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 and nine months ended December 31,
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.
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.
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("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. On January 27, 2021 the Company
entered into sale agreement with a Buyer for the sale of the Resort at Lake
Selmac site location for an offering price of $740,000. There are no commissions
payable on the sale, and the sale is expected to close on March 3, 2021. As a
result, the operations of the Resort at Lake Selmac have been reported as
discontinued in the financial statements included herein.
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.
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.
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"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 services, serving as an appointment portal for agents to schedule
qualified appointments with public employees 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 and the principal balance of the loan
totaled $54,000.
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.
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
On January 27, 2021 the Company entered into an agreement with a Buyer for the
sale of the Resort at Lake Selmac site location for an offering price of
$740,000. The transaction closed on March 3, 2021 and there were no commissions
payable. As a result, the operations of the Resort at Lake Selmac are reported
as discontinued in the financial statements included herein.
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--------------------------------------------------------------------------------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.
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.
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RESULTS OF OPERATIONS FROM CONTINUING OPERATIONS
The Company shifted its focus to the FinTech sector during fiscal 2020 and has
acquired operating, revenue generating subsidiaries, Bombshell and PERA.
Further, in line with the shift in focus to FinTech, the Company divested WCS
effective September 30, 2019 and the Resort at Lake Selman on March 3, 2021,
and the operations for both of the aforementioned subsidiaries have been
included in discontinued operations in the current reporting period for each of
the three and nine months ended March 31, 2021 and 2020. Financial results for
the three and nine months ended March 31, 2021 include the current operations of
wholly owned subsidiaries, Bombshell 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 March 31, 2021, 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 and nine months ended March 31,
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.
Three Months Ended March 31, 2021 compared to Three Months ended March 31, 2020
Three Months Ended
March 31,
2021 2020
Revenue $ 8,056,391 $ 30,707
Revenue, related parties 15,085 534,607
Total revenues 8,071,476 565,314
Cost of sales, nonrelated parties 5,759,095 290,285
Cost of sale, related parties 938,655 -
Total cost of sales 6,697,750 290,285
Gross profit 1,373,726 275,029
Operating expenses
General and administrative 1,293,133 596,234
General and administrative, related parties 574,571 56,819
Professional fees
499,384 215,042
Settlement - -
Depreciation, amortization and impairment (868 ) 1,758
Total operating expenses 2,366,220 869,853
Loss from operations (992,494 ) (594,824 )
Revenue and costs of revenue
During the three months ended March 31, 2021 we generated revenues of
$8,071,476, of which $15,085 was derived from related party customers, compared
to $565,314 in the comparative three months ended March 31, 2020, of which
$534,607 was derived from related party customers. Costs of sales in the current
three months totaled $6,697,750 of which $938,655 were costs of related party
services, compared to $290,285 for the three months ended March 31, 2020 of
which $Nil were costs of related party services. Gross profit for the
comparative three-month periods ended March 31, 2021 and 2019, respectively
totaled $1,373,726 and $275,029. Reported revenues in the three months ended
March 31, 2021 include operations of our wholly owned subsidiaries Bombshell as
well as the revenues generated by PERA LLC (for the period from acquisition on
August 19, 2020 through March 31, 2021). In addition, March 31, 2021 revenue
results include results from Appreciation Financial LLC and Appreciations
Rewards LLC deemed to be common control entities, for the period from August 19,
2020 to March 31, 2021, in order for the results of the Company's operations and
financial position to not be misleading upon its acquisition of PERA LLC.
Revenues for the comparative three month period ended March 31, 2020 were
generated by Bombshell.
