GROW CAPITAL, INC. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2020

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to __________


000-53548
Commission File Number

GROW CAPITAL, INC.
(Exact name of registrant as specified in its charter)

Nevada	86-0970023
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2485 Village View Drive, Suite 180, Henderson, NV	89074
(Address of principal executive offices)	(Zip Code)

702-830-7919
(Registrant’s telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer[ ]	Accelerated filer [ ]
Non-accelerated filer[ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]
	Emerging growth company [X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Not applicable.

APPLICABLE ONLY TO CORPORATE ISSUERS

24,691,530 shares of common stock outstanding as of January 27, 2021

(Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)

GROW CAPITAL INC.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	39

Item 6.	Exhibits	39

	SIGNATURES	40

iii

ITEM 1. FINANCIAL STATEMENTS

GROW CAPITAL, INC. AND SUBSIDIARIES
Condensed Consolidated and Combined Balance Sheets
	September 30,			June 30,
ASSETS	2020			2020
CURRENT ASSETS:	(Unaudited)				*
Cash	$	1,495,517			246,761
Accounts receivable, net of allowance		204,300			67,197
Accounts receivable, related parties		58,305			249,057
Interest receivable		2,701			1,794
Prepaid expenses		80,775			68,725
Promissory note receivable		72,000			88,510
Other current assets		147,357			4,277
Total current assets		2,060,955			726,321

Property, plant and equipment, net		944,531			842,975
Intangible assets		200			200
Right to use assets		2,023,678			335,645
Deposits		32,306			8,117
TOTAL ASSETS	$	5,061,670			1,913,258

LIABILITIES AND STOCKHOLDERS' AND MEMBERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	786,834			498,625
Accounts payable, related parties		300,349			140,463
Accrued liabilities		1,178,572			172,678
Advances from related parties		105,000			105,000
Unearned revenue		35,774			25,240
Deferred income tax liability		31,800			31,800
Lease liability, current portion		388,178			45,957
Current portion of debt		624,746			12,782
Other current liabilities		222,368			11,568
Total current liabilities		3,673,621			1,044,113

Lease liability		1,663,302			293,664
Debt, net of current portion		5,219,947			583,526
Unearned revenue, net of current portion		3,326,726			-
Other liability		370,000			-
TOTAL LIABILITIES		14,253,596			1,921,303

STOCKHOLDERS' AND MEMBERS’ DEFICIT
Preferred stock, $0.001 par value, 50,000,000 and 5,000,000 shares authorized as at June 30, 2020 and June 30, 2019, none issued and outstanding	$	-			-
Common stock, $0.001 par value, 500,000,000 shares and 175,000,000 shares authorized, 22,693,094 and 13,097,310 issued, issuable and outstanding at June 30, 2020 and June 30, 2019 respectively.		22,693			13,097
Treasury stock		(235,600	)		-
Additional paid-in capital		50,120,466			50,066,944
Accumulated deficit		(51,163,417	)		(50,088,086	)
Total Grow Capital Inc. stockholders' deficit		(1,255,858	)		(8,045	)
Members’ deficit		(7,936,068	)		-
Total stockholders' and members’ deficit		(9,191,926	)		(8,045	)
TOTAL LIABILITIES AND STOCKHOLDERS' AND MEMBERS’ DEFICIT	$	5,061,670			1,913,258

*derived from audited information

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

GROW CAPITAL, INC.

AND SUBSIDIARIES

Condensed Consolidated and Combined Statements of Operations

(Unaudited)

	Three Month Ended
	September 30,
	2020			2019
Revenue	$	4,331,740		$	143,538
Revenue, related parties		331,258			455,124
Total revenues		4,662,998			598,662

Cost of sales, nonrelated parties		3,231,367			192,451
Cost of sales, related parties		485,323			152,955
Total cost of sales		3,716,690			345,406

Gross profit		946,308			253,256

Operating expenses
General and administrative		615,473			579,881
General and administrative, related parties		297,080			47,499
Professional fees		461,584			352,492
Settlement		494,458			-
Depreciation, amortization and impairment		5,235			6,404
Total operating expenses		1,873,830			986,276

Loss from operations		(927,522	)		(733,020	)

Other income (expense):
Interest income		1,625			1,342
Interest expense		(75,439	)		(9,100	)
Total other income (expense), net		(73,814	)		(7,758	)

Income (loss) from continuing operations		(1,001,336	)		(740,778	)
Income (loss) from discontinued operations		-			491,885
Net income (loss)	$	(1,001,336	)	$	(248,893	)

Net Income (loss) attributable to Members of Appreciation Financial		73,995			-
Net loss attributable to Grow Capital Inc.	$	(1,075,331	)	$	(248,893	)

Basic and diluted net loss from continuing operations	$	(0.06	)	$	(0.08	)
Basic and diluted net loss from discontinued operations	$	0.00		$	0.05
Basic and diluted net loss	$	(0.06	)	$	(0.03	)

Weighted average shares used in completing basic and diluted net loss per common share		17,512,961			9,477,870

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

GROW CAPITAL, INC. AND SUBSIDIARIES

Condensed Consolidated and Combined Statements of Changes in Stockholders and Members Equity (Deficit)

(Unaudited)

	Preferred Shares				Common Stock				Treasury			Additional Paid-in			Accumulated			Total Grow Capital Inc. Shareholders			Appreciation Financial Members			Total Shareholders and Members
	Shares		Amount		Shares		Amount		Stock			Capital			Deficit			Deficit			Deficit			Deficit
Balance, June 30, 2020		-	$	-		13,097,310	$	13,097	$			$	50,066,944		$	(50,088,086	)	$	(8,045	)	$	-		$	(8,045	)
Shares issued to acquire related party business		-		-		9,358,185		9,358		(200,600	)		(209,413	)		-			(400,655	)		(8,010,063	)		(8,410,718	)
Private placements		-		-		75,000		75		(35,000	)		74,925			-			40,000			-			40,000
Shares issued to Officers, Directors and employees for compensation		-		-		145,495		146		-			164,919			-			165,065			-			165,065
Conversion of accounts payable into stock		-		-		17,104		17		-			23,091			-			23,108			-			23,108
Loss for the period		-		-		-		-		-						(1,075,331	)		(1,075,331	)		73,995			(1,001,336	)
Balance, September 30, 2020		-	$	-		22,693,094	$	22,693	$	(235,600	)	$	50,120,466		$	(51,163,417	)	$	(1,255,858	)	$	(7,936,068	)		(9,191,926	)

			Preferred Shares					Common Stock			Additional Paid-in			Accumulated			Total Shareholders
	Shares		Amount		Shares			Amount			Capital			Deficit			Equity (Deficit)
Balance, June 30, 2019		-	$	-		7,037,241		$	7,037		$	49,766,676		$	(47,741,333	)	$	2,032,380

Shares issued under business combination		-		-		5,533,773			5,534			75,633			-			81,167
Private placements		-		-		13,889			14			49,986			-			50,000
Shares issued to Officers, Directors and employees		-		-		22,548			23			90,251			-			90,274
Conversion of accounts payable into stock		-		-		7,350			7			20,277			-			20,284
Shares retired under sale of subsidiary		-		-		(454,694	)		(455	)		(908,934	)		-			(909,389	)
Loss for the period		-		-		-			-			-			(248,893	)		(248,893	)
Balance, September 30, 2019		-	$	-		12,160,107		$	12,160		$	49,093,889		$	(47,990,226	)	$	1,115,823

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

GROW CAPITAL, INC.

AND SUBSIDIARIES

(Formerly Grow Condos, Inc.)

Condensed Consolidated and Combined Statements of Cash Flows

(Unaudited)

	Three Months Ended
	September 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,001,336	)	$	(248,893	)
(Gain) loss from discontinued operations		-			(491,885	)
Net loss from continuing operations:		(1,001,336	)		(740,778	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment expense		5,235			6,404
Stock based compensation		173,173			501,638
Loss on debt settlement		494,458			-
Impair of other current asset		6,900
Amortization on ROU		5,286			-
Changes in operating assets and liabilities:
Prepaid expenses and other assets		31,651			1,128
Accounts receivable		(66,158	)		(49,935	)
Accounts receivable, related parties		59,658			(142,793	)
Interest receivable		(907	)		(1,342	)
Accounts payable		228,200			(118,783	)
Account payable, related parties		(41,366	)		132,740
Accrued expenses		376,855			(99,731	)
Unearned revenue		4,867			(2,080	)
Other current liabilities		24,392			-
Net cash (used in) in operating activities		300,908			(513,532	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from business combination		884,273			43,975
Promissory note receivable		16,510			(100,000	)
Due from related party		-			(39,548	)
Net cash (used in) provided by investing activities		900,783			(95,573	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment debt		(27,935	)		(2,141	)
Proceeds (repayment) from related party		-			(13,121	)
Proceeds from private placement		75,000			200,000
Net cash provided by financing activities		47,065			184,738

CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities		-			-
Investing activities		-			(2,030	)
Financing activities		-			-
Net cash (used) provided by discontinued activities		-			(2,030	)
Net increase (decrease) in cash		1,248,756			(426,397	)
Cash at beginning of period		246,761			483,430
Cash at the end of the period	$	1,495,517		$	57,033


Supplemental Disclosure of Cash Flows Information:
Cash paid for interest	$	9,012	$	9,100
Cash paid for income taxes	$	-	$	-
Cash paid for operating lease	$	42,536	$	8,028

Non-cash Investing and Financing Activities:
Stock issued for settlement of accounts payable	$	15,000	$	15,000
Stock returned from sale of WCS	$	-	$	909,389
Assets acquire, net of liabilities, Bombshell	$	-	$	81,167
Assets acquire, net of liabilities, Pera combined with Appreciation	$	8,210,118	$	-
Accounts payable reclassify to other current liability due to litigation	$	61,948	$	-

The accompanying notes are an integral part of these unaudited condensed consolidated and combined financial statements.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 1 – Organization and Description of Business

Grow Capital, Inc. (the "Company," “we,” or “us”) (f/k/a Grown Condos, Inc.) was incorporated on October 22, 1999, in the State of Nevada.

Our former wholly owned subsidiary, WCS Enterprises, LLC (“WCS”) is an Oregon limited liability company which was formed on September 9, 2013 with operations beginning in October 2013. WCS is a real estate purchaser, developer and manager of specific use industrial properties providing "Condo" style turn-key aeroponics grow facilities to support cannabis farmers. WCS owns, leases, sells and manages multi- tenant properties so as to reduce the risk of ownership and reduce costs to tenants and owners. WCS owned a condominium property in Eagle Point, Oregon (the “Eagle Point Property”). On September 30, 2019, we sold WCS to the Wayne A. Zallen Trust u/a/d/ 10/24/2014 (the “Zallen Trust”), of which Wayne Zallen, our former CEO and Chairman, is the trustee and a beneficiary. See Note 5 for further information.

Our wholly owned subsidiary, Resort at Lake Selmac, Inc. (formerly Smoke on the Water, Inc.) was incorporated on October 21, 2016, in the State of Nevada. The name change was effected February 3, 2020. Resort at Lake Selmac is focused on operating properties in the RV and campground rental industry and currently owns the Lake Selmac Resort located at 2700 Lakeshore Drive, Selma, Oregon (the “Lake Selmac Property”).

Our wholly owned subsidiary Bombshell Technologies, Inc. (“Bombshell”), was formed as Bombshell Technologies, LLC on November 5, 2018 and converted into a C corporation on June 24, 2019. We acquired Bombshell on July 23, 2019 (See Note 4). Bombshell is a full-service design and software development company focused on developing and selling software to financial services firms and advisors and is the first acquisition as part of our strategic shift into the financial technology (“FinTech”) sector and related sectors.

