Group, Inc. (“Encompass”), a
Nevada corporation. In connection with the LOI, Encompass issued a
promissory note (the “Note”) to the Company pursuant to a loan
agreement (the “Loan Agreement”), dated July 22, 2019, by and
between Encompass and the Company, in exchange for a loan of
$100,000 (the “Loan”). Pursuant to the Loan Agreement, the
proceeds of the Loan will be used by Encompass for working capital
and general corporate purposes. The Note has a twelve-month
term, an interest rate of 5.0%, and is payable in monthly
installments of $2,000, with all remaining principal and interest
due on the maturity date, unless paid earlier by Encompass. During
the fiscal year ended June 30, 2020, the Company received $16,000
towards monthly installments. We recorded interest income of $6,304
during the period ended June 30, 2020. The Note receivable balance
at June 30, 2020 was $88,510.
The
Board of Directors of the Company have determined not to proceed
with the acquisition as contemplated under the LOI.
An
addendum to this Loan Agreement and replacement promissory note was
executed on September 25, 2020 with an effective date of June 30,
2020. Under the terms of the new Note, the loan matures on October
1, 2021 and continues to bear interest at 5% per annum, interest
payable in arrears. Please refer to Note 16
– “Subsequent Events”.
Note
9 – Accrued Liabilities
Accrued
liabilities at June 30, 2020 and 2019 consist of
the following:
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
Accrued salaries and
wages
|
|
$
|
23,749
|
|
|
$
|
52,857
|
|
|
Accrued interest on
mortgage
|
|
|
21,431
|
|
|
|
21,431
|
|
|
Accrued expenses
|
|
|
127,498
|
|
|
|
156,467
|
|
|
|
|
$
|
172,678
|
|
|
$
|
230,755
|
|
Note
10 – Capital Stock
On June
22, 2018, the Board of Directors of the Company approved the
Recapitalization, which increased the Company’s authorized Common
Stock from 100,000,000 to 175,000,000 shares, effective July 10,
2018. As of June 30, 2019, the Company's authorized stock
consisted of 175,000,000 shares
and 5,000,000 shares of Preferred Stock. As of
August 29, 2019, the Company increased its authorized shares to
500,000,000 shares of Common Stock and 50,000,000 shares of
Preferred Stock, respectively.
Reverse Stock Split
On May 13, 2020, the Company’s board of directors and stockholders
approved an amended and restated certificate of incorporation to,
among other things, effect a reverse split on the outstanding
shares of the Company’s common stock on a one-for-20 basis (the
“Reverse Stock Split”). The Reverse Stock Split became effective on
July 30, 2020 and has been shown on a retroactive basis within all
periods presented. The par values of the common were not adjusted
as a result of the reverse stock split.
F-19
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
10 – Capital Stock (continued)
Common
Stock
Share issuances during the fiscal year ended June
30,2020:
The
Company issued a total of 5,533,773 unregistered,
restricted shares of Common Stock to acquire Bombshell
Technologies, Inc. (See Note 4).
The
Company issued 318,889 shares of unregistered, restricted Common
Stock in respect of private placements for total gross
proceeds of $355,000. In the period, the Company collected $150,000
from a prior period subscription receivable.
The
Company issued a total of 573,972 unregistered,
restricted Common Shares to officers and directors as part of their
respective executive and/or board compensation package. The
Company valued those issuances at the closing price of the
Company’s stock as traded on the OTCMarket on the date of grant and
recorded stock-based compensation of $649,289.
The
Company issued 88,129 fully vested shares of unregistered,
restricted Common Shares to settle certain liabilities. The
Company valued those issuances at the closing price of the
Company’s Common Stock as traded on the OTCMarkets on the date of
grant and recorded a $106,433 liability settlement and stock-based
compensation of $28,593 on the statement of operations.
On
September 30, 2019, the Company retired 454,694 shares of the
Company’s Common Stock. The Company valued those retired shares at
the closing price of the Company’s Common Stock as traded on the
OTCMarkets and recorded $869,389 as sale price of WCS and $40,000
as related to offset lease receivable. (See Note 5).
The Company had prepaid stock-based
compensation of $1,380,459 as of June 30, 2019 which was fully
amortized as stock based compensation in the fiscal year ended June
30, 2020.
Share issuances during the fiscal year ended June
30,2019:
During the fiscal year ended June 30, 2019, the Company issued a
total of 1,292,714 unregistered, restricted shares of Common
Stock in respect to private placements between $1.20 and $2.00 per
share and received cash proceeds of $1,915,000. As of June 30,
2019, $150,000 representing 46,875 shares was unpaid and issuable.
The subscription was received in July 2019 and shares were
issued.
During the fiscal year ended June 30, 2019, the Company issued a
total of 146,065 unregistered, restricted shares of Common
Stock to officers and directors as part of their respective board
compensation package. The Company valued the issuances made
as employment compensation at the closing price of the Company’s
Common Stock as traded on the OTCMarkets on the date of grant and
the issuances to directors at a discount of 35% to market on the
first day of each calendar quarter, and consequently recorded
stock-based compensation of $313,723.
During the fiscal year ended June 30, 2019, the Company issued
50,000 unregistered, restricted shares of Common Stock to the
Company’s secretary for services rendered, valued at $115,000, or
$2.30 per share, the closing price of the Company’s Common Stock on
the date of issuance as posted on OTCMarkets.
During the year ended June 30, 2019, the Company issued an
aggregate of 416,569 shares of unregistered, restricted Common
Stock to its officers and directors, as compensation for their
services pursuant to the terms of their employment agreements. The
Company valued the issuances at the closing price of the Company’s
Common Stock as traded on the OTCMarkets on the date of each grant.
Because the share compensation is all of the compensation
earned by the officers and directors for their services, the
Company treated the issuances as akin to a cash payment and
recorded $1,268,649 into prepaid expense upon issuance. The
Company ratably amortized the prepaid compensation over the term of
the employment covered in the employment agreements. For the
fiscal year ended June 30, 2019, the Company expensed
$195,337 as stock-based compensation.
F-20
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
10 – Capital Stock (continued)
Common
Stock (continued)
Share issuances during the fiscal year ended June 30,2019
(continued):
During
the year ended June 30, 2019, the Company issued 150,000
unregistered, restricted shares of Common Stock to Jonathan
Bonnette, pursuant to the terms of his employment agreement as
compensation for his initial year as President and CEO. Of the
Common Stock issued, 75,000 vested at grant and the remaining
75,000 shares of Common Stock vested 180 days after the signing of
the employment agreement in July 2018. The Company valued the
issuance at $2.40 per share,the closing price of the Company’s
Common Stock as traded on the OTCMarkets on the date of grant.
Because the share compensation was all of the compensation
earned by Mr. Bonnette for his services as CEO and President during
the term of his employment agreement, the Company treated the
issuance as akin to a cash payment and recorded $390,000 into
prepaid expense upon issuance. The Company ratably amortized
the prepaid compensation over the initial 12-month period of
employment covered in the employment agreement. For the
fiscal year ended June 30, 2019, the Company expensed
$390,000 as stock-based compensation.
During the fiscal year ended June 30, 2019, the Company
issued an aggregate of 214,156 fully vested unregistered,
restricted shares of Common Stock to consultants for
services pursuant to the terms of their consulting agreements.
The Company valued the issuance at the closing price of the
Company’s Common Stock as traded on the OTCMarkets on the date of
each grant. Because the share compensation was all of the
compensation earned by consultants for their services under the
terms of their consulting agreements, the Company treated each of
the issuances as a cash payment and recorded $767,046 into
prepaid expense upon issuance. The Company ratably amortized
the prepaid compensation over the applicable 12-month period of
each consulting agreement. For the fiscal year ended June 30,
2019, the Company expensed $459,859 as stock-based
compensation.
During the fiscal year ended June 30, 2019, the Company issued
57,434 fully vested unregistered, restricted shares of Common Stock
to settle certain liabilities. The Company valued those
issuances at the closing price of the Company’s Common Stock as
traded on the OTCMarkets on the date of grant and recorded a
$79,894 liability settlement and interest expense of $6,612 and
stock-based compensation of $10,099 on the statement of
operations.
Preferred Stock
In
2015, the Company designated all 5,000,000 shares of its Preferred
Stock as Series A Convertible Preferred Stock (the "Series A
Preferred"), par value $0.001. The Series A Preferred
shareholders voted together with the Common Stock as a single class
and were entitled to receive all notices relating to voting that
are required to be given to the holders of the Common
Stock. The holders of shares of Series A Preferred were
entitled to five votes per share and each share was convertible by
the holder into five shares of Common Stock. All of the
Series A Preferred shares were issued and converted into Common
Stock in November 2015.
Equity
Incentive Plan
In
December 2015, the Company adopted the 2015 Equity Incentive Plan
(the “Incentive Plan”) with a term of 10 years. The Incentive
Plan allows for the issuance up to a maximum of 100,000 shares of
Common Stock, options exercisable into Common Stock of the Company
or stock purchase rights exercisable into shares of Common Stock of
the Company. The Incentive Plan is administered by the Board
unless a separate delegation to an administrator is made by the
Board. Options granted under the Incentive Plan carry a maximum
term of 10 years, except to a grantee who is also a 10% beneficial
owner at the time of grant, in which case the maximum term is 5
years. In addition, exercise prices of options granted must be
within a certain percentage of the closing price on date of grant
depending on the level of beneficial ownership of Common Stock of
the Company by the grantee. All vesting conditions are set by
the Board or a designated administrator. In December 2015,
the Company filed a registration statement on Form S-8 covering all
shares issued or issuable under the Incentive Plan. The
Company has granted options to purchase 100,000 shares under the
Incentive Plan during April 2016, 75,000 of which have been
exercised and 25,000 of which have vested and were canceled,
unexercised, during the current fiscal year. There are
no remaining shares available under the Incentive Plan.
F-21
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
10 – Capital Stock (continued)
Stock
Plan
In
December 2015, the Company adopted the 2015 Stock Plan (the “Stock
Plan”). As a condition of adoption of the Stock Plan,
the Company filed a registration statement on Form S-8 in December
2015 to register the shares issued under the Stock Plan. The
Stock Plan allows for the issuance of up to a maximum of 100,000
shares of Common Stock of the Company. The Stock Plan is
administered by the Board unless a separate delegation to an
administrator is made by the Board. The Stock Plan shall
continue in effect until it is terminated by the Board or all
shares are issued pursuant to the Stock Plan. The Company has
not granted any shares under the Stock Plan.
Options
A
summary of the change in stock purchase options outstanding for the
fiscal years ended June 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Grant
Date
|
|
|
Life
|
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Fair
Value
|
|
|
(Years)
|
|
|
Balance – June
30, 2018
|
|
|
25,000
|
|
|
$8.00
|
|
|
$10.40
|
|
|
2.83
|
|
|
Options issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Options expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Options exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Balance – June
30, 2019
|
|
|
25,000
|
|
|
$8.00
|
|
|
$10.40
|
|
|
1.83
|
|
|
Options issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(25,000)
|
|
|
$8.00
|
|
|
$10.40
|
|
|
-
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June
30, 2020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
There
were no unvested options outstanding during the years ended June
30, 2020 and 2019. Options outstanding had intrinsic value as of
June 30, 2020 and 2019 of $nil. In the year ended June 30,
2016 the Company issued an option with no term attached, and
effective June 30, 2020, in accordance with the terms of the 2015
Equity Incentive Plan, the Company terminated 25,000 unexercised,
vested options.
Note
11 – Related Party Transactions
(1)Bombshell
Technologies, Inc.
Revenue
The
following table summarizes the revenue from the Company’s related
parties:
|
|
|
Fiscal Year
Ended
|
|
|
|
June 30,
2020
|
|
|
June 20,
2019
|
|
Appreciation Financial LLC (1)
|
|
$
|
832,646
|
|
|
$
|
359,557
|
|
Public
Employee Retirement Assistance (1)
|
|
|
327,898
|
|
|
|
52,780
|
|
Superior Performers Inc. (1)
|
|
|
847,981
|
|
|
|
356,156
|
|
Others
|
|
|
42,830
|
|
|
|
19,426
|
|
Grand
Total
|
|
$
|
2,051,355
|
|
|
$
|
787,919
|
|
(1)
|
The
Company had a significant concentration of revenue from these four
customers totaling 90% and 94% of gross related party revenues
during the fiscal year ended June 30, 2020 and 2019, respectively.
Related entities are controlled by over 5% shareholders of the
Company and/or officer/directors of the Company.
|
F-22
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
11 – Related Party Transactions (continued)
(2)Bombshell
Technologies, Inc.
