Business Context and Reporting Period
This Form 8-K was filed by Grove, Inc. on July 1, 2022, reporting transactions entered into on June 28, 2022. The filing metadata identifies UPEXI, Inc.; however, the filing itself identifies the registrant as Grove, Inc. The company was an emerging growth company.
Financing and Key Financial Terms
- Convertible notes: The company received $7.5 million, less fees and costs, from two accredited investors in exchange for three-year convertible notes with an original principal amount of $7.5 million.
- The notes bear 8.5% annual cash interest plus 3.5% annual paid-in-kind interest, include monthly principal amortization over 36 months, and require a balloon payment of outstanding principal, cash interest, and PIK interest at maturity.
- The notes are convertible into common stock at $7.06 per share and are secured by a first-priority lien on the assets of the company and significant subsidiaries, together with subsidiary guarantees.
- Warrants: Investors received warrants for an aggregate of 56,250 common shares, exercisable for five years at $4.44 per share. The warrants include customary anti-dilution protection and an investor put right requiring redemption for a total of $250,000.
- Additional financing capacity: The company may draw up to an additional $7.5 million of convertible notes through June 28, 2023, subject to underwriting conditions and covenants.
- CEO promissory note: Concurrently, the company received $1.5 million from CEO Allan Marshall in exchange for a three-year promissory note. The note carries 8.5% annual cash interest plus 3.5% annual PIK interest, with monthly principal amortization over 36 months and a maturity balloon payment.
- The filing does not provide revenue, profit, cash-flow, margin, or liquidity figures.
Material Changes, Outlook, and Risks
- The transactions materially increased the company’s secured debt obligations and recurring interest burden. Aggregate stated principal issued was $9.0 million, before considering fees, accrued PIK interest, amortization, or other adjustments.
- Conversion of the notes and exercise of the warrants could dilute existing shareholders. Investors are initially limited to beneficial ownership of 4.99% of outstanding common stock, with the ability to increase the limit to 9.99% following 61 days’ prior written notice.
- The company is subject to customary financial and other covenants, events of default, anti-dilution provisions, collateral requirements, and subsidiary guarantees.
- The company agreed to file a resale registration statement covering shares underlying the notes and warrants within 45 days of closing.
- The filing states that the financing may support acquisitions, but provides no specific acquisition targets, operating guidance, or financial forecast.
- The securities were issued in reliance on exemptions under Section 4(a)(2) and/or Rule 506 of Regulation D.
Investor Verification Items
- Confirm the registrant’s identity and whether the filing should be attributed to Grove, Inc. or UPEXI, Inc.
- Review the executed Securities Purchase Agreement, note, warrant, registration rights, and CEO promissory note exhibits for complete covenant, default, collateral, amortization, and conversion terms.
- Verify the net cash proceeds after fees and costs and the company’s intended use of funds.
- Assess the company’s ability to meet monthly principal and interest payments and the maturity balloon obligations.
- Monitor whether the additional $7.5 million financing option is drawn and whether the required resale registration statement is filed.
- Evaluate potential dilution from note conversions, warrant exercises, anti-dilution adjustments, and any subsequent equity issuance.