UPEXI, INC. 10-K

Item 8. Financial Statements and Supplementary Data GROVE INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2021 AND 2020 Page Report of Independent Registered Public Accounting Firm F-1 Consolidated Financial Statements Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders’ (Deficit) Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 32 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of Grove, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Grove, Inc. (“the Company”) as of June 30, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Grove, Inc. as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ B F Borgers CPA PC We have served as the Company’s auditor since 2020. Lakewood, Colorado September 28, 2021 F-1 Table of Contents GROVE INC CONSOLDIATED BALANCE SHEETS June 30, June 30, 2021 2020 ASSETS Current assets Cash $ 14,534,211 $ 887,517 Accounts receivable, net of allowance for doubtful accounts of $57,500 and $10,000, respectively 1,277,662 165,147 Inventory 2,094,952 1,448,448 Prepaid expenses and other current assets 386,258 148,562 Total current assets 18,293,083 2,649,674 Property and equipment, net 2,832,400 1,687,273 Intangible assets, net 1,845,166 1,240,260 Goodwill 2,413,813 493,095 Deferred tax asset 1,403,591 - Other assets 49,068 37,068 Right-of-use asset 417,443 294,835 Total other assets 8,961,481 3,752,531 Total assets $ 27,254,564 $ 6,402,205 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 1,604,723 $ 484,333 Accrued compensation 1,020,936 195,399 Deferred revenue 485,973 473,320 Accrued liabilities 296,021 221,664 Acquisition payable 1,764,876 - Current portion of notes payable 447,100 183,595 Convertible notes payable - 1,500,000 Current portion of operating lease payable 199,532 461,123 Total current liabilities 5,819,161 3,519,434 Notes payable, net of current portion - 365,350 Operating lease payable, net of current portion 217,430 338,040 Total long-term liabilities 217,430 703,390 Commitments and contingencies - - Stockholders' equity Preferred stock, $0.001 par value, 100,000,000 shares authorized, and 500,000 and 0 shares issued and outstanding, respectively 500 - Common stock, $0.001 par value, 100,000,000 shares authorized, and 15,262,394 and 10,222,223 shares issued and outstanding, respectively 15,262 10,223 Additional paid in capital 25,372,247 7,314,341 Accumulated deficit (4,170,036 ) (7,098,984 ) Total stockholders' equity attributable to Grove, Inc. 21,217,973 225,580 Non-controlling interest in subsidiary - 1,953,801 Total stockholders' equity 21,217,973 2,179,381 Total liabilities and stockholders' equity $ 27,254,564 $ 6,402,205 The accompanying notes are an integral part of these consolidated financial statements. F-2 Table of Contents GROVE INC CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended June 30, 2021 2020 Revenue Product revenue 24,095,025 6,159,013 Trade show revenue - 1,253,847 24,095,025 7,412,860 Product costs 12,196,123 4,280,909 Trade show costs - 561,988 12,196,123 4,842,897 Gross profit 11,898,902 2,569,963 Operating expenses Sales and marketing 2,388,211 1,370,964 General and administrative expenses 8,083,954 6,037,329 10,472,165 7,408,293 Income (loss) from operations 1,426,737 (4,838,330 ) Other expense (income), net Interest expense (income), net 530,449 138,406 Gain on sale of assets (8,708 ) (180,211 ) Gain on SBA PPP loan extinguishment (403,277 ) - Settlement of cancelled lease (387,860 ) - Impairment of cancelled lease expense - 588,347 Other expense (income), net (269,396 ) 546,542 Income (loss) before income tax 1,696,133 (5,384,872 ) Income tax benefit (expense) 1,282,815 - Net income (loss) 2,978,948 (5,384,872 ) Net loss attributable to noncontrolling interest - (1,199 ) Deemed dividend related to the issuance of Series A Preferred Stock (50,000 ) - Net income (loss) attributable to Grove, Inc. $ 2,928,948 $ (5,383,673 ) Basic income (loss) per share $ 0.25 $ (0.53 ) Diluted income (loss) per share $ 0.21 $ (0.53 ) Weighted average shares outstanding 11,930,378 10,097,075 Fully diluted weighted average shares outstanding 14,257,934 10,097,075 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents GROVE INC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Preferred Stock Preferred Stock Common Stock Common Stock Additional Paid Accumulated Non-controlling Total Shareholders' Shares Par Shares Par In Capital Deficit Interest Equity 2020 Balance, June 30, 2019 500,000 $ 500 9,653,595 $ 9,654 $ 6,446,640 $ (1,715,311 ) $ 1,655,000 $ 6,396,483 Conversion of preferred stock to common stock for cash (500,000 ) (500 ) 277,778 278 50,222 - - 50,000 Trunano subsidiary stock issued for cash - - - - - - 300,000 300,000 Stock based compensation - - - - 372,770 - - 372,770 Common stock issued for cash - - 290,850 291 444,709 - 445,000 Net loss - - - - - (5,383,673 ) (1,199 ) (5,384,872 ) Balance, June 30, 2020 - $ - 10,222,223 $ 10,223 $ 7,314,341 $ (7,098,984 ) $ 1,953,801 $ 2,179,381 2021 Balance, June 30, 2020 - $ - 10,222,223 $ 10,223 $ 7,314,341 $ (7,098,984 ) $ 1,953,801 $ 2,179,381 Conversion of Trunano subsidiary stock into Grove common stock - - 1,277,778 1,278 1,952,523 - (1,953,801 ) - Issuance of common stock for acquisition - - 526,415 525 1,234,599 - - 1,235,124 Issuance of common stock for acquisition costs - - 83,334 83 127,417 - - 127,500 Stock based compensation - - - - 611,432 - - 611,432 Issuance of common stock for cash - - 2,530,000 2,530 10,947,785 - - 10,950,315 Issuance of common stock for conversion of notes payable and accrued interest - - 622,644 623 3,084,650 - - 3,085,273 Issuance of preferred stock for cash 500,000 500 - - 49,500 - - 50,000 Deemed dividend for Series A preferred stock issuance - - - - 50,000 (50,000 ) - - Net income - - - - - 2,978,948 - 2,978,948 Balance, June 30, 2021 500,000 $ 500 15,262,394 $ 15,262 $ 25,372,247 $ (4,170,036 ) $ - $ 21,217,973 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents GROVE INC CONSOLIDATED STATEMENTS OF CASH FLOW Year Ended June 30, 2021 2020 Cash flows from operating activities Net income (loss) $ 2,978,948 $ (5,383,673 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,030,021 611,346 Inventory write-offs 375,000 - Gain on change in deferred tax allowance (1,282,815 ) Gain on settlement of cancelled lease (387,860 ) - Impairment on leased asset - 588,347 Amortization of beneficial conversion feature on convertible notes 342,813 - Shares issued for services 127,500 - Bad debt expense 78,185 160,740 Gain on sale of equipment (8,708 ) (180,211 ) Gain on forgiveness of SBA PPP loan (403,277 ) - Stock based compensation 611,432 372,770 Changes in assets and liabilities, net of acquired amounts Accounts receivable (1,138,228 ) (95,665 ) Other receivables - (154,500 ) Inventory (846,659 ) (310,384 ) Prepaid expenses and other current assets (313,206 ) 18,346 Accounts payable and accrued liabilities 1,966,806 277,979 Accrued liabilities related to acquisition (90,876 ) (287,528 ) Deferred revenue (99,770 ) 217,687 Net cash provided by (used in) operating activities 2,939,306 (4,164,746 ) Cash flows from investing activities Acquisition of Infusionz, Inc., net of cash acquired 62,122 - Proceeds from sale of property and equipment 79,000 466,113 Acquisition of property and equipment (1,422,129 ) (1,929,028 ) Net cash used in investing activities (1,281,007 ) (1,462,915 ) Cash flows from financing activities Proceeds from issuance of common stock 10,950,315 420,000 Proceeds from issuance of common stock for conversion of preferred stock - 50,000 Proceeds from issuance of non-controlling interest - 298,801 Proceeds from issuance of preferred stock 50,000 - Proceeds from issuance of related party note payable 750,000 - Repayment of related party note payable (750,000 ) - Payment of note payable (12,000 ) - Proceeds from issuance of notes payable 1,000,080 2,048,945 Net cash provided by financing activities 11,988,395 2,817,746 Net increase (decrease) in cash 13,646,694 (2,809,915 ) Cash, beginning of period 887,517 3,697,432 Cash, end of period $ 14,534,211 $ 887,517 Supplemental cash flow disclosures Interest paid $ - $ 2,521 Income tax paid $ - $ - Non-cash financing activities Issuance of common stock for acquisition of Infusionz $ 650,255 $ - Issuance of common stock for conversion of notes payable and accrued interest $ 3,085,273 $ - Repayment of Infusionz LLC debt to Grove, Inc. $ 72,000 $ - Liabilities assumed from acquisition of Infusionz $ (680,480 ) $ - Stock issuance for payroll accrual $ - $ 25,000 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents Grove Inc. Notes to the Consolidated Financial Statements June 30, 2021 and 2020 Note 1. Background Information We are in the business of developing, producing, marketing, and selling raw materials, white label products and end consumer products containing the hemp plant extract, Cannabidiol (“CBD”). We sell to numerous consumer markets including the nutraceutical, beauty care, pet care and functional food sectors. We seek to take advantage of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers. In addition, we are an operator of an annual tradeshow in the United States related to the CBD industry. The Company only has one trade show, CBD.IO, which is held in November each year. Because event revenue is recognized when a particular event is held, the Company experiences fluctuations in quarterly revenue based on the completion of the trade show event. Grove Inc. (the “Company”) is a Nevada Corporation and has eight wholly owned subsidiaries, Trunano Labs, Inc., a Nevada corporation, Cresco Management, a California corporation, Steam Distribution, LLC, a California limited liability company; One Hit Wonder, Inc., a California corporation; Havz, LLC, d/b/a Steam Wholesale, a California limited liability company, and One Hit Wonder Holdings, LLC a California corporation, Infusionz LLC, a Colorado corporation and SWCH, a Delaware corporation. On July 1, 2020, the noncontrolling shareholders of the Company’s subsidiary, Trunano Labs Inc., converted 1,761,261 shares of Trunano Labs, Inc. stock, representing all the outstanding stock by minority interest holders, into 1,277,778 shares of Grove Inc. common stock, 10.8% of the then outstanding shares. As of July 1, 2020, Trunano Labs, Inc. is a wholly owned subsidiary of Grove Inc. On July 1, 2020, the Company entered into an agreement and plan of merger with Infusionz LLC (the “Infusionz Agreement”) with the members of Infusionz LLC. Pursuant to the terms of the Infusionz Agreement, on July 1, 2020, the Company acquired 100% of the outstanding membership interests of Infusionz LLC. Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the June 30, 2021 and 2020. Note 2. Significant Accounting Policies The significant accounting policies followed are: 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. Actual results could differ from those estimates. Significant estimates underlying the Company’s reported financial position and results of operations include the allowance for doubtful accounts, useful lives of property and equipment, impairment of long-lived assets, inventory valuation, fair value of stock-based compensation and valuation allowance on deferred tax assets. F-6 Table of Contents Cash and Cash Equivalents - The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. Accounts Receivable - The Company regularly reviews accounts receivable for any bad debts based on an analysis of the Company’s collection experience, customer credit worthiness and current economic trends. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on management’s review of accounts receivable, the Company recorded $57,500 and $10,000 as allowance for doubtful accounts at June 30, 2021 and 2020, respectively. The Company had bad debt expense of $78,185 and $160,740 for the years ended June 30, 2021, and 2020, respectively, including write-offs of accounts receivables $45,185 and $150,740, for the years ended June 30, 2021 and 2020, respectively. Inventory - Inventory consists of raw materials, work-in-process and finished goods and is stated at the lower of cost or net realizable value, cost is determined by the weighted average moving cost inventory method. Net realizable value is determined, with appropriate consideration given to obsolescence, excessive levels, deterioration, and other factors. Property and Equipment - Property and equipment is recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 7 years. Leasehold improvements are amortized over the shorter of their estimated useful lives of 5 years or the related lease term. Gains and losses upon disposition are reflected in the Statement of Operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. The Company disposed of some equipment during 2020 which resulted in a gain on the sale. Business Combinations -The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the seller’s cash consideration and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as identifiable intangible assets and goodwill. Goodwill - The Company evaluates its goodwill for possible impairment as prescribed by ASC 350-20-35, Intangibles — Goodwill and Other (Topic 350). The Company test for Goodwill Impairment at least annually and when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill. The Company performed its annual test as of June 30, 2021. No impairment charge was identified in connection with the annual goodwill impairment test Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. The Company did not recognize impairment on its long-lived assets during the years ended June 30, 2021 or 2020. F-7 Table of Contents Revenue Recognition - The Company has adopted the new revenue recognition guidelines in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606), commencing from the period under this report. The Company analyzes its contracts to assess that they are within the scope and in accordance with ASC 