Revenue
The
following table summarizes the accounts receivable from the
Company’s related parties:
|
|
|
June 30,
2020
|
|
Appreciation Financial, LLC (1)
|
|
$
|
140,289
|
|
Public
Employee Retirement Assistance
|
|
|
49,737
|
|
Superior Performers Inc (1)
|
|
|
58,061
|
|
Other
|
|
|
970
|
|
Total
|
|
$
|
249,057
|
|
(1)
|
The
Company had a significant concentration of accounts receivable from
these three customers totaling 99% as at June 30, 2020. Related
entities are controlled by over 5% shareholders of the Company
and/or officer/directors of the Company.
|
Costs of Goods and Commissions Fees
The
following table summarizes the Costs of Sales – related
parties:
|
|
|
Fiscal Year
Ended June 30,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Trendsic Corporation Inc. (1)(2)
|
|
|
178,799
|
|
|
|
252,455
|
|
Ambiguous Holdings LLC (1)(2)
|
|
|
7,555
|
|
|
|
42,158
|
|
Total
|
|
|
186,354
|
|
|
|
294,613
|
|
(1)
|
The
Company had a significant concentration of total costs of goods
sold from these two related party vendors totaling 100% of related
party costs of goods sold in the fiscal years ended June 30, 2020
and 2019, respectively.
|
|
(2)
|
Related entities are controlled by over 5% shareholders of the
Company and/or officer/directors of the Company.
|
The
following table summarizes expense related to commission fees
included as General and administrative – related parties:
|
|
|
Fiscal Year
ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Zeake,
LLC (1)
|
|
$
|
223,957
|
|
|
$
|
82,470
|
(1)Related entities are controlled by over 5% shareholders of
the Company and/or officer/directors of the Company.
F-23
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
11 – Related Party Transactions (continued)
The
following table summarizes accounts payable to the Company’s
related parties:
|
|
|
June 30,
2020
|
|
|
Trendsic Corporation Inc. (1)
|
|
$
|
61,948
|
|
|
Zeake,
LLC (1)
|
|
|
78,515
|
|
|
|
|
$
|
140,463
|
|
(1)Related entities are controlled by over 5% shareholders of
the Company and/or officer/directors of the Company.
Advances
As of
June 30, 2020, and June 30, 2019, Bombshell Software LLC, a company
controlled by an officer of our 100% owned subsidiary, Bombshell
Technologies Inc. had made non-interest-bearing cash advances in
the cumulative amount of $0 and $66,195, respectively to Bombshell
Technologies Inc. During the fiscal year ended June 30, 2020, the
Company paid cash to settle the advances.
(3)WCS
Until
its sale of WCS on September 30, 2019, the Company was leasing
units in the building located at the Eagle Point Property.
The building has approximately 15,000 square feet and is
divided into four 1,500 square feet condo style grow rooms, 1,500
square feet of office space which is currently being offered for
lease, and one 7,500 square foot grow facility. The four grow rooms
are currently being offered for lease, and the grow facility is
under lease to a company controlled by our former CEO and Chairman.
The lease for the grow facility was entered into by the prior
owner before the purchase of the Eagle Point Property by WCS in
2013. The lease term for the grow facility began once the
tenant improvements were completed and the premises were occupied
in fiscal 2017 and continues for a period of 36 months. The lease
on the grow facility commenced in fiscal 2017. Revenue
recorded in the fiscal year ended June 30, 2020 and 2019 included
in discontinued operations to related parties amounted to $14,400
and $43,200, respectively.
(4)Grow
Capital
On July
1, 2018, Wayne Zallen resigned as the President and CEO of the
Company and David Tobias resigned his position as a member of the
Board. On the same day, Jonathan Bonnette was elected to the
Board to fill the vacancy created by the resignation of David
Tobias and was also appointed President and CEO of the Company.
Mr. Zallen remained the Chairman of the Board and served as
the CFO until the appointment of James Olson as Chairman of the
Board and the appointment of Trevor Hall as CFO, respectively.
Mr. Zallen’s employment contract was terminated upon his
resignation as CEO, and the Company agreed to pay Mr. Zallen $2,500
per month for his continued services which ended in September
2019.
In July
2018, the Company entered into an employment agreement with Mr.
Bonnette. The employment agreement had an initial term of one
year and includes compensation for the first year of $240,000
payable in unregistered shares of Common Stock at a valuation of
$1.60 per share or 150,000 shares of Common Stock, which were
issued in July 2018. The shares were valued at $390,000 upon
grant, recorded to prepaid compensation and amortized ratably over
the term of the agreement.
During
the three months ended September 30, 2018, the Company negotiated a
sublease agreement to lease approximately 1,338 square feet of
office space at a business center known as Green Valley Corporate
Center South located in Henderson, Nevada (the “Henderson
Property”), effective October 19, 2018, for use as the Company’s
new headquarters. The lease has a term of 123 months, an abatement
of the first four months of rent during which
F-24
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
11 – Related Party Transactions (continued)
time
the Company would complete certain required leasehold improvements
and escalating base monthly rent per square foot ranging between
$2.00 to $3.00 per square foot. Material lease hold improvements
are being amortized over the term of the lease. The Company
commenced occupation of the premises in February 2019.
Appreciation, LLC holds the master lease from which the Company
derives its sublease for its headquarters. Terry Kennedy, the
President of Appreciation, provides consulting services to the
Company and is also a beneficial owner of more than 10% of the
Company’s Common Stock. Total rent charged under this sublease
during the fiscal year ended June 30, 2020 was $36,568 ($13,380
– June 30, 2019) of which $25,074 ($2,676 – June 30,
2019) has been paid.
In July
2018, the Company entered into a consulting agreement with Mr.
Kennedy with a one-year term. Mr. Kennedy received a fixed
fee of $100,000 for his services which was payable in unregistered
shares of Common Stock valued at $2 per share for the first $50,000
on July 1, 2018 and at $0.68 for the second $50,000 payable on
January 1, 2019 for a total of 98,541 unregistered shares of Common
Stock, all of which have been issued. The shares payable on January
1, 2019 were valued at $394,161 and were expensed in the fiscal
year ended June 30, 2019.
On
January 28, 2019, the Company entered into a consulting agreement
with Trevor Hall and appointed Mr. Hall to serve as a
part-time CFO of the Company through December 31, 2019. Mr. Hall
succeeded Wayne Zallen as CFO, who resigned from the position in
connection with Mr. Hall’s appointment. Pursuant to the
consulting agreement, Mr. Hall received $63,000 in compensation,
payable as 50,000 shares of Common Stock of unregistered Common
Stock of the Company and will devote enough of his time to the
Company as is reasonably necessary to meet the needs of the Company
during the term. The shares were issued on January 29, 2019.
On
April 29, 2019, Mr. Wayne Zallen resigned as a member of the Board
of Directors and Chairman. Concurrently the board appointed
James Olson to fill the Board vacancy and as Chairman of the Board.
Mr. Olson will also be entitled to compensation for his service on
the Board of Directors in the amount of $10,000 per quarter paid in
the form of fully vested unregistered shares of the Company’s
Common Stock at a discount of 35% to market on the first day of
each calendar quarter. On April 29, 2019 Mr. Olson was issued
a total of 5,443 shares in connection with his appointment at the
discount to market described above.
On May
15, 2019, the Company entered into Fee Agreements (collectively,
the “Fee Agreements”) with each of (i) Jonathan Bonnette, (ii) Carl
Sanko, a director and the Secretary of the Company, and (iii) Terry
Kennedy. Under the Fee Agreements, on May 15, 2019, each of
Mr. Bonnette, Mr. Sanko, and Mr. Kennedy were issued unregistered
shares of Common Stock for services provided to the Company.
Pursuant to the Fee Agreements (i) Mr. Bonnette received a fixed
fee of $320,000 for his service as Chief Executive Officer of the
Company and for outside business management and consulting
services, which was paid through the issuance of 206,230
unregistered shares of Common Stock; (ii) Mr. Sanko received a
fixed fee of $210,000 for his services as Secretary of the Company
and for outside business management and consulting services, which
was paid through the issuance of 135,339 unregistered shares of
Common Stock, and (iii) Mr. Kennedy received a fixed fee of
$160,000 for outside business consulting services, which was paid
through the issuance of 103,115 unregistered shares of Common
Stock. Under the Fee Agreements, the shares of Common Stock were
issued at a value of $1.5516 per share. The value of the
Common Stock was set by the Company’s board of directors and was
equal to the average of the three lowest closing prices of the
Common Stock in the 30 trading days before May 15, 2019 after
applying a 30% discount. The Fee Agreements each have a term
of one year. The shares of Common Stock issued under the Fee
Agreements were valued at $1,511,034 upon grant based upon the
closing price of the Company’s Common Stock as traded on the
OTCMarkets on the date of grant, recorded to prepaid compensation
and amortized ratably over the term of the agreement.
In
fiscal 2018, the Company was notified by its primary banks that
these banks would no longer accept the Company as a client for its
banking services. Because the Company rents its properties to those
who engage in a federal crime under the Controlled Substances Act,
most banks subject to any federal oversight (the Office of the
F-25
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
11 – Related Party Transactions (continued)
Comptroller of the Currency or any of the Federal Reserve Bank’s of
the United States) have declined to do business with any entity
that is related in any way to cannabis operations. The
Company’s management and directors have as of June 30, 2018
transferred the Company’s cash and its banking operations to an
entity owned and controlled by them. The Company has treated
the cash transferred as amounts due from this related entity and
the cash expended from these accounts on behalf of the Company as
reductions of the amounts due from the related entity. As of
June 30, 2020, and June 30, 2019, the amount held in cash by the
related entity and reported as a current asset as due from related
party was $0 and $16,854.
On
February 12, 2020, the Company entered into a consulting agreement
with Trevor Hall and appointed Mr. Hall to serve as an interim
CFO of the Company beginning January 1, 2020 through December 31,
2020. Pursuant to the consulting agreement, a fixed fee of Sixty
Thousand (60,000) shares of the Company’s unregistered restricted
common stock for his providing chief financial officer services.
The shares are to be issued at a rate of Fifteen Thousand (15,000)
shares per quarter. The first and second installments, covering the
period January 1 to June 30, 2020, were issued on March 3, 2020 and
vested immediately upon issuance.
On
April 1, 2020, Jonathan Bonnette, who had been the President and
Chief Executive Officer of Grow Capital since July 1, 2018,
transitioned out of his role as President and Chief Executive
Officer and became the Company’s Chief Technology Officer and the
Chief Executive Officer of the Company’s subsidiary, Bombshell
Technologies.
Mr.
Terry Kennedy was appointed to succeed Mr. Bonnette as the
President and Chief Executive Officer of the Company, effective
April 1, 2020. In connection with Mr. Kennedy’s appointment, the
Company and Mr. Kennedy entered into an executive compensation
agreement (the “Compensation Agreement”) with an effective date of
April 1, 2020. The Compensation Agreement governs the terms and
conditions regarding Mr. Kennedy’s compensation for the three-month
period beginning on April 1, 2020, and ending on June 30, 2020, and
may be terminated “for cause” only. Pursuant to the Compensation
Agreement, following his appointment as President and Chief
Executive Officer, Mr. Kennedy was issued 50,000 unregistered,
restricted shares of the Company’s Common Stock on April 20, 2020
as compensation for the three-month period ending June 30, 2020.
The 50,000 shares were valued at $44,040 at the closing price of
the Company’s Common Stock as traded on the OTCMarkets on the date
of grant. The shares of common stock issued are
immediately and fully vested, and deemed to be fully earned, upon
their issuance. If such a permanent executive compensation or
employment agreement is not consummated prior to July 1, 2020, the
Compensation Agreement will automatically renew for one additional
three-month period beginning on July 1, 2020, with Mr. Kennedy
entitled to receive up to an additional 50, 000 unregistered,
restricted shares of the Company’s common stock, with the actual
number of shares being prorated for the portion of the extended
period actually served until the more permanent executive
compensation/employment agreement is consummated.
On May
15, 2020, the Company entered into Fee Agreements (collectively,
the “Fee Agreements”) with each of (i) Jonathan Bonnette, and (ii)
Carl Sanko, a director and the Secretary of the Company.
Under the Fee Agreements, on May 15, 2020, each of Mr.
Bonnette, and Mr. Sanko were issued unregistered, restricted shares
of Common Stock for services provided to the Company. Pursuant to
the Fee Agreements:
(i)Mr.
Bonnette received a fixed fee of $320,000 for his service as Chief
Executive Officer of the Company and for outside business
management and consulting services of which 1/3, or $106,667 was
immediately payable. by way of an upfront payment of 133,333
unregistered, restricted shares of Common Stock valued at $113,017
and deemed to cover the three-month period from May 15, 2020 to
August 15, 2020. The balance of Mr. Bonnette’s compensation of
$213,333 will vest monthly but be paid in shares of Common Stock
quarterly in installments of $71,111 within 10 days following each
of the three-month periods ending of November 15, 2020, February
15, 2021, and May 15, 2021.
F-26
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
11 – Related Party Transactions (continued)
(ii)Mr.
Sanko received a fixed fee of $270,000 for his services as
Secretary of the Company and for outside business management and
consulting services, of which 1/3 or $90,000 was immediately
payable by way of an upfront payment of 112,500 unregistered,
restricted shares of Common Stock valued at $95,400 and deemed to
cover the three-month period from May 15, 2020 to August 15, 2020;
The balance of Mr. Sanko’s compensation of $180,000 will vest
monthly but be paid in shares of Common Stock in quarterly in
installments of $60,000 within 10 days following each of the
three-month periods ending of November 15, 2020, February 15, 2021,
and May 15, 2021.
245,834
shares issued on May 15, 2020 were valued at $208,417. The value of
the Common Stock was set by the Company’s board of directors and
was equal to the average of the three lowest closing prices of the
Common Stock in the 30 trading days (Bonnette) and 10 trading days
(Sanko) before May 15, 2020, after applying a 20% discount.