On June 22, 2018, the Board of Directors of the Company approved an amendment to our articles of incorporation to increase our authorized capital to 180,000,000 shares, consisting of 175,000,000 shares of common stock (“Common Stock”), par value $0.001, and 5,000,000 shares of preferred stock (“Preferred Stock”), par value $0.001 (the “Recapitalization”) and to change the name of the Company to “Grow Capital, Inc.” The Company filed articles of amendment with the State of Nevada to effect the aforementioned changes on July 10, 2018 and August 28, 2018, respectively. The Company received approval from the Financial Industry Regulatory Authority ("FINRA") for the above noted corporate actions on August 8, 2019.

On July 23, 2019, and effective July 25, 2019, the Board of Directors of the Company and the holders of our outstanding capital stock having a majority of the voting power, respectively, adopted resolutions to amend and restate our articles of incorporation to increase our authorized capital to 550,000,000 shares, consisting of 500,000,000 shares of Common Stock and 50,000,000 shares of Preferred Stock. The effective date of the aforementioned actions was August 29, 2019.

In connection with its name change, the Company adopted a business plan focused on shifting the Company’s strategy away from rental activities focused in the cannabis industry and into the FinTech sector and related sectors. In connection with this strategy, the Company hired a new Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) and appointed a new chairman of the Company’s board of directors (the “Board”), all of whom have significant experience in the FinTech sector. The Company intends to acquire FinTech companies, such as Bombshell (see Note 4), with a clear niche and strong leadership and use its experience and understanding of the FinTech sector and access to the public markets to help its acquisitions grow. The Company is currently in the process of identifying and pursuing suitable acquisitions. In connection with the shift in the Company’s strategy away from rental activities focused in the cannabis industry, the Company sold WCS on September 30, 2019 and its operations up to the date of sale were included as Assets and Liabilities’ Held for Sale. (Note 5). While the Company actively marketed the Resort at Lake Selmac during the first and second quarters of fiscal 2020, given the current market conditions, the Company let the listing agreement expire on March 31, 2020 and we decided to continue operating the business until such time as a viable exit strategy for the resort is identified.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 1 – Organization and Description of Business (continued)

On May 13, 2020, the Company’s board of directors and stockholders approved an amended and restated certificate of incorporation to, among other things, effect a reverse split on the outstanding shares of the Company’s common stock on a one-for-20 basis (the “Reverse Stock Split”). The Reverse Stock Split became effective on July 30, 2020 and has been shown on a retroactive basis within all periods presented. The par values of the common were not adjusted as a result of the reverse stock split.

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.

With the acquisition of PERA LLC, and concurrent combination of the operations of Appreciation Financial, the Company expanded its operations into lead generation services and insurance brokerage. PERA LLC provides public employee retirement serving as an appointment portal for agents to schedule qualified appointments with public employee seeking financial planning for retirement and other associated insurance coverage. Appreciation Financial LLC has a network of member agents offering full-service retirement planning servicing public employees and their families providing policies from a series of insurance carriers that meet their retirement planning requirements.

As the Company looks to continue to expand in the financial technology and related sectors, Grow Capital expects to identify additional acquisition targets, complete those acquisitions, and grow its complementary operating companies. Any potential acquisitions or divestitures remain subject to final agreements, due diligence, and typical closing conditions.

Going Concern

During the three month periods ended September 30, 2020 and 2019, the Company reported a net loss of $1,001,336 and $248,893 respectively. The Company had a working capital deficit of $1,612,666 with approximately $1,495,517 of cash on hand as of September 30, 2020. Cash provided by operations totaled $300,908 during the three months ended September 30, 2020. The Company continues to work actively to increase its customer/client base and increase gross profit in Bombshell Technologies and PERA LLC, in order to achieve net profitability by the close of fiscal 2021. For any operational shortfalls, the Company intends to rely on sales of our unregistered common stock, loans and advances until such time as we achieve profitable operations. In addition, the current presentation is based on the fact that the Company is currently in negotiations to acquire Appreciation Financial LLC and its related entities. Should that not occur, its possible that the Company will no longer combine its results with those of Appreciation Financial LLC and its related entities. If the Company fails to generate positive cash flow or obtain additional financing, when required and on acceptable terms, the Company may have to modify, delay, or abandon some or all of its business and expansion plans, and potentially cease operations altogether. Consequently, the aforementioned items raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 1 – Organization and Description of Business (continued)

Covid-19 Pandemic

The recent COVID-19 pandemic could have an adverse impact on our ongoing operations. To date the Company’s primary operating segments, Bombshell and Pera LLC have not experienced a decline in sales as a result of the impact of COVID-19, and in fact, have increased sales due to the increase in demand for virtual appointments which can be serviced by PERA LCC as a part of their core operational mandate. In addition, the Company’s operations in the FinTech sector are carried out with a limited amount of person to person contact and we do not expect an impact on these operations as a result of COVID 19, however, the full effect of the COVID-19 outbreak continues to evolve as of the date of this report, is highly uncertain and subject to change. Operations of the Company’s Resort at Lake Selmac property were delayed until July 2020 when the government permitted the resort to reopen, however since that time the resort has continued to receive regular bookings and has returned to normal operating parameters. As a result, Management does not expect the delay in opening the resort for the 2020-2021 season to substantially impact profitable operations for this business in the long term. Management is actively monitoring the situation but given the daily evolution of the COVID-19 outbreak, the Company is not able to estimate the effects of the COVID-19 outbreak on its operations or financial condition in the next 12 months. While significant uncertainty remains, the Company does not believe the COVID-19 outbreak will have a negative impact on its ability to raise additional financing, conclude the acquisition of targeted business operations or reach profitable operations.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed financial statements included herein are unaudited. Such financial statements, in the opinion of management, contain all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. All such adjustments are of a normal recurring nature outside of the combination of Appreciation Financial. These interim results are not necessarily indicative of the results to be expected for the year ending June 30, 2021 or for any other period. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and because of this, for further information, readers should refer to the financial statements and footnotes included in its Form 10-K for the fiscal year ended June 30, 2020 filed on October 13, 2020. The Company believes that the disclosures are adequate to make the interim information presented not misleading.

Consolidation and Combination

The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the outstanding voting stock. In addition, upon the acquisition of PERA LLC, the Company combined entities that met the criteria of having common control with Grow Capital and its controlled subsidiaries. Upon the acquisition of PERA LLC (see below), the Company identified certain common control entities, the operations of which are included in our consolidated and combined financial statements.

The accompanying unaudited condensed consolidated and combined financial statements include the accounts of Grow Capital Inc. and its wholly-owned subsidiaries, Bombshell Technologies Inc., The Resort at Lake Selmac and PERA LLC, 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 results of Appreciation Financial LLC and Appreciation Rewards LLC. At the time of the acquisition of PERA LLC, the Company determined that Appreciation Financial was the primary beneficiary of PERA LLC. In addition, the Company determined that it has common ownership with Appreciation Financial and 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.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Reported operations in the three months ended September 30, 2020 include operations of our wholly owned subsidiaries Bombshell and The Resort at Lake Selmac, as as well as the results of operations by PERA LLC and its common control entities for the period from acquisition (August 19, 2020 through September 30, 2020). In addition, September 30, 2020 operating results also include the combined results of both Appreciation Financial LLC Appreciations Rewards LLC for the period from August 19, 2020 to September 30, 2020. Results for the comparative three month period ended September 30, 2019 include Grow Capital, Bombshell and the Resort at Lake Selmac.

All material intercompany accounts, transactions, and profits have been eliminated in consolidation and with and between the combined entities.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include timing of recognition of commission revenue on insurance policy renewals and expenses related thereto, along with costs associated with policy acquisition and our allowance for doubtful accounts and useful lives of our fixed assets related to Lake Selmac. Actual results could differ from those estimates.

Cash and Cash Equivalents

For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments with a maturity of three (3) months or less at the time of purchase.

Concentrations

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At September 30, 2020 and 2019, the Company had $272,767 and $0 in excess of the FDIC insured limit, respectively.

Concentration Risk - Revenues

For the three months ended September 30, 2020, one customer accounted for 53% of combined and consolidated gross revenue, 57% of combined and consolidated revenue from non-related parties and 70% of revenue recorded by Appreciation Financial LLC. The contribution of revenue to the three month operating period ended September 30, 2020 was derived from operations of Appreciation Financial LLC for the period between August 19, 2020 and September 30, 2020.

Concentration of Financing Risk

Appreciation Financial is dependent upon on its largest customer for financing of its operations. That customer has provided commission advances of approximately $3.3 million and loans of approximately $4.8 million as of September 30, 2020.

Accounts Receivable and Allowance for Doubtful Accounts

The Company determines the allowance for doubtful accounts by considering a number of factors, including the length of time the accounts receivable are beyond the contractual payment terms, previous loss history, and the customer’s current ability to pay its obligation. When the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, the Company records a charge to the allowance to reduce the customer’s related accounts. At September 30, 2020, the allowance for doubtful accounts totaled approximately $41,400.

Lease Receivables and deferred rent

Lease receivables are recognized when rents are due, and for the straight-line adjustment to rents over the term of the lease less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer's willingness or ability to pay, the Company's compliance with lease terms, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off lease receivables when it determines that they have become uncollectible after all reasonable collection efforts have been made. If we record bad debt expense, the amount is reflected as a component of operating expenses in the statements of operations.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 – Topic 842 Leases. ASU 2016-02 requires that most leases be recognized on the financial statements, specifically the recognition of right-to-use assets and related lease liabilities, and enhanced disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard requires using the modified retrospective transition method and apply ASU 2016-02 either at (i) latter of the earliest comparative period presented in the financial statements or commencement date of the lease, or (ii) the beginning of the period of adoption. The Company has elected to apply the standard at the beginning period of adoption, July 1, 2019 which resulted in no cumulative adjustment to retained earnings. On July 30, 2018, the FASB issued ASU 2018-11 to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU 2016-02 (codified as ASC 842). Specifically, under the amendments in ASU 2018-11: (i) Entities may elect not to recast the comparative periods presented when transitioning to ASC 842 (Issue 1), and (ii) Lessors may elect not to separate lease and nonlease components when certain conditions are met (Issue 2).

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Leases (cont'd)

The Company has elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis. As a result of the adoption, on July 1, 2019, the Company recognized a lease liability of approximately $291,753, which represented the present value of the remaining minimum lease payments using an estimated incremental borrowing rate of 6.75%. As of July 1, 2019, the Company recognized a right-to-use asset of approximately $289,089. Lease expense did not change materially as a result of the adoption of ASU 2016-02. As a result of the acquisition of PERA LLC and combined entity Appreciation Financial LLC, as of August 19, 2020 the Company recognized a right to use asset of $157,795 and a lease liability of $153,413 with respect to PERA LLC and a right to use asset of $1,575,145 and a lease liability of $1,598,068 with respect to combined entity Appreciation Financial LLC.

Intangible Assets

The Company’s intangible assets consist of intellectual property with minimal value.

Investment In and Valuation of Real Estate Assets

Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the cost of acquisition (excluding acquisition related expenses), construction costs, and mortgage interest during the period the facilities are under construction and prior to readiness for occupancy, and any tenant improvements, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All repairs and maintenance are expensed as incurred.

The Company is required to make subjective assessments as to the useful lives of its depreciable assets. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life of the assets. Real estate assets, other than land, are depreciated on a straight-line basis over the estimated useful life of the asset.

