This quarterly report contains forward-looking statements relating to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "intends",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential", or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors which may cause our or our industry's
actual results, levels of activity or performance to be materially different
from any future results, levels of activity or performance expressed or implied
by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity or performance. You should not place undue reliance on these
statements, which speak only as of the date that they were made. These
cautionary statements should be considered with any written or oral
forward-looking statements that we may issue in the future. Except as required
by applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results, later events or circumstances or to reflect the
occurrence of unanticipated events.
The management's discussion and analysis of our financial condition and results
of operations are based upon our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP").
The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated and
combined financial statements for the three months ended September 30, 2020 and
the notes thereto appearing elsewhere in this Report and the Company's audited
financial statements for the fiscal year ended June 30, 2020, as filed with the
Securities and Exchange Commission in our Form 10-K on October 13,2020, along
with the accompanying notes. As used in this quarterly report, the terms "we",
"us", "our", and the "Company" means Grow Capital, Inc.
Overview
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." in order to reflect our plans 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.
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 intends 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 its acquisitions
grow.
Keeping in line with our change of operational focus as set out above, 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 110,675,328 shares (the "Consideration
Shares") of unregistered shares of the Company's Common Stock on a pro rata
basis (the "Exchange"), 33,000,000 of which were issued to the Bombshell Holders
(the "Closing Shares") at the Closing on a pro rata basis. The remaining
77,675,328 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 36,769,215 shares of Common Stock (the "Earn-out Shares") earnable
in tranches of 12,256,405 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, the Company's former CEO and current CTO (ii) Joel Bonnette,
the Bombshell CEO and (iii) Terry Kennedy, a majority shareholder of the Company
and current CEO.
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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 is the first acquisition
as part of our strategic shift into the FinTech sector and related sectors.
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. The Board
of Directors have subsequently determined not to proceed with the acquisition as
contemplated under the LOI.
On September 4, 2019 the Company entered into a 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. Such listing
agreement was extended in December 2019 under the same terms and conditions,
expiring in March 2020. 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. The Resort opened for operations in fiscal 2021
on July 1, 2020 subsequent to a delay resulting from the impact of Covid-19 and
certain state mandated facility closures.
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 8,693,888 shares of the Company's Common Stock,
valued at $0.09 per share. The Purchase Agreement also provided that Mr. Zallen
transfer to the Company an additional 400,000 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. Mr. Zallen was the former CEO, Chairman and President of the Company.
On April 1, 2020, Jonathan Bonnette, who has been the President and Chief
Executive Officer of Grow 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 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.
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.
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Keeping with management's determination to acquire complementary revenue
generating operations, 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. As a result, PERA became a wholly-owned subsidiary of the Company. At
the time of the acquisition of PERA LLC, the Company determined that
Appreciation Financial was under common control with PERA LLC, as they are both
controlled by our Chief Operating Officer, Terry Kennedy (see Note 4).
Additionally, Appreciation was considered to be a primary beneficiary of PERA
LLC. The Company has had discussions with the members of Appreciation Financial
about potential combinations, which as of the date of these financial statements
are not yet probable. However, because of the nature of the relationship, the
Company determined that while Appreciation Financial is not a variable interest
entity to the Company, the nature of the common control relationship coupled
with the inter-relationship with PERA LLC meant that in order for the results of
operations and financial position to not be misleading, the Company had to
combine its results with those of Appreciation Financial upon the acquisition of
PERA, LLC.
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.
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.
With the acquisition of PERA LLC, and concurrent combination of the operations
of Appreciation Financial, the Company expanded its operations into lead
generation services and insurance brokerage. PERA LLC provides public employee
retirement serving as an appointment portal for agents to schedule qualified
appointments with public employee seeking financial planning for retirement and
other associated insurance coverage. Appreciation Financial LLC has a network
of member agents offering full-service retirement planning servicing public
employees and their families providing policies from a series of insurance
carriers that meet their retirement planning requirements.
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. As at January 31, 2021 Encompass was current
with the required installment payments.
On September 30, 2020 Terry Kennedy, CEO, and Eric Tarno, CEO of acquired
subsidiary, PERA LLC, were appointed to the Company's Board of Directors
effective October 1, 2020.
