UPEXI, INC. — Filing Summary
Filing identity and period: The supplied filing is a 10-Q for Grove, Inc., not UPEXI, Inc. It reports unaudited results for the three months ended September 30, 2021, compared with the three months ended September 30, 2020. Although the request labels the period “2021 Q1,” the filing’s quarter ended September 30, 2021 falls in Grove’s fiscal 2022. Confirm the issuer and period before relying on this summary.
Business context
Grove develops, produces, markets, and sells CBD and hemp products, and also sells health and wellness products. It operates an annual CBD industry trade show; the 2020 event had been postponed and was not rescheduled as of the report date. VitaMedica, an online seller of supplements and wellness products, was acquired effective August 1, 2021.
Financial performance and position
| Metric | Three months ended September 30, 2021 | Prior-year period |
|---|---|---|
| Revenue | $8.45 million | $2.94 million |
| Gross profit | $5.38 million | $1.32 million |
| Gross margin | 63.7% | 44.9% |
| Operating income (loss) | $436,000 | $(760,000) |
| Net income (loss) | $512,000 | $(809,000) |
| Operating cash flow | $817,000 | $(637,000) |
Revenue rose 188% year over year. Management attributed the increase to $882,000 of VitaMedica sales, approximately $2.47 million in growth in direct-to-consumer sales of new products, and higher white-label and private-label CBD sales. Gross margin improved, which management linked to product mix, higher direct-to-consumer sales, and packaging automation.
Operating expenses increased 138% to $4.95 million, including higher sales and marketing, acquisition-related costs, stock compensation, amortization, and staffing costs. Net income included a $301,000 gain from forgiveness of an SBA PPP loan; the filing reports $16,000 of net interest expense and $209,000 of income tax expense.
At September 30, 2021, cash was $13.03 million, current assets were $17.79 million, current liabilities were $4.25 million, and working capital was $13.54 million. The current ratio was approximately 4.2. Notes payable totaled $1.0 million, all classified as current; the notes bear 6% interest and mature in January and August 2022. Operating lease liabilities totaled approximately $321,000. Cash declined $1.50 million during the quarter, principally reflecting the $2.0 million cash payment for VitaMedica and equipment purchases.
Material changes, acquisitions, and capital
- VitaMedica was acquired for stated fair value of $3.56 million, funded with $2.0 million cash, $1.0 million in seller notes, and 100,000 shares valued at $482,000. The company recorded preliminary goodwill of $1.27 million and intangible assets of $1.62 million. The filing says the quarter included VitaMedica results from August 1 through September 30.
- Grove issued 306,945 shares valued at $1.76 million to settle the remaining Infusionz acquisition liability, as well as shares for VitaMedica and related fees and consulting services.
- Shares outstanding at September 30 were 15.71 million; the cover reports 16.38 million issued and outstanding as of November 12. The filing also reports 3.99 million options outstanding, with $4.63 million of unrecognized compensation expense.
- After quarter-end, Grove agreed to acquire Interactive Offers for stated consideration of $6.1 million, comprising 666,667 shares and $2.1 million cash, with up to $600,000 of additional cash earnout consideration. The filing identifies a relationship between the seller and the CEO/Chairman. A new three-year California warehouse lease also commenced after quarter-end.
Outlook, risks, and controls
No specific revenue or earnings guidance is provided. Management stated that working capital was sufficient to fund operations for the twelve months after issuance of the financial statements and meet debt obligations. It also identified the Interactive Offers cash payment and earnout, and the $1.0 million of VitaMedica debt due within twelve months.
Risks discussed include uncertainty in federal and state regulation of hemp-derived cannabinoids and the potential effects of COVID-19 disruptions on customers and revenue. Management said internal operations had experienced minimal impact from its work-from-home and social-distancing transition, but future effects were uncertain. The filing reports no material pending legal proceedings and no material off-balance-sheet arrangements.
Management concluded that disclosure controls were ineffective because of material weaknesses involving inadequate segregation of duties and insufficient levels of supervision and review. Remediation steps were planned, but the weaknesses had not been remedied during the quarter. Management nevertheless stated that the quarter’s financial statements were fairly stated in all material respects.
Important facts for investors to verify
- Confirm that this Grove, Inc. filing—not a UPEXI filing—is the intended document, and verify the fiscal-period label.
- Review the final VitaMedica purchase-price allocation, acquired business performance, and seller-note repayment or conversion terms.
- Assess liquidity after the Interactive Offers acquisition payment, earnout exposure, and near-term debt maturities.
- Examine dilution from outstanding options, acquisition shares, and the Interactive Offers consideration; reconcile the September 30 and November 12 share counts.
- Monitor remediation of the disclosed material weaknesses and the financial reporting implications of the CEO-related Interactive Offers transaction.
- Distinguish recurring operating performance from the one-time PPP loan forgiveness gain and elevated stock-based compensation.