The estimated useful lives of the Company's real estate assets by class are generally as follows:

Land	Indefinite
Buildings	40 years
Tenant improvements	Lesser of useful life or lease term
Intangible lease assets	Lease term

Impairment of long-lived assets

The Company monitors its long-lived assets and finite-lived intangibles for indicators of impairment. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets (See Note 6).

Share-based compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. Unregistered stock awards are measured based on the fair market values of the underlying stock on the dates of grant. For service type awards, share-based compensation expense is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the entire award. For awards that vest or begin vesting upon achievement of a performance condition, the Company estimates the likelihood of satisfaction of the performance condition and recognizes compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model.

Revenue Recognition under ASC 606

The Company has adopted accounting standard, ASC 606 “Revenue from Contracts with Customers” and all related amendments to the new accounting standard to contracts.

Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company recognizes revenue using the five-step model as prescribed by ASC 606:

1)	Identification of the contract, or contracts, with a customer;
2)	Identification of the performance obligations in the contract;
3)	Determination of the transaction price;
4)	Allocation of the transaction price to the performance obligations in the contract; and
5)	Recognition of revenue when or as, the Company satisfies a performance obligation.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Revenue Recognition under ASC 606 (cont'd)

When a contract with a customer or an agent is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable.

The transaction price is the consideration that the Company expects to receive from its customers and agents in exchange for its products or services. In determining the allocation of the transaction price, the Company identifies performance obligations in contracts with customers, which may include subscriptions to software and services, support, professional services and customization. In the case of the Company’s software contracts and support services prices are predetermined based on the specific terms of the contract either in flat fee customization/license fee charges or as hourly support and/or software customization charges. Charges relative to license fees are amortized over the term of the license. Charges relative to customization of the software are charged over the term of the scope of work on a percentage of completion basis. Charges relative to support and ongoing services and professional fees are charged when incurred and control has been transferred or the work has been completed. Income earned through the sale of appointments to agents by PERA LLC are recognized on the date of the service appointment.

License fees and customization of software

License and implementation fees are charged as flat fees which are amortized over the term of the contract. For contracts with elements related to customized software solutions and certain build-outs or software systems that require significant modification or customization, the Company will recognize revenue using the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on completion of milestones under a scope of work or based on total estimated cost of work and percentage completion as at the balance sheet date.

Software Revenue

The Company generates software revenue monthly on a single fee per subscribed user basis. The Company recognizes software revenue monthly on a per user for each user that is able to deploy software and provided all revenue recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.

Customization, support and maintenance

Revenue from the Company’s customization of software to meet a particular client’s needs is recognized on a percentage of completion basis over the term of the customization work and until control of the goods or services is transferred to the customer or such date the customer agrees the scope of work has been completed and the intended functionality of the software is complete and able to perform the desired service. Support and maintenance revenue is generated from recurring monthly support and is invoiced monthly based on hourly fees at predetermined rates based on each customer contract.

The Customer is credited a certain number of services hours monthly based on the numbers of users actively subscribed to the software which amounts offset any monthly user fees.

Support and maintenance services include e-mail and telephone support, unspecified rights to software fixes and product updates and upgrades and enhancements available on a when-and-if available basis.

Professional services and other

Professional services and other revenue is generated through services including onsite training, product implementation and other similar services. Professional services are generally flat fee services based on a number of hours or scope of work for each specific service. Depending on the services to be provided, revenue from professional services and other is generally recognized at the time of delivery when the services have been completed and control has been transferred.

Income from agent appointments

Income generated by booking appointments for insurance agents is earned on the date on which the appointment takes place. Appointment fees which are collected in advance of appointments are recorded as unearned revenue.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Revenue Recognition under ASC 606 (cont'd)

Unearned Revenue

Unearned revenue represents billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of appointment fees collected from member agents where the client appointment has not yet occurred, license fees being amortized over the term of the customer contract and customization services which have not yet been concluded and are being deferred using the percentage-of-completion method.

Campground space rentals and concession sales

Revenues from our campsite operations from the sales of concession items, equipment rentals or campsite locations are recoded on the cash basis due to the nature of collection of campsite fees and concession items, which occur daily as the site is rented and sundry items are purchased.

Commissions earned on insurance coverage (Appreciation Financial LLC)

Appreciation Financial LLC earns commissions paid by insurance carriers for the binding of insurance coverage. Commissions are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound. If there are other services within the contract, Appreciation estimates the stand-alone selling price for each separate performance obligation, and the corresponding apportioned revenue is recognized over a period of time as the performance obligations are fulfilled. Incentive commissions represent a form of variable consideration which includes additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties. Incentive commissions are estimated with a constraint applied and accrued relative to the recognition of the corresponding core commissions based on the amount of consideration that will be received in the coming year such that a significant reversal of revenue is not probable. Advance Commissions are paid by insurance carriers under agreed terms of certain individual customer policies. Advance Commissions are recorded as deferred revenue and amortized over the term of the contract.

Appreciation Management determines the policy cancellation reserve based upon historical cancellation experience adjusted for any known circumstance.

Commission revenues – Prior to the adoption of Topic 606, commission revenues, including those billed on an installment basis, were recognized on the latter of the policy effective date or the date that the premium was billed to the customer. As a result of the adoption of Topic 606, commission revenues associated with the issuance of policies are now recognized upon the effective date of the associated policy. The overall impact of these changes is expected to be significant.. These commission revenues, including those billed on an installment basis, will now be recognized earlier than they had been previously. Revenue is accrued based upon the completion of the performance obligation, thereby creating a current asset for the unbilled revenue, until such time as an invoice is generated.

Incentive and contingent commissions – Prior to the adoption of Topic 606, revenue that was not fixed and determinable because a contingency existed was not recognized until the contingency was resolved. Under Topic 606, Appreciation must estimate the amount of consideration that will be received in the coming year such that a significant reversal of revenue is not probable. Incentive and contingent commissions represent a form of variable consideration associated with the placement of coverage, for which we earn commissions and fees. In connection with Topic 606, these commissions are estimated with a constraint applied and accrued relative to the recognition of the corresponding core commissions. The resulting effect on the timing of recognizing of these contingent commissions will now more closely follow a similar pattern as our commissions and fees with any true-ups recognized when payments are received or as additional information that affects the estimate becomes available.

Fee Revenues: Appreciation earns fee revenue related to the onboarding of its agents which is recorded at the time of the transaction.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Revenue Recognition under ASC 606 (cont'd)

Additionally, Appreciation is required to evaluate the impact of ASC Topic 340 – Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.

Incremental cost to obtain – The adoption of ASC 340 is expected to result in Appreciation deferring certain costs to obtain customer contracts primarily as they relate to commission-based compensation for which the Company pays an incremental amount of compensation on new business. These incremental costs are expected to be deferred and amortized based on the term of customer polices and expected renewals.

Cost to fulfill – The adoption of ASC 340 may result in Appreciation deferring certain costs to fulfill contracts and recognizing costs as the associated performance obligations are fulfilled. In order for contract fulfillment costs to be deferred under ASC 340, the costs must (1) relate directly to a specific contract or anticipated contract, (2) generate or enhance resources that Appreciation will use in satisfying its obligations under the contract, and (3) be expected to be recovered through sufficient net cash flows from the contract.

As of the filing date, Appreciation Financial is unable to estimate with certainty its historical renewal rates for the insurance policies previously sold and therefore has not included commission revenue to be earned upon renewal based on this estimate. This also means that Appreciation is unable to estimate the costs to be deferred under ASC 340, or the costs to be expensed upon recognition of renewal revenue under ASC 606. Appreciation Financial prior to the combination of its financial statements herein did not previously report the results of its operations and financial position under US GAAP and is currently in the process of developing the systems and processes in which to estimate these amounts. The Company currently expects that the processes and systems will be in place for the reporting for the Company’s year ended June 30, 2021 financial statements.

Fair Value of Financial Instruments

The Company follows the fair value measurement rules, which provides guidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

The carrying amount of receivables and accounts payable and accrued expenses approximates fair value due to the short-term nature of those instruments.

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of lease receivables, accounts payable, and accrued liabilities approximate fair value given their short-term nature or effective interest rates, which constitutes level three inputs.

Income taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured at rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is recorded when it is not more likely than not that all or a portion of the net deferred tax assets will be realized.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Income taxes (cont'd)

In the quarters ended September 30, 2020 and 2019, the Company issued a significant number of new shares in its acquisition of PERA LLC and Bombshell Technologies, Inc. (see Note 4) and the cancellation of then outstanding shares upon the sale of WCS Enterprises, LLC (see Note 5). The effect of these issuances and cancellations is that most likely, the Company experienced the requisite change of control as promulgated under the US Internal Revenue Code section 382. The effect of this will be that going forward, the ability of the Company to utilize the US Federal net operating loss carryforwards of Grow Capital, Inc. from prior to these transactions will be limited in its usage. In order to determine the specific effect, the Company must perform the computations required under the Internal Revenue Code, which have not yet been performed. The Company expects it will perform the required computations once its evident that profits are likely.

Net (loss) income per share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of shares of Common Stock outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. For the three months ended September 30, 2020 and 2019, all potentially dilutive securities are anti-dilutive due to the Company's losses from operations.

All dilutive common stock equivalents are reflected in our earnings (loss) per share calculations. Anti-dilutive common stock equivalents are not included in our earnings (loss) per share calculations.

There were no potential shares outstanding as of September 30, 2020 and 2019.

Reclassification

Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s consolidated financial statements and the accompanying notes. These reclassifications had no effect on net income for the prior periods. In addition, we previously included the results of operations and financial position of the Resort on Lake Selmac for the period ended September 30, 2019 in discontinued operations and assets and liabilities held for sale, respectively. Subsequent to the original Form 10-Q filing for the period ended September 30, 2019, we no longer had a plan of sale and therefore the results of Lake Selmac and its financial position are now included in our results from continuing operations and cash flows for the period ended September 30, 2019.

Recent Accounting Pronouncements

Fair Value Measurements (“ASU 2018-03”). In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in the standard apply to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. ASU 2018-13 removes, modifies, and adds certain disclosure requirements in ASC 820, Fair Value Measurement. The standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently assessing the impact that ASU 2018-13 will have on its financial statements.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (cont'd)

Financial Instruments – Credit Losses (“ASU 2016-13”). In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The standard was originally effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. However, in November 2019, the Financial Accounting Standard Board (FASB) issued ASU 2019-10, Financial Instruments—Credit Losses, (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) — Effective Dates (“ASU 2019-10”). ASU 2019-10 deferred the adoption date for (i) public business entities that meet the definition of an SEC filer, excluding entities eligible to be “smaller reporting companies” as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and (2) all other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As of June 30, 2020, the Company qualified as a smaller reporting companies as defined by the SEC. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements but does not anticipate there to be a material impact.

Note 3 – Prepaid expenses

Prepaid expenses at September 30, 2020 and June 30, 2020 consist of the following:

	September 30, 2020		June 30, 2020

Professional fees	$	59,675	$	50,000
Insurance		1,732		2,771
Other expenses		19,368		15,954
Total	$	80,775	$	68,725

Note 4 – Merger with PERA LLC

On August 19, 2020, the Company acquired PERA LLC, a Nevada limited liability company (“PERA”), pursuant to an exchange agreement (the “Exchange Agreement”), effective as of August 3, 2020 (the “Effective Date”), by and between PERA, the members of PERA (the “PERA Members”), and the Company (the “Closing”), concurrently, PERA became a wholly-owned subsidiary of the Company. Eric Tarno, the current President of PERA, will continue to serve as the President of PERA. Pursuant to the Exchange Agreement, at the Closing, the Company acquired 100% of the outstanding membership interests of PERA (the “PERA Ownership Interests”) in exchange for 9,358,185 unregistered restricted shares of the Company’s common stock (the “GC Common Stock”) on a pro rata basis (the “Exchange”). At the Closing, the PERA Members conveyed all of the right, title and interest in and to the PERA Ownership Interests in exchange for the right to receive a number of shares of GC Common Stock equal to an exchange ratio (the “Exchange Ratio”).