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Operating expenses
Three months ended March 31, 2021 and 2020
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 $869,853 during
the three months ended March 31, 2020 to $2,366,220 during the three months
ended March 31, 2021. The increase in operating expenses is predominantly
attributable to substantial increases 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
$215,042 to $499,384 as the Company undertook various corporate actions and
acquired PERA LLC in the period, substantially increasing audit and accounting
fees, as well as operations in the normal course and certain legal fees related
to ongoing litigation. General and administrative fees also increased in the
current three-month period ended March 31, 2021 from $596,234 (2020) to
$1,293,133 in the three months ended March 31, 2021. 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. General and administrative expenses reported include stock
based compensation to certain board members, employees and consultants for
services rendered at rates below market, the total combined value of which was
$503,171 for the three months ended March 31, 2020 compared to stock issuances
for total consideration of $383,158 in the current three months ended March 31,
2021. Further, general and administrative fees incurred from related parties
also increased period over period from $56,819 in the three months ended March
31, 2020 to $574,571 in the three months ended March 31, 2021 predominantly from
the combination of common control entities Appreciation Financial LLC and
Appreciation Rewards. Depreciation, amortization and impairment decreased from
$1,758 to a credit of $868 in the current three-month period, directly as a
result of the divestiture of a vehicle by common control entity Appreciation
Financial, the depreciation for which incurred prior was reversed in the current
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 Income (Expenses)
Other income of $184,938 recorded in the three months ended March 31, 2021
includes interest expense of $68,226 primarily from loans and a line of credit
from National life to Appreciation Financial LLC with no comparable expense in
the prior comparative period. Interest expenses are reduced in the three months
ended March 31, 2021 by interest income of $2,392 related to a short term loan
receivable from a third party, and other income of $250,772 as a result of the
forgiveness of PPP loans received by common control entity Appreciation
Financial in the period. Other income reported of $1,657 for the three-month
period ended March 31, 2020 reflects interest income related to a short term
loan receivable from a third party.
Net losses from continuing operations in the three months ended March 31, 2021
and 2020 totaled $807,556 and $593,167, respectively.
Discontinued operations
The Company entered into an agreement for the sale of The Resort at Lake Selmac
on January 27, 2021which closed on March 3, 2021. As a result the operations of
the Resort have been included in discontinued operations for the three months
ended March 31, 2021 and 2020. During the three months ended March 31, 2021 and
2020, the Company reported a loss from discontinued operations of $34,956 and
$20,212, respectively.
Net losses
Net losses attributable to members of Appreciation LLC and Appreciation Rewards
totaling $280,795 are included in the three months ended March 31, 2021 net
loss reported of $842,512. Net losses in the three months ended March 31, 2020
were $613,379.
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Nine Months Ended March 31, 2021 compared to Nine Months ended March 31, 2020
Nine Months Ended
March 31,
2021 2020
Revenue $ 21,095,963 $ 142,830
Revenue, related parties 485,528 1,657,909
Total revenues 21,581,491 1,800,739
Cost of sales, nonrelated parties 15,169,064 714,109
Cost of sale, related parties 2,488,297 186,354
Total cost of sales 17,657,361 900,463
Gross profit 3,924,130 900,276
Operating expenses
General and administrative 3,098,025 1,712,152
General and administrative, related parties 1,597,843 167,261
Professional fees
1,432,343 743,894
Settlement 494,458 -
Depreciation, amortization and impairment 10,635 7,032
Total operating expenses 6,633,304 2,630,339
Loss from operations (2,709,174 ) (1,730,063 )
Revenue and costs of revenue
During the nine months ended March 31, 2021 we generated gross revenues of
$21,581,491, of which $485,528 was derived from related party customers,
compared to $1,800,739 in the comparative nine months ended March 31, 2020, of
which $1,657,909 was derived from related party customers. Costs of sales in the
current nine months totaled $17,657,361 of which $2,488,297 were costs of
related party services, compared to $900,463 for the nine months ended March 31,
2020 of which $186,354 were costs of related party services. Gross profit for
the comparative nine-month periods ended March 31, 2021 and 2020, respectively
totaled $3,924,130 and $900,276. Reported revenues in the nine months ended
March 31, 2021 include operations of our wholly owned subsidiaries Bombshell, as
well as the revenues generated by PERA LLC for the period from acquisition
(August 19, 2020 through March 31, 2021). In addition, March 31, 2021 revenue
results include results from Appreciation Financial LLC and Appreciations
Rewards LLC deemed to be common control entities, for the period from August 19,
2020 to March 31, 2021, upon our acquisition of PERA, LLC in order for the
results of the Company's operations and financial position to not be misleading.
