Filing summary
Entity and period: The supplied filing is Grove, Inc.’s unaudited Form 10-Q for the three and six months ended December 31, 2021 (its fiscal second quarter), not a filing identified as UPEXI, Inc. The filing identifies Grove as a CBD and wellness-products business and an operator of a programmatic advertising platform. Verify the issuer before relying on this summary.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | $10.67 million, up 156% year over year | $19.12 million, up 169% |
| Gross profit / margin | $6.71 million / 62.9% | $12.09 million / 63.2% |
| Operating income | $117,600 | $553,143 |
| Net income (loss) | $64,833, versus $102,520 | $576,544, versus a $706,553 loss |
| Operating cash flow | $1.21 million for the six-month period, versus cash used of $669,321 |
Management attributed revenue growth to acquisitions and increased direct-to-consumer, white-label, and private-label CBD sales. Gross margin improved year over year; management cited higher production utilization, greater machine use, and direct-to-consumer sales mix. Operating expenses rose 203% in the quarter and 171% for the six months, including higher selling and marketing, payroll, stock compensation, travel, and professional costs. The prior-year comparisons include a $387,860 cancelled-lease settlement gain; the current six-month period includes a $300,995 PPP-loan forgiveness gain.
Liquidity, debt, and investment
- Cash was $6.60 million at December 31, 2021, down $7.94 million from June 30. Working capital was $6.84 million, down from $12.47 million.
- Investing activities used $9.00 million, principally for VitaMedica and Interactive Offers acquisitions and $5.07 million of building and equipment purchases.
- Notes payable totaled $1.03 million, including two $500,000 VitaMedica acquisition notes; one was repaid with interest on January 31, 2022, and the other, convertible at $5 per share, matures August 1, 2022. Operating lease liabilities were $643,657.
- Management stated it expected sufficient working capital for operations and debt obligations over the following 12 months. The filing gives no quantified revenue or earnings guidance.
Material changes, outlook, and risks
- Grove acquired VitaMedica effective August 1, 2021, and Interactive Offers effective October 1, 2021. Interactive Offers was a related-party transaction: Grove’s CEO and chairman controlled an entity that held a 20% interest in the seller. The deal included $2.1 million cash, $4.0 million in stock, and up to $600,000 in milestone-based earnout payments.
- Goodwill increased to $8.53 million, and net intangible assets to $5.19 million, largely due to the acquisitions; purchase-price allocations were preliminary. Acquisition results are included only from their respective closing dates.
- After quarter-end, Grove repurchased 103,750 shares for approximately $453,000. Common shares outstanding at February 11, 2022 were 16,472,739; the filing also reports 3,988,333 options outstanding at December 31.
- Management cited uncertainty over federal and state regulation of hemp-derived cannabinoids and potential COVID-19 effects on customers and revenue. The filing reported no pending litigation expected to have a material adverse effect.
- Disclosure controls were deemed ineffective due to material weaknesses in segregation of duties and supervisory review. Management said remediation was planned by fiscal year-end 2022, subject to resources.
Important facts for investors to verify
- Confirm the issuer: the source is a Grove, Inc. filing, despite the request metadata naming UPEXI, Inc.
- Review acquisition accounting, especially preliminary fair-value allocations, goodwill and intangible amortization, and the Interactive Offers related-party terms and earnout.
- Assess cash use, the remaining convertible note, and the effect of post-quarter share repurchases and equity-based compensation on dilution.
- Monitor remediation of the disclosed material weaknesses and developments in cannabinoid regulation.