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 4 – Merger with PERA LLC (continued)

The Exchange Ratio is calculated by dividing (a) the Exchange Shares (as defined below) by (b) the total number of shares of PERA Ownership Interests outstanding immediately prior to the Effective Date. “Exchange Shares” means the number of shares of GC Common Stock obtained by dividing (a) $10,000,000 by (b) the 10-day volume weighted average price per share (“VWAP”) calculated immediately before the date that a reverse stock split of GC Common Stock became effective on OTCQB, July 30, 2020. In addition, if PERA meets certain yearly targeted gross revenues for each of year one, two, and three following the Closing, the PERA owners may earn a cumulative total of up to $5,000,000 of shares of GC Common Stock (the “Earn-out Shares”) to be determined using the applicable 10-day VWAP stock price of the Company’s common stock preceding each earn-out period calculation date as set forth in the Exchange Agreement in connection with all of the three years, subject to certain catch up provisions if such yearly period targets are not met in the applicable period. At the Closing the Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with the PERA Members to register the GC Common Stock to be issued in connection with the Exchange. Pursuant to the Registration Rights Agreement, the Company has granted certain demand and piggy-back registration rights whereby the Company will register the resale of the GC Common Stock issued in the Exchange. The PERA Members include certain limited liability companies owned by (i) Terry Kennedy, the CEO of the Company, (ii) Jonathan Bonnette, the CTO of the Company and the CEO of Bombshell (iii) Joel Bonnette, the President of Bombshell and brother of Jonathan Bonnette, and (iv) Carl Sanko, a director and Secretary of the Company, and (v) Jared Bonnette, brother of Jonathan Bonnette.

The acquisition of PERA was not accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Due to the related party and common control relationships held between Bombshell and Grow Capital, Inc., the assets and liabilities of Bombshell transferred over to the Company at their historical carrying values.

The following table provides information as of August 19, 2020 of the assets acquired and the liabilities assumed in the merger:

	Pera			Appreciation			Combined
Assets
Cash	$	27,693		$	856,580		$	884,273
Accounts receivable		67,779			28,534			96,313
Due to/from related parties		(356,096	)		388,596			32,500
Prepaid and other assets		32,440			187,283			219,723
Property and equipment		-			106,791			106,791
Right to use assets		157,795			1,575,145			1,732,940
Grow Capital stock held*		140,600			60,000			200,600
Total Assets	$	70,211		$	3,202,929		$	3,273,140

Liabilities
Accounts payable and accrued liabilities	$	36,186		$	885,625		$	921,811
Accounts payable and accrued liabilities, related parties		-			201,252			201,252
Unearned revenue		5,667			3,326,726			3,332,393
Debt		75,000			5,201,321			5,276,321
Lease liabilities		153,413			1,598,068			1,751,481
Total liabilities	$	270,266		$	11,212,992			11,483,258

Net Assets	$	(200,055	)	$	(8,010,063	)	$	(8,210,118	)

Consideration: 9,358,185 shares							$	9,358
Additional paid in capital								(209,413	)
Members’ equity								(8,010,063	)
Total							$	(8,210,118	)

*The Grow Capital, Inc. common stock held by PERA LLC and Appreciation Financial at the time of the closing was included as treasury stock.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 5 – Assets Held for Sale

In the quarter ended March 31, 2019, the Company began to actively market WCS for sale and has begun negotiations with certain parties for the sale of WCS, subject to diligence, negotiation of a purchase agreement and fulfillment of typical closing conditions. In connection with these efforts, management determined that it was appropriate to classify WCS as Assets Held for Sale.

On September 30, 2019, the Company entered into a membership interest purchase agreement with the Zallen Trust pursuant to which the Company sold all of the Company’s membership interests in WCS for an aggregate purchase price of $782,450. The Zallen Trust paid the purchase price by transferring to the Company 434,694 shares of the Company’s Common Stock, valued at $2.00 per share. The Purchase Agreement also provided that Mr. Zallen transfer to the Company an additional 20,000 shares of Common Stock to settle $36,000 in back rent owed at the time of the sale. The Company retired all of the shares received as a result of the transaction. In connection with the sale of WCS, the Company and Mr. Zallen entered into a separation and release of claims agreement pursuant to which the Company and Mr. Zallen provided a mutual release of claims against the other party and such party’s affiliates, including all claims related to Mr. Zallen’s service as an officer, employee, and director of the Company. The release of claims by Mr. Zallen resulted in the forgiveness of salary accruals of approximately $367,000 for services provided up to June 30, 2018. The Company reversed related payroll taxes of approximately $61,000 and included the amount in the gain on sale. The shares issued in the Exchange are subject to certain registration rights with no liquidated damages for failure to complete registration by a specific date.

After payment of all closing costs, the Company recorded a gain on sale of approximately $553,000. (See detail below)

Discontinued Operation:

(a)	The Results of the Discounted Operations are as follows:

	Three Months Ended
	September 30,
	2020		2019

Net revenues	$	-	$	14,400
Operating expenses
General and administrative		-		7,964
Depreciation, amortization and impairment		-		6,990
Total operating expenses		-		(14,954	)
Income (Loss) from operations		-		(554	)
Gain (loss) on sale		-		492,439
Income (loss) from discontinued operations	$	-	$	491,885

(b)	Assets and liabilities disposed of are as follows

	September30,
	2019

Assets:
Lease receivable	$	40,804
Prepaid expenses		5,152
Property, plant and equipment, net		809,281
Other assets		6,150
Total Assets	$	861,387

Liabilities:
Accrued liabilities		367,367
Other liabilities		79,100
Total Liabilities		446,467
Net Assets	$	414,920

Consideration:
Purchaser return 9,093,888 shares of common stock, FMV at $0.10	$	909,389
Payment on certain items during closing		(2,030	)
Total consideration	$	907,359

Gain on sale of WCS	$	492,439

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 6 – Property and Equipment, Net

Property and improvements consisted of the following as of September 30, 2020 and June 30, 2020:

	September 30, 2020			June 30, 2020
Lake Selmac Property	$	768,782		$	768,782
Automobiles		264,343			-
Leaseholder improvement		156,653			67,644
Furniture, Fixtures and Equipment		133,493			32,964
		1,323,271			869,390
Less: accumulated depreciation		(378,740	)		(26,415	)
	$	944,531		$	842,975

Depreciation expense amounted to $5,235 and $6,404, for the three months ended September 30, 2020 and 2019, respectively.

Note 7 – Promissory Note Receivable

On July 8, 2019, the Company entered into a non-binding letter of intent (the “LOI”) to acquire Encompass More Group, Inc. (“Encompass”), a Nevada corporation. In connection with the LOI, Encompass issued a promissory note (the “Note”) to the Company pursuant to a loan agreement (the “Loan Agreement”), dated July 22, 2019, by and between Encompass and the Company, in exchange for a loan of $100,000 (the “Loan”). Pursuant to the Loan Agreement, the proceeds of the Loan will be used by Encompass for working capital and general corporate purposes. The Note has a twelve-month term, an interest rate of 5.0%, and is payable in monthly installments of $2,000, with all remaining principal and interest due on the maturity date, unless paid earlier by Encompass.

The Board of Directors of the Company have determined not to proceed with the acquisition as contemplated under the LOI.

During the fiscal year ended June 30, 2020, the Company received $16,000 towards monthly installments. We recorded interest income of $6,304 during the period ended June 30, 2020. The Note receivable balance at June 30, 2020 was $88,510.

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. Payments through January 31, 2021 have been received as of the date of this report. The Company believes the note to be fully collectible as of September 30, 2020.

Note 8 – Accrued Liabilities

Accrued liabilities at September 30, 2020 and June 30, 2020 consist of the following:

	September 30, 2020		June 30, 2020
Accrued salaries and wages	$	11,448	$	23,749
Accrued commission fees		1,003,892		-
Accrued interest on mortgage		21,431		21,431
Accrued expenses		141,801		127,498
	$	1,178,572	$	172,678

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 9 - Debts and Other Noncurrent Liabilities

(1)	Mortgage on Lake Selmac Property

		September 30, 2020				June 30, 2020
Note payable, Resort at Lake Selmac		$	594,079			$	596,308

In March 2017, the Company acquired the Lake Selmac Property. Upon closing, the Company entered into a promissory note payable with the seller in the amount of $625,000 with a maturity date of March 6, 2022. The promissory note had an interest rate of 5% per annum covering the monthly payments of $3,355 for the initial 12 months, which increased to 6% per annum for the monthly payments of $3,747 for the following 48 months. Upon maturity, the remaining balance due on the note is required to be paid through a balloon payment. The Company has irrevocably granted to First American Trust Company, as the Trustee the power to sell the property with the sellers as the beneficiaries. The purpose of grant is to secure performance on the promissory note.

As of September 30, 2020, the approximate future aggregate principal payments in respect of our current obligations were as follows:

2021		10,553
2022		583,526
	$	594,079

(2)	Paycheck Protection Program and SBA

Paycheck Protection Program (“PPP loan”)	$	250,772
SBA		224,900
Total	$	475,672

On May 1, 2020, the Company entered into a promissory note with the US Small Business Administration (SBA) for funding in the amount of $250,772 with an interest rate of 1% per annum under the payroll protection program (PPP). Principal and interest payments are deferred during the first six (6) months of the term of this Note (the “Deferral Period”). Interest will continue to accrue on the outstanding principal balance during the Deferral Period. After proceeds of this Note have been expended by Borrower, but not sooner than eight weeks after the date of initial disbursement on this Note, Borrower may submit to Lender a request for forgiveness of the Loan. Borrower must submit all documentation required by Lender to verify number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations, certifying that the documents are true and that Borrower used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. Lender will notify Borrower within 60 days whether all or part of the requested forgiveness of the Loan has been approved. If the entire principal balance of this Note and accrued interest is not forgiven before the end of the Deferral Period, then the principal balance together with and all accrued and unpaid interest outstanding on the Amortization Commencement Date shall be paid in eighteen (18) monthly payments, commencing in the month immediately following the amortization commencement date.

In addition, the Company received an Economic Injury and Disaster Loan “EIDL” in the amount of $224,900 from the SBA for working capital purposes, pursuant to the terms and conditions set forth in a Loan Authorization and Agreement, Note, and Security Agreement between the Company and the SBA. The EIDL accrues interest at the rate of 3.75% per annum and matures on August 11, 2050 (30 years from the date of the note). Pursuant to the terms of the loan agreement, the Company granted the SBA a security interest in all of its tangible and intangible personal property to secure payment and performance of the Company’s obligations. The loan agreement contains certain affirmative and restrictive covenants, including a covenant prohibiting the Company from selling or transferring any collateral (other than the sale of inventory in the ordinary course of business) without the SBA’s prior written consent, as well as a covenant prohibiting the Company from making any distribution of assets or any direct or indirect advance, by way of a loan, gift, bonus or otherwise, to any owner or employee of the Company or its affiliates without the SBA’s prior written consent. An event of default will occur under the note if, among other things, the Company reorganizes, merges, consolidates or otherwise undergoes a change in ownership or business structure without the SBA’s prior written consent. The Company may prepay the note at any time without notice or penalty.