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, whether for goods and services or licensing, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions. Generally, the Company recognizes revenue for its products upon shipment to customers, provided no significant obligations remain and collection is probable. Product Revenue - Most of the Company’s revenue contracts are from domestic sales and represent a single performance obligation related to the fulfillment of customer orders for the purchase of its products. Net sales reflect the transaction prices for these contracts based on the Company’s selling list price, which is then reduced by estimated costs for trade promotional programs, consumer incentives, and allowances and discounts used to incentivize sales growth and build brand awareness. The Company recognizes revenue at the point in time that control of the ordered product is transferred to the customer, which is upon shipment to the customer or other customer-designated delivery point. Taxes collected from customers that are remitted to governmental agencies are accounted for on a net basis and not included as revenue. The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment. E-Commerce product returns must be completed within 45 days of the date of purchase. The Company does not accrue for estimated sales returns as historical sales returns have been minimal. The Company records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable. Substantially all the deferred revenue as of June 30, 2020 was recognized as revenue in the year ended June 30, 2021. Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with freight are generally included in cost of revenue. Trade Show Revenue - A significant portion of the Company’s annual revenue is generated from the production of a single trade show. The revenue includes booth space sales, registration fees and sponsorship fees. The Company recognizes revenue upon completion of the CBD.IO trade show. Amounts invoiced prior to the completion of the trade show are recorded as deferred revenues in the consolidated balance sheets until the completion of the event. As of June 30, 2021, and 2020, the Company had no deferred revenue related to trade show business. Loyalty Program - The Company grants customers loyalty points for each purchase on the website and at the time of the sale, accrues the estimated cost related to fulfilling the future purchase in accrued liabilities. When the points are redeemed, the Company does not recognize any revenue related to the purchase and reduces the accrued liability related to the cost of the purchase. Advertising - The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing team. The Company believes the continual investment in advertising is critical to the development and sale of its CBD branded products. Advertising costs of $771,546 and $165,640 were expensed as incurred during the years ended June 30, 2021 and 2020, respectively. Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately. F-8 Table of Contents Non-employee Stock-based Payments - The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Stock-based payments related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Fair Value Measurements - The Company accounts for financial instruments in accordance with FASB Accounting Standards Codification (ASC) 820 “Fair value Measurement and Disclosures” (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: • Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. • Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or 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 (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. • Level 3 - Inputs that are both significant to the fair value measurement and unobservable. The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, deferred revenue and debt are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. Leases - The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option will result in an economic penalty. All of the Company’s real estate leases are classified as operating leases. Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional two years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. F-9 Table of Contents Income Taxes - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences 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 results of operations in the period that includes the enactment date. ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There are no material uncertain tax positions at June 30, 2021. On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate and the net operating loss incurred after December 31, 2017 can be carried forward indefinitely and the two year net operating loss carried back was eliminated (prohibited). Earnings (loss) per Share - Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted income (loss) per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and upon the conversion of notes. There were no potentially dilutive common shares for the year ended June 30, 2020. For the year ended June 30, 2021, the dilutive common shares are as follows: June 30, 2021 Stock options 1,697,889 Warrants 129,667 Preferred stock 500,000 Weighted average shares outstanding 11,930,378 Fully diluted weighted average shares outstanding 14,257,934 F-10 Table of Contents The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company's common stock can result in a greater dilutive effect from potentially dilutive securities. Deferred Revenue - The Company records deposits as deferred revenue when a customer pays in advance of shipping the product. Once the product is shipped, the deposit is recorded as revenue and the related commissions are paid. All products were shipped related to deposits in deferred revenue, in less than one year. The Company recognizes revenue upon completion of the CBD.IO trade show. Amounts invoiced prior to the completion of the trade show are recorded as deferred revenues in the consolidated balance sheets until the completion of the event. Convertible Debt and Securities - The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option's in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence. Non-controlling Interests in Consolidated Financial Statements - In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in consolidated Financial Statements”. This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. Operating Segments - The Company’s financial reporting is organized into two segments: products and trade shows for revenue and cost of revenue. The Company’s internal reporting for product sales is organized into three channels of distribution: Grove, Inc. branded products, manufacturing of products to be sold under customers brands and white label products that are sold under customer brands. These product sales are aggregated and viewed by management as one reportable segment due to their similar economic characteristics, products, production, distribution processes and regulatory environment. The Company does not allocate or track certain general and administrative expenses to individual reportable segments. Recent Accounting Pronouncements - There are new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective as follows: In August 2020, the FASB issued ASU 2020-06- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity , which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its Convertible Debt and reduce its reported interest expense. In addition, the Company will be required to use the if-converted method for calculating diluted earnings per share. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. F-11 Table of Contents No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future unaudited condensed consolidated financial statements. Note 3. Acquisition Infusionz LLC On July 1, 2020 the Company entered into an Agreement and Plan of Merger with Infusionz LLC (the “Infusionz Agreement”) with the Members of Infusionz LLC (“Sellers”). Pursuant to the terms of the Infusionz Agreement on July 1, 2020 the Company acquired 100% of the outstanding interest of Infusionz LLC, a Colorado corporation (“Infusionz”). Infusionz LLC was incorporated in the state of Colorado in May 2016. The Infusionz, Inc. develops, manufactures, and markets products based on Hemp-based Cannabidiol (“CBD”) including, but not limited to edibles, tinctures, topicals, capsules and pet products, similar to the same products Grove, Inc. manufactures and markets. Infusionz Inc. will also manufacture CBD products for other businesses under their brand and specifications, similar to Grove, Inc. Under the purchase method of accounting, the transaction was valued at an estimated fair value of $3,350,000. The estimate was based on the consideration paid or payable, consisting of $3,000,000 of equity consideration payable in the form of the Company’s common stock and cash consideration of approximately $350,000, paid based on terms of the Infusionz Agreement. The Company will issue a minimum of 833,334 shares of common stock Per the Infusionz Agreement, the number of shares of the Company’s Common Stock to be issued to the Sellers will be based on $3.60 per share; provided however, that in the event of and upon any public offering of the Company’s common stock, if the ‘offering price’ of the Company’s successful underwritten initial public offering of the Company’s Common Stock is lower than $3.60 per share (post reverse split), the Company shall promptly issue such additional shares proportionately to each of the Sellers necessary to bring the value of the equity consideration to a total of $3,000,000. On July 1, 2020, the closing of the acquisition, the Company issued 222,223 shares of Common Stock (post-reverse split) to the Sellers, based on the most recent price of $1.53 per share of Common Stock. The Company has an accrued acquisition payable of $2,424,745 accrued for the cash and stock to be issued related to the Infusionz Agreement. Since the closing of the acquisition, the Company has issued an additional 304,181 shares of common stock to the Sellers based on the most recent price of $1.53 per share of Common Stock. Based on this valuation, the Company will issue an additional 1,535,781 shares of Common Stock to the Sellers in equity consideration, as adjusted based on the initial public offering price, pursuant to the Infusionz Agreement as set forth below. On November 1, 2020 the Company issued 101,389 shares of Common Stock in relations to the acquisition of Infusionz LLC. The shares were issued at a $1.53 per common share with adjustments to the final number of shares and value based on the acquisition agreement. On January 4, 2021 the Company paid the former members of Infusionz LLC $75,000 as per the acquisition agreement. On February 1, 2021 the Company issued 101,392 shares of Common Stock in relations to the acquisition of Infusionz LLC. The shares were issued at a $1.53 per common share with adjustments to the final number of shares and value based on the acquisition agreement. On June 25, 2021 the Company issued 101,400 shares of Common Stock in relations to the acquisition of Infusionz LLC. The shares were issued at a $5.75 per common share with adjustments to the final number of shares and value based on the acquisition agreement. F-12 Table of Contents The Company’s equity and cash consideration payment schedule pursuant to the Infusionz Agreement is as follows: Date Cash Shares of Common Stock July 1, 2020 $ 300,000 222,223 December 31, 2020 (paid January 4, 2021) 75,000 - November 1, 2020 - 101,392 February 1, 2021 - 101,392 March 31, 2021 (paid April 2, 2021) $ 75,000 - June 1, 2021 (issued June 25, 2021) - 101,392 September 1,2021 - 306,935 Total Consideration $ 450,000 833,334 Acquisition payable: Date Consideration Acquisition $ 3,350,000 July 1, 2020 – cash (200,000 ) July 1, 2020 - equity consideration (222,222 common shares of the acquirer) * (340,000 ) November 1, 2020 - equity consideration (101,389 common shares of the acquirer) * (155,125 ) January 4, 2021 – cash (75,000 ) February 1, 2021 - equity consideration (101,932 common shares of the acquirer) * (155,130 ) March 31, 2021 (75,000 ) June 1, 2021 - equity consideration (101,400 common shares of the acquirer) (584,869 ) Acquisition payable ** $ 1,764,876 * Stock consideration was valued at $1.53 per common share as that was the last purchase price of the stock. ** 306,945 shares of the Company’s common stock were issued on September 1, 2021, in consideration for this liability. The assets and liabilities of Infusionz are recorded at their respective fair values as of the closing date of the Infusionz Agreement, and the following table summarizes these values based on the balance sheet at July 1, 2020, the effective closing date. Tangible Assets $ 778,331 Intangible Assets 1,920,720 Goodwill 1,331,429 Liabilities Acquired (680,480 ) Total Purchase Price $ 3,350,000 The acquisition of Infusionz LLC provided the Company with additional expertise in the industry, expanded the branded product offerings of the Company, additional manufacturing resources and improved gross margin through synergies recognized with the consolidation of the two companies manufacturing and distribution. These are the factors of the goodwill recognized in the acquisition. F-13 Table of Contents Consolidated pro-forma unaudited financial statements. The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2019, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the year ended June 30, 2020, as if the acquisition occurred on July 1, 2019. Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of approximately $333,000 per year. Pro Forma, Unaudited Proforma Year ended June 30, 2020 Grove Inc. Infusionz LLC Adjustments Proforma Net sales $ 7,412,860 $ 3,787,495 $ 11,200,355 Cost of sales $ 4,842,897 $ 2,837,571 $ 7,680,468 Operating expenses $ 7,408,293 $ 1,279,668 $ 333,000 $ 9,020,961 Net income (loss) $ (5,383,673 ) $ (335,484 ) $ (333,000 ) $ (6,052,157 ) Basic loss per common share $ (0.53 ) $ (0.40 ) $ (0.55 ) Weighted average shares outstanding 10,097,075 833,333 10,930,408 The Company’s consolidated financial statements for year ended June 30, 2021, include the actual results of Infusionz, Inc. Revenue and net income for Infusionz, Inc. included in the consolidated statement of operations for the year ended June 30, 2021, was $4,134,464 and $615,977, respectively. Note 4. Inventory Inventory consisted of the following: June 30, 2021 2020 Raw materials $ 1,680,471 $ 730,000 Finished goods 414,481 718,448 Total $ 2,094,952 $ 1,448,448 The Company writes-off the value of inventory deemed excessive or obsolete. During the year ended June 30, 2021 the Company wrote off $375,000 of inventory and during the year ended June 30, 2020, the Company did not deem that an inventory write-off was considered necessary. Note 5. Property and Equipment Property and equipment consist of the following: June 30, 2021 2020 Furniture and fixtures $ 20,173 $ 4,167 Computer equipment 62,430 48,606 Manufacturing equipment 1,867,509 45,692 Leasehold improvements 764,225 1,787,200 Vehicles 98,859 - Property and equipment, gross 2,813,196 1,885,665 Less accumulated depreciation (515,990 ) (198,392 ) 2,297,206 1,687,273 Deposits on equipment 535,194 - Property and equipment, net $ 2,832,400 $ 1,687,273 F-14 Table of Contents During the year ended June 30, 2020, the Company sold manufacturing equipment with a carrying value of approximately $289,789 for cash proceeds of $470,000 which resulting in a gain on the disposal of approximately $180,211. During the year ended June 30, 2021, the Company sold manufacturing equipment with a carrying value of approximately $70,292 for cash proceeds of $79,000 which resulting in a gain on the disposal of approximately $8,708. Depreciation expense for the years ended June 30, 2021, and 2020 was $303,496 and $217,868, respectively. Note 6. Intangible Assets As of June 30, 2021 Cost Accumulated Amortization Net Book Value Customer relationships $ 2,075,347 $ 843,636 $ 1,231,711 Trade name 845,305 270,147 575,158 Non-compete agreements 76,592 38,295 38,297 $ 2,997,244 $ 1,152,078 $ 1,845,166 As of June 30, 2020 Cost Accumulated Amortization Net Book Value Customer relationships $ 1,199,260 $ 324,467 $ 874,793 Trade name 466,555 101,088 365,467 $ 1,665,815 $ 425,555 $ 1,240,260 For the years ended June 30, 2021, and 2020, the Company amortized approximately $726,525 and $393,478, respectively, related to the customer list and trade name intangible assets. The customer list is being amortized on a straight-line basis over 4 years. The trade names are being amortized on a straight-line basis over 5 years. The following intangible assets were added during the year ended June 30, 2021, from the acquisition of Infusionz LLC. Customer Relationships $ 876,088 Trade Name 378,750 Non-compete agreements 76,592 Intangible Assets from Purchase $ 1,331,429 F-15 Table of Contents The employee contracts – non compete are being amortized on a straight-line basis over 2 years. Future amortization of intangible assets are as follows: June 30, 2022 726,526 June 30, 2023 662,913 June 30, 2024 380,307 June 30, 2025 75,420 $ 1,845,166 Note 7. Prepaid Expense and Other Current Assets Prepaid and other assets consist of the following: June 30, 2021 June 30, 2020 Insurance $ 100,307 $ 22,304 Prepayment to vendors 118,283 5,000 Deposit on services 3,225 5,000 Other deposits 164,443 44,258 Total $ 386,258 $ 76,562 Note 8. Operating Leases During November 2019, the Company entered into a lease for a Nevada facility that commenced on November 13, 2019 and recorded a right of use asset and corresponding lease liability. The Company uses this leased facility for office, manufacturing, and warehouse space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. Therefore, all lease and non-lease components are combined and accounted for as single lease component. Lease expense was $227,967 and $151,978 for the years ended June 30, 2021, and 2020, respectively. During May 2021, the Company entered into a lease for an additional Nevada facility that commenced on May 1, 2021 and recorded a right of use asset and corresponding lease liability. The Company uses this leased facility for additional warehouse space. Lease expense was $19,665 for the year ended June 30, 2021. During July 2019, the Company entered a lease for a California facility that commenced on July 1, 2019 and recorded a right of use asset and corresponding lease liability. In March 2020, the Company consolidated operations to its Nevada facility and abandoned its manufacturing and sales facility in Costa Mesa. For the year ended June 30, 2020, the Company recorded an impairment loss of $558,918 and subsequently negotiated a settlement for this liability and recognized a gain of $387,860 in December of 2020. During September 2020, the Company entered into a one-year lease for a Colorado facility that commenced on September 1, 2020 and recorded a right of use asset and corresponding lease liability. The Company uses this facility for office and manufacturing space. Lease expense was $62,000 for the year ended June 30, 2021. F-16 Table of Contents During November 2018, the Company entered into a lease for equipment that commenced on November 1, 2018 and recorded a right of use asset and corresponding lease liability. Lease expense was $6,428 for the year ended June 30, 2021. The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of June 30, 2021 are: Weighted average remaining lease term 28 Months Weighted average incremental borrowing rate 5.0 % For the year ended June 30, 2021, the components of lease expense, included in general and administrative expenses and interest expense in the condensed consolidated statements of operations income, are as follows: Operating lease cost: Operating lease cost $ 316,060 Amortization of ROU assets 302,268 Interest expense 13,946 Total lease cost $ 632,274 The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the condensed consolidated balance sheet as of June 30, 2021: 2022 $ 220,845 2023 118,540 2024 99,976 Total undiscounted future minimum lease payments 439,361 Less: Imputed interest (22,399 ) Present value of operating lease obligation $ 416,962 Note 9. Accrued Liabilities Accrued liabilities consist of the following: June 30, 2021 2020 Accrued expenses for loyalty program $ 24,768 $ 47,400 Accrued interest 9,817 93,543 Accrued rent - 60,721 Accrued state income tax 120,776 - Other accrued liabilities 140,660 20,000 $ 296,021 $ 221,664 Note 10. Convertible Promissory Notes and Notes Payable During October of 2019, the Company entered into convertible promissory notes (Notes) for total proceeds of $1,500,000. The principal and interest of the Notes are payable in full at the maturity date of April 2021, if not previously converted. The Notes have an interest rate of 8%, total accrued