Delaware |
5961 |
88-2840659 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ | |||
Emerging growth company |
☒ |
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9 | ||||
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47 | ||||
67 | ||||
92 | ||||
115 | ||||
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169 |
• | the ability to recognize the anticipated benefits of the Merger (as defined herein), which may be affected by, among other things, competition and the ability of the combined business to grow and manage growth profitably; |
• | expansion plans and opportunities, including future acquisitions or additional business combinations; |
• | costs related to the Merger; |
• | litigation, complaints, and/or adverse publicity; |
• | the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends, and employee availability; |
• | privacy and data protection laws, privacy or data breaches, or the loss of data; |
• | our financial and business performance following the Merger, including financial projections and business metrics; |
• | changes in the market for the Company’s products, and expansion plans and opportunities; |
• | anticipated customer retention by the Company; |
• | the extent to which the Company is able to protect its intellectual property rights and not infringe on the intellectual property rights of others; |
• | new or adverse regulatory developments relating to automatic renewal laws; and |
• | the effect of COVID-19 on the foregoing, including its effect on the business and financial conditions of the Company. |
• |
Risks Related to Our Business |
• | Our significant growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to effectively manage our growth or evaluate our future prospects. If we fail to effectively manage our future growth, our business could be adversely affected. |
• | We have incurred significant losses since inception, we expect to incur losses in the future, and we may not be able to generate sufficient revenue to achieve and maintain profitability. |
• | Grove’s independent registered public accounting firm has expressed substantial doubt about Grove’s ability to continue as a going concern, and if we are unable to generate significant revenue or secure additional financing, we may be unable to implement our business plan and grow our business. |
• | We will require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce our investments in advertising and other strategic initiatives planned for future growth. |
• | Competition in the natural and sustainable consumer products market presents an ongoing threat to the success of our business. |
• | We must find sustainable solutions that support our brand and long-term growth. |
• | If we fail to cost-effectively acquire new consumers or retain our existing consumers, our business could be adversely affected. |
• | Our brand and reputation may be diminished due to real or perceived quality, safety, efficacy or environmental impact issues with our products, which could have an adverse effect on our business, financial condition, results of operations and prospects. |
• | Failure to introduce new products that meet the expectations of our customers may adversely affect our ability to continue to grow. |
• | We pursue acquisitions to expand our business, and if any of those acquisitions are unsuccessful, our business may be harmed. |
• | We are dependent on our management team, and the loss of one or more key employees or groups could harm our business and prevent us from implementing our business plan in a timely manner. |
• | If we cannot successfully manage the unique challenges presented by international markets, we may not be successful in expanding our operations outside of the United States. |
• | Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution, infrastructure and logistics to third-party providers, and the loss of any of our key suppliers or logistical service providers could negatively impact our business. |
• | If we or our distribution partners do not successfully optimize, operate and manage the expansion of the capacity of our warehouse fulfillment centers, our business, financial condition, results of operations and prospects could be adversely affected. |
• | Risks associated with the outsourcing of our fulfillment process and other technology-related functions could materially and adversely affect our business, financial condition, and results of operations. |
• | We have only recently expanded to offer our own branded products in retail stores and our inability to secure, maintain and increase our presence in retail stores could adversely impact our revenue. |