(3)	Loans from National Life Group

Appreciation had certain loan agreements with National Life Distribution, LLC as below:

	September 30,
	2020
Revolving line of credit loan upto $5M dated December 21, 2018 with maturity date on December 20, 2023 Interest rate 6%	$	4,235,748
Promissory note dated November 2, 2018 Interest rate 5%, weekly payment $5,000, paid in full on December 1, 2020		539,194
Total	$	4,774,942

Future maturities over the remaining term of the debt are as follows:

2021	$	624,746
2022		984,199
2023		4,235,748
		5,844,693
Less: current portion		(624,746	)
Long-term portion of debt	$	5,219,947

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 10 – Operating Leases

We have entered into various non-cancelable operating lease agreements for certain of our offices. Our leases have original lease periods expiring between 2021 and 2028.

Future minimum lease payments in respect of the above under non-cancellable leases as of September 30, 2020 as presented in accordance with ASC 842 were as follows:

2020	$	123,911
2021		487,140
2022		379,059
2023		280,923
2024		238,769
Remaining periods		1,008,294
Total future minimum lease payments		2,518,096
Less: imputed interest		(466,616	)
Total		2,051,480
Current portion of operating lease		388,178
Long term of operating lease	$	1,663,302

Note 11 – Capital Stock

On June 22, 2018, the Board of Directors of the Company approved the Recapitalization, which increased the Company’s authorized Common Stock from 100,000,000 to 175,000,000 shares, effective July 10, 2018. As of June 30, 2019, the Company's authorized stock consisted of 175,000,000 shares and 5,000,000 shares of Preferred Stock. As of August 29, 2019, the Company increased its authorized shares to 500,000,000 shares of Common Stock and 50,000,000 shares of Preferred Stock, respectively.

Reverse Stock Split

Common Stock

On August 19, 2020, the Company issued a total of 9,358,185 unregistered, restricted shares of Common Stock to acquire Pera LLC. (See Note 4).

During the three months ended September 30, 2020, the Company issued a total of 145,495 unregistered, restricted Common Shares to officers and directors as part of their respective executive and/or board compensation package. The Company valued those issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of grant and recorded stock-based compensation of $165,065.

During the three months ended September 30, 2020, the Company issued 17,104 fully vested shares of unregistered, restricted Common Shares to settle certain liabilities. The Company valued those issuances at the closing price of the Company’s Common Stock as traded on the OTCMarkets on the date of grant and recorded a $15,000 liability settlement and stock-based compensation of $8,108 on the statement of operations.

During the three months ended September 30, 2020, the Company issued a total of 75,000 unregistered, restricted shares of Common Stock in respect to private placements at $1.00 per share and received cash proceeds of $75,000, in which $35,000 subscripted from Appreciation.

Preferred Stock

In 2015, the Company designated all 5,000,000 shares of its Preferred Stock as Series A Convertible Preferred Stock (the "Series A Preferred"), par value $0.001. The Series A Preferred shareholders voted together with the Common Stock as a single class and were entitled to receive all notices relating to voting that are required to be given to the holders of the Common Stock. The holders of shares of Series A Preferred were entitled to five votes per share and each share was convertible by the holder into five shares of Common Stock. All of the Series A Preferred shares were issued and converted into Common Stock in November 2015.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 11 - Capital Stock (continued)

Equity Incentive Plan

In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “Incentive Plan”) with a term of 10 years. The Incentive Plan allows for the issuance up to a maximum of 100,000 shares of Common Stock, options exercisable into Common Stock of the Company or stock purchase rights exercisable into shares of Common Stock of the Company. The Incentive Plan is administered by the Board unless a separate delegation to an administrator is made by the Board. Options granted under the Incentive Plan carry a maximum term of 10 years, except to a grantee who is also a 10% beneficial owner at the time of grant, in which case the maximum term is 5 years. In addition, exercise prices of options granted must be within a certain percentage of the closing price on date of grant depending on the level of beneficial ownership of Common Stock of the Company by the grantee. All vesting conditions are set by the Board or a designated administrator. In December 2015, the Company filed a registration statement on Form S-8 covering all shares issued or issuable under the Incentive Plan. The Company has granted options to purchase 100,000 shares under the Incentive Plan during April 2016, 75,000 of which have been exercised and 25,000 of which have vested and were canceled, unexercised, during the current fiscal year. There are no remaining shares available under the Incentive Plan.

Stock Plan

In December 2015, the Company adopted the 2015 Stock Plan (the “Stock Plan”). As a condition of adoption of the Stock Plan, the Company filed a registration statement on Form S-8 in December 2015 to register the shares issued under the Stock Plan. The Stock Plan allows for the issuance of up to a maximum of 100,000 shares of Common Stock of the Company. The Stock Plan is administered by the Board unless a separate delegation to an administrator is made by the Board. The Stock Plan shall continue in effect until it is terminated by the Board or all shares are issued pursuant to the Stock Plan. The Company has not granted any shares under the Stock Plan.

Options

There were no unvested options outstanding during the years ended June 30, 2020 and 2019. Options outstanding had intrinsic value as of June 30, 2020 and 2019 of $nil. In the year ended June 30, 2016 the Company issued an option with no term attached, and effective June 30, 2020, in accordance with the terms of the 2015 Equity Incentive Plan, the Company terminated 25,000 unexercised, vested options.

Note 12 – Related Party Transactions

(1)	Bombshell Technologies, Inc.

Revenue

The following table summarizes the revenue from the Company’s related parties. Revenues below reflect the transactions between Bombshell, PERA and Appreciation to to the time of acquisition, consolidation and combination effective August 20, 2020, thereafter intercorporate sales are eliminated:

	Three Months Ended September 30,
	2020		2019
Appreciation Financial LLC (1)	$	101,217	$	167,336
Public Employee Retirement Assistance (PERA) (1)		74,856		74,790
Superior Performers Inc. (1)		139,572		212,998
Others		15,613		-
Grand Total	$	331,258	$	455,124

(1)

The Company had a significant concentration of revenue from these four customers totaling 95% and 100% of gross related party revenues during the three months ended September 30, 2020 and 2019, respectively. Related entities are controlled by over 5% shareholders of the Company and/or officer/directors of the Company.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 12 – Related Party Transactions (continued)

The following table summarizes the accounts receivable from the Company’s related parties:

	September 30, 2020		June 30, 2020
Appreciation Financial LLC (1)	$	-	$	140,289
Public Employee Retirement Assistance (PERA) (1)		-		49,737
Superior Performers Inc. (1)		47,757		58,061
Others		10,548		970
Grand Total	$	58,305	$	249,057

(1)	The Company had a significant concentration of accounts receivable from these three customers totaling 99% as at June 30, 2020. Related entities are controlled by over 5% shareholders of the Company and/or officer/directors of the Company.

Appreciation and PERA balances are eliminated as of September 30, 2020.

Costs of Goods and Commissions Fees

The following table summarizes the Costs of Sales – related parties:

	Three Months ended September 30,
	2020		2019
Trendsic Corporation Inc. (1)(2)	$	-	$	150,540
Ambiguous Holdings LLC (1)(2)		-		2,415
Total	$	-	$	152,955

(1)	The Company had a significant concentration of total costs of goods sold from these two related party vendors totaling 100% of related party costs of goods sold in the three months ended September 30, 2019, respectively.
(2)	Related entities are controlled by over 5% shareholders of the Company and/or officer/directors of the Company.

The following table summarizes expense related to commission fees included as General and administrative – related parties:

	Three Months ended September 30,
	2020		2019
Zeake, LLC (1)	$	53,082	$	47,499

(1)Related entities are controlled by over 5% shareholders of the Company and/or officer/directors of the Company.

The following table summarizes accounts payable to the Company’s related parties:

	September 30, 2020		June 30, 2020
Trendsic Corporation Inc. (1)	$	-	$	61,948
Zeake, LLC (1)		99,097		78,515
Grand Total	$	99,097	$	140,463

(1)Related entities are controlled by over 5% shareholders of the Company and/or officer/directors of the Company.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 12 – Related Party Transactions (continued)

(2)

Pera LLC

The following table summarizes the Costs of Sales – related parties:

	For the period August 20, 2020 to September 30, 2020
Pera Wizards, LLC (1)	$	253,596
Wingbrook Partners, LLC (1)		177,352
Total	$	430,948

(1)Related entities are controlled by over 5% shareholders of the Company and/or officer/directors of the Company.

The following table summarizes expense related to commission fees paid to related parties and included as General and administrative – related parties:

	For the period August 20, 2020 to September 30, 2020
Management fee	$	28,962
Commission fee		18,563
Total	$	47,525

(3)	Appreciation Financial LLC

The following table summarizes the Costs of Sales – related parties:

	For the period August 20, 2020 to September 30, 2020
Member of Appreciation	$	54,374

The following table summarizes expense related to compensation included as General and administrative – related parties:

	For the period August 20, 2020 to September 30, 2020
Member of Appreciation	$	196,473

Upon combination of Appreciation, the Company assumed accounts payable as below:

	September 30, 2020
Member of Appreciation	$	201,252

(4)	Grow Capital

On February 12, 2020, the Company entered into a consulting agreement with Trevor Hall and appointed Mr. Hall to serve as an interim CFO of the Company beginning January 1, 2020 through December 31, 2020. Pursuant to the consulting agreement, a fixed fee of Sixty Thousand (60,000) shares of the Company’s unregistered restricted common stock for his providing chief financial officer services. The shares are to be issued at a rate of Fifteen Thousand (15,000) shares per quarter. The first and second installments, covering the period January 1 to June 30, 2020, were issued on March 3, 2020 and vested immediately upon issuance.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 12 – Related Party Transactions (continued)

On April 1, 2020, Jonathan Bonnette, who had been the President and Chief Executive Officer of Grow Capital since July 1, 2018, transitioned out of his role as President and Chief Executive Officer and became the Company’s Chief Technology Officer and the Chief Executive Officer of the Company’s subsidiary, Bombshell Technologies.

Mr. Terry Kennedy was appointed to succeed Mr. Bonnette as the President and Chief Executive Officer of the Company, effective April 1, 2020. In connection with Mr. Kennedy’s appointment, the Company and Mr. Kennedy entered into an executive compensation agreement (the “Compensation Agreement”) with an effective date of April 1, 2020. The Compensation Agreement governs the terms and conditions regarding Mr. Kennedy’s compensation for the three-month period beginning on April 1, 2020, and ending on June 30, 2020, and may be terminated “for cause” only. Pursuant to the Compensation Agreement, following his appointment as President and Chief Executive Officer, Mr. Kennedy was issued 50,000 unregistered, restricted shares of the Company’s Common Stock on April 20, 2020 as compensation for the three-month period ending June 30, 2020. The 50,000 shares were valued at $44,040 at the closing price of the Company’s Common Stock as traded on the OTCMarkets on the date of grant. The shares of common stock issued are immediately and fully vested, and deemed to be fully earned, upon their issuance. If such a permanent executive compensation or employment agreement is not consummated prior to July 1, 2020, the Compensation Agreement will automatically renew for one additional three-month period beginning on July 1, 2020, with Mr. Kennedy entitled to receive up to an additional 50, 000 unregistered, restricted shares of the Company’s common stock, with the actual number of shares being prorated for the portion of the extended period actually served until the more permanent executive compensation/employment agreement is consummated.

On May 15, 2020, the Company entered into Fee Agreements (collectively, the “Fee Agreements”) with each of (i) Jonathan Bonnette, and (ii) Carl Sanko, a director and the Secretary of the Company. Under the Fee Agreements, on May 15, 2020, each of Mr. Bonnette, and Mr. Sanko were issued unregistered, restricted shares of Common Stock for services provided to the Company. Pursuant to the Fee Agreements:

(i)Mr. Bonnette received a fixed fee of $320,000 for his service as Chief Executive Officer of the Company and for outside business management and consulting services of which 1/3, or $106,667 was immediately payable. by way of an upfront payment of 133,333 unregistered, restricted shares of Common Stock valued at $113,017 and deemed to cover the three-month period from May 15, 2020 to August 15, 2020. The balance of Mr. Bonnette’s compensation of $213,333 will vest monthly but be paid in shares of Common Stock quarterly in installments of $71,111 within 10 days following each of the three-month periods ending of November 15, 2020, February 15, 2021, and May 15, 2021.