During
the fiscal year ended June 30, 2020 certain officers and directors
either as individuals or through companies controlled by them
subscribed for shares of common stock for gross proceeds of
$305,000 at $1 per share for a total of 305,000 shares of
unregistered, restricted Common Stock.
Note
12 – Operating Leases
We have operating leases for corporate
offices. During the three months ended September 30,
2018, the Company negotiated a sublease agreement with Appreciation
Financial LLC effective October 19, 2018 to lease the Henderson
Property for use as the Company’s new headquarters. The lease
has a term of 123 months, an abatement of the first four months of
rent during which time the Company would complete certain required
leasehold improvements and escalating base monthly rent per square
foot ranging between $2.00 to $3.00 per square foot. The Company
commenced occupation of the premises in February 2019.
We have
an operating lease for Bombshell located in Louisiana. The
commercial lease agreement with option to renew was effective on
January 6, 2020. The lease term is set
for a period of one year and includes an option to extend the lease
each year. Management has determined that it is reasonably certain
that the option will be exercised based on the facts and
circumstances at lease commencement, for a period of at least three
(3) years. The monthly lease payment is $2,250.
Future minimum lease payments in
respect of the above under non-cancellable leases as of June 30,
2020 as presented in accordance with ASC 842 were as
follows:
|
2020
|
$
|
32,807
|
|
2021
|
|
66,457
|
|
2022
|
|
67,622
|
|
2023
|
|
41,906
|
|
2024
|
|
43,190
|
|
Remaining periods
|
|
185,488
|
|
Total
future minimum lease payments
|
|
437,470
|
|
Less:
imputed interest
|
|
(97,849)
|
|
Total
|
|
339,621
|
|
Current
portion of operating lease
|
|
45,957
|
|
Long
term of operating lease
|
$
|
293,664
|
F-27
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Segment Reporting
The Company's operations are classified into two reportable
segments that provide different products or services. Separate
management of each segment is required because each business unit
is subject to different marketing, operational, and growth and
technology development strategies.
The
recreational vacation site rentals segment operated by Resort at
Lake Selmac, Inc. derives its revenue from rental of RV sites and
campsites at its owned location on Lake Selmac in Oregon, US. The
Fintech segment operated by Bombshell Technologies based in Nevada
and Louisiana derives its income from proprietary software which
delivers customized back office compliance, sophisticated multi-pay
commission processing, and a unique new client application
submission system, along with digital engagement marketing services
centric to financial services. We derive revenue from both
operating segments.
There
are no inter-segment sales. The costs associated with management
overhead for Grow Capital are dedicated to our key operating
segment in the FinTech industry, Bombshell Technologies, and
all corporate overhead has been included in this segment disclosure
as a result.
|
|
As
of June 30,
|
|
|
2020
|
|
Assets by segment
|
|
|
Bombshell
Technologies and corporate *
|
$
|
1,129,266
|
|
|
Resort at Lake
Selmac
|
783,992
|
|
|
Total assets
|
$
|
1,913,258
|
|
*Includes assets held for sale
Fiscal year ended June 30, 2020 and 2019:
|
|
|
Fiscal Year Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues by
segment:
|
|
|
|
|
|
|
Bombshell Technologies and corporate
|
$
|
2,239,285
|
|
$
|
814,928
|
|
Resort at Lake Selmac
|
|
129,219
|
|
|
250,285
|
|
Revenues
|
$
|
2,368,504
|
|
$
|
1,065,213
|
|
|
|
|
|
|
|
|
Segment profit
(loss)
|
|
|
|
|
|
|
Bombshell Technologies and corporate
|
$
|
(2,870,722)
|
|
$
|
(2,164,096)
|
|
Resort at Lake Selmac
|
|
776
|
|
|
(114,940)
|
|
Total segment
profit
|
|
(2,869,946)
|
|
|
(2,279,036)
|
F-28
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Income Taxes
The income tax expense (benefit) consisted of the following for the
fiscal year ended June 30, 2020 and 2019:
|
|
|
|
June
30, 2020
|
|
|
|
June
30, 2019
|
|
Total current
|
|
$
|
-
|
|
|
$
|
-
|
|
Total deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes.
The following is a reconciliation of the expected statutory federal
income tax and state income tax provisions to the actual income tax
benefit for the fiscal year ended June 30, 2020 and 2019:
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
Expected benefit at
federal statutory rate
|
|
$
|
658,000
|
|
|
|
649,000
|
|
|
Non-deductible
expenses
|
|
|
(581,000)
|
|
|
|
(360,000)
|
|
|
Change in valuation
allowance (including the effect from change in tax rates)
|
|
|
(77,000)
|
|
|
|
(289,000)
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant components of the Company’s deferred tax assets and
liabilities were as follows for the fiscal year ended June 30, 2020
and 2019:
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
Deferred tax
assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss
carryforwards
|
|
$
|
2,369,000
|
|
|
$
|
2,127,900
|
|
|
Deferred payroll
|
|
|
-
|
|
|
|
81,200
|
|
|
Impairments
|
|
|
-
|
|
|
|
82,900
|
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
Total deferred tax
assets
|
|
|
2,369,000
|
|
|
|
2,292,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
(31,800)
|
|
|
|
-
|
|
|
Total deferred tax
liabilities
|
|
|
(31,800)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax
assets
|
|
|
2,337,200
|
|
|
|
2,292,000
|
|
|
Less valuation
allowance
|
|
|
(2,369,000)
|
|
|
|
(2,292,000)
|
|
|
Net deferred tax
assets (liabilities)
|
|
$
|
(31,800)
|
|
|
$
|
-
|
|
During the fiscal year ended June 30, 2020 and 2019 the Company
recognized no amounts related to tax interest or penalties related
to uncertain tax positions. The Company is subject to taxation in
the United States and various state jurisdictions. The Company
currently has no years under examination by any jurisdiction.
In the quarter ended September 30, 2019, the Company issued a
significant number of new shares in its acquisition of Bombshell
Technologies, Inc. (see Note 4) and the cancellation of then
outstanding shares upon the sale of WCS Enterprises, LLC (see Note
5). The effect of these issuances and cancellations is that most
likely, the Company experienced the requisite change of control as
promulgated under the US Internal Revenue Code section 382. The
effect of this will be that going forward, the ability of the
Company to utilize the US Federal net operating loss carryforwards
of Grow Capital, Inc. from prior to these transactions will be
limited in its usage. In order to determine the specific
effect, the Company must perform the computations required under
the Internal Revenue Code, which have not yet been performed. The
Company expects it will perform the required computations once it
is evident that profits are likely.
As of June 30, 2020, the Company estimates it has approximately
$9,300,000 in US Federal net operating loss carryforwards, which
will begin to expire in 2030 and an additional approximately
$1,900,000 in the state of Oregon net operating loss
carryforwards.
F-29
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
15 – Commitments and Contingencies
On
December 13, 2019, Trendsic Corporation, Inc. (“Trendsic”), a
related party entity which is 49% controlled by Joel A. Bonnette
(former CEO of our wholly-owned subsidiary Bombshell Technologies,
Inc.) filed a lawsuit in the 19th Judicial District Court in East
Baton Rouge Parish, Louisiana against Joel A. Bonnette, Jared
Bonnette, Bombshell Software, LLC and Bombshell Technologies, Inc.
The plaintiff is disputing the ownership of certain
intellectual property of Bombshell Technologies, Inc. and alleging
misappropriation of trade secrets of Trendsic. Trendsic is
seeking an unspecified amount of damages in excess of $75,000 and
treble damages under the Louisiana Uniform Trade Secrets Act, as
well as injunctive relief. The Company believes the claims by
Trendsic are without merit and intends to vigorously defend against
such claims. Presently the Company and Trendsic are continuing
discussions regarding an amicable resolution. Bombshell has not yet
answered the lawsuit but has been granted extensions of time to
respond. At the time of this report, the Company is unable to
determine or quantify potential losses in respect of the
aforementioned action.
Note
16- Subsequent Events
On July
1, 2020 the Company issued a total
of 80,495 unregistered, restricted common shares to
officers and directors as part of their respective executive and/or
board compensation package. The Company valued the issuances
at the closing price of the Company’s stock as traded on the
OTCMarket on the date of the board resolution approving the
issuance of the shares.
On July
9, 2020 the Company issued 15,000 unregistered, restricted common
shares to our CFO, Trevor Hall under the terms of a consulting
agreement under which Mr. Hall provides services as our Chief
Financial Officer. The Company valued the issuance at the closing
price of the Company’s stock as traded on the OTCMarket on the date
of the board resolution approving the issuance of the shares.
On July
13, 2020 the Company issued 50,000 unregistered, restricted shares
of the Company’s common stock to the Company’s CEO, Terry Kennedy,
as compensation for the three-month period commencing July 1, 2020.
The shares were valued at the closing price of the Company’s
Common Stock as traded on the OTCMarkets on the date of the board
resolution approving the issuance of the shares.
On
August 19, 2020, the Company acquired PERA LLC, a Nevada
limited liability company (“PERA”), pursuant to an exchange
agreement (the “Exchange Agreement”), effective as of August 3,
2020 (the “Effective Date”), by and between PERA, the members
of PERA (the “PERA Members”), and the Company (the
“Closing”), concurrently, PERA became a wholly-owned subsidiary of
the Company. Eric Tarno, the current President of PERA, will
continue to serve as the President of PERA. Pursuant to the
Exchange Agreement, at the Closing, the Company acquired 100% of
the outstanding membership interests of PERA (the “PERA
Ownership Interests”) in exchange for 9,358,185 unregistered
restricted shares of the Company’s common stock (the “GC
Common Stock”) on a pro rata basis (the “Exchange”). At the
Closing, the PERA Members conveyed all of the right, title and
interest in and to the PERA Ownership Interests in exchange for the
right to receive a number of shares of GC Common Stock equal to an
exchange ratio (the “Exchange Ratio”). The Exchange Ratio is
calculated by dividing (a) the Exchange Shares (as defined below)
by (b) the total number of shares of PERA Ownership Interests
outstanding immediately prior to the Effective Date.
“Exchange Shares” means the number of shares of GC Common
Stock obtained by dividing (a) $10,000,000 by (b) the 10-day volume
weighted average price per share (“VWAP”) calculated immediately
before the date that a reverse stock split of GC Common Stock
became effective on OTCQB, July 30, 2020. In addition, if
PERA meets certain yearly targeted gross revenues for each of year
one, two, and three following the Closing, the PERA owners may earn
a cumulative total of up to $5,000,000 of shares of GC Common Stock
(the “Earn-out Shares”) to be determined using the applicable
10-day VWAP stock price of the Company’s common stock preceding
each earn-out period calculation date as set forth in the Exchange
Agreement in connection with all of the three years, subject to
certain catch up provisions if such yearly period targets are not
met in the applicable period. At the Closing the Company also
entered into a registration rights agreement (the “Registration
Rights Agreement”) with the PERA Members to register the
GC Common Stock to be issued in connection with the Exchange.
Pursuant to the Registration Rights Agreement, the Company
has granted certain demand and piggy-back registration rights
whereby the Company will register the resale of the GC Common Stock
issued in the Exchange. The PERA Members include certain limited
liability companies owned by (i) Terry Kennedy, the CEO of the
Company, (ii) Jonathan Bonnette, the CTO of the Company and the CEO
of Bombshell (iii) Joel Bonnette, the President of Bombshell and
brother of Jonathan Bonnette, and (iv) Carl Sanko, a director and
Secretary of the Company, and (v) Jared Bonnette, brother of
Jonathan Bonnette.
F-30
GROW CAPITAL,
INC. AND SUBSIDIARIES
NOTES TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
16- Subsequent Events (continued)
On
September 4, 2020 the Company issued 17,104 shares of unregistered,
restricted common stock as compensation for services for the three
month period ended August 31, 2020. The shares were valued at the
closing price of the Company’s Common Stock as traded on the
OTCMarkets on the date of the board resolution approving the
issuance of the shares.
On
September 25, 2020 the Company and Encompass More Group Inc. (the
“Borrower”) entered into an addendum to the July 22, 2019
Commercial Loan Agreement (the “Addendum”) in order to modify
certain of the terms and conditions. Under the Addendum, the
Borrower shall enter into a new promissory note in the principal
amount of $72,000, with any unpaid interest due and payable at June
30, 2020 to accrue and become due and payable on October 1, 2021.
Further under the terms of the promissory note the
Borrower shall make twelve (12) installment payments of $6,000
commencing November 1, 2020, until the principal balance of the
loan is repaid in full, at which time all accrued and unpaid
interest shall come due and payable. Interest on the
promissory note shall continue to accrue at a rate of Five (5%) per
annum. Concurrent with the execution of the Addendum, the
Borrower made a lump sum payment of $16,510 to reduce the principal
of the original $100,000 loan to $72,000.
On
September 30, 2020 the Board of Directors appointed Terry Kennedy,
CEO, and Eric Tarno, CEO of recently acquired subsidiary, PERA LLC,
to the Company’s Board of Directors effective October 1, 2020.
On
October 1, 2020 the Company issued 50,000 unregistered, restricted
shares of the Company’s common stock to the Company’s CEO, Terry
Kennedy, concurrent with approving an extension to his executive
compensation contract, as compensation for the three-month period
commencing October 1, 2020. The shares were valued at the closing
price of the Company’s Common Stock as traded on the OTCMarkets on
the date of the board resolution approving the issuance of the
shares.