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Grow Capital expects to identify additional suitable acquisitions, complete
those acquisitions, and grow those companies as part of our transition to a
Fintech company. Any potential acquisitions or divestitures remain subject to
final agreements, due diligence, and typical closing conditions.
Current Operations
Grow Capital has shifted its operational mandate with the acquisition of
Bombshell and PERA to becoming a solution-oriented company focused on software,
and developing the best professional technology (ie: FinTech) and financial
services companies in the market. 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.
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.
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.
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.
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.
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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
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.
COMBINED OPERATIONS OF APPRECIATION FINANCIAL LLC AND APPRECIATION REWARDS LLC
The operations of combined entity Appreciation Financial LLC and Appreciation
Rewards, headquartered in Nevada, include full-service retirement planning by
member agents which service public employees and their families providing
policies from a series of insurance carriers that meet their retirement planning
requirements.
RESULTS OF OPERATIONS FROM CONTINUING OPERATIONS
The Company shifted its focus to the FinTech sector during the current fiscal
year and acquired operating, revenue generating subsidiaries, Bombshell and
PERA. 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. The Resort at Lake returned to regular operations
effective July 1, 2020, as the State of Oregon lifted restrictions on business
closures. Financial results for the three months ended September 30, 2020
include the operations of wholly owned subsidiaries, Bombshell, The Resort at
Lake Selmac and PERA, as well as Pera Administrators LLC, the operations of
which are for the sole benefit of PERA LLC. In addition, the Company has
combined the financial results of Appreciation Financial LLC and Appreciations
Rewards LLC, deemed to be common control entities, for the period from August
19, 2020 to September 30, 2020, in order for the results of the Company's
operations and financial position to not be misleading. All material
intercompany accounts, transactions, and profits have been eliminated in
consolidation. Financial results for the three months ended September 30, 2019
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.
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Three Months Ended September, 2020 compared to Three Months ended September 30,
2019
Revenue and costs of revenue
During the three months ended September 30, 2020 we generated gross revenues of
$4,662,998, of which $331,258 was derived from related party customers, compared
to $598,662 in the comparative three months ended September 30, 2019, of which
$455,124 was derived from related party customers. Costs of sales in the current
three months totaled $3,716,690 of which $485,323 were costs of related party
services, compared to $345,406 for the three months ended September 30, 2019 of
which $152,955 were costs of related party services. Gross profit for the
comparative three-month periods ended September 30, 2020 and 2019, respectively
totaled $946,308 and $253,256. Reported revenues in the three months ended
September 30, 2020 include operations of our wholly owned subsidiaries Bombshell
and The Resort at Lake Selmac, as as well as the revenues generated by PERA LLC
for the period from acquisition (August 19, 2020 through September 30, 2020).
In addition, September 30, 2020 revenue results include results fromAppreciation
Financial LLC and Appreciations Rewards LLC deemed to be common control
entities, for the period from August 19, 2020 to September 30, 2020, in order
for the results of the Company's operations and financial position to not be
misleading. Revenues for the comparative three month period ended September 30,
2019 were generated by Bombshell and the Resort at Lake Selmac site location.
During the three months ended September 30, 2020 and 2019, operations of the
Resort at Lake Selmac contributed gross profit of $57,337 and $54,406,
operations of Bombshell contributed gross profit of $82,850 and $198,850,
respectively, operations of PERA LLC contributed gross profit of $141,890 and
combined operations of Appreciation Financial LLC and Appreciation Rewards LLC
contributed gross profit of $664,231.
Operating expenses
Our operating expenses for the three-month periods ended September 30, 2020 and
2019 were as follows:
Three Month Ended
September 30,
2020 2019
Revenue $ 4,331,740 $ 143,538
Revenue, related parties 331,258 455,124
Total revenues 4,662,998 598,662
Cost of sales, nonrelated parties 3,231,367 192,451
Cost of sales, related parties 485,323 152,955
Total cost of sales 3,716,690 345,406
Gross profit 946,308 253,256
Operating expenses
General and administrative 615,473 579,881
General and administrative, related parties 297,080 47,499
Professional fees
461,584 352,492
Settlement 494,458 -
Depreciation, amortization and impairment 5,235 6,404
Total operating expenses 1,873,830 986,276
Loss from operations (927,522 ) (733,020 )
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Three months ended September 30, 2020 and 2019
Our general and administrative expenses consist of rent, telephone, internet
services, banking charges, salaries, consulting fees and miscellaneous office
costs.