• | We may be unable to adequately obtain, maintain, protect, defend and enforce our intellectual property rights. |
• | We rely on trademark, copyright, and patent law, trade secret protection, and confidentiality and/or license agreements with our employees, customers, and others to protect our proprietary rights. |
• | Indemnity provisions in various agreements to which we are party potentially expose us to substantial liability for infringement, misappropriation or other violation of intellectual property rights. |
• | If we (or our vendors) are unable to protect against or adequately respond to mitigate the impacts of a service interruption, data corruption, or cybersecurity attack, our operations could be disrupted, our reputation may be harmed and we could face significant costs to remediate the incident and defend against claims by business partners, customers, or regulators. Such security breaches or other cybersecurity incidents may harm our reputation and expose us to loss of consumers and business. |
• | The actual or perceived failure by us or our vendors to comply with applicable privacy and data protection laws, regulations or industry standards could have an adverse effect on our business, financial condition, results of operations and prospects. |
• | Advertising inaccuracies or product mislabeling may have an adverse effect on our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings. |
• | We may become subject to product liability claims, which could harm our reputation, financial condition, and liquidity if Grove is not able to successfully defend or insure against such claims. |
• |
Risks Relating to Ownership of Company Securities |
• | The price of Class A Common Stock and our warrants may be volatile. |
• | Warrants will become exercisable for Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. |
• | The Public Warrants may never be in the money, and they may expire worthless and the terms of the warrants may be amended in a manner adverse to a holder if holders of at least 65% of the then-outstanding Public Warrants approve of such amendment. |
• | We may redeem your unexpired Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Public Warrants worthless. |
• | Our dual-class structure may impact the stock price of Class A Common Stock. |
Issuer |
Grove Collaborative Holdings, Inc. |
Shares of Class A Common Stock offered by the Selling Holders |
Up to 101,635,900 shares of Class A Common Stock, consisting of 6,700,000 shares of Class A Common Stock underlying the Private Placement Warrants, 8,607,500 shares of Class A Common Stock issued in connection with the PIPE Investment, 4,421,524 shares of Class A Common Stock issued in connection with the Backstop Subscription Agreement, 3,875,028 shares of Class A Common Stock underlying the Backstop Warrants, 10,062,500 shares of Class A Common Stock held by the Sponsor, 756,370 shares of Class A common stock held by certain Selling Holders, and 67,212,978 shares of Class A Common Stock issuable upon conversion (on a one-for-one |
Warrants Offered by the Selling Holders |
Up to 6,700,000 Private Placement Warrants. |
Shares of Class A Common Stock offered by the Company |
14,750,000 shares of Class A Common Stock, consisting of 8,050,000 shares of Class A Common Stock issuable upon exercise of the Public Warrants and 6,700,000 shares of Class A Common Stock issuable upon the exercise of the Private Placement Warrants following their public resale by the Selling Holders. |
Shares of Class A Common Stock outstanding prior to exercise of all Warrants |
45,570,178 shares of Class A Common Stock (as of July 14, 2022). 13,999,960 of these shares of Class A Common Stock constitute Earn-Out Shares, which will no longer be subject to lock-up restrictions upon the achievement of certain stock price thresholds or, if earlier, certain liquidation events. |
Shares of Class A Common Stock outstanding assuming exercise of all Warrants |
60,320,178 (based on total shares of Class A Common Stock outstanding as of July 14, 2022). |
Use of Proceeds |
We will not receive any proceeds from the sale of shares of Class A Common Stock by the Selling Holders. We will receive up to an aggregate of approximately $169,625,000.00 from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. See “ Use of Proceeds |
Redemption |
The Warrants are redeemable in certain circumstances. See “ Description of Securities – Redeemable Warrants |
Market for Class A Common Stock and Warrants |
Class A Common Stock and Public Warrants are currently traded on NYSE under the symbols “GROV” and “GROV.WS,” respectively. |
Risk Factors |
See “ Risk Factors |
• | The FDA regulates product labels and other product claims for the consumer products subject to its jurisdiction and has the authority to challenge product labels and claims that it believes are non-compliant or false or misleading, through the use of a variety of enforcement tools (e.g., Warning Letters, untitled letters, and seizure actions). In limited circumstances, the FDA has taken regulatory action against products labeled “natural” but that nonetheless contain synthetic ingredients or components. |
• | The FTC has the authority to challenge claims made in product advertising and requires that such claims are adequately substantiated prior to use. The FTC similarly has enforcement tools that it uses to challenge advertising claims that it deems non-compliant with the law. |
• | The USDA enforces federal standards for organic production and use of the term “organic” on product labeling. These laws prohibit a company from selling or labeling products as organic unless they are produced and handled in accordance with the applicable federal law. Failure to comply with these requirements may subject us to liability or regulatory enforcement. Consumers may also pursue state law claims challenging use of the organic label as being intentionally mislabeled or misleading or deceptive to consumers. |
• | In addition, certain products, including the disinfectant products, we sell may require approval from and registration with the EPA and state regulatory agencies prior to sale. Products that expressly or impliedly claim to control microorganisms that pose a threat to human health may be subject by additional regulatory scrutiny and need to be supported by additional efficacy data. Should we advertise or market these regulated products with claims that are not permitted by the terms of their registration or are otherwise false or misleading, the EPA and states may be authorized to take enforcement action to prevent the sale or distribution of disinfectant products. |
• | changes in the industries in which we and our customers operate; |
• | variations in our operating performance and the performance of our competitors in general; |
• | material and adverse impact of the COVID-19 pandemic on the markets and the broader global economy; |
• | actual or anticipated fluctuations in our quarterly or annual results of operation; |
• | publication of research reports by securities analysts about us or our competitors or our industry; |
• | the public’s reaction to our press releases, our other public announcements, and our filings with the SEC; |
• | our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; |
• | additions and departures of key personnel; |
• | changes in laws and regulations affecting our business; |
• | commencement of, or involvement in, litigation involving us; |
• | changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
• | the volume of shares of Class A Common Stock available for public sale; |
• | sales of shares of Class A Common Stock by the PIPE Investors; and |
• | general economic and political conditions such as recessions, interest rates, fuel prices and general inflationary pressures, foreign currency fluctuations, international tariffs, social, political, and economic risks, and acts of war or terrorism. |
• | a limited availability of market quotations for our securities; |
• | reduced liquidity for our securities; |
• | a determination that our Class A Common Stock is a “penny stock” which will require brokers trading in our Class A Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
• | a limited amount of news and analyst coverage; and |
• | a decreased ability to issue additional securities or obtain additional financing in the future. |
• | a classified board of directors; |
• | the dual-class structure that provides for Class B Common Stock being entitled to ten votes per share; |
• | the ability of the Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
• | the limitation of the liability of, and the indemnification of, our directors and officers; |
• | the requirement that a special meeting of stockholders may only be called by a majority of the entire Board, the Chairman of the Board, or our Chief Executive Officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; |
• | controlling the procedures for the conduct and scheduling of Board and stockholder meetings; |
• | the ability of the Board to amend the Bylaws, which may allow the Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the Bylaws to facilitate an unsolicited takeover attempt; and |
• | advance notice procedures with which stockholders must comply to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board, and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. |
• | the (a) historical audited condensed financial statements of VGAC II as of December 31, 2021 and for the period from January 13, 2021 (inception) to December 31, 2021, included in this registration statement and (b) historical unaudited condensed financial statements of VGAC II as of and for the three months ended March 31, 2022 included in this registration statement; |
• | the (a) historical audited financial statements of Grove as of and for the years ended December 31, 2019, 2020 and 2021 included in this registration statement, and (b) historical unaudited condensed financial statements of Grove as of and for the three months ended March 31, 2022 included in this registration statement; and |
• | other information relating to Grove and VGAC II included in this registration statement. |
(A) | VGAC II’s name was changed to “Grove Collaborative Holdings, Inc.” (“ New Grove” ), |
(B) | each then-issued and outstanding Class A ordinary share of VGAC II converted automatically into one share of Class A common stock of New Grove (the “ New Grove Class A Common Stock” ), |
(C) | each then-issued and outstanding Class B ordinary share of VGAC II converted automatically into one share of New Grove Class A Common Stock, |
(D) | each then-issued and outstanding warrant to purchase Class A ordinary shares of VGAC II (“ Public Warrant” ) converted automatically into one warrant to purchase one share of New Grove Class A Common Stock, and |
(E) | each then-issued and outstanding units that had not previously separated into the underlying Class A ordinary shares and underlying Public Warrants were canceled and entitled the holder thereof to one share of New Grove Class A Common Stock and one-fifth of one warrant to purchase one share of New Grove Class A Common Stock. |
(A) | the conversion of each issued and outstanding share of Grove’s common stock (other than the Backstop Tranche 1 Shares) and Grove’s preferred stock (on an as-converted to Grove common stock basis) (other than dissenting shares) into (i) a number of shares of New Grove Class B Common Stock as determined pursuant to the Exchange Ratio and (ii) a number of restricted shares of New Grove Class B Common Stock that will vest upon the achievement of certain earnout thresholds prior to the tenth anniversary of Closing (as further described below, the “Earnout Shares” ); |
(B) | the conversion of all outstanding Grove warrants, excluding 275,631 warrants to purchase Grove common stock that were net settled prior to the consummation of the Business Combination, into (i) warrants exercisable for shares of New Grove Class B Common Stock with the same terms except for the number of shares exercisable and the exercise price, each of which was adjusted using the Exchange Ratio, and (ii) a number of Earnout Shares; |
(C) | the conversion of all outstanding vested and unvested Grove stock options into (i) New Grove stock options exercisable for shares of New Grove Class B Common Stock with the same terms except for the number of shares exercisable and the exercise price, each of which was adjusted using the Exchange Ratio, and (ii) a number of Earnout Shares; |
(D) | the conversion of all outstanding Grove restricted stock units into (i) New Grove restricted stock units with the same terms that each represent the right to receive the number of shares of New Grove Class B Common Stock adjusted using the Exchange Ratio and (ii) a number of Earnout Shares; and |
(E) | the conversion of each issued and outstanding Backstop Tranche 1 Share (as defined below) into the right to receive a number of shares of New Grove Class B Common Stock equal to the Exchange Ratio (which were immediately exchanged on a one-for-one basis for shares of New Grove Class A Common Stock). |
(i) | The Backstop Investor purchased, and Grove sold to the Backstop Investor, on the date of the Subscription Agreement, a number of shares of Grove common stock equal to the quotient of $27,500,000 and $11.70, for an aggregate purchase price of $27,500,000 (such shares of Grove common stock, together with any other shares of Grove common stock issued to the Backstop Investor prior to the closing of the Business Combination, the “Backstop Tranche 1 Shares”). |
(ii) | The Backstop Investor subscribed for and purchased, on the Closing Date, 1,671,524 shares of New Grove Class A Common Stock at a purchase price of $10.00 per share (the “Backstop Tranche 2 Shares”), for aggregate gross proceeds of $16,715,240. |
(i) | Immediately following the closing of the Business Combination: |
(A) | each share of New Grove Class B Common Stock issued to the Backstop Investor pursuant to the Merger Agreement as consideration for the Backstop Tranche 1 Shares was exchanged for one share of New Grove Class A Common Stock (the “Backstop Share Exchange”), and |
(B) | New Grove issued to the Backstop Investor warrants to purchase 3,875,028 shares of New Grove Class A Common Stock (each warrant exercisable to purchase one share of New Grove Class A Common Stock for $0.01) (such warrants, the “Backstop Warrants”). Such warrants shall be exercisable by Subscriber at any time for a period of five years from the date of issuance. |
(ii) | For additional shares of New Grove Class A Common Stock to be issued to the Backstop Investor if the volume weighted average price of New Grove Class A Common Stock is less than $10.00 during the 10 trading days commencing on the first trading day after New Grove’s first quarterly earnings call for the fiscal quarter ending June 30, 2022 (“Additional Shares”). The Backstop Investor shall be entitled to receive additional VGAC Class A Common Shares equal to the lesser of (i) the product of (x) the sum of (1) the VGAC Class B Common Shares issued to Subscriber at the Business Combination Closing pursuant to the Business Combination Agreement as consideration for the Tranche 1 Shares and (2) the Tranche 2 Shares, if any, multiplied by (y) a fraction, (A) the numerator of which is $10.00 (as adjusted for any stock split, reverse stock split or similar adjustment following the Business Combination Closing) minus the Measurement Period VWAP, and (B) the denominator of which is the Measurement Period VWAP and (ii) the number of Post-Combination VGAC Shares outstanding as of immediately following the Business Combination Closing. |
• | 2,338,352 shares of Backstop Tranche 1 shares were exchanged for 2,750,000 shares of New Grove Class B Common Stock, which was immediately exchanged on a one-for-one basis for shares of New Grove Class A Common Stock. |
• | Backstop Investor purchased 1,671,524 shares of Backstop Tranche 2 Shares for aggregate gross proceeds in an amount equal to $16,715,524; and |
• | Backstop Investor received 3,875,028 Backstop Warrants. |
• | 7,000,173 shares earned if the share price of New Grove Class A Common Stock is greater than or equal to $12.50 over any 20 trading days within any consecutive 30 trading day period during the Earnout Period; |
• | 6,999,787 shares earned, including the shares subject to the $12.50 threshold if not previously vested, if the share price of New Grove Class A Common Stock is greater than or equal to $15.00 over any 20 trading days within any 30 consecutive trading day period during the Earnout Period; and |
• | If, during the Earnout Period, there is a Change of Control Transaction (as defined in the Merger Agreement), then all remaining triggering events that have not previously occurred and the related vesting conditions shall be deemed to have occurred. |
• | Current Grove stockholders will have a relative majority of the voting power of New Grove; |
• | The New Grove Board will have nine members (such members currently consisting of eight members and one vacant board seat) of whom one individual shall be designated by VGAC II and of whom eight individuals shall be designated by Grove; |
• | Grove’s senior management will comprise the senior management roles of New Grove and be responsible for the day-to-day |
• | New Grove will assume the Grove name; and |
• | The intended strategy and operations of New Grove will continue Grove’s current strategy. |
• | Grove Earnout Shares—The Grove Earnout Shares, excluding those allocated to the unvested Grove options and restricted stock units, are expected to be accounted for as a long-term liability classified as equity-linked contracts that are earned upon achieving the triggering events, which include events that are not indexed to the common stock of New Grove. The Company has concluded that liability classification for the Grove Earnout Shares is appropriate and as such, the liability will be recognized at fair value upon the Merger closing and remeasured in future reporting periods through the statement of operations. The preliminary fair value of the Grove Earnout Shares was determined using the most reliable information currently available. The Grove Earnout Shares attributed to the unvested Grove options and restricted stock units are expected to be accounted for as stock-based compensation due to the continued service requirement and will be equity- classified. Any compensation expense related to such Grove Earnout Shares will be recognized over the respective service periods in future reporting periods and has not been reflected in the unaudited pro forma condensed combined statement of operations. |