Revenues for the comparative nine-month period ended March 31, 2020 were
generated by Bombshell.
Operating expenses
Nine months ended March 31, 2021 and 2020
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 $2,630,339 during
the nine months ended March 31, 2020 to $6,633,304 during the nine months ended
March 31, 2021. 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
$743,894 to $1,432,343 as the Company undertook various corporate actions and
acquired PERA LLC in the period, experienced substantially increased costs for
accounting and audit, including an increase in professional fees related to
operations in the normal course and certain legal fees related to ongoing legal
matters. General and administrative fees also increased in the current
nine-month period ended March 31, 2021 from $1,712,152 (2020) to $3,098,025 in
the nine months ended March 31, 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. General and administrative expenses also include compensation
to certain board members, employees and consultants for services rendered at
rates below market, the total combined value of which was $957,523 for the nine
months ended March 31, 2021 compared to
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stock issuances for total consideration of $1,508,278 in the nine months ended
March 31, 2020, of which $241,271 was recorded as prepaid expenses to be
amortized over the period of service. Further, general and administrative fees
incurred from related parties also increased period over period from $167,261 in
the nine months ended March 31, 2020 to $1,597,843 in the nine months ended
March 31, 2021 predominantly from the combination of common control entities
Appreciation Financial LLC and Appreciation Rewards. During the current nine
months ended March 31, 2021 the Company recorded $494,458 in respect to an
accrual for a negotiated legal settlement, with no similar expense in the prior
comparative nine months ended March 31, 2020. Depreciation, amortization and
impairment increased from $7,032 to $10,635 in the current nine-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 of $82,922 recorded in the nine months ended March 31, 2021
includes interest expense of $174,435 primarily from loans and a line of credit
from National life to Appreciation Financial LLC with no comparable expense in
the prior comparative period. Interest expenses are reduced in the nine months
ended March 31, 2021 by interest income of $6,585 related to a short term loan
receivable from a third party, and other income of $250,772 as a result of the
forgiveness of PPP loans received by common control entity Appreciation
Financial in the period. Other income reported of $4,723 for the nine-month
period ended March 31, 2020 reflects interest income related to a short term
loan receivable from a third party.
Net losses from continuing operations in the nine months ended March 31, 2021
and 2019 totaled $2,626,252 and $1,725,340, respectively.
Discontinued operations
The Company sold wholly owned subsidiary WCS effective September 30, 2019. The
effect of the sale and operations prior to the sale are included in discontinued
operations. Further, the Company sold The Resort at Lake Selmac on March 3,
2021, and as a result the operations of the Resort have also been included in
discontinued operations for the nine months ended March 31, 2021 and 2020.
During the nine months ended March 31, 2021 and 2020, the Company reported
income from discontinued operations of $5,244 and $482,302, respectively. The
income from discontinued operations in the nine months ended March 31, 2020
includes a gain of $492,439 from the sale of WCS. The Company recorded a loss
from the sale of the Resort at Lake Selmac of $31,075.
Net losses
Net losses including net losses attributable to members of Appreciation LLC and
Appreciation Rewards totaling $1,078,205 in the nine months ended March 31, 2021
was $2,621,008. Net losses in the nine months ended March 31, 2020 was
$1,243,038.