On
October 1, 2020 the Company issued a total
of 106,870 unregistered, restricted common shares to
officers and directors as part of their respective executive and/or
board compensation package. The Company valued the issuances
at the closing price of the Company’s stock as traded on the
OTCMarket on the date of the board resolution approving the
issuance of the shares.
Subsequent to June 30, 2020 certain officers/directors and entities
controlled by officers and directors have advanced $75,000 for
ongoing operating expenses.
F-31
ITEM
9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A: CONTROLS AND PROCEDURES
Evaluation of
Disclosure Controls and Procedures
We
intend to maintain disclosure controls and procedures designed to
provide reasonable assurance that information required to be
disclosed in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported
within the specified time periods and accumulated and communicated
to our management, including our Chief Executive Officer
("Principal Executive Officer") and our Chief Financial Officer
("Principal Financial Officer"), as appropriate, to allow timely
decisions regarding required disclosure. Our management,
with the participation of our Principal Executive and Financial
Officers, 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 Exchange Act).
Based on this evaluation, our Principal Executive and Financial
Officer concluded that, as of June 30, 2020, our disclosure
controls and procedures were not effective, for the reasons
discussed below, to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange
Act is (i) recorded, processed, summarized, and reported within the
time periods specified in the SEC rules and forms, and (ii) is
accumulated and communicated to our management, including our
Principal Executive and Financial Officers, as appropriate to allow
timely decisions regarding required disclosure.
Management's
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in
accordance with GAAP.
Due
to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under
the supervision and with the participation of our management,
including our Principal Executive and Financial Officers, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting using the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework (2013).
In connection with our evaluation, we identified a material
weakness in our internal control over financial reporting as of
June 30, 2020.
A
material weakness is a deficiency, or combination of deficiencies,
that creates a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented
or detected in a timely manner. The material weakness related to
our company was due to not having the adequate personnel to address
the reporting requirements of a public company and to fully analyze
and account for our transactions. We do not believe that this
material weakness has resulted in deficient financial reporting
because we have worked through the year end close process
performing additional review and analysis to assure compliance with
accounting principles generally accepted in the United States
("GAAP") and SEC reporting requirements.
Accordingly, while we identified a material weakness in our system
of internal control over financial reporting as of June 30, 2020,
we believe that we have taken reasonable steps to ascertain that
the financial information contained in this report is in accordance
with GAAP. We are committed to remediating the control deficiencies
that constitute the material weaknesses by implementing changes to
our internal control over financial reporting. Management is
responsible for implementing changes and improvements in the
internal control over financial reporting and for remediating the
control deficiencies that gave rise to the material weaknesses.
24
We
plan to implement measures to remediate the underlying causes of
the control deficiencies that gave rise to the material weaknesses
through additional training efforts as well as ensuring appropriate
review of the related significant accounting policies by the
members of management with the requisite level of knowledge,
experience and training to appropriately apply GAAP. We plan to
undertake additional review processes to ensure the related
significant accounting policies are implemented and applied
properly on a consistent basis throughout the Company. We believe
these measures will remediate the control deficiencies. However, we
have not completed all of the corrective processes, procedures and
related evaluation or remediation that we believe are necessary. As
we continue to evaluate and work to remediate the control
deficiencies that gave rise to the material weaknesses, we may
determine to take additional measures to address the control
deficiencies.
This
Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Our management's report was not subject to
attestation by our independent registered public accounting firm
pursuant to rules of the SEC that permit us to provide only
management's report in this Report on Form 10-K.
Changes in
Internal Control Over Financial Reporting
None.
ITEM 9B: OTHER
INFORMATION
None
25
PART
III.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE
GOVERNANCE
Board of Directors
Our bylaws
provide that the number of directors who constitute our Board of
Directors is determined by resolution of the Board of Directors,
but the total number of directors constituting the entire Board of
Directors shall not be less than three. Our Board of Directors
currently consists of five directors, with each director serving a
one-year term ending on the date of the next annual meeting;
provided that the term of each director shall continue until the
election and qualification of a successor and be subject to such
director's earlier death, resignation or removal.
The names of our
current directors, all of whom have been re-elected to serve an
additional term, and certain information about each of them are set
forth below.
Identity of
Directors
As at October
7, 2020
|
Name
|
Age
|
Position
|
|
James Olson
|
54
|
Director, Chair of the Board
|
|
Jonathan Bonnette
|
42
|
Director; Chief Technology Officer
|
|
Carl
Sanko
|
65
|
Director, Secretary
|
|
Terry Kennedy
|
43
|
Director, CEO and President
|
|
Eric
Tarno
|
54
|
Director
|
Biographies of Directors
James
Olson. Mr. Olson, age 54, was appointed as a director of
the Company and the Chair of the Board on April 29, 2019. Mr. Olson
has more than 25 years in the financial services industry and
possesses a range of experience specializing in marketing and
product development arenas. Mr. Olson is currently the Managing
Partner of Financial Processing Solutions Group (“FPS
Group”) which provides technology platforms to the benefit and
financial services marketplace. Prior to joining FPS Group in 2013,
Mr. Olson was a Principal and Founder of Aspire Financial Services
(“Aspire”), a nationally recognized leader in the retirement
plan industry with more than $10 billion of recordkeeping assets
and approximately 250,000 participants. Prior to founding FPS Group
and Aspire, Mr. Olson worked with Decimal, Inc., as Senior Vice
President of Strategic Development and with mPower as VP of Product
Development. He began his career with Charles Schwab as a Senior
Marketing Manager. Mr. Olson provides management experience as well
as significant expertise and experience in the financial technology
sector to the Board.
Jonathan
Bonnette. Mr. Bonnette, age 42, was appointed as a
director, and as President and Chief Executive Officer of the
Company on July 1, 2018. Prior to his appointment, Mr. Bonnette
worked for Legacy Solutions Group, a company working to build and
protect client’s retirement through different investment
strategies, including real estate investments, where he oversaw
technology and client on-boarding. Prior to Legacy Solutions Group,
from 2006 through 2014, Mr. Bonnette was the President of United
First Financial, a financial software company, which he helped
found in 2006. Mr. Bonnette brings significant experience with
building and leading successful financial technology companies to
the Board. On April 1, 2020, Mr. Bonnette resigned as
President and Chief Executive Officer and was appointed Chief
Technology Officer by the Board. He remains a director of the
Company and is the CEO of our wholly owned subsidiary, Bombshell
Technologies Inc.
Carl
Sanko. Mr. Sanko, age 65, was appointed as a director of
the Company on July 22, 2014. Mr. Sanko is a CPA and has practiced
accounting for more than thirty years. Mr. Sanko specializes in
small and medium size business GAAP based financial reporting and
accounting. Mr. Sanko provides experience and expertise in
financial accounting to the Board, as well as historical knowledge
of the Company’s legacy businesses.
26
Terry
Kennedy Mr. Kennedy, age 43, was appointed to the
Board of directors effective October 1, 2020, and has been
President and Chief Executive Officer since April 1, 2020.
Mr. Kennedy has been a consultant to the Company since July
1, 2019. Since 2008, Mr. Kennedy has served as the president
and CEO of Appreciation Financial, a company Mr. Kennedy founded.
Appreciation Financial is a full-service national financial company
with headquarters in Las Vegas and an Inc. 5000 company two years
in a row (2018 and 2019). Mr. Kennedy received the 2019 Gold
American Business Awards Stevie Award® for Entrepreneur of the
Year-Financial Services and was a Finalist for Ernst & Young
Entrepreneur Of The Year® 2019. Mr. Kennedy has a broad background
in general management, strategy, marketing, services, and financial
matters. Under Mr. Kennedy’s leadership, Appreciation Financial
received the Gold award for “Company of the Year-West US” by the
Best in Biz awards and was also named one of the “Best
Entrepreneurial Companies in America” by Entrepreneur Magazine’s
Entrepreneur 360™ list.
Eric Tarno Mr. Tarno is a 54-year-old entrepreneur
and the President of PERA (Public Employee Retirement Assistance),
the leading provider of exclusive appointments for the insurance
industry. Originally from Philadelphia, for almost 20 years, Tarno
served as the CEO of Alliance, a company that produced automotive
components. After that, Tarno worked in the financial services
industry for more than a decade. Tarno resides in Las Vegas with
his wife, Lisa, their two sons and daughter-in-law.
The Board of Directors believes that
each of the directors named above has the necessary qualifications
to be a member of the Board of Directors. Each director has
exhibited during his prior service as a director the ability to
operate cohesively with the other members of the Board of
Directors. Moreover, the Board of Directors believes that each
director brings a strong background and skill set to the Board of
Directors, giving the Board of Directors as a whole competence and
experience in diverse areas, including corporate governance and
board service, finance, management and industry
experience.
Corporate Governance
Code
of Ethics
Our Company has
adopted a Code of Ethics that applies to all of the Company’s
employees, including its principal executive officer and principal
financial officer. A copy of our Code of Ethics is available for
review on the “Investors - Governance” page of our
Company’s website www.growcapitalinc.com.
The Company intends to disclose any changes in or waivers from its
Code of Ethics by posting such information on its website.
Audit Committee
Our entire Board
of Directors serves as our audit committee. Our Board of Directors
does not have a standing audit committee or committee performing
similar functions. The Board of Directors oversees all accounting
and financial reporting processes and the audit of the Company’s
financial statements. The Board is responsible for overseeing the
quality and integrity of the Company’s financial statements and the
qualifications, independence, selection and performance of the
Company’s independent registered public accounting firm. We do not
have an audit committee charter. The Board of Directors has
determined that the Board does not currently have a person serving
on it who qualifies as a Financial Expert as defined by the rules
of the Securities and Exchange Commission. The Board of Directors
does not believe that the addition of such an expert would add
anything meaningful to the Company at this time given that its
members have sufficient knowledge and experience to fulfill the
duties and obligations that an audit committee would have. Our
Board of Directors will continue to evaluate, from time to time,
whether it should appoint a standing audit committee.
Compensation Committee
Our entire Board
of Directors serves as our compensation committee. Our Board of
Directors does not have a standing compensation committee or
committee performing similar functions. This is due to our
development stage and the small number of executive officers
involved with our Company. Our entire Board of Directors currently
participates in the consideration of executive officer and director
compensation. We do not have a compensation committee charter. Our
Board of Directors is responsible for reviewing, recommending and
approving our compensation policies and benefits, including the
compensation of all of our executive officers and directors. Our
Board of Directors also has the principal responsibility for the
administration of our equity incentive plans. Our Board of
Directors will
27
continue to
evaluate, from time to time, whether it should appoint a standing
compensation committee.
Executive
officers who are also directors participate in determining or
recommending the amount or form of executive and director
compensation, but the disinterested directors ultimately determine
the executive compensation. During the fiscal year ended June
30, 2020, the following individuals served as directors and also
officers of the corporation:
-Carl
Sanko, Director and Secretary;
-Jonathan
Bonnette, Director, President and CEO (up to April 1, 2020) and CTO
(from April 1, 2020 to date).
Neither
the Board of Directors nor management utilizes compensation
consultants in determining or recommending the amount or form of
executive and director compensation.
Nominating Committee
Our Board of
Directors does not have a nominating committee. This is due to our
development stage and smaller sized Board of Directors. We do not
have a nominating committee charter. Instead of having such a
committee, our Board of Directors historically has searched for and
evaluated qualified individuals to become nominees for membership
on our Board of Directors. The directors recommend candidates for
nomination for election or reelection for each annual meeting of
stockholders and, as necessary, to fill vacancies and newly created
directorships.
All of our
director nominees have expressed their willingness to continue to
serve as our directors. When new candidates for our Board of
Directors are sought, all of our directors evaluate each candidate
for nomination as director within the context of the needs and the
composition of the board as a whole. The Board of Directors
conducts any appropriate and necessary inquiries into the
backgrounds and qualifications of candidates. When evaluating
director nominees, our Board of Directors generally seeks to
identify individuals with diverse, yet complementary backgrounds.
Our directors consider both the personal characteristics and
experience of director nominees in the context of the needs of the
Board of Directors and the Company. The Board of Directors believes
that director nominees should exhibit proven leadership
capabilities and experience at a high level of responsibility
within their chosen fields and have the experience and ability to
analyze business issues facing our Company. In addition to business
expertise, the Board of Directors requires that director nominees
have the highest personal and professional ethics, integrity and
values and, above all, are committed to representing the long-term
interests of our stockholders and other stakeholders. To date, all
new candidates have been identified by members of our Board of
Directors, and we have not paid any fee to a third party to assist
in the process of identifying or evaluating director
candidates.
Our
directors will consider candidates for nomination as director who
are recommended by a stockholder and will not evaluate any
candidate for nomination for director differently because the
candidate was recommended by a stockholder. To date, we have not
received or rejected any suggestions for a director candidate
recommended by any stockholder or group of stockholders owning more
than 5% of our common stock.
When submitting
candidates for nomination to be elected at our annual meeting of
stockholders, stockholders should follow the following notice
procedures and comply with applicable provisions of our bylaws. To
consider a candidate recommended by a stockholder for nomination at
an annual meeting, the recommendation must be delivered or mailed
to and received by our Secretary within the time periods required
by the Securities and Exchange Commission, along with information
regarding the nominee that would be required to be included in our
Proxy Statement by the rules of the Securities and Exchange
Commission, including the nominee’s age, business experience for
the past five years and any other directorships held by the
nominee.