(ii)Mr. Sanko received a fixed fee of $270,000 for his services as Secretary of the Company and for outside business management and consulting services, of which 1/3 or $90,000 was immediately payable by way of an upfront payment of 112,500 unregistered, restricted shares of Common Stock valued at $95,400 and deemed to cover the three-month period from May 15, 2020 to August 15, 2020; The balance of Mr. Sanko’s compensation of $180,000 will vest monthly but be paid in shares of Common Stock in quarterly in installments of $60,000 within 10 days following each of the three-month periods ending of November 15, 2020, February 15, 2021, and May 15, 2021.

145,495 unregistered, restricted Common Shares to officers and directors as part of their respective executive and/or board compensation package. The Company valued those issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of grant and recorded stock-based compensation of $165,065.

During the three months ended September 30, 2020, the Company issued a total of 75,000 unregistered, restricted shares of Common Stock to related parties for cash proceeds of $75,000.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 13 – Segment Reporting

The Company's operations are classified into four reportable segments that provide different products or services. Separate management of each segment is required because each business unit is subject to different marketing, operational, and growth and technology development strategies.

Resort at Lake Selmac

The recreational vacation site rentals segment operated by Resort at Lake Selmac, Inc. derives its revenue from rental of RV sites and campsites at its owned location on Lake Selmac in Oregon.

Bombshell Technologies and Corporate

US. The Fintech segment operated by Bombshell Technologies based in Nevada and Louisiana derives its income from proprietary software which delivers customized back office compliance, sophisticated multi-pay commission processing, and a unique new client application submission system, along with digital engagement marketing services centric to financial services.

Pera

Our electronic appointment scheduling operations provides leads for insurance agents to connect retirement professionals and public employees to trusted insurance advisors.

Appreciation

The operations of combined entity Appreciation Financial LLC 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. We derive revenue from all operating segments.

There are inter-segment sales between each of our operating divisions other than Resort at Lake Selmac. The costs associated with management overhead for Grow Capital are dedicated to our key operating segment in the FinTech industry, Bombshell Technologies and all corporate overhead has been included in this segment disclosure as a result.

	As of September 30,		As of June 30,
	2020		2020
Assets by segment
Bombshell Technologies and corporate	$	1,121,066	$	1,129,266
Pera		501,440		-
Appreciation		2,654,052		-
Resort at Lake Selmac		785,112		783,992
Total assets	$	5,061,670	$	1,913,258

Three months ended September 30, 2020 and 2019:

	Three Months Ended
	September 30,
	2020			2019
Revenues by segment:
Bombshell Technologies and corporate	$	382,671		$	506,363
Pera		709,679			-
Appreciation		3,501,502			-
Resort at Lake Selmac		69,146			86,299
Revenues	$	4,662,998		$	592,662

Segment profit (loss)
Bombshell Technologies and corporate	$	(1,057,859	)	$	(257,113	)
Pera		(43,487	)		-
Appreciation		73,996			-
Resort at Lake Selmac		26,014			8,220
Total segment profit	$	(1,001,336	)	$	(248,893	)

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 15 – Commitments and Contingencies

On December 13, 2019, Trendsic Corporation, Inc. (“Trendsic”), a related party entity which is 49% controlled by Joel A. Bonnette (former CEO of our wholly-owned subsidiary Bombshell Technologies, Inc.) filed a lawsuit in the 19th Judicial District Court in East Baton Rouge Parish, Louisiana against Joel A. Bonnette, Jared Bonnette, Bombshell Software, LLC and Bombshell Technologies, Inc. The plaintiff is disputing the ownership of certain intellectual property of Bombshell Technologies, Inc. and alleging misappropriation of trade secrets of Trendsic. Trendsic is seeking an unspecified amount of damages in excess of $75,000 and treble damages under the Louisiana Uniform Trade Secrets Act, as well as injunctive relief. The Company believes the claims by Trendsic are without merit and is vigorously defending against such claims. At the time of this report, the Company and the plaintiff have entered into confidential settlement negotiations. The Company has accrued $494,458 in accrued liabilities in respect of the estimated monetary settlement.

On September 4, 2020, Colorado Public Employees’ Retirement Association filed a lawsuit against our wholly owned subsidiary PERA, LLC in United States District Court for the District of Colorado. Plaintiff asserts claims against the Company for violation of the Colorado Consumer Protection Act, C.R.S. Sec. 6-1-113 and for common law unfair competition. Plaintiff alleges that the Company has created confusion amongst Colorado public employees as to the affiliation of the Company with Plaintiff. The Company denies the claims asserted against it and is vigorously defending the lawsuit. At this point, Plaintiff has not identified any monetary damages alleged to be sustained as a result of the Company’s conduct.

On May 25, 2017, Asurea Insurance Services, Inc. filed a lawsuit against Appreciation, LLC and three of our top agents in the Superior Court of California, Sacramento. Plaintiff asserts claims of Breach of Settlement Agreement, Breach of Implied Covenant of Good Faith and Fair Dealing, Specific Performance, Declaratory Relief, Intentional Interference with Prospective Economic Relations, Negligent Interference with Prospective Economic Relations, and Aiding and Abetting. Plaintiff alleges that the Parties breached the Settlement Agreement reached between the parties on September 1, 2014. The Company denies the claims asserted against it and is vigorously defending the lawsuit. The parties have attended mediation in an attempt to settle this case to no avail. At this point, Plaintiff has not proven any monetary damages alleged to be sustained as a result of the Company’s alleged conduct.

On September 15, 2017, Nathan Burks filed a lawsuit against Appreciation, LLC and three of our top agents in the Superior Court of California, Sacramento. Plaintiff asserts claims of Breach of Settlement Agreement, Breach of Associate Agreement, Common Count- Services Rendered, Intentional Interference with Contractual Relations, Negligent Interference with Prospective Economic Relations, Declaratory Relief, Money Had and Received, and Unfair Competition. Plaintiff alleges that when he left Appreciation and returned to Asurea (his original place of employment in 2014, and a corporate entity with which we are in litigation) (see above) that despite violating the associate agreement, he is owed money. The Company denies the claims asserted against it and is vigorously defending the lawsuit. The parties have an arbitration set in May of 2021 in an attempt to settle this case. At this point, Plaintiff has not proven any monetary damages alleged to be sustained as a result of the Company’s alleged conduct.

On the basis of current information, the availability of legal advice, and in management’s opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material adverse effect on its financial condition, operations and/or cash flows.

GROW CAPITAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

Note 16- Subsequent Events

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.

On October 1, 2020 the Company issued 50,000 unregistered, restricted shares of the Company’s common stock to the Company’s CEO, Terry Kennedy, concurrent with approving an extension to his executive compensation contract, as compensation for the three-month period commencing October 1, 2020. The shares were valued at the closing price of the Company’s Common Stock as traded on the OTCMarkets on the date of the board resolution approving the issuance of the shares.

On October 1, 2020 the Company issued a total of 106,869 unregistered, restricted common shares to officers and directors as part of their respective executive and/or board compensation package. The Company valued the issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of the board resolution approving the issuance of the shares.

On October 16, 2020, the Company issued a total of 15,000 unregistered restricted common shares as the quarterly payment to an officer as part of his respective executive and/or board compensation package. The shares vest immediately upon issuance. The Company valued the issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of the board resolution approving the issuance of the shares.

On November 16, 2020 the Company issued a total of 199,370 shares of common stock to two officers and directors as part of their respective executive and/or board compensation package. The Company valued the issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of the board resolution approving the issuance of the shares.

On November 23, 2020, the Company issued a total of 75,000 shares of common stock to three related companies for total consideration of $75,000.

On December 4, 2020, the Company issued a total of 20,797 shares to AF1 Public Relations LLC for consideration of serviced valued at $15,000. The Company valued the issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of the board resolution approving the issuance of the shares.

On January 11, 2021, the Company issued a total of 119,718 unregistered, restricted common shares to officers and directors as part of their respective executive and/or board compensation package. The Company valued the issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of the board resolution approving the issuance of the shares.

On January 11, 2021, the Company issued a total of 1,500,000 unregistered, restricted common shares to certain third parties and related entities for cash consideration of $375,000.

On January 11, 2020 the Company issued 50,000 unregistered, restricted shares of the Company’s common stock to the Company’s CEO, Terry Kennedy, concurrent with approving an extension to his executive compensation contract, as compensation for the three-month period commencing October 1, 2020. The shares were valued at the closing price of the Company’s Common Stock as traded on the OTCMarkets on the date of the board resolution approving the issuance of the shares.

On January 22, 2021, the Company issued a total of 15,000 unregistered restricted common shares as the quarterly payment to an officer as part of his respective executive and/or board compensation package. The shares vest immediately upon issuance. The Company valued the issuances at the closing price of the Company’s stock as traded on the OTCMarket on the date of the board resolution approving the issuance of the shares.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events or circumstances or to reflect the occurrence of unanticipated events.

The management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated and combined financial statements for the three months ended September 30, 2020 and the notes thereto appearing elsewhere in this Report and the Company's audited financial statements for the fiscal year ended June 30, 2020, as filed with the Securities and Exchange Commission in our Form 10-K on October 13,2020, along with the accompanying notes. As used in this quarterly report, the terms "we", "us", "our", and the "Company" means Grow Capital, Inc.

Overview

On June 22, 2018, the Board of Directors of the Company approved an amendment to our articles of incorporation to increase our authorized capital to 180,000,000 shares, consisting of 175,000,000 shares of common stock (“Common Stock”), par value $0.001, and 5,000,000 shares of preferred stock (“Preferred Stock”), par value $0.001 (the “Recapitalization”) and to change the name of the Company to “Grow Capital, Inc.” in order to reflect our plans to expand our business focus into the financial technology (“FinTech”) sector. The Company filed articles of amendment with the State of Nevada to effect the aforementioned changes on July 10, 2018 and August 28, 2018, respectively. The Company received approval from the Financial Industry Regulatory Authority ("FINRA") for the above noted corporate actions on August 8, 2019.

In connection with this strategy, the Company hired a new Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) and appointed a new chairman of the Company’s board of directors, all of whom have significant experience in the FinTech sector. The Company intends to acquire FinTech companies with a clear niche and strong leadership and use its experience and understanding of the FinTech sector and access to the public markets to help its acquisitions grow.

Keeping in line with our change of operational focus as set out above, on June 26, 2019 the Company entered into a stock exchange agreement (the “Exchange Agreement”) with Bombshell Technologies, Inc. (“Bombshell”) and the shareholders of Bombshell (the “Bombshell Holders”). Pursuant to the Exchange Agreement, which closed on July 23, 2019, the Company acquired 100% of the outstanding shares of Bombshell (the “Bombshell Shares”) in exchange for the Bombshell Holders receiving the right to receive 110,675,328 shares (the “Consideration Shares”) of unregistered shares of the Company’s Common Stock on a pro rata basis (the “Exchange”), 33,000,000 of which were issued to the Bombshell Holders (the “Closing Shares”) at the Closing on a pro rata basis. The remaining 77,675,328 Consideration Shares (the “Secondary Shares”) were issued on September 3, 2019 upon approval of the increase to the Company’s authorized common stock to 550,000,000 shares, consisting of 500,000,000 shares of Common Stock and 50,000,000 shares of Preferred Stock, effective August 29, 2019. The Bombshell Holders are also eligible to receive earn-out consideration of up to an additional 36,769,215 shares of Common Stock (the “Earn-out Shares”) earnable in tranches of 12,256,405 shares of Common Stock in each of the second, third and fourth years after the Closing, based on whether Bombshell is able to meet certain Earnings Before Interest and Taxes thresholds in each year. The Bombshell Holders include certain limited liability companies owned by (i) Jonathan Bonnette, the Company’s former CEO and current CTO (ii) Joel Bonnette, the Bombshell CEO and (iii) Terry Kennedy, a majority shareholder of the Company and current CEO.