interest is to be repaid at maturity, and are convertible into common stock if the Company enters a financing arrangement which results in the Company’s common stock becoming listed or trading. The conversion rate would be equal to the price of the Company’s common stock sold in the financing arrangement. During the year ended June 30, 2021, the Notes and related accrued interest were converted into 348,310 shares of the Company’s common stock. F-17 Table of Contents On April 28, 2020, the Company entered into a Paycheck Protection Program loan for $398,945 in connection with COVID-19. The promissory note has a fixed payment schedule, commencing seven months following the funding of the note and consisting of seventeen monthly payments of principal and interest, with the principal component of each payment based upon the level of amortization of principal over a two year period from the funding date. A final payment for the unpaid principal and accrued interest will be payable no later than April 28, 2022. The note bears interest at a rate of 1.00% per annum and is deferred for the first six months of the loan. Certain portions of the loan may qualify for loan forgiveness based on the terms of the program. During the year ended June 30, 2021, the Company submitted its PPP Loan Forgiveness Application to the SBA. On June 11, 2021, the SBA confirmed that application for forgiveness had been approved and that its PPP loan, in the amount of $398,945 plus accrued interest of $4,551, had been forgiven. On May 13, 2020, Infusionz entered a Paycheck Protection Program loan for $297,100 in connection with COVID-19. The promissory note has a fixed payment schedule, commencing seven months following the funding of the note and consisting of seventeen monthly payments of principal and interest, with the principal component of each payment based upon the level of amortization of principal over a two year period from the funding date. A final payment for the unpaid principal and accrued interest will be payable no later than May 13, 2022. The note bears interest at a rate of 1.00% per annum and is deferred for the first six months of the loan. Certain portions of the loan may qualify for loan forgiveness based on the terms of the program. The Company has not been required to make installment payments as of the date of this report and has submitted its PPP Loan Application to the SBA. On June 3, 2020, the Company entered into a loan for $150,000 with the Small Business Administration. The promissory note has a fixed payment schedule commencing on June 3, 2021, consisting of principal and interest payments of $731 monthly. The balance of the principal and interest will payable thirty years from the date of the promissory note. The note bears interest at a rate of 3.75% per annum. The Small Business Administration has filed a UCC Financing Statement on this loan confirming it is collateralized by any and all tangible and intangible properties of the Company. On December 7, 2020 the Company entered into a note agreement for total proceeds of $750,000 with a related party. The principal and interest of the note is payable in full in December 2022. The note bears interest at 2% and is unsecured. The Company repaid the note in full during February 2021. In February and March 2021, the Company entered into convertible promissory notes (“Convertible Notes”) for total proceeds of $1,000,080. The term of the Convertible Notes is two years and bear interest at the rate of 8% per annum, compounded annually. The Convertible Notes and accrued interest are automatically converted into any initial public offering by the Company at a rate of seventy five percent of the initial public offering price of the shares of capital stock of the Company sold in the initial public offering. During the year ended June 30, 2021, the Convertible Notes and related accrued interest were converted into 274,330 shares of the Company’s common stock. The Company recorded interest expense of $342,813 for the beneficial conversion of the Convertible Note. Convertible promissory notes and notes payable outstanding as of June 30, 2021 are summarized below: Maturity Date June 30, 2021 3.75% $150,000 Note Payable June 2050 $ 150,000 1% $297,100 Note Payable April 2022 297,100 Total notes payable 447,100 Less current portion of notes payable 447,100 Notes payable, less current portion $ - F-18 Table of Contents Note 11. Related Party Transactions For the years ended June 30, 2020, the Company leased the Las Vegas warehouse from a shareholder for $22,071 per month. This lease ended December 31, 2019, and there were no further liabilities related to this lease. The owner of the warehouse is also related to one of the members of management. During the year ended June 30, 2021, the Company received a note from one of the members of management. The loan was $750,000, two years and has an interest rate of 2%. Management repaid the loan during the three months ended March 31, 2021. During the year ended June 30, 2021, the Company repaid a note from one of the members of management. The loan was $12,000 and was due upon demand. During the year ended June 30, 2021, a member of management purchased 500,000 shares of preferred stock for $50,000 cash. The Company recognized $50,000 for the beneficial conversion feature as a deemed preferred stock dividend in the Consolidated Statements of Operations. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all maters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock. The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties. Note 12. Equity Transactions Convertible Preferred Stock The Company’s Board of Directors has authorized 1,000,000 shares of preferred stock with a par value of $0.001 and issued 500,000 shares of preferred stock for a purchase price of $50,000. This preferred stock is convertible into shares of common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock with additional terms and conditions determined by the Board of Directors. During the year ended June 30, 2020, an investor converted 500,000 shares of preferred stock into 277,778 shares of common stock.. On February 2, 2021, the Company sold the 500,000 shares of Preferred Stock to Allan Marshall, CEO for net proceeds of $50,000. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all matters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock. Common Stock On February 8, 2021, the Shareholders consented, and the Board of Directors approved the Reverse Stock Split at the rate of 1 share of Common Stock for each 1.8 shares of Common Stock of the Company issued and outstanding (rounded up to the nearest whole number after giving effect to the Reverse Stock Split) on the Record Date of February 5, 2021. On February 8, 2021, the Board of Directors approved the officers of the Company to file a Registration Statement on Form S-1 (the “Registration Statement”) to be prepared for the purposes of registering (i) up to $20,000,000 of Common Stock at a purchase price of no less than $4.50 per share (post reverse split), including an over-allotment option for the underwriter named therein (the “Underwriter”) to purchase additional shares of Common Stock amounting to 15% of the number of shares of Common Stock offered to the public; and (ii) a warrant to be issued to the Underwriter for the purchase of shares of Common Stock (the “Underwriter Warrant”); and (iii) the shares of Common Stock underlying the Underwriter Warrant (collectively, the “Securities”). F-19 Table of Contents On June 28, 2021, and the Company completed the sale of 2,530,000 shares of Common Stock to the Underwriters, which includes 330,000 shares sold upon the full exercise of the option, for total gross proceeds of approximately $12,650,000. After deducting the underwriting commissions, discounts, and offering expenses payable by the Company, the Company received net proceeds of $10,950,315. During the year ended June 30, 2021, the Company issued 526,404 shares of common stock for the acquisition of Infusionz. The shares were valued at $1,235,124 and the Company issued 306,935 of the Company’s stock on September 1, 2021 for the remaining acquisition liability of $1,764,876. In addition, the Company issued 83,334 shares of common stock valued at $127,500 for acquisition costs. During the year ended June 30, 2020, the Company issued 13,072 shares of common stock for cash of $20,000. The Company also issued 277,778 shares of common stock for the exercise of an option for $400,000 of cash proceeds and forgiveness of accrued payroll of $25,000 from the investor. Finally, the Company converted preferred stock into 277,778 shares of common stock for cash proceeds of $50,000. The Company issued a total of 568,628 shares of common stock for cash consideration of $470,000 and a reduction of accrued payable of $25,000. Trunano Labs, Inc. Common Stock On July 1, 2020 the noncontrolling shareholders of the Company’s subsidiary, Trunano Labs Inc., converted 1,761,261 shares of Trunano Labs, Inc. stock, representing all the outstanding stock by minority interest holders, into 1,277,778 shares of the Company’s Common Stock, 10.8% of the then outstanding shares. As of July 1, 2020, Trunano Labs, Inc. is a wholly owned subsidiary of Grove Inc. Trunano Labs, Inc. has 10,000,000 shares of common stock authorized with a par value of $0.001. As of June 30, 2020, Trunano Labs, Inc, had 7,261,261 issued and outstanding shares of common stock, of which 5,500,000 is owned by the Company. During the year ended June 30, 2019, Trunano Labs, Inc. issued 1,490,991 shares of common stock for cash proceeds of approximately $1,655,000. During the year ended June 30, 2020, Trunano Labs, Inc. issued 270,270 shares of common stock for cash proceeds of approximately $300,000. Primarily due to the decline in CBD isolate price, there were no operations during the year ended June 30, 2019 for Trunano Labs, Inc. During the year ended June 30, 2020, Trunano Labs, Inc. had a net loss of $5,850. Note 13. Stock Based Compensation The Company has established a Company an incentive plan, 2019 Equity Incentive Plan (the “2019 Plan”). The plan grants incentives to select persons who can make, are making and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons and to encourage and reward such contributions by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant of options or restructured stock. The 2019 Plan is administered by the Compensation Committee or such other committee as is appointed by the Board of Directors pursuant to the 2019 Plan (the “Committee”). The Committee has full authority to administer and interpret the provisions of the 2019 Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an award made under the 2019 Plan. On February 8, 2021, the Shareholders consented, and the Board of Directors approved the amendment of the Stock Option Plan to increase the maximum number of Shares that may be issued thereunder by 2,777,778 Shares to 5,555,555 Shares. The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares. The options are exercisable for a period of up to 10 years from the date of the grant. F-20 Table of Contents The following table reflects the continuity of stock options for the year ended June 30, 2021: A summary of stock option activity is as follows: Weighted Average Average Remaining Aggregated Options Exercise Contractual Intrinsic Outstanding Price Life (Years) Value Outstanding at June 30, 2020 1,000,000 $ 1.53 8.5 $ - Granted 1,092,222 1.58 10 - Forfeited (3,889 ) 3.60 10 - Outstanding at June 30, 2021 2,088,333 $ 1.55 7.49 $ 9,689,865 Options exercisable at June 30, 2021 (vested) 1,334,005 $ 1.55 7.89 $ 6,189,783 Weighted Average Average Remaining Aggregated Options Exercise Contractual Intrinsic Outstanding Price Life (Years) Value Outstanding at June 30, 2019 1,277,778 $ 1.53 8.5 $ - Exercised (277,778 ) $ 1.53 - - Expired - - - - Forfeited - - - - Outstanding at June 30, 2020 1,000,000 $ 1.53 8.5 - The average fair value of stock options granted was estimated to be $1.58 per share for the period ended June 30, 2021 and the closing stock price on June 30, 2021 was $6.19 per common share. Stock-based compensation expense attributable to stock options was approximately $611,432 and $372,770 for the years ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there was approximately $688,749 unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 2 years. The value of each grant is estimated at the grant date using the Black-Scholes option model with the following assumptions for options granted during the year ended June 30, 2021. There were no options granted during the year ended June 30, 2020. June 30, 2021 Dividend rate - Risk free interest rate 0.23%-0.87 % Expected term 6.5 Expected volatility 71%-72 % Grant date stock price $ 0.85 – 2.00 F-21 Table of Contents The basis for the above assumptions are as follows: the dividend rate is based upon the Company’s history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Company’s historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated based upon historical trends in Charlotte’s Web Holdings, Inc. (CWBHF) stock prices for periods prior to the date the Company’s trading information was available. Management selected Charlotte’s Web Holdings, Inc. for it length of time as a publicly trading company and the similarities of the business and industry. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at 0% for each of the years ended June 30, 2021 and 2020, respectively. 