The Company experienced an increase in operating expenses from $986,276 during
the three months ended September 30, 2019 to $1,873,830 during the three months
ended September 30, 2020. The increase in operating expenses is predominantly
attributable to an increase in general and administrative expenses, including
related party general and administrative expenses, and professional fees, as
well as the impact of the additional expenses of subsidiary PERA LLC and the
operating results of combined entities Appreciation Financial LLC and
Appreciation Rewards. Professional fees increased period over period from
$352,492 to $461,584 as the Company undertook various corporate actions and
acquired PERA LLC in the period, as well as operations in the normal course and
certain legal fees related to ongoing legal matters. General and administrative
fees also increased in the current three-month period ended September 30, 2020
from $579,881 (2019) to $615,473 in the three months ended September 30, 2020.
This was a direct result of increased operations period over period related to
Bombshell, newly acquired PERA LLC and the operations of combined entities
Appreciation Financial LLC and Appreciation Rewards, offset by a reduction to
stock based compensation to certain board members, employees and consultants for
services rendered at rates below market, the total combined value of which was
$502,638 for the three months ended September 30, 2019 compared to stock
issuances for total consideration of $173,173 in the current three months ended
September 30, 2020. Further, general and administrative fees incurred from
related parties also increased period over period from $47,499 in the three
months ended September 30, 2019 to $297,080 in the three months ended September
30, 2020 predominantly from the combination of common control entities
Appreciation Financial LLC and Appreciation Rewards. During the current three
months ended September 30, 2020 the Company recorded $494,458 in respect to an
accrual for a negotiated legal settlement, with no similar expense in the prior
comparative three months ended September 30, 2019. Depreciation, amortization
and impairment decreased slightly from $6,404 to $5,235 in the current
three-month period.
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.
Other Expenses
Other income/expenses recorded in the three months ended September 30, 2020
reflect other income of $1,625 in the current three months as a result of
interest income related to a short term loan provided by the Company to a third
party, as compared to $1,342 for three-month period ended September 30, 2019.
Interest expenses with respect to a mortgage on the Resort at Lake Selmac
totaled $9,012 and $9,100 respectively in the three-month periods ended
September 30, 2020 and 2019. Interest expense in the three months related to
combined operations of Appreciation Financial LLC for the period August 19, 2020
to September 2020, totaled $66,427 with no comparative expense in the prior
three month period ended September 30, 2019.
Net losses from continuing operations in the three months ended September 30,
2020 and 2019 totaled $1,001,336 and $740,778, respectively.
Discontinued operations
The Company sold wholly owned subsidiary WCS effective September 30, 2019. The
effect of the and operations prior to the sale are included in discontinued
operations. During the three months ended September 30, 2020, the Company
reported income from discontinued operations of $0 and $491,885, respectively.
The income from discontinued operations in the three months ended September 30,
2019 relates to the sale of a former subsidiary resulting in a gain of $492,439,
offset by operational activities.
Net losses
Net losses offset by income attributable to members of Appreciation LLC and
Appreciation Rewards totaling $73,995 in the three months ended September 30,
2020 was $1,075,331. Net losses in the three months ended September 30, 2019 was
$248,893.
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Liquidity and Financial Condition
Liquidity and Capital Resources
At At
September 30, 2020 June 30, 2020
Current Assets $ 2,060,955 $ 726,321
Current Liabilities 3,673,621 1,044,113
Working Capital $ (1,612,666 ) $ (317,792 )As of September 30, 2020, the Company had total current assets of $2,060,955
and negative working capital of $1,612,666 compared to total current assets of
$726,321 and negative working capital of $317,792 as of June 30, 2020. The
decrease in our working capital was primarily a result of an increase to current
accrued liabilities in relation to commissions payable by combined entity
Appreciation Financial LLC and the accrual of certain anticipated legal
settlement amounts.