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.

(the “Note”) to the Company pursuant to a loan agreement (the “Loan Agreement”), dated July 22, 2019, by and between Encompass and the Company, in exchange for a loan of $100,000 (the “Loan”). Pursuant to the Loan Agreement, the proceeds of the Loan will be used by Encompass for working capital and general corporate purposes. The Note has a twelve-month term, an interest rate of 5.0%, and is payable in monthly installments of $2,000, with all remaining principal and interest due on the maturity date, unless paid earlier by Encompass. The Board of Directors have subsequently determined not to proceed with the acquisition as contemplated under the LOI.

On September 4, 2019 the Company entered into a listing agreement for the sale of the Resort at Lake Selmac site location (formerly Smoke on the Water)for an offering price of $850,000, with expected 6% sales commission. Such listing agreement was extended in December 2019 under the same terms and conditions, expiring in March 2020. Further, despite originally listing the Resort at Lake Selmac property for sale during September 2019 upon expiry of the listing agreement March 31, 2020, the Company determined to delay the sale, and to continue to operate the rebranded Resort at Lake Selmac as a family friendly RV resort facility in fiscal 2020. The Resort opened for operations in fiscal 2021 on July 1, 2020 subsequent to a delay resulting from the impact of Covid-19 and certain state mandated facility closures.

In connection with the shift in the Company’s strategy away from rental activities focused in cannabis industry, the Company sold WCS on September 30, 2019 by way of a membership interest purchase agreement (the “Purchase Agreement”) with the Zallen Trust. Under the terms of the Purchase Agreement, the Company sold all of the Company’s membership interests in WCS for an aggregate purchase price of $782,450. The Zallen Trust paid the purchase price by transferring to the Company 8,693,888 shares of the Company’s Common Stock, valued at $0.09 per share. The Purchase Agreement also provided that Mr. Zallen transfer to the Company an additional 400,000 shares of Common Stock to settle $36,000 in back rent owed at the time of the sale. The Company retired all of the shares received as a result of the transaction. In connection with the sale of WCS, the Company and Mr. Zallen entered into a separation and release of claims agreement pursuant to which the Company and Mr. Zallen provided a mutual release of claims against the other party and such party’s affiliates, including all claims related to Mr. Zallen’s service as an officer, employee, and director of the Company. The release of claims by Mr. Zallen resulted in the forgiveness of salary accruals of approximately $367,000 for services provided up to June 30, 2018. Mr. Zallen was the former CEO, Chairman and President of the Company.

On April 1, 2020, Jonathan Bonnette, who has been the President and Chief Executive Officer of Grow since July 1, 2018, transitioned out of his role as President and Chief Executive Officer and become the Company’s Chief Technology Officer and the Chief Executive Officer of the Company’s subsidiary, Bombshell Technologies.

Mr. Terry Kennedy was appointed to succeed Mr. Bonnette as the President and Chief Executive Officer of the Company, effective April 1, 2020.

On May 13, 2020 the Company’s Board of Directors approved a 1 for 20 reverse split whereby shareholders would receive one (1) post reverse split share of Common Stock for each twenty (20) pre-split shares of Common Stock. The Company would pay cash to shareholders who were left with only a fractional share and would round up any other partial shares to the nearest whole share. The corporate action was approved by FINRA and become effective on July 30, 2020 and all share and per share data included in this Annual Report has been retroactively impacted to reflect the share split.

Pursuant to the Exchange Agreement, at the Closing, the Company acquired 100% of the outstanding membership interests of PERA (the “PERA Ownership Interests”) in exchange for 9,358,185 unregistered restricted shares of the Company’s common stock on a pro rata basis (the “Exchange”). At the Closing, the PERA Members conveyed all of the right, title and interest in and to the PERA Ownership Interests in exchange for the right to receive a number of shares of GC Common Stock equal to an exchange ratio (the “Exchange Ratio”). The Exchange Ratio is calculated by dividing (a) the Exchange Shares (as defined below) by (b) the total number of shares of PERA Ownership Interests outstanding immediately prior to the Effective Date.

“Exchange Shares” means the number of shares of GC Common Stock obtained by dividing (a) $10,000,000 by (b) the 10-day volume weighted average price per share (“VWAP”) calculated immediately before the date that the previously announced reverse stock split of GC Common Stock became effective on OTCQB, July 30, 2020.

In addition, if PERA meets certain yearly targeted gross revenues for each of year one, two, and three following the Closing, the PERA owners may earn a cumulative total of up to $5,000,000 of shares of GC Common Stock (the “Earn-out Shares”) to be determined using the applicable 10-day VWAP stock price of the Company’s common stock preceding each earn-out period calculation date as set forth in the Exchange Agreement in connection with all of the three years, subject to certain catch up provisions if such yearly period targets are not met in the applicable period.

The PERA Members include certain limited liability companies owned by (i) Terry Kennedy, the CEO of the Company, (ii) Jonathan Bonnette, the CTO of the Company and the CEO of Bombshell Technologies, Inc., a subsidiary of the Company, (iii) Joel Bonnette, brother of Jonathan Bonnette, and (iv) Carl Sanko, a director and Secretary of the Company, and (v) Jared Bonnette, brother of Jonathan Bonnette.

On September 25, 2020 the Company and Encompass More Group Inc. (the “Borrower”) entered into an addendum to the July 22, 2019 Commercial Loan Agreement (the “Addendum”) in order to modify certain of the terms and conditions. Under the Addendum, the Borrower shall enter into a new promissory note in the principal amount of $72,000, with any unpaid interest due and payable at June 30, 2020 to accrue and become due and payable on October 1, 2021. Further under the terms of the promissory note the Borrower shall make twelve (12) installment payments of $6,000 commencing November 1, 2020, until the principal balance of the loan is repaid in full, at which time all accrued and unpaid interest shall come due and payable. Interest on the promissory note shall continue to accrue at a rate of Five (5%) per annum. Concurrent with the execution of the Addendum, the Borrower made a lump sum payment of $16,510 to reduce the principal of the original $100,000 loan to $72,000. As at January 31, 2021 Encompass was current with the required installment payments.

On September 30, 2020 Terry Kennedy, CEO, and Eric Tarno, CEO of acquired subsidiary, PERA LLC, were appointed to the Company’s Board of Directors effective October 1, 2020.

Grow Capital expects to identify additional suitable acquisitions, complete those acquisitions, and grow those companies as part of our transition to a Fintech company. Any potential acquisitions or divestitures remain subject to final agreements, due diligence, and typical closing conditions.

Current Operations

Grow Capital has shifted its operational mandate with the acquisition of Bombshell and PERA to becoming a solution-oriented company focused on software, and developing the best professional technology (ie: FinTech) and financial services companies in the market. Our current management team consists of consultants and entrepreneurs that have combined decades of experience in this sector. Fintech is a term used to describe financial technology, an industry encompassing any kind of technology in financial services. This includes businesses and consumers and generally includes companies that provide financial services through software or other technology and ranging from mobile payment apps to cryptocurrency.

Operating Subsidiaries

Resort at Lake Selmac

While the Company entered into a listing agreement for the divestiture of this operating location during fiscal 2020, it was subsequently determined by management to continue to operate the property upon the expiration of the listing agreement on March 31, 2020. As a result of the current decline in real estate transactions in the United States as a result of the pandemic, the Company will review the sale of this property when appropriate at a future date. Due to the COVID-19 pandemic, the scheduled opening date for the resort of April 1, 2020 was postponed. The resort was able to be reopened in July 2020 once the local State guidelines permitted a return to operations. The Company intends to operate the resort year round and does not expect the delayed opening to have a subsequent impact on our operations. The resort is currently operated as a family friendly resort destination.

Bombshell Technologies, Inc.

Bombshell was formed as Bombshell Technologies, LLC on November 5, 2018 and converted into a corporation on June 24, 2019. Bombshell is a full-service design and software development company focused on developing and selling software to financial services firms and advisors and was our first acquisition as part of our strategic shift into the FinTech sector and related sectors.

Bombshell Technologies has operations in both Nevada and Louisiana, providing software to several large financial services organizations and leading the way on innovative industry-specific solutions for sales teams and management.

Bombshell Technologies is a solution-oriented company focused on software, technology and financial services business (i.e. FinTech). Our current management team consists of consultants and entrepreneurs that have combined decades of experience in this sector. Fintech is a term used to describe financial technology, an industry encompassing any kind of technology in financial services. This includes businesses and consumers and generally includes companies that provide financial services through software or other technology and ranging from mobile payment apps to cryptocurrency.

Bombshell's current software suite delivers customized back office compliance, sophisticated multi-pay commission processing, and a unique new client application submission system, along with digital engagement marketing services centric to financial services. In addition to our software customization, licensing and subscription service contracts which generate revenue through user subscriptions as well as ongoing customization services and maintenance, we offer ad hoc services including web hosting and website development and other complementary professional services which are invoiced on an “as-provided” basis.

Bombshell earns revenue from a combination of activities including monthly user fees for access to customized back end software, website development, and other professional services including maintenance and ongoing customization of its SAAS product offerings.

PERA LLC

PERA LLC, acquired in August 2020, provides public employee retirement assistance and currently works with employees of school districts, colleges, universities, and other public institutions nationwide. Every state licensed representative is appointed with one or more of the institution’s approved vendors.

Headquartered in Nevada, PERA connects retirement professionals and public employees who want help during school and government building closures. PERA has over 5,000 trusted advisors in its network to help public employees and has successfully set near half a million appointments for its’ clients since its inception.

PERA has continued assisting in the public employee sector of financial and retirement planning during COVID 19 as everyone is working from home and only taking online meetings. PERA’s use of technology, with its back office running Bombshell Technologies software, has been helping employees achieve their goals of getting retirement

ready and kept agents in business. Serving major insurance and financial service companies, PERA intends to expand its client base through new ownership by Grow Capital.

PERA provides vetted appointments - not leads - to agents. PERA began as a way to put safety of public employees and students first - minimizing campus “walk-ons” by using an electronic scheduling program to ensure only licensed representatives with scheduled appointments visited your campus.

In our current virtual world, PERA offers fully electronic appointments through their live interactive meeting platform. Their virtual meetings allow employees to receive the expert, honest and reliable financial advice they deserve on their own time. PERA’s approach to the market is reflected in their significant growth over the last year. They have established a network of advisors who understand public employee’s professional lives and how to make their income last a lifetime.

COMBINED OPERATIONS OF APPRECIATION FINANCIAL LLC AND APPRECIATION REWARDS LLC

The operations of combined entity Appreciation Financial LLC and Appreciation Rewards, headquartered in Nevada, include full-service retirement planning by member agents which service public employees and their families providing policies from a series of insurance carriers that meet their retirement planning requirements.