The Secretary
will forward any timely recommendations containing the required
information to our independent directors for consideration.
No material changes to the procedures by
which our stockholders may recommend nominees to our Board of
Directors has occurred since we last provided disclosure regarding
these procedures in our Definitive Schedule 14C filed on June 9,
2020.
28
Change in Control Arrangements
We are
not aware of any pending arrangements that could result in a change
in control.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires our directors and executive officers, and
persons who own more than ten percent of a registered class of our
equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of our common stock
and other equity securities. Officers, directors and greater than
ten percent stockholders are required by SEC regulation to furnish
us with copies of all Section 16(a) forms they file.
To our
knowledge, including our review of the copies of such reports
furnished to us and written representations that no other reports
were required since July 1, 2019, all Section 16(a) filing
requirements were satisfied on a timely basis, except for the
following: Jonathan Bonnette filed four late Form 4 reports
relating to four transactions; Carl Sanko filed three late Form 4
reports relating to three transactions; Trevor Hall filed one late
Form 4 report relating to one transaction; James Olson filed three
late Form 4 reports relating to four transactions; Joel Bonnette
filed one late Form 4 report relating to two transactions, and
Terry Kennedy filed three late Form 4 reports related to six
transactions.
ITEM
11. EXECUTIVE COMPENSATION
INFORMATION REGARDING EXECUTIVE OFFICERS
Identity of
Executive Officers and Significant Employees
As of October
7, 2020
|
Name
|
|
Age
|
|
Position
|
|
Terry Kennedy
|
|
43
|
|
Director, President and Chief Executive Officer
|
|
Jonathan Bonnette
|
|
42
|
|
Director; Chief Technology Officer
|
|
Carl
Sanko
|
|
65
|
|
Director, Secretary
|
|
Trevor Hall
|
|
43
|
|
Chief
Financial Officer
|
|
Joel
Bonnette
|
|
39
|
|
Chief
Operating Officer, Bombshell Technologies Inc.
|
|
Eric
Tarno
|
|
54
|
|
Chief
Executive Officer, PERA LLC
|
Biographies of Executive Officers
Mr. Bonnette’s,
Mr. Kennedy’s, Mr. Tarno’s and Mr. Sanko’s biographies are included
above under the heading “Biographies of Directors.”
Trevor
Hall. Mr. Hall, age 43, has served as our Chief Financial
Officer since January 1, 2019. He has served as the Managing
Partner of Hall & Associates since 2007, has been a Certified
Public Accountant since 2003, and a Certified Fraud Examiner since
2010. Mr. Hall holds a degree in Accounting from the University of
Nevada, Las Vegas and specializes in, among other areas of
accounting, small and medium size business GAAP based financial
reporting and internal fraud detection and controls
implementation.
Joel Bonnette. Mr. Bonnette, age 39, was appointed as
Chief Executive Officer of the Bombshell Technologies Inc. soon
after its foundation . Prior to his appointment, Mr. Bonnette
co-founded a software consulting company in 2006 working with
companies in government and the private sector on custom software
solutions built from the ground up to address customer's unique
problems and workflow. In April 2020, Mr. Bonnette resigned as CEO
of Bombshell, and now serves as the Chief Operating Officer.
29
Named Executive Officers
Our named
executive officers for fiscal year 2020 consist of (i) Terry
Kennedy, our President and Chief Executive Officer, (ii) Trevor
Hall, our Chief Financial Officer, (iii) Jonathan Bonnette, our
Chief Technology Officer, who served as our Chief Executive Officer
and President up to April 1, 2020 and as our Chief Financial
Officer from July 1, 2018 until January 1, 2019, and (iv) Carl
Sanko, our Secretary.
EXECUTIVE
COMPENSATION
The Company’s
entire Board of Directors currently participates in the review and
determination of the compensation packages of our executive
officers because our Board of Directors currently has no standing
compensation committee or committee performing similar
functions.
The objective of our executive
compensation program is to attract, retain and motivate talented
executives who are critical for the continued growth and success of
our Company and to align the interests of these executives with
those of our stockholders. In determining the structure of our
executive compensation, the Board of Directors has generally paid
executives through the grant of unregistered shares of Common Stock
rather than through cash payments in order to preserve the
Company’s cash reserves and to better align our named
executive officers' interests with those of stockholders.
Additionally, we believe that such grants incentivize our executives to increase
their focus on our long-term performance.
Summary Compensation
Table
|
Name and
Principal Position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards
($)
(e)(1)
|
Option
Awards
($)
(f)
|
All
Other
Compensation
($)
(g)
|
Total
($)
(h)
|
|
Terry Kennedy
|
2020
|
140,274
|
|
210,953
|
|
|
351,227
|
|
CEO
and President(2)(4)
|
2019
|
19,726
|
|
23,472
|
|
|
43,198
|
|
|
|
|
|
|
|
|
|
|
Jonathan Bonnette(3)(5)
|
2020
|
386,667
|
—
|
450,905
|
—
|
—
|
837,572
|
|
CTO
(formerly CEO, President and CFO)
|
2019
|
280,000
|
—
|
242,620
|
—
|
—
|
522,620
|
|
|
|
|
|
|
|
|
|
|
Trevor Hall(6)
|
2020
|
—
|
—
|
72,650
|
—
|
—
|
72,650
|
|
Chief Financial Officer
|
2019
|
—
|
—
|
63,000
|
—
|
—
|
63,000
|
|
|
|
|
|
|
|
|
|
|
Carl
Sanko(3)(7)
|
2020
|
274,109
|
|
334,605
|
|
|
608,714
|
|
Secretary
|
2019
|
140,891
|
|
30,807
|
|
|
171,698
|
|
|
|
|
|
|
|
|
|
1. The aggregate
fair value of awards and options in column (e) are computed in
accordance with FASB ASC 718.
2. The named
executive officer’s compensation includes the amount for services
rendered to the Company in his capacity as an officer in fiscal
2020, and as an independent consultant in fiscal 2019;
3. The named
executive officer’s compensation includes the amount for services
rendered to the Company in his capacity as both an officer and a
director.
4. Terry Kennedy
became our President and Chief Executive Officer on April 1, 2020.
Prior to his appointment as CEO, Mr. Kennedy served as a consulting
to the Company under the terms of a fee agreement entered into May
15, 2019 whereunder Mr. Kennedy received a fixed fee of $160,000
for outside business consulting services, which was paid through
the issuance of 103,115 unregistered shares of Common Stock at a
fair market value of $350,385 of which $43,198 was expensed in the
fiscal year ended July 31, 2019, with the remaining $307,187
expensed in the fiscal year ended June 30, 2020. . In connection
with Mr. Kennedy’s appointment as an officer of the Company on
30
April 1, 2020,
the Company and Mr. Kennedy entered into an executive
compensation agreement for a three-month period beginning on April
1, 2020 and ending on June 30, 2020. Pursuant to the Compensation
Agreement, following his appointment as President and Chief
Executive Officer, Mr. Kennedy was issued 50,000 unregistered,
restricted shares of the Company’s Common Stock valued at $44,040.
The amounts in column (e) for Mr. Kennedy consists of (i) the
difference in value Mr. Kennedy’s fixed fee of $160,000 and the
value of the shares granted in lieu of such fees. The Shares were
valued at the market price on the date compensation was approved
for issuance.
5. Jonathan
Bonnette became our Chief Executive Officer on July 1, 2018. The
amounts in column (c) for Mr. Bonnette consists of (i) 150,000
unregistered shares issued on August 2, 2018 in lieu of Mr.
Bonnette’s salary of $240,000 pursuant to the Bonnette Employment
Agreement, 75,000 of which vested upon issuance and 75,000 of which
vested 180 days after issuance, which were valued at a fair market
value of $390,000 on the date of issuance, and (ii) 356,230 fully
vested, unregistered shares issued on May 15, 2019 in lieu of Mr.
Bonnette’s salary of $320,000 pursuant to the Bonnette Fee
Agreement as compensation for his services as the Company’s Chief
Executive Officer from May 15, 2019 through May 15, 2020. The
shares issued pursuant to the Bonnette Fee Agreement had an
aggregate value of $700,769 on the date of issuance, of which
$86,396 has been expensed in the current fiscal year ended June 30,
2019 and the remaining $614,373 has been expensed prior to May 15,
2020. Further in respect of a Compensation Agreement entered into
with Mr. Bonnette on May 15, 2020 for a total salary of $320,000,
consulting services of 1/3, or $106,667 was immediately payable. by
way of an upfront payment of 133,333 unregistered, restricted
shares of Common Stock valued at $113,017 and has been recorded in
the fiscal year ended June 30, 2020. The balance of Mr. Bonnette’s
compensation of $213,333 will vest monthly but be paid in shares of
Common Stock quarterly in installments of $71,111 within 10 days
following each of the three-month periods ending of November 15,
2020, February 15, 2021, and May 15, 2021. The amounts in column
(e) for Mr. Bonnette consists of (i) the difference in value Mr.
Bonnette’s salary and the value of the shares granted in lieu of
such salary, and (ii) 76,348 fully vested, unregistered shares
issued as compensation for his service on the Company’s Board of
Directors, valued at $110,132. Shares were valued at the market
price on the date compensation was approved for issuance.
6. Trevor Hall
was appointed as our Chief Financial Officer effective January 1,
2019. The amounts in column (e) for Mr. Hall consists of 50,000
shares issued during fiscal 2019 as compensation for his service as
the Company’s Chief Financial Officer, and a further 30,000 shares
issued during the fiscal year ended June 30, 2020.
7. Mr. Sanko was
appointed Secretary on November 15, 2018. On April 3, 2019 Mr.
Sanko was issued 50,000 shares of unregistered common stock valued
at the fair market value on issue date totaling $115,000 for his
prior services as Secretary of the Company. A further 135,338
shares were issued effective May 15, 2019 pursuant to the Sanko
Consulting Agreement. The shares were valued at the fair market
value on the date of issuance for a total of $459,880 of which
$56,698 has been expensed in the current fiscal year ended June 30,
2019 and the remaining $403,182 have been expensed prior to May 15,
2020. Further in respect of a Compensation Agreement entered into
with Mr. Sanko on May 15, 2020 for a total salary of $270,000,
consulting services of 1/3, or $90,000 was immediately payable by
way of an upfront payment of 112,500 unregistered, restricted
shares of Common Stock valued at $95,400 and expensed in the fiscal
year ended June 30, 2020; The balance of Mr. Sanko’s compensation
of $180,000 will vest monthly but be paid in shares of Common Stock
in quarterly in installments.
The amounts in
column (e) for Mr. Sanko consists of (i) the difference in value
Mr. Sanko’s salary and the value of the shares granted in lieu of
such salary, and (ii) 76,348 fully vested, unregistered shares
issued as compensation for his service on the Company’s Board of
Directors, valued at $110,132.
Option Exercises and Stock Vested
There are no
outstanding unvested equity awards held by our named executive
officers as of June 30, 2020, our latest fiscal year end.
There were no stock options,
SARs, or similar instruments granted to or held by our named
executive officers during fiscal year 2020, and consequently none
were exercised.
Other than the 75,000 shares of
restricted stock granted to Jonathan Bonnette in connection with
the Bonnette Employment Agreement dated July 2018, which vested 180
days after issuance, no stock awards, including restricted stock,
restricted stock units, or similar instruments, were granted to or
held by our named executive officers during fiscal year 2019, and
consequently none vested.
Pension Benefits-Nonqualified Defined Contribution and Other
Nonqualified Deferred Compensation
No pension benefits were paid to any of
our named executive officers during the last completed fiscal year.
We do not currently sponsor any non-qualified defined contribution
plans or non-qualified deferred compensation plans.
31
Employee, Severance, Separation and Change in Control
Agreements
Mr. Jonathan Bonnette Compensation Agreements
On July 1, 2018,
we entered into an employment agreement with Jonathan Bonnette (the
“Bonnette Employment Agreement”).The employment agreement
had an initial term of one year, is renewable at the end of
the term for additional one year periods, and includes compensation
for the first year of $240,000 payable in unregistered shares of
Common Stock at a valuation of $1.60 per share or 150,000 shares of
Common Stock, which were issued in July 2018. The shares were
valued at $390,000 upon grant, recorded to prepaid compensation and
amortized ratably over the term of the agreement.
In the
event of: (i) an involuntary termination of Mr. Bonnette’s
employment by the Company for any reason other than Cause, death or
Disability, or (ii) Mr. Bonnette’s resignation for Good Reason, as
such terms are defined in the Bonnette Employment Agreement, Mr.
Bonnette shall be entitled to receive a lump sum payment equal to
1.5 times the sum of his annual base salary and target bonus as of
the date of his termination.
Additionally, if
Mr. Bonnette’s employment is terminated for any reason other than
Cause, death, or his voluntary resignation without Good Reason, the
Company will reimburse Mr. Bonnette for COBRA expenses until Mr.
Bonnette obtains full-time employment where he is eligible for
comprehensive medical coverage, or for 18 months, whichever is
earlier. Additionally, if Mr. Bonnette’s employment is terminated
for any reason other than Cause, or his resignation without Good
Reason, and if Mr. Bonnette holds any unvested equity incentive
awards when terminated, such awards will fully vest.