During the three months ended September 30, 2020, cash provided by operating
activities totaled $300,908, primarily as a result of a net loss from continuing
operations of $1,001,336. The net loss from continuing operations was offset by
stock-based compensation of $173,173, a loss on an expected legal settlement of
$494,458, depreciation and amortization expenses of $5,235, amortization of
right to use assets of $5,286 and impairment of other current assets of $6,900.
Further during the three months ended September 30, 2020 we increased our
accounts receivable by $66,158, decreased our related party accounts receivable
by $59,658, and decreased our related party accounts payable by $41,366 while
increasing our accrued expenses by $376,855 and accounts payable by $228,200.
Unearned revenue also decreased in the current period. In the three months
ended September 30, 2019, cash used in operating activities totaled $513,532
with a net loss from continuing operations of $248,893, and a gain from
discontinued operations of $491,885, offset by stock-based compensation of
$501,638 and depreciation and amortization expenses of $6,404. During the three
months ended September 30, 2019 we increased our accounts receivable by $49,935
and our accounts receivable - related parties by $142,793, further our related
party accounts payable decreased by $132,740 while accounts payable increased by
$118,783. Unearned revenue also increased in the three months ended September
30, 2019 by $2,080 as did accrued expenses by $99,731.
Net cash used in investing activities in the three months ended September 30,
2019 was $95,573, as compared to net cash provided of $900,783 in the three
months ended September 30, 2020. Increase to cash due from related party in the
three months ended September 30, 2019 totaled $39,548 with no comparative
balance in the current three months ended September 30, 2020. During the three
months ended September 30, 2019 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, whereas during the three months ended September 30, 2020 the Company
recorded a reduction to the loan receivable of $16,510 and received cash from an
acquisition and the combination of entities under common control of $884,273.
Net cash provided by financing activities was $47,065 in the three months ended
September 30, 2020 as compared to $184,738 in 2019. During the current
three-month period ended September 30, 2020, the Company closed private
placements for total proceeds of $75,000, compared to total proceeds of $200,000
from private placements during the comparable period ended September 30, 2019.
Cash from financing activities in the three months ended September 30, 2019 was
offset by a repayment to a related party of $13,121 with no similar transactions
in the current three month period ended September 30, 2020. During the current
three months ended September 30, 2020 the Company repaid debt of $25,706 with
respect to certain loan obligations of combined entity Appreciation Financial
LLC with no comparable transaction in the comparative three month period.
Further, the Company reduced its loan on the Resort at Lake Selmac property by
$2,229 and $2,141 respectively during the three months ended September 30, 2020
and 2019.
Net cash used in discontinued activities totaled $2,030 in the three months
ended September 30, 2019, with no discontinued activities in the current three
months ended September 30, 2020.
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Going Concern
During the three month periods ended September 30, 2020 and 2019, the Company
reported a net loss of $1,001,336 and $248,893 respectively. The Company had a
working capital deficit of $1,612,666 with approximately $1,495,517 of cash on
hand as of September 30, 2020. Cash provided by operations totaled
$300,908 during the three months ended September 30, 2020. The Company continues
to work actively to increase its customer/client base and increase gross profit
in Bombshell Technologies and PERA LLC, in order to achieve net profitability by
the close of fiscal 2021. For any operational shortfalls, the Company intends
to rely on sales of our unregistered common stock, loans and advances until such
time as we achieve profitable operations. In addition, the current presentation
is based on the fact that the Company is currently in negotiations to acquire
Appreciation Financial LLC and its related entities. Should that not occur, its
possible that the Company will no longer combine its results with those of
Appreciation Financial LLC and its related entities. 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 segments, Bombshell and Pera
LLC have not experienced a decline in sales as a result of the impact of
COVID-19, and in fact, have increased sales due to the increase in demand for
virtual appointments which can be serviced by PERA LCC as a part of their core
operational mandate. In addition, 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, however since that time the resort has continued
to receive regular bookings and has returned to normal operating parameters. As
a result, 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.
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. Refer to Note 2 of the Unaudited Condensed Consolidated and Combined
Financial Statements included herein.
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.
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