RESULTS OF OPERATIONS FROM CONTINUING OPERATIONS

The Company shifted its focus to the FinTech sector during the current fiscal year and acquired operating, revenue generating subsidiaries, Bombshell and PERA. Further, the Company divested WCS effective September 30, 2019 While the Resort at Lake Selmac site location was classified as “held for sale” in the first two quarters of fiscal 2020, management determined to continue to operate the property until further notice, and its operations have been returned to continuing operations. The Resort at Lake returned to regular operations effective July 1, 2020, as the State of Oregon lifted restrictions on business closures. Financial results for the three months ended September 30, 2020 include the operations of wholly owned subsidiaries, Bombshell, The Resort at Lake Selmac and PERA, as well as Pera Administrators LLC, the operations of which are for the sole benefit of PERA LLC. In addition, the Company has combined the financial results of Appreciation Financial LLC and Appreciations Rewards LLC, deemed to be common control entities, for the period from August 19, 2020 to September 30, 2020, in order for the results of the Company’s operations and financial position to not be misleading. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. Financial results for the three months ended September 30, 2019 are “combined” with respect to the operations of Bombshell Technologies, Inc. under the requirements of ASC 850-50-45, which results impact the statements of profit and loss and statements of cash flows to include operations of Bombshell Technologies Inc. as though it had been acquired on inception.

Three Months Ended September, 2020 compared to Three Months ended September 30, 2019

Revenue and costs of revenue

During the three months ended September 30, 2020 we generated gross revenues of $4,662,998, of which $331,258 was derived from related party customers, compared to $598,662 in the comparative three months ended September 30, 2019, of which $455,124 was derived from related party customers. Costs of sales in the current three months totaled $3,716,690 of which $485,323 were costs of related party services, compared to $345,406 for the three months ended September 30, 2019 of which $152,955 were costs of related party services. Gross profit for the comparative three-month periods ended September 30, 2020 and 2019, respectively totaled $946,308 and $253,256. Reported revenues in the three months ended September 30, 2020 include operations of our wholly owned subsidiaries Bombshell and The Resort at Lake Selmac, as as well as the revenues generated by PERA LLC for the period from acquisition (August 19, 2020 through September 30, 2020). In addition, September 30, 2020 revenue results include results fromAppreciation Financial LLC and Appreciations Rewards LLC deemed to be common control entities, for the period from August 19, 2020 to September 30, 2020, in order for the results of the Company’s operations and financial position to not be misleading. Revenues for the comparative three month period ended September 30, 2019 were generated by Bombshell and the Resort at Lake Selmac site location. During the three months ended September 30, 2020 and 2019, operations of the Resort at Lake Selmac contributed gross profit of $57,337 and $54,406, operations of Bombshell contributed gross profit of $82,850 and $198,850, respectively, operations of PERA LLC contributed gross profit of $141,890 and combined operations of Appreciation Financial LLC and Appreciation Rewards LLC contributed gross profit of $664,231.

Operating expenses

Our operating expenses for the three-month periods ended September 30, 2020 and 2019 were as follows:

	Three Month Ended
	September 30,
	2020			2019
Revenue	$	4,331,740		$	143,538
Revenue, related parties		331,258			455,124
Total revenues		4,662,998			598,662

Cost of sales, nonrelated parties		3,231,367			192,451
Cost of sales, related parties		485,323			152,955
Total cost of sales		3,716,690			345,406

Gross profit		946,308			253,256

Operating expenses
General and administrative		615,473			579,881
General and administrative, related parties		297,080			47,499
Professional fees		461,584			352,492
Settlement		494,458			-
Depreciation, amortization and impairment		5,235			6,404
Total operating expenses		1,873,830			986,276

Loss from operations		(927,522	)		(733,020	)

Three months ended September 30, 2020 and 2019

Our general and administrative expenses consist of rent, telephone, internet services, banking charges, salaries, consulting fees and miscellaneous office costs.

The Company experienced an increase in operating expenses from $986,276 during the three months ended September 30, 2019 to $1,873,830 during the three months ended September 30, 2020. The increase in operating expenses is predominantly attributable to an increase in general and administrative expenses, including related party general and administrative expenses, and professional fees, as well as the impact of the additional expenses of subsidiary PERA LLC and the operating results of combined entities Appreciation Financial LLC and Appreciation Rewards. Professional fees increased period over period from $352,492 to $461,584 as the Company undertook various corporate actions and acquired PERA LLC in the period, as well as operations in the normal course and certain legal fees related to ongoing legal matters. General and administrative fees also increased in the current three-month period ended September 30, 2020 from $579,881 (2019) to $615,473 in the three months ended September 30, 2020. This was a direct result of increased operations period over period related to Bombshell, newly acquired PERA LLC and the operations of combined entities Appreciation Financial LLC and Appreciation Rewards, offset by a reduction to stock based compensation to certain board members, employees and consultants for services rendered at rates below market, the total combined value of which was $502,638 for the three months ended September 30, 2019 compared to stock issuances for total consideration of $173,173 in the current three months ended September 30, 2020. Further, general and administrative fees incurred from related parties also increased period over period from $47,499 in the three months ended September 30, 2019 to $297,080 in the three months ended September 30, 2020 predominantly from the combination of common control entities Appreciation Financial LLC and Appreciation Rewards. During the current three months ended September 30, 2020 the Company recorded $494,458 in respect to an accrual for a negotiated legal settlement, with no similar expense in the prior comparative three months ended September 30, 2019. Depreciation, amortization and impairment decreased slightly from $6,404 to $5,235 in the current three-month period.

We expect operating expenses to increase in future periods as we continue to expand our holdings seeking additional areas of operation to further enhance our existing revenue base.

Other Expenses

Other income/expenses recorded in the three months ended September 30, 2020 reflect other income of $1,625 in the current three months as a result of interest income related to a short term loan provided by the Company to a third party, as compared to $1,342 for three-month period ended September 30, 2019. Interest expenses with respect to a mortgage on the Resort at Lake Selmac totaled $9,012 and $9,100 respectively in the three-month periods ended September 30, 2020 and 2019. Interest expense in the three months related to combined operations of Appreciation Financial LLC for the period August 19, 2020 to September 2020, totaled $66,427 with no comparative expense in the prior three month period ended September 30, 2019.

Net losses from continuing operations in the three months ended September 30, 2020 and 2019 totaled $1,001,336 and $740,778, respectively.

Discontinued operations

The Company sold wholly owned subsidiary WCS effective September 30, 2019. The effect of the and operations prior to the sale are included in discontinued operations. During the three months ended September 30, 2020, the Company reported income from discontinued operations of $0 and $491,885, respectively. The income from discontinued operations in the three months ended September 30, 2019 relates to the sale of a former subsidiary resulting in a gain of $492,439, offset by operational activities.

Net losses

Net losses offset by income attributable to members of Appreciation LLC and Appreciation Rewards totaling $73,995 in the three months ended September 30, 2020 was $1,075,331. Net losses in the three months ended September 30, 2019 was $248,893.

Liquidity and Financial Condition

Liquidity and Capital Resources

	At September 30, 2020				At June 30, 2020

Current Assets		$	2,060,955			$	726,321
Current Liabilities			3,673,621				1,044,113
Working Capital		$	(1,612,666	)		$	(317,792	)

As of September 30, 2020, the Company had total current assets of $2,060,955 and negative working capital of $1,612,666 compared to total current assets of $726,321 and negative working capital of $317,792 as of June 30, 2020. The decrease in our working capital was primarily a result of an increase to current accrued liabilities in relation to commissions payable by combined entity Appreciation Financial LLC and the accrual of certain anticipated legal settlement amounts.

During the three months ended September 30, 2020, cash provided by operating activities totaled $300,908, primarily as a result of a net loss from continuing operations of $1,001,336. The net loss from continuing operations was offset by stock-based compensation of $173,173, a loss on an expected legal settlement of $494,458, depreciation and amortization expenses of $5,235, amortization of right to use assets of $5,286 and impairment of other current assets of $6,900. Further during the three months ended September 30, 2020 we increased our accounts receivable by $66,158, decreased our related party accounts receivable by $59,658, and decreased our related party accounts payable by $41,366 while increasing our accrued expenses by $376,855 and accounts payable by $228,200. Unearned revenue also decreased in the current period. In the three months ended September 30, 2019, cash used in operating activities totaled $513,532 with a net loss from continuing operations of $248,893, and a gain from discontinued operations of $491,885, offset by stock-based compensation of $501,638 and depreciation and amortization expenses of $6,404. During the three months ended September 30, 2019 we increased our accounts receivable by $49,935 and our accounts receivable – related parties by $142,793, further our related party accounts payable decreased by $132,740 while accounts payable increased by $118,783. Unearned revenue also increased in the three months ended September 30, 2019 by $2,080 as did accrued expenses by $99,731.

Net cash used in investing activities in the three months ended September 30, 2019 was $95,573, as compared to net cash provided of $900,783 in the three months ended September 30, 2020. Increase to cash due from related party in the three months ended September 30, 2019 totaled $39,548 with no comparative balance in the current three months ended September 30, 2020. During the three months ended September 30, 2019 the Company loaned a third party $100,000 on a one-year promissory note and received cash from the acquisition of Bombshell of $43,975, whereas during the three months ended September 30, 2020 the Company recorded a reduction to the loan receivable of $16,510 and received cash from an acquisition and the combination of entities under common control of $884,273.

Net cash provided by financing activities was $47,065 in the three months ended September 30, 2020 as compared to $184,738 in 2019. During the current three-month period ended September 30, 2020, the Company closed private placements for total proceeds of $75,000, compared to total proceeds of $200,000 from private placements during the comparable period ended September 30, 2019. Cash from financing activities in the three months ended September 30, 2019 was offset by a repayment to a related party of $13,121 with no similar transactions in the current three month period ended September 30, 2020. During the current three months ended September 30, 2020 the Company repaid debt of $25,706 with respect to certain loan obligations of combined entity Appreciation Financial LLC with no comparable transaction in the comparative three month period. Further, the Company reduced its loan on the Resort at Lake Selmac property by $2,229 and $2,141 respectively during the three months ended September 30, 2020 and 2019.

Net cash used in discontinued activities totaled $2,030 in the three months ended September 30, 2019, with no discontinued activities in the current three months ended September 30, 2020.

Going Concern

Covid-19 Pandemic

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective, for the reasons discussed below, to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

A material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner.

The material weakness related to our company was due to not having the adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions.

Accordingly, while we identified a material weakness in our system of internal control over financial reporting as of September 30, 2020, we believe that we have taken reasonable steps to ascertain that the financial information contained in this report is in accordance with GAAP. We are committed to remediating the control deficiencies that constitute the material weaknesses by implementing changes to our internal control over financial reporting.

Management is responsible for implementing changes and improvements in the internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses.

Going forward, we intend to evaluate our processes and procedures and, where practicable and resources permit, implement changes in order to have more effective controls over financial reporting.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than as set out above, there are no material pending legal proceedings to which the Company is a party or any of its subsidiaries is a party or of which any of their property is the subject or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Except as set forth below, there were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the Company.

On November 23, 2020, the Company issued a total of 75,000 shares of common stock to three related companies for total consideration of $75,000.

The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe is exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. The purchasers represented to us that he/they were accredited investor(s) and were acquiring the shares for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that he could bear the risks of the investment.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

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.

ITEM 6. EXHIBITS

Exhibit Number	Exhibit

31.1*	Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2*	Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS**	XBRL INSTANCE DOCUMENT
101.SCH**	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL**	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF**	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB**	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE**	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

*As filed herewith.

** To be filed by Amendment

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GROW CAPITAL, INC.

Date: February 1, 2021	By: /s/ Terry Kennedy
	Name: Terry Kennedy
	Terry Kennedy Chief Executive Officer, and President (Principal Executive Officer)