On May 15, 2019,
we entered into a new fee agreement with Mr. Bonnette (the
“Bonnette Fee Agreement”) for Mr. Bonnette’s services as
Chief Executive Officer and for outside business management and
consulting services. Pursuant to the Bonnette Fee Agreement, Mr.
Bonnette received a lump sum fee of $320,000 to provide such
services from May 15, 2019 until May 15, 2020. The fee was paid
through the issuance of 206,230 fully vested shares of unregistered
Common Stock valued at $1.5516 per share based on a 30% discount on
the average of the three lowest closing prices over the previous 30
market trading days before the date of the Bonnette Fee Agreement.
The shares were valued $700,760 based on the fair market value on
the date of issuance, of which $86,396 has been expensed in the
fiscal year ended June 30, 2019 with the remaining $614,373
expensed prior to May 15, 2020.
On May 15, 2020,
the Company entered into a further fee agreement with Jonathan
Bonnette whereunder Mr. Bonnette received a fixed fee of $320,000
for his services as Chief Technology Officer and for outside
business management and consulting services of which 1/3, or
$106,667 was immediately payable by way of an upfront payment of
$133,333 unregistered, restricted shares of Common Stock valued at
$113,017 and deemed to cover the three-month period from May 15,
2020 to August 15, 2020. The balance of Mr. Bonnette’s compensation
of $213,333 will vest monthly but be paid in shares of Common Stock
quarterly in installments of $71,111 within 10 days following each
of the three-month periods ending of November 15, 2020, February
15, 2021, and May 15, 2021.
Mr. Trevor Hall - Compensation Agreements
On
January 28, 2019, we entered into a fee agreement with Mr. Hall
(the “Hall Agreement”), for Mr. Hall to serve as a part-time
Chief Financial Officer of the Company. The term of the Hall
Agreement commenced on January 1, 2019 and expires December
31, 2019. Pursuant to the Agreement, Mr. Hall received $63,000 in
compensation, payable as 50,000 fully vested shares of unregistered
Common Stock in exchange for Mr. Hall devoting enough of his time
to the Company as is reasonably necessary to meet the needs of the
Company during the term.
On
February 12, 2020, the Company entered into a further fee agreement
with Trevor Hall whereunder Mr. Hall will continue to serve as
interim CFO of the Company beginning January 1, 2020 through
December 31, 2020. Pursuant to the consulting agreement, a fixed
fee of Sixty Thousand (60,000) shares of the Company’s unregistered
restricted common stock for his providing chief financial officer
services. The shares are to be issued at a rate of Fifteen Thousand
(15,000) shares per quarter. The first and second installments,
covering the period January 1 to June 30, 2020, were issued on
March 3, 2020 and vested immediately upon issuance.
32
Mr. Terry Kennedy - Compensation Agreements
On May 15, 2019,
the Company entered into a fee agreement with Terry Kennedy.
Under the fee agreement, Mr. Kennedy was issued 103,115
unregistered shares of Common Stock for services provided to the
Company at a fixed value of $160,000 for outside business
consulting services. The fee agreement had a term of one (1) year.
The shares of Common Stock issued were valued at the closing price
of the Company’s Common Stock as traded on the OTCMarkets on the
date of grant for a total of $350,385, recorded to prepaid
compensation and amortized ratably over the term of the
agreement.
Effective April
1, 2020, in connection with Mr. Kennedy’s appointment as CEO and
President, the Company and Mr. Kennedy entered into an
executive compensation agreement (the “Compensation Agreement”)
with an effective date of April 1, 2020. The Compensation Agreement
governs the terms and conditions regarding Mr. Kennedy’s
compensation for the three-month period beginning on April 1, 2020,
and ending on June 30, 2020, and may be terminated “for cause”
only. Pursuant to the Compensation Agreement, following his
appointment as President and Chief Executive Officer, Mr. Kennedy
was issued 50,000 unregistered, restricted shares of the Company’s
Common Stock on April 20, 2020 as compensation for the three-month
period ending June 30, 2020. The 50,000 shares were valued at
$44,040 at the closing price of the Company’s Common Stock as
traded on the OTCMarkets on the date of grant. The
shares of common stock issued are immediately and fully vested, and
deemed to be fully earned, upon their issuance. If such a permanent
executive compensation or employment agreement is not consummated
prior to July 1, 2020, the Compensation Agreement will
automatically renew for one additional three-month period beginning
on July 1, 2020, with Mr. Kennedy entitled to receive up to an
additional 50,000 unregistered, restricted shares of the Company’s
common stock, with the actual number of shares being prorated for
the portion of the extended period actually served until the more
permanent executive compensation/employment agreement is
consummated. On October 1, 2020 the board of directors approved a
further three month extension to this agreement on the same terms
and conditions.
Mr. Carl Sanko - Compensation Agreements
On May 15, 2019,
we entered into a fee agreement with Mr. Carl Sanko for Mr. Sanko’s
services as Secretary and for outside business management and
consulting services. Pursuant to the fee agreement, Mr. Sanko
received a lump sum fee of $210,000 to provide such services from
May 15, 2019 until May 15, 2020. The fee was paid through the
issuance of 135,339 fully vested shares of unregistered Common
Stock valued at $1.5516 per share based on a 30% discount on the
average of the three lowest closing prices over the previous 30
market trading days before the date of the fee agreement. The
shares were valued $459,880 based on the fair market value on the
date of issuance, of which $56,698 has been expensed in the fiscal
year ended June 30, 2019 with the remaining $403,182 expensed prior
to May 15, 2020.
On May 15, 2020,
the Company entered into a further fee agreements with Carl Sanko,
whereunder Mr. Sanko received a fixed fee of $270,000 for his
services as Secretary of the Company and for outside business
management and consulting services, of which 1/3 or $90,000 was
immediately payable by way of an upfront payment of 112,500
unregistered, restricted shares of Common Stock valued at $95,400
and deemed to cover the three-month period from May 15, 2020
to August 15, 2020; The balance of Mr. Sanko’s compensation of
$180,000 will vest monthly but be paid in shares of Common Stock in
quarterly in installments.
33
Compensation
of Directors
Set
forth below is a summary of the compensation of our directors
during our fiscal year ended June 30, 2020.
|
Name
|
Fees Earned
or Paid in Cash
($)
|
Stock
Awards
($)(1)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan Compensation
($)
|
Non-Qualified
Deferred Compensation Earnings
($)
|
All
Other Compensation
($)(1)
|
Total
($)
|
|
Jonathan Bonnette(2)
|
—
|
110,132
|
—
|
—
|
—
|
—
|
110,132
|
|
Carl
Sanko(3)
|
—
|
110,132
|
—
|
—
|
—
|
—
|
110,132
|
|
James Olson(4)
|
—
|
137,667
|
—
|
—
|
—
|
—
|
137,667
|
1. The aggregate
fair value of stock awards are computed in accordance with FASB ASC
718.
2. Jonathan
Bonnette serves as an executive officer and a director, and the
compensation Mr. Bonnette received for his service as a director in
the form of 76,348 shares of restricted common stock is disclosed
in the Summary Compensation Table above.
3. Carl Sanko
serves as Secretary and a director, and the compensation Mr. Sanko
received for his service as a director in the form of 76,348 shares
of restricted common stock is disclosed in the Summary Compensation
Table above.
4. James Olson
serves as a director and Chairman of the Board, and the
compensation Mr. Olson received for his service as a director in
the form of 95,435 shares of restricted common stock is disclosed
in the Summary Compensation Table above.
Director Compensation Program
As compensation
for their services, our directors each receive a quarterly stock
award. The stock award is valued at $20,000 for each director, and
the Chairman of the Board receives an additional stock award valued
at $5,000. The per share price used to determine the value of the
awards is equal to the average of the three lowest closing prices
of our Common Stock in the ten trading days prior to the date of
the grant.
Director Consulting Agreements
Mr.
Bonnette and Mr. Sanko have both entered into consulting
agreements with the Company which agreements are discussed above
under Employee, Severance, Separation and Change in Control
Agreements.
Identification
of Significant Employees
The
officers and directors of our controlled subsidiaries, Bombshell
Technologies, Inc and Pera LLC, Mr. Joel Bonnette and Mr. Eric
Tarno, respectively, are both considered significant employees. Mr.
Tarno is also a member of board of directors. Mr. Bonnette serves
as the Chief Operating Officer of Bombshell Technologies and is
responsible for the day to day operations of Bombshell
Technologies. Mr. Tarno, the CEO of Pera LLC is responsible
for the day to day operations of Pera LLC. Further our operating
subsidiary, The Resort at Lake Selmac has one significant employee
managing the day to day operations of the resort.
Family
Relationships
Jonathan Bonnette,
our director and Chief Technology Officer is the brother of Joel
Bonnette, the Chief Operating Officer and a Director of Bombshell
Technologies, Inc.
34
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Voting Securities
As of October 7,
2020, our issued and outstanding voting securities consisted of
shares of Common Stock. As of the Record Date, we have 500,000,000
authorized shares of Common Stock, of which 22,696,645 shares of
Common Stock were issued and outstanding. The Company also has
50,000,000 authorized preferred shares, none of which are
outstanding. Each share of Common Stock is entitled to one vote on
all matters submitted to the holders of Common Stock for their
approval.
Security Ownership Of Certain Beneficial Owners And
Management
The following
tables set forth certain information, as of October 7, 2020, with
respect to the beneficial ownership of our outstanding Common Stock
by: (i) each person who is known to the Company to be the
beneficial owner of more than 5% of any class of the Company’s
securities; (ii) each of our directors and executive officers
and; (iii) our directors and executive officers as a group.
The percentage ownership is based on 22,696,645 shares of Common
Stock outstanding as of October 7, 2020.
Security Ownership of Certain Beneficial Owners
The following
table sets forth the shareholdings of the holders of 5% or more of
any class of the Company’s securities as of October 7, 2020:
|
Title Of
Class
|
Name and
Address of Beneficial Owner
|
Amount and
Nature of Beneficial Ownership
|
Percent of
Class
|
|
Common Stock
|
Terry
Kennedy(2)
CEO, President
and Director
688 Childrens
Way
Henderson, NV
89052
|
7,300,314
|
32.2%
|
|
Common Stock
|
Jonathan
Bonnette (3)
Henderson,
NV
Director, CTO
and CEO of Bombshell Technologies
|
2,447,150
|
10.8%
|
|
Common Stock
|
Joel Bonnette
(4)
COO Bombshell
Technologies Inc.
25769 Royal
Birkdale Dr.
Denham Springs,
LA 70726
|
2,078,281(3)
|
9.2%
|
|
Common Stock
|
Andy S Albright(1)
Henderson, NV
|
1,190,122
|
5.2%
|
|
Common Stock
|
Carl S.
Sanko,
Director and
Secretary
4824 Denaro
Drive
Las Vegas, NV
89135
|
1,563,481(5)
|
6.9%
|
(1)Of
the share total, 553,394 shares of Common Stock are held by Ka Put
and Call LLC and 553,394 shares of Common Stock are held by
Albright Bombshell, LLC, both of which are 100% owned by Andy S.
Albright. 83,334 shares of Common Stock are held by Andy S.
Albright directly.
(2)Of
the share total, 744,330 shares of Common Stock are held in Mr.
Kennedy’s name. Of the remaining shares, (i) 1,135,819 shares of
Common Stock are held in the name of Racing 123, LLC, a company of
which Mr. Kennedy is a 50% owner; (ii) 125,000 shares of Common
Stock are held in the name of Off The Wall LLC, a company in which
Mr. Kennedy is a 50% owner; (iii) 116,701 shares are held in the
name of Journey, Home 4 Teens LLC a company in which Mr. Kennedy is
the sole owner; (iv) 1,818,773 shares are held in the name of AYG
LLC, a company in which Mr. Kennedy is the sole owner, (v)
1,809,864 shares are held in the name of
35
Zeake LLC a company in which Mr. Kennedy holds approximately 45%
ownership (these shares are reported based on the ownership
percentage held by Mr. Kennedy (see 5% shareholders noted above,
(vi) 935,819 shares are held in the name of King Ship LLC a company
of which Mr. Kennedy is the manager (vii) 467,909 shares are held
in the name of Virtual Marketing Associates LLC, a company of which
Mr. Kennedy is the manager; and 60,000 shares are held in the name
of Appreciation Rewards LLC, a company of which Mr. Kennedy is the
sole owner. The remaining 86,099 shares of Common Stock are
owned by AF1 Public Relations LLC, an entity wholly-owned by Mr.
Kennedy's wife. Mr. Kennedy disclaims beneficial ownership of any
securities owned directly or indirectly by his wife.
(3)Of
the share total, 637,286 shares of Common Stock are held in
Jonathan Bonnette’s name and 1,809,864 shares of Common Stock are
held in the name of Zeake LLC, of which Jonathan Bonnette is an
indirect beneficial owner.
(4)Of
the share total, (i) 35,715 shares of Common Stock are held in Joel
Bonnette’s name, (ii) 691,701 shares of Common Stock are held in
the name of Strategery, LLC, and (iii) 1,350,865 shares of
Common Stock are held in the name of Ambiguous Holdings LLC, each
of which Joel Bonnette is an indirect beneficial owner.
(5)Of
the share total, 1,161,289 shares of Common Stock are beneficially
owned as community property by Carl Sanko and Micol Sanko or by
Carl and Micol Sanko as joint tenants, with equal voting rights and
dispositive power. Carl Sanko and Micol Sanko jointly own MCRL
Holdings LLC and are indirect beneficial owners of all of the
141,750 shares of Common Stock owned by MCRL Holdings. 402,192
shares are held in the name of Zeake LLC a company in which Mr.
Sanko holds approximately 10% ownership
Security Ownership of Management
The
following table sets forth the shareholdings of the Company's
directors and executive officers as of October 7, 2020:
|
Title of
Class
|
Name and
Address of Beneficial Owner
|
Position
|
Amount and
Nature of Beneficial Ownership
|
Percent of
Class
|
|
Common
Stock
|
James J.
Olson
45 Amaranth
Drive
Littleton, CO
80127
|
Director,
Chairman
|
315,620, held
directly
|
1.4%
|
|
Common
Stock
|
Carl S. Sanko,
CPA
4824 Denaro
Drive
Las Vegas, NV
89135
|
Director,
Secretary
|
1,563,481(1)
|
6.9%
|
|
Common
Stock
|
Jonathan
Bonnette
2285 Coral Ridge
Avenue
Henderson, NV
89052
|
Director, Chief
Technology Officer, CEO of Bombshell Technologies Inc.
|
2,447,150(2)
|
10.8%
|
|
Common
Stock
|
Trevor K.
Hall
6145 S. Rainbow
Blvd, Suite 105
Las Vegas, NV
89118
|
CFO
|
155,500(4)
|
*
|
|
Common
Stock
|
Joel
Bonnette
25769 Royal
Birkdale Dr.
Denham Springs,
LA 70726
|
COO of Bombshell
Technologies, Inc.
|
2,078,281(3)
|
9.2%
|
|
Common
Stock
|
Terry
Kennedy
688 Childrens
Way
Henderson, NV
89052
|
Director,
President & CEO
|
7,300,314
(5)
|
32.2%
|
|
Common
Stock
|
Eric Tarno
2200
Paseo Verdr Pkwy, Suite 290, Henderson, NV 89052
|
President of
Pera LLC
|
488,265,
held
directly
|
2.2%
|
|
Common
Stock
|
Total Officers
and Directors as a group (7 persons)
|
|
14,348,611
|
63.2%
|
*Less
than 1.0%
36
(1)Of
the share total, 1,161,289 shares of Common Stock are beneficially
owned as community property by Carl Sanko and Micol Sanko or by
Carl and Micol Sanko as joint tenants, with equal voting rights and
dispositive power. Carl Sanko and Micol Sanko jointly own MCRL
Holdings LLC and are indirect beneficial owners of all of the
141,750 shares of Common Stock owned by MCRL Holdings. 402,192
shares are held in the name of Zeake LLC a company in which Mr.
Sanko holds approximately 10% ownership.
(2)Of
the share total, 637,286 shares of Common Stock are held in
Jonathan Bonnette’s name and 1,809,864 shares of Common Stock are
held in the name of Zeake LLC, of which Jonathan Bonnette is an
indirect beneficial owner.
(3)Of
the share total, (i) 35,715 shares of Common Stock are held in Joel
Bonnette’s name, (ii) 691,701 shares of Common Stock are held in
the name of Strategery, LLC, and (iii) 1,350,865 shares of
Common Stock are held in the name of Ambiguous Holdings LLC, each
of which Joel Bonnette is an indirect beneficial owner.
(4)Of
the share total, (i) 95,000 shares of Common Stock are held in
Trevor K. Hall’s name, (ii) 10,500 shares of Common Stock are
held in the name of Hall & Associates CPAS LTD. Mr. Hall is the
sole owner of the company, (iii) 50,000 shares held in the name of
Goods Rentals LLC a company of which Trevor Hall is the sole
manager.
(5)Of
the share total, 744,330 shares of Common Stock are held in Mr.
Kennedy’s name. Of the remaining shares, (i) 1,135,819 shares of
Common Stock are held in the name of Racing 123, LLC, a company of
which Mr. Kennedy is a 50% owner; (ii) 125,000 shares of Common
Stock are held in the name of Off The Wall LLC, a company in which
Mr. Kennedy is a 50% owner; (iii) 116,701 shares are held in the
name of Journey, Home 4 Teens LLC a company in which Mr. Kennedy is
the sole owner; (iv) 1,818,773 shares are held in the name of AYG
LLC, a company in which Mr. Kennedy is the sole owner, (v)
1,809,864 shares are held in the name of Zeake LLC a company in
which Mr. Kennedy holds approximately 45% ownership (these shares
are reported based on the ownership percentage held by Mr. Kennedy
(see 5% shareholders noted above, (vi) 935,819 shares are held in
the name of King Ship LLC a company of which Mr. Kennedy is the
manager (vii) 467,909 shares are held in the name of Virtual
Marketing Associates LLC, a company of which Mr. Kennedy is the
manager; and 60,000 shares are held in the name of Appreciation
Rewards LLC, a company of which Mr. Kennedy is the sole owner.
The remaining 86,099 shares of Common Stock are owned by AF1
Public Relations LLC, an entity wholly-owned by Mr. Kennedy's wife.
Mr. Kennedy disclaims beneficial ownership of any securities owned
directly or indirectly by his wife.
Equity Compensation Plans
Equity
Incentive Plan
In December
2015, the Company adopted the 2015 Equity Incentive Plan (the
“Incentive Plan”) with a term of 10 years. The Incentive Plan
allows for the issuance up to a maximum of 100,000 shares of Common
Stock, options exercisable into Common Stock of the Company or
stock purchase rights exercisable into shares of Common Stock of
the Company. The Incentive Plan is administered by the Board
unless a separate delegation to an administrator is made by the
Board. Options granted under the Incentive Plan carry a maximum
term of 10 years, except to a grantee who is also a 10% beneficial
owner at the time of grant, in which case the maximum term is 5
years. In addition, exercise prices of options granted must be
within a certain percentage of the closing price on date of grant
depending on the level of beneficial ownership of Common Stock of
the Company by the grantee. All vesting conditions are set by
the Board or a designated administrator. In December 2015,
the Company filed a registration statement on Form S-8 covering all
shares issued or issuable under the Incentive Plan. The
Company has granted options to purchase 100,000 shares under the
Incentive Plan during April 2016, 75,000 of which have been
exercised and 25,000 of which have vested and were canceled,
unexercised, during the current fiscal year. There are
no remaining shares available under the Incentive Plan.
Stock Plan
In December
2015, the Company adopted the 2015 Stock Plan (the “Stock Plan”).
As a condition of adoption of the Stock Plan, the
Company filed a registration statement on Form S-8 in December 2015
to register the shares issued under the Stock Plan. The Stock
Plan allows for the issuance of up to a maximum of 100,000 shares
of Common Stock of the Company. The Stock Plan is administered by
the Board unless a separate delegation to an administrator
37
is made by the
Board. The Stock Plan shall continue in effect until it is
terminated by the Board or all shares are issued pursuant to the
Stock Plan. The Company has not granted any shares under the
Stock Plan.
Options
A summary of the
change in stock purchase options outstanding for the fiscal years
ended June 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Grant
Date
|
|
|
Life
|
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Fair
Value
|
|
|
(Years)
|
|
|
Balance – June
30, 2018
|
|
|
25,000
|
|
|
$8.00
|
|
|
$10.40
|
|
|
2.83
|
|
|
Options issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Options expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Options exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Balance – June
30, 2019
|
|
|
25,000
|
|
|
$8.00
|
|
|
$10.40
|
|
|
1.83
|
|
|
Options issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(25,000)
|
|
|
$8.00
|
|
|
$10.40
|
|
|
-
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June
30, 2020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
There were no
unvested options outstanding during the years ended June 30, 2020
and 2019. Options outstanding had intrinsic value as of June 30,
2020 and 2019 of $nil. In the year ended June 30, 2016 the
Company issued an option with no term attached, and effective June
30, 2020, in accordance with the terms of the 2015 Equity Incentive
Plan, the Company terminated 25,000 unexercised, vested
options.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTORS INDEPENDENCE
Director Independence and Certain Relationships and Related
Transactions
Director Independence
Although we are
currently traded on the OTCMarket, we have chosen to apply the
listing standards of the Nasdaq Global Market (“Nasdaq”) in
determining the independence of our directors. The Board consults
with counsel to ensure that the Board’s determinations are
consistent with all relevant securities and other laws and
regulations regarding the definition of “independent,” including
those set forth in pertinent listing standards of the Nasdaq, as in
effect from time to time.
Consistent with
these considerations, after review of all relevant transactions or
relationships between each director and nominee for director, or
any of his family members, and us, our senior management and our
independent registered public accounting firm, the Board
affirmatively has determined that we have no independent
directors.
Our Company does not have a separately
designated audit, compensation, or nominating committee or
committee performing similar functions; therefore, our full
Board of Directors currently serves in these capacities. At such
time that the Company has a larger board of directors and generates
revenue, the Company will propose creating committees of its Board
of Directors. Accordingly, the Company does not have an audit
committee financial expert.
Policies and Procedures for Related-Party Transactions
Our Company does
not have any formal written policies or procedures for related
party transactions, however in practice, the disinterested members
of our Board of Directors reviews and approves all related party
transactions and
38
other matters
pertaining to the integrity of management, including potential
conflicts of interest, trading in our securities, or adherence to
standards of business conduct.
Transactions with Related Persons during the fiscal year ended
June 30, 2020
Lease
agreements
Appreciation, LLC, a related party entity, holds the master lease
from which the Company derives its sublease for its
headquarters. Our CEO, Terry Kennedy, is the managing partner
of Appreciation LLC.
Services
Agreements
During fiscal
2020 Mr. Kennedy, Mr. Hall, Mr. Bonnette and Mr. Sanko have each
entered into service compensation agreements with the Company,
which are further described under the heading “Employee,
Severance, Separation and Change in Control Agreements” above
as well as in Note 11 – Related Party Transactions,
which form a part of the Audited Consolidated Financial Statements
included herein.
Mr. Hall is the
managing partner of Hall & Associates, CPAs, LTD which the
Company has hired to provide certain bookkeeping services.
Purchases of Common
Stock
During the
fiscal year ended June 30, 2020 certain officers and directors
either as individuals or through companies controlled by them
subscribed for shares of common stock for gross proceeds of
$305,000 at $1 per share for a total of 305,000 shares of
unregistered, restricted Common Stock.
Bombshell
Acquisition
On July 23,
2019, (the “Closing Date”), the Company acquired Bombshell, a
Nevada corporation, pursuant to a stock exchange agreement (the
“Exchange Agreement”), dated June 26, 2019, by and between
Bombshell, the shareholders of Bombshell (the “Bombshell Holders”).
At the Closing, Bombshell became a wholly owned subsidiary of the
Company.
Pursuant to the
Amendment, at the Closing, the Company acquired 100% of the
outstanding shares of Bombshell (the “Bombshell Shares”) in
exchange for the Bombshell Holders receiving the right to receive
5,533,773 post reverse split shares (the “Consideration Shares”) of
unregistered shares of the Company’s Common Stock on a pro rata
basis (the “Exchange”), 1,650,000 post reverse split stock of which
were issued to the Bombshell Holders (the “Closing Shares”) at the
Closing on a pro rata basis. The remaining 3,883,773 post
reverse split stock Consideration Shares (the “Secondary Shares”)
were issued on September 3, 2019, to the Bombshell Holders upon the
Company filing an effective amended and restated articles of
incorporation (the “Charter Amendment”) that increased the number
of authorized shares of Common Stock. The
Bombshell Holders are also eligible to receive earn-out
consideration of up to an additional 1,838,461 shares of Common
Stock (the “Earn-out Shares”) earnable in tranches of 612,820
shares of Common Stock in each of the second, third and fourth
years after the Closing, based on whether Bombshell is able to meet
certain Earnings Before Interest and Taxes thresholds in each year.
The Bombshell Holders include certain limited liability
companies owned by (i) Jonathan Bonnette, (ii) Joel Bonnette, (iii)
Terry Kennedy and Carl Sanko. At the date of this report it remains
uncertain whether the EBIT targets which permit the earn out of the
first tranche of the additional shares of common stock will be
achieved as at the first valuation date.
39
|
Name of
Bombshell Owner
|
Consideration
Shares
|
Value of
Consideration Shares
|
Percent of
Earn-out Shares
|
|
Ambiguous Holdings LLC(1)
|
415,045
|
$1,577,171
|
7.5%
|
|
Strategery, LLC(1)
|
691,700
|
$2,628,460
|
12.5%
|
|
AYG
LLC(2)
|
415,045
|
$1,577,171
|
7.5%
|
|
Journey, Home 4 Teens LLC(2)
|
691,700
|
$2,628,460
|
12.5%
|
|
Zeake LLC(3)
|
2,213,490
|
$8,411,262
|
40.0%
|
(1) Joel
Bonnette is the sole owner of Strategery, LLC and the owner of 50%
of the membership interests of
Ambiguous
Holdings LLC. He is the Manager of both entities.
(2) Terry
Kennedy is the Manager and indirect beneficial owner of AYG LLC and
Journey, Home 4 Teens LLC.
(3) Jonathan
Bonnette is the Manager and owner of 45% of the membership
interests of Zeake LLC. Terry J. Kennedy Asset Protection Trust
owns 45% of the membership interests of Zeake LLC. Terry Kennedy
disclaims beneficial ownership of Zeake LLC. Carl Sanko is the
holder of the remaining 10% of Zeake.
Board Leadership Structure
Our bylaws
provide the Board of Directors with flexibility to combine or
separate the positions of Chair of the Board and Principal
Executive Officer in accordance with its determination that
utilizing one or the other structure is in the best interests of
our Company. Our current structure is that of separate Principal
Executive Officer and Chair of the Board of Directors. Terry
Kennedy serves as our Principal Executive Officer and is
responsible for the overall general management of the Company and
supervision of Company policies, setting the Company’s strategies,
formulating and overseeing the Company’s business plan, raising
capital, expanding the Company’s management team and the general
promotion of the Company. James Olson serves as our Chair of the
Board of Directors, which is a non-executive position, and is
responsible for performing a variety of functions related to our
corporate leadership and governance, including steering the
direction of the Company, coordinating board activities, setting
relevant items on the agenda, leading the Board’s review of our
Chief Executive Officer and ensuring adequate communication between
the Board of Directors and management. Mr. Olson is not considered
an independent director. Our Board of Directors has determined that
this leadership structure is appropriate for the size of our
Company.
Risk
Oversight
The Board of
Directors is actively involved in the oversight of risks, including
strategic, operational and other risks, which could affect our
business. The Board of Directors does not have a standing risk
management committee, but administers this oversight function
directly through the Board of Directors as a whole, which oversee
risks relevant to their respective functions. The Board of
Directors considers strategic risks and opportunities and
administers its respective risk oversight function by evaluating
management’s monitoring, assessment and management of risks,
including steps taken to limit our exposure to known risks, through
regular interaction with our senior management and key consultants
and in Board deliberations that are closed to members of management
and consultants. The interaction with management occurs not only at
formal Board meetings but also through periodic and other written
and oral communications. Our Board of Directors is responsible for
oversight of our Company’s accounting and financial reporting
processes and also discusses with management the Company’s
financial statements, internal controls and other accounting and
related matters.
Stockholder
Communications with the Board
Stockholders who
desire to communicate with the Board of Directors, or a specific
director, may do so by sending the communication addressed to
either the Board of Directors or any director, c/o Grow Capital,
Inc., 2485 Village View Drive, Suite 180, Henderson, NV 89074.
These communications will be delivered to the Board, or any
individual director, as specified.
40
Meetings of
the Board of Directors; Meeting Attendance
During fiscal
year 2020, there were 14 meetings of the Board of Directors. During
fiscal year 2020, all of the directors attended over 75% of the
Board for which the directors served. The Board of Directors also
acted at times by unanimous written consent, as authorized by our
bylaws and the Nevada Revised Statutes.
We have no
policy regarding the attendance of the members of our Board of
Directors at our annual meetings of security holders. We did not
hold an annual meeting during fiscal year 2020.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Board has
approved, and our stockholders have ratified the appointment of L J
Soldinger Associates, LLC (“Soldinger”) to serve as the
Company’s independent registered public accounting firm for the
fiscal year ending June 30, 2020. Soldinger was our independent
registered public accounting firm for our fiscal years ended June
30, 2019 and 2018.
Principal
Accountant Fees and Services
The aggregate
fees billed for professional services by Soldinger during fiscal
year 2020 and 2019 were as follows:
|
|
|
2020
|
|
|
2019
|
|
|
Audit
Fees
|
|
$
|
135,605
|
|
|
$
|
29,587
|
|
|
Audit-Related Fees
|
|
|
--
|
|
|
|
--
|
|
|
Tax
Fees
|
|
|
6,700
|
|
|
|
--
|
|
|
All
Other Fees
|
|
|
--
|
|
|
|
--
|
|
|
Total
Fees
|
|
$
|
142,305
|
|
|
$
|
29,587
|
|
Audit
Fees are the fees billed during the fiscal years ended June
30, 2020 and 2019 for professional services rendered by Soldinger
for the audit of the Company’s annual financial statements and
review of financial statements included in the Company’s Form 10-Q
or services that are normally provided by Soldinger in connection
with statutory and regulatory filings or engagements.
Audit-Related Fees are the aggregate fees billed
during the fiscal years ended June 30, 2020 and 2019 for assurance
and related services rendered by Soldinger that are reasonably
related to the performance of the audit or review of the Company’s
financial statements and are not reported under the category Audit
Fees described above.
Tax
Fees are the fees billed during the fiscal years ended June
30, 2020 and 2019 for tax compliance, tax advice and tax planning
services rendered by Soldinger.
All Other
Fees are the aggregate fees billed for products and
services provided during the fiscal years ended June 30, 2020 and
2019 by Soldinger, other than the services reported in the above
categories.
Board of
Directors Pre-Approval Policies
The Company’s
Board of Directors currently does not have any pre-approval
policies or procedures concerning services performed by Soldinger.
All the services performed by Soldinger that are described above
were pre-approved by the Company’s Board of Directors.
None of the
hours expended on Soldinger’s engagement to audit the Company’s
financial statements for the fiscal years ended June 30, 2020 and
2019 were attributed to work performed by persons other than
Soldinger’s full-time, permanent employees.
41
PART IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Financial
Statements. See the audited financial statements for the
Fiscal Year ended June 30, 2019 and 2018 contained in Item 8
above which are incorporated herein by this
reference.
(b)Exhibits. The
following exhibits are filed as part of this Report on Form
10-K:
|
Exhibit
Number
|
Description
|
|
3.1
|
Amended and
Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 of the Company’s Form 8-K filed September 3,
2019)
|
|
3.1.2
|
Amendment to the
Amended and Restated Articles of Incorporation of Grow Capital,
Inc., effective June 29, 2020. (incorporated by
reference to Exhibit 3.1 of the Company’s Form 8-K filed
July 29,
2020)
|
|
3.2
|
By-laws of the
Company (incorporated by reference to Exhibit 3.2 of the Company’s
Form 10-Q filed on February 20, 2019)
|
|
4.2*
|
Description of
securities
|
|
10.1
|
Employment
Agreement, by and between the Company and Jonathan Bonnette, dated
July 1, 2018 (incorporated by reference to Exhibit 10.1 of the
Company’s Form 10-Q filed on February 20, 2019)
|
|
10.2
|
Agreement, by and
between the Company and Trevor Hall, dated January 28, 2019
(incorporated by reference to Exhibit 10.1 of the Company’s Form
8-K filed on February 1, 2019)
|
|
10.3
|
Consulting
Agreement, by and between the Company and Carl Sanko, dated August
6, 2018 (incorporated by reference to Exhibit 10.4 of the Company’s
Form 10-Q filed on February 20, 2019)
|
|
10.4
|
Consulting
Agreement, by and between the Company and Wayne Zallen, dated
August 6, 2018 (incorporated by reference to Exhibit 10.5 of the
Company’s Form 10-Q filed on February 20, 2019)
|
|
10.5
|
Consulting
Agreement, effective February 15, 2019, by and between the Company
and James Olson (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed on May 3, 2019)
|
|
10.6
|
Consulting
Agreement, effective July 1, 2018, by and between the Company and
Terry Kennedy (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed May 16, 2019)
|
|
10.7
|
Fee Agreement,
dated May 15, 2019, by and between the Company and Jonathan
Bonnette (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed May 20, 2019)
|
|
10.8
|
Fee Agreement,
dated May 15, 2019, by and between the Company and Carl Sanko
(incorporated by reference to Exhibit 10.2 of the Company’s Form
8-K filed May 20, 2019)
|
|
10.9
|
Fee Agreement,
dated May 15, 2019, by and between the Company and Terry Kennedy
(incorporated by reference to Exhibit 10.3 of the Company’s Form
8-K filed May 20, 2019)
|
|
10.10
|
Fee Agreement,
dated June 8, 2019, by and between the Company and AF1 Public
Relations LLC (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed June 8, 2019)
|
42
|
10.11
|
Exchange Agreement,
dated June 26, 2019, by and between the Company, Bombshell
Technologies, Inc., and the shareholders of Bombshell Technologies,
Inc. (incorporated by reference to Exhibit 10.1 of the Company’s
Form 8-K filed June 27, 2019)
|
|
10.12
|
First Amendment to
the Exchange Agreement, dated July 23, 2019, by and between the
Company, Bombshell Technologies, Inc., and the shareholders of
Bombshell Technologies, Inc. (incorporated by reference to Exhibit
10.1 of the Company’s Form 8-K filed July 24, 2019)
|
|
10.13
|
Registration Rights
Agreement, dated July 23, 2019, by and between the Company and the
shareholders of Bombshell Technologies, Inc. (incorporated by
reference to Exhibit 10.2 of the Company’s Form 8-K filed July 24,
2019)
|
|
10.14
|
Loan Agreement, by
and between the Company and Encompass More Group, Inc., dated July
22, 2019 (incorporated by reference to Exhibit 10.3 of the
Company’s Form 8-K filed July 24, 2019)
|
|
10.15
|
Promissory Note
issued by Encompass More Group, Inc. to the Company, dated July 22,
2019 (incorporated by reference to Exhibit 10.4 of the Company’s
Form 8-K filed July 24, 2019)
|
|
10.16
|
Sublease, by and
between the Company and Appreciation, LLC effective February 19,
2019 (incorporated by reference to Exhibit 10.3 of the Company’s
Form 10-Q filed February 20, 2019)
|
|
10.17
|
Membership Interest
Purchase Agreement, dated September 30, 2019, by and between Grow
Capital, Inc., WCS Enterprises, LLC, and the Wayne A. Zallen Trust
u/a/d 10/24/2014 (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K filed October 2, 2019)
|
|
10.18
|
Separation and
Release of Claims Agreement, dated September 30, 2019, by and
between the Company and Wayne Zallen (incorporated by reference to
Exhibit 10.2 of the Company’s Form 8-K filed October 2,
2019)
|
|
10.19#
|
Fee Agreement
between Trevor K. Hall and Grow Capital Inc. dated February 12,
2020 (Incorporated by reference to Exhibit 10.1 filed with the
Company’s Form 10-Q on February 19, 2020)
|
|
10.20#
|
Compensation
Agreement (Incorporated by reference to Exhibit 10.1 filed with the
Company’s Form 8-K on April 3, 2020).
|
|
10.21#*
|
Fee Agreement
between Carl Sanko and Grow Capital Inc. dated May 15,
2020
|
|
10.22#*
|
Fee Agreement
between Jonathan Bonnette and Grow Capital Inc. dated May 15,
2020
|
|
10.23
|
Exchange Agreement,
effective August 3, 2020, by and between the Grow Capital,
Inc., and PERA LLC, and the shareholders
of PERA LLC. (incorporated by reference to Exhibit 10.1
filed with the Company’s Form 8-K on August 11,
2020)
|
|
10.24
|
Registration Rights
Agreement, dated August 19, 2020, by and between Grow Capital,
Inc., and the Members of PERA, LLC (incorporated by reference to
Exhibit 10.1 filed with the Company’s Form 8-K on August 20,
2020)
|
|
10.25*
|
Addendum to
Commercial Loan Agreement and corresponding promissory note with
Encompass More Group, Inc. dated September 25, 2020
|
|
14
|
Code of Conduct
(incorporated by reference to Exhibit 14.01 to the Company’s Form
10-12G filed January 7, 2009)
|
|
21*
|
List of
Subsidiaries
|
|
31.1*
|
Certification of
the Principal Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2*
|
Certification of
the Principal Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1*
|
Certification of
the Chief Executive Officer (Principal Executive Officer) pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350)
|
43
*Filed herewith.
# Management contract
or any compensatory plan, contract or arrangement.
44
ITEM 16. FORM 10-K
SUMMARY
None
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
Grow Capital Inc.
|
|
|
|
|
Date: October
13,2020
|
By:
|
/s/ Terry
Kennedy
|
|
|
|
|
Terry Kennedy
Chief Executive
Officer, and President (Principal Executive Officer)
|
|
|
|
|
|
|
|
Date: October
13,2020
|
By:
|
/s/ Trevor K.
Hall
|
|
|
|
|
Trevor K. Hall
Chief Financial
Officer (Principal Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Signature
|
|
|
Title
|
|
Date
|
|
/s/ Terry
Kennedy
|
|
|
Chief Executive
Officer, President and a Director (Principal Executive Officer)
|
|
October 13,2020
|
|
Terry Kennedy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Carl S.
Sanko
|
|
|
Director and
Secretary/Treasurer
|
|
October 13,2020
|
|
Carl S. Sanko
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ James
Olson
|
|
|
Director and Chairman
of the Board
|
|
October 13,2020
|
|
James Olson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Trevor K.
Hall
|
|
|
Chief Financial
Officer (Principal Financial and Accounting Officer)
|
|
October 13,2020
|
|
Trevor K. Hall
|
|
|
|
|
|
|
/s/ Jonathan
Bonnette
|
|
|
Chief Technology
Officer and Director
|
|
October 13,2020
|
|
Jonathan Bonnette
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Eric
Tarno
|
|
|
Director
|
|
October 13,2020
|
|
Eric Tarno
|
|
|
|
|
|
|
|
|
|
|
|
|
45