Liquidity and Financial Condition
Liquidity and Capital Resources
At
At June 30,
March 31, 2021 2020
Current Assets $ 1,497,423 $ 1,510,814
Current Liabilities 3,051,230 1,627,639
Working Capital $ (1,553,807 ) $ (116,825 )As of March 31, 2021, the Company had total current assets of $1,497,423
and negative working capital of $1,553,807 compared to total current assets of
$1,510,814 and negative working capital of $116,825 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 nine months ended March 31, 2021, the Company reported net cash used
in operations of $857,192, primarily as a result of a net loss from continuing
operations of $2,626,252. The net loss from continuing operations was offset by
stock-based compensation of $957,523, a loss on an expected legal settlement of
$494,458, depreciation and amortization expenses of $10,635, the disposal of
fixed assets to an employee as compensation of $5,566, amortization of right to
use assets of $16,419 and impairment of other current assets of $6,900. Further
during the nine months ended March 31, 2021 we decreased our accounts receivable
by $66,334, decreased our related party accounts receivable by $228,639,
decreased our prepaid expenses by $23,093, decreased our accounts payable by
$23,392 and decreased our related party accounts payable by $22,418 while
increasing our unearned revenue by $7,561. In the nine
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months ended March 31, 2020, net cash used in operating activities totaled
$609,190 with a net loss from continuing operations of $1,725,340, offset by
stock-based compensation of $,508,278, amortization of rights to use assets of
$2,377 and depreciation and amortization expenses of $7,032. During the nine
months ended March 31, 2020 we increased our prepaid expenses by $7,139, our
accounts receivable by $81,381, and our accounts receivable - related
parties increased by $192,497. We reduced accounts payable by $159,734 and
unearned revenue by $6,240. Accounts payable related parties increased by
$45,452.
Net cash used in investing activities in the nine months ended March 31, 2020
was $34,121, as compared to net cash provided of $1,066,446 in the nine months
ended March 31, 2021. Cash provided by due from related party in the nine
months ended March 31, 2020 totaled $16,854 with no comparative balance in the
current nine months ended March 31, 2021. During the nine months ended March 31,
2020 the Company received cash from the acquisition of Bombshell of $43,975,
whereas during the nine months ended March 31, 2021 the Company received cash
from an acquisition and the combination of entities under common control of
$884,273. Cash used in promissory notes receivable as a result of a loan to a
third party totaled $94,950 in the nine months ended March 31, 2020 as compared
to repayments of promissory note receivable of $34,510 in the current nine
months ended March 31, 2021. During the nine months ended March 31, 2021, the
Company received cash from the sale of the Resort at Lake Selmac of $147,663
with no similar transaction in the prior comparative period.
Net cash provided by financing activities was $607,364 in the nine months ended
March 31, 2021 as compared to $336,879 in 2020. During the current nine-month
period ended March 31, 2021, the Company closed private placements for total
proceeds of $450,000, compared to total proceeds of $350,000 from private
placements during the comparable period ended March 31, 2020. Cash from
financing activities in the nine months ended March 31, 2020 was offset by a
repayment to a related party of $13,121 as compared to proceeds received from a
related party in the current nine-month period ended March 31, 2021 in the
amount of $200,000. During the current nine months ended March 31, 2021 the
Company repaid debt of $42,636 with respect to certain loan obligations of
combined entity Appreciation Financial LLC with no comparable transactions in
the comparative nine-month period.
Net cash used by discontinued activities totaled $20,621 in the nine months
ended March 31, 2020, as compared to net cash provided by discontinued
operations of $34,064 in the current nine months ended March 31, 2021.
Going Concern
During the nine month periods ended March 31, 2021 and 2020, the Company
reported a net loss of $2,621,008 and $1,243,038, respectively. The Company had
a working capital deficit of $1,553,807, with approximately $1,097,000 of cash
on hand as of March 31, 2021. Cash used in operations totaled $857,192 during
the nine months ended March 31, 2021. 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, now included in discontinued operations, were
delayed until July 2020 when the government permitted the resort to reopen,
however since that time the resort had continued to receive regular bookings and
had returned to normal operating parameters up until its sale on March 3, 2021.
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.
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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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