14. Income Taxes One Hit Wonder, Inc. has elected S Corporation status for federal income tax and California corporation business tax purposes, Steam Distribution, LLC, Havz, LLC and One Hit Wonder Holdings, LLC elected partnership status for federal income tax and California corporation business tax purposes. Under these elections, the Company is not a taxpaying entity for federal and state income tax purposes and, accordingly, no provision has been made for such income taxes, except for a minimum state corporate business tax. The stockholders’ allocable share of the Company’s income or loss is reportable on his or her income tax return through May 31, 2019. These entities under Grove, Inc. are tax paying entities and the period from June 1, 2019 to June 30, 2019 remains open and subject to examination by the Internal Revenue Service. Cresco Management, LLC and SWCH, LLC elected partnership status for federal income tax and California and Delaware corporation business tax purposes, respectively. Under these elections, these Subsidiaries are not a taxpaying entity for federal and state income tax purposes and, accordingly, no provision has been made for such income taxes, except for a minimum state corporate business tax through December 31, 2018. The stockholders’ allocable share of the Company’s income or loss is reportable on his or her income tax return through December 31, 2018. The Company’s 2019 through 2020 tax years remain open and subject to examination by the Internal Revenue Service. Grove had no operations through December 31, 2018. On January 1, 2019 Cresco Management LLC and SWCH, LLC were contributed to Grove, Inc. in a non-taxable transaction. Grove, Inc. consolidated from 2018 to current. The first consolidated tax return for all entities was filed for the tax year December 31, 2019. The components of the provision for income taxes are as follows: 2021 2020 Current tax provision $ 120,776 $ - Deferred tax asset valuation allowance adjustment (1,403,594 ) - Provision for income taxes (benefit) $ (1,282,815 ) $ - The differences between income taxes calculated at the statutory U.S. federal income tax rate and the Company’s provision for income taxes are as follows: 2021 2020 Income tax provision at statutory federal and state tax rate 21.00 % 21.00 % State taxes, net of federal benefit 5.80 % Nondeductible expense 2.16 % Other, net (11.52 )% Valuation allowance (95.37 )% (21.00 )% Provision for income taxes (77.93 )% - F-22 Table of Contents The net deferred income tax asset balance related to the following: 2021 2020 Net operating losses $ 573,464 $ 1,282,394 Deferred tax provision (credit) related to: Reward points 17,677 9,983 Inventory write off 106,275 - Adverse lease 123,553 Intangible assets 245,677 58,260 Stock Options 278,980 78,287 Allowance for doubtful accounts 12,753 2,100 Accrued compensation 30,024 15,265 Deferred revenue 137,725 - Other, net 1,015 - Valuation allowances - (1,569,836 ) Deferred tax asset $ 1,403,591 $ - As of June 30, 2021, there were approximately $2,730,782 of losses available to reduce federal taxable income in future years and can be carried forward indefinitely. Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of June 30, 2021 and 2020, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. The Company determined that it is more likely than not that the Company will have future taxable income. The Company eliminated the valuation allowance on the deferred tax asset and recognized a benefit of $1,282,815 during the year ended June 30, 2021. The eliminated of the valuation allowance was based on the historical income of the Company for the fourth quarter ended June 30, 2021, the Company’s performance and expected taxable income for the year ended June 30, 2022 and the known gain on SBA PPP loan extinguishment during the first quarter ended September 30, 2021. We file federal and state income tax returns in jurisdictions with varying statutes of limitations. Income tax returns generally remain subject to examination by federal and most state tax authorities. We are not currently under examination in any federal or state jurisdiction. Note 15. Risks and Uncertainties There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration, or DEA, and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets. F-23 Table of Contents In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to predict with certainty the potential impact of COVID-19 on its business, results of operations, financial condition and cash flows. Note 16. Segment Information The Company provides the following segments: (a) product segment and (b) trade show segment. For the year ended June 30, 2021: Product Trade Show Total Revenue $ 24,095,025 $ - $ 24,095,025 Income from operations $ 1,426,737 $ - $ 1,426,737 Other income $ (269,396 ) $ - $ (269,396 ) Depreciation expense $ 339,052 $ - $ 339,052 Income tax expense $ - $ - $ - Segment assets: Additions to property, plant and equipment $ 1,422,129 $ - $ 1,422,129 Total assets $ 27,254,564 $ - $ 27,254,564 For the year ended June 30, 2020: Product Trade Show Total Revenue $ 6,159,013 $ 1,253,847 $ 7,412,860 Loss from operations $ (5,083,154 ) $ 244,824 $ (4,838,330 ) Other expense $ 546,542 $ - $ 546,542 Depreciation expense $ 218,868 $ - $ 218,868 Income tax expense $ - $ - $ - Segment assets: Additions to property, plant and equipment $ 1,929,028 $ - $ 1,929,028 Total assets $ 6,402,205 $ - $ 6,402,205 Note 17. Significant Customers The Company had significant customers during the year ended June 30, 2021 and there were no significant customers during the year ended June 30, 2020. A significant customer is defined as one that makes up ten percent or more of total revenues in a particular year or ten percent of outstanding accounts receivable balance as of the year end. Net revenues for the year ended June 30, 2021 include revenues from significant customers in the product segment as follows: 2021 Customer A 12 % Customer B 15 % F-24 Table of Contents Accounts receivable balances as of June 30, 2021, from significant customers are as follows: June 30, 2021 Customer A 7 % Customer B 30 % Note 18. Subsequent Events On August 1, 2021, the Company entered into an asset purchase agreement (VitaMedica Agreement) with Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company and VitaMedica Corporation, a California corporation, David Rahm and Yvette La-Garde (Seller). VitaMedica Corporation is a leading online seller of supplements for surgery, recovery, skin, beauty, health and wellness. Pursuant to the terms and conditions of the VitaMedica Agreement, the Company agreed to purchase substantially all of the assets of the Seller. The purchase price for the sale consists of $500,000 of Grove’s common stock, a non-negotiable promissory note from Grove in favor of the Seller in the original principal amount of $500,000, a non-negotiable convertible promissory note from Grove in favor of the Seller in the original principal amount of $500,000, convertible at $5.00 per share for a total of 100,000 shares of Grove Common Stock and a cash payment of $2,000,000. On July 21, 2021 the Company granted stock options to purchase 1,900,000 shares of the Company’s common stock at an exercise price of $4.18 per share, with a vesting period of two years and a term of five years. F-25 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods.