Filing identity and reporting period
Important identity discrepancy: The supplied filing is for Grove, Inc. (Nasdaq: GRVI), not UPEXI, INC. It is a Form 10-Q for the quarter ended March 31, 2022, covering the three- and nine-month periods then ended. The filing’s business includes CBD and wellness products and a programmatic advertising platform.
Key financial metrics
| Metric | Three months ended March 31, 2022 | Nine months ended March 31, 2022 |
|---|---|---|
| Revenue | $10.27 million | $29.39 million |
| Gross profit | $6.09 million; 59.3% gross margin | $18.18 million; 61.9% gross margin |
| Operating income (loss) | $(60,499) | $492,644 |
| Net income (loss) | $(52,667) | $523,877 |
| Operating cash flow | Not separately presented for the quarter | $2.17 million |
| Cash | $4.50 million at March 31, 2022 | |
| Working capital | $5.89 million at March 31, 2022 |
At March 31, 2022, total assets were $33.15 million, current liabilities $4.37 million, and total notes payable $531,442. Operating lease liabilities totaled $581,107, including current and long-term portions. The current ratio was approximately 2.35.
Changes versus prior comparable periods
- Quarterly revenue rose 62% from $6.35 million; the company attributed about $2.08 million of the increase to acquisitions and about $1.84 million to higher CBD product sales. Quarterly net results shifted from $966,763 income to a $52,667 loss.
- Nine-month revenue increased 119% from $13.45 million. The company attributed about $5.11 million to acquisitions and about $10.82 million to increased direct-to-consumer, white-label, and private-label sales. Nine-month net income rose from $260,210 to $523,877.
- Gross margin increased year over year in both periods; calculated margins were 59.3% versus 53.5% for the quarter and 61.9% versus 49.4% for nine months. Management cited improved manufacturing utilization, automation, and direct-to-consumer sales mix.
- Operating expenses increased 158% for the quarter and 167% for nine months, reflecting acquisitions, increased sales and marketing, share-based compensation, and other costs. Cash fell $10.03 million from June 30, 2021, primarily as investing and financing outflows exceeded operating cash generation.
Outlook, commentary, risks, and unusual items
- Management stated it expected working capital to fund operations for the 12 months after issuance of the financial statements and to meet debt obligations. No revenue or earnings guidance was provided.
- Investing cash use was $10.07 million, including $5.65 million of building, remodel, and equipment purchases and cash paid for the VitaMedica and Interactive Offers acquisitions. Financing cash use included a $1.98 million share repurchase.
- Acquisitions expanded the business: VitaMedica was acquired in August 2021 and Interactive Offers in October 2021. Interactive Offers was a related-party transaction: the CEO and chairman controlled a seller holding a 20% interest. The Interactive purchase included $4.0 million in stock, $2.1 million cash, and up to $600,000 in earnout payments.
- After quarter-end, the company agreed to acquire 55% of Cygnet Online for $6.05 million, with consideration including cash, restricted shares, and a convertible note, plus a potential earnout and provisions concerning purchase of the remaining interests.
- The company identified uncertainty around regulation of hemp-derived cannabinoids and potential COVID-19 effects on customers and revenue. It reported no pending legal proceedings expected to have a material adverse effect.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses involving segregation of duties and insufficient levels of supervision and review. Management said it had not remediated them during the quarter and planned remediation by fiscal year-end 2022, subject to resources.
- Quarterly results included $1.06 million of share-based compensation and $417,549 of acquired-intangible amortization. Nine-month results included a $300,995 gain from forgiveness of an SBA PPP loan.
Important facts for investors to verify
- Confirm the intended issuer and filing: the supplied document identifies Grove, Inc. and GRVI, not UPEXI, INC.
- Review acquisition contributions, purchase-price allocations, earnout obligations, and the related-party nature of the Interactive Offers transaction.
- Assess liquidity after the substantial cash decline, capital spending, share repurchases, acquisition commitments, and the $500,000 convertible note due August 1, 2022.
- Track remediation of the disclosed material weaknesses and any effect on reporting reliability.
- Reconcile management’s stated gross-margin improvement percentages with the margins calculated from the reported revenue and cost-of-revenue figures; the filing uses different percentage descriptions.