• | Public Warrants and Private Placement Warrants—The Company has concluded that liability classification for the Public Warrants and Private Placement Warrants is appropriate and as such, the liability will be recognized at fair value upon the Merger closing and remeasured in future reporting periods through the statement of operations. |
• | Direct and Incremental Transaction Costs—Estimates are necessary to finalize the allocation of direct and incremental transaction costs between instruments issued or assumed in the Business Combination. The Company has preliminarily allocated such costs on a relative fair value basis between the VGAC II ordinary shares, PIPE Shares, Public Warrants, Private Placement Warrants, Grove Earnout Shares, Downside Protection feature and Backstop Warrants based on estimates that are available. Direct and incremental transaction costs allocated to equity-classified instruments have been preliminarily recorded within equity in the unaudited pro forma condensed combined financial statements. Direct and incremental transaction costs allocated to liability-classified equity instruments were expensed in the unaudited pro forma condensed combined financial statements. |
• | Backstop Subscription Agreement—The Company has determined there is a freestanding instrument related to the Downside Protection feature under the Backstop Subscription Agreement. Such feature is required to be bifurcated and classified as a liability. A separate valuation has not yet been completed and therefore the fair value of this freestanding instrument has not been reflected in the unaudited pro forma condensed combined financial statements. The Company has preliminarily classified the entire proceeds from the Tranche 1 financing within the equity section of the pro forma balance sheet as of March 31, 2022. |
Number of Shares |
% Ownership |
|||||||
Former VGAC II shareholders (1)(2) |
667,955 | 0.4 | % | |||||
Sponsor |
9,972,500 | 6.1 | % | |||||
PIPE Investors |
8,607,500 | 5.3 | % | |||||
Grove Shareholders (3) |
127,851,594 | 78.6 | % | |||||
Employee Stock Grants |
32,300 | — | % | |||||
Tranche 2 Backstop Shares |
1,671,524 | 1.0 | % | |||||
Grove Earnout |
13,999,960 | 8.6 | % | |||||
|
|
|
|
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Total shares of New Grove Common Stock outstanding at closing of the Merger |
162,803,333 | 100.0 | % | |||||
|
|
|
|
(1) | The Exchange Ratio is calculated as of the close of the Merger. The number of shares outstanding for both VGAC II and Grove are calculated as of the close of the Merger. |
(2) | Includes 90,000 of Class B ordinary shares which were transferred from the Sponsor to three independent directors, each receiving 30,000 Class B ordinary shares. |
(3) | Includes Backstop Tranche 1 Shares issued in accordance with the Backstop Agreement. |
Number of Shares |
% Ownership |
|||||||
Former VGAC II shareholders (1)(2) |
667,955 | 0.3 | % | |||||
Sponsor |
9,972,500 | 4.7 | % | |||||
PIPE Investors |
8,607,500 | 4.0 | % | |||||
Grove Shareholders (3) |
127,851,594 | 60.2 | % | |||||
Employee Stock Grants |
32,300 | — | % | |||||
Tranche 2 Backstop Shares |
1,671,524 | 0.8 | % | |||||
Grove Earnout |
13,999,960 | 6.6 | % | |||||
Private Placement Warrants |
6,700,000 | 3.1 | % | |||||
Public Warrants |
8,050,000 | 3.8 | % | |||||
Grove equity holders (options) |
24,691,735 | 11.6 | % | |||||
Grove equity holders (RSUs) |
5,716,862 | 2.7 | % | |||||
Grove equity holders (warrants) |
923,857 | 0.4 | % | |||||
Backstop Warrants |
3,875,028 | 1.8 | % | |||||
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|
|
|
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Pro forma shares outstanding, diluted |
212,760,815 | 100.0 | % | |||||
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|
(1) | The Exchange Ratio is calculated as of the close of the Mergers. The number of shares outstanding for both VGAC II and Grove are calculated as of the close of the Mergers. |
(2) | Includes 90,000 of Class B ordinary shares which were transferred from the Sponsor to three independent directors, each receiving 30,000 Class B ordinary shares. |
(3) | Includes Backstop Tranche 1 Shares issued in accordance with the Backstop Agreement. |
Virgin Group II (Historical) |
Grove (Historical) |
Transaction Accounting Adjustments (Note 3) |
Notes |
Pro Forma Combined |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 80 | $ | 74,428 | $ | 147,664 | ||||||||||||
402,566 | A | |||||||||||||||||
86,075 | B | |||||||||||||||||
(14,088 | ) | C | ||||||||||||||||
(21,392 | ) | D | ||||||||||||||||
16,715 | M | |||||||||||||||||
(396,720 | ) | F | ||||||||||||||||
Inventory, net |
— | 50,559 |