GROVE, INC. Management’s Discussion and Analysis of Financial Condition or Operating Plan (Form 10-Q)

Overview

As used in this report and unless otherwise specified, the terms “we”, “us” and “our” mean Grove, Inc.

Grove, Inc. (the “Company”) is a Nevada Society and has eleven wholly-owned subsidiaries, Trunano Labs, Inc.a Nevada company, Cresco Management, a
California society, Steam Distribution, LLCa California limited liability company; A Hit Wonder, Inc.a California society; Havz, LLCd/b/a Steam Wholesale, a California limited liability company, Acquisition subsidiary Grove, Inc.d/b/a VitaMedica a Nevada society, One Hit Wonder Holdings, LLCa
California society, Infuse LLCa Colorado society, Interactive Offers, LLC a Delaware society, Upexi Holdings, Inc. a society and SWCHa Delaware society.

We develop, produce, market and sell raw materials, white label products, end-use products containing hemp plant extract, cannabidiol (“CBD”) and health and wellness products. containing no CBD. We sell to many consumer markets, including the nutraceutical, beauty care, pet care and functional food sectors. We seek to take advantage of an emerging global trend to reinvigorate the production of industrial hemp and promote its many uses for consumers. CBD is derived from the stem and seeds of hemp.

Additionally, we have been the operator of an annual trade show at United States
related to the CBD industry. There are no trade shows currently scheduled as of the date of this report.

In December 2019, a new strain of coronavirus (COVID-19) has surfaced. The spread of COVID-19 around the world in 2020 and 2021 has caused significant volatility in WE and international markets. There is great uncertainty about the magnitude and duration of business disruptions related to COVID-19, as well as its impact on the WE and international economies and as such the Company has transitioned to a combination of working from home and social distancing operations. The transition had minimal impact on our internal operations. The Company is unable to determine whether there will be a material future impact on the operations of its customers and, ultimately, an impact on the Company’s overall revenues.


Our Growth Strategy



Results of Operations


The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2022 and 2021, which are included here.

Three months completed March 31, 2022 Compared to the three months ended March 31, 2021


                                   March 31,
                              2022            2021            Change
Revenue                   $ 10,271,588     $ 6,347,514     $  3,924,074
Cost of revenue              4,184,782       2,950,802        1,233,980
Operating expenses           6,147,305       2,381,408        3,765,897
Other expenses (income)        (13,638 )       (48,541 )         34,903
Net income                $    (52,667 )   $   966,763     $ (1,019,430 )





         21

  Table of Contents



Revenue increased by $3,924,074 i.e. 62% compared to the same period last year. Approximately $2,083,900 came from the two acquisitions and $1,840,200 primarily from increased sales of direct-to-consumer, white-label and private-label CBD products. The Company continues to add manufacturing machinery and a newly purchased building to Florida to expand production capacity.

Cost of sales increased by or 42% compared to the same period last year. Approximately $913,900 was the cost of revenues from the two acquisitions and approximately $319,200 came from the increase in income. Gross margin improved by approximately 11% for the three months ended March 31, 2022. This improvement in gross margin is due to increased sales using more of the Company’s manufacturing capacity, increased use of machinery in the manufacturing and packaging process, and higher direct-to-consumer sales.

Operating expenses increased by $3,765,897 that is 158% compared to the same period last year. $2,119,000 of the increase is related to the two acquisitions. The Company had approximately $1,132,500 from the increase in sales and marketing expenses, approximately $836,800 increase in stock-based compensation and approximately
$71,700 increase in depreciation expense. These costs were offset by decreases of approximately $349,200 general and administrative expenses as the Company benefited from the consolidation of facilities and administrative staff.

In the three months ended March 31, 2022the Company incurred interest expense of $19,138 compared to $48,541 interest expense incurred during the three months ended March 31, 2021. The decrease in interest expense for the three months ended March 31, 2022 was due to reimbursement of notes payable. In the three months ended March 31, 2022 $5,500.

The Company recorded a net loss of $52,667 compared to the net result of $966,763 for the three months ended March 31, 2022 and 2021, respectively. The decrease in net profit is mainly related to the aforementioned changes, of which approximately $1,129,100 non-cash expenses related to stock-based compensation and amortization of identifiable intangible assets acquired.

Nine month period ended March 31, 2022 Compared to the nine months ended March 31, 2021


                                    March 31,
                              2022             2021            Change
Revenue                   $ 29,388,123     $ 13,449,850     $ 15,938,273
Cost of revenue             11,208,516        6,804,269        4,404,247
Operating expenses          17,686,963        6,633,658       11,053,305
Other expenses (income)       (244,796 )       (248,287 )         (3,491 )
Net income (loss)         $    523,877     $    260,210     $    263,667



Revenue increased by $15,938,273 or 119% compared to the same period last year. Approximately $5,114,900 came from the two acquisitions and $10,823,400 came from the increase in direct-to-consumer, white label and private label sales of CBD products. The Company continues to add manufacturing machinery and a newly purchased building to Florida to expand production capacity.

Cost of sales increased by $4,404,247 i.e. 65% compared to the same period last year. Approximately $1,827,600 was the cost of revenues from the two acquisitions and $2,576,700 came from the increase in income. Gross margin improved by approximately 25% for the nine months ended March 31, 2022. This improvement in gross margin is due to increased sales using more of the Company’s manufacturing capacity, increased use of machinery in the manufacturing and packaging process, and higher direct-to-consumer sales.



         22

  Table of Contents



Operating expenses increased by $11,053,305 ie 167% compared to the same period last year. Approximately $4,121,100 of the increase is related to the two acquisitions. The Company had approximately $3,371,600 from the increase in sales and marketing expenses, approximately $1,880,000 increase in stock-based compensation, of approximately $178,400 increase in depreciation expense. In addition, the Company recorded higher salaries, insurance and other general and administrative expenses related to managing the increase in revenue.

In the nine months ended March 31, 2022there was a gain on the extinguishment of the SBA PPP loan of $300,995 and a gain of $5,500 on the sale of fixed assets, which was offset by $61,699 interest charges. In the nine months ended March 31, 2021 there was a gain on the settlement of a canceled lease of $387,860partially offset by $133,281 interest charges and $6,292 loss on sale of fixed assets.

The company made a net profit of $523,877 and $260,210 for the nine months ended
March 31, 2022

Cash and capital resources


Working Capital



                         As of            As of
                       March 31,         June 30,
                          2022             2021
Current assets        $ 10,261,207     $ 18,293,083
Current liabilities      4,373,141        5,819,161
Working capital       $  5,888,066     $ 12,473,922




Cash Flows



                                                        Nine Months Ended March 31,
                                                            2022              2021
Cash flows provided by operating activities           $      2,166,545     $    97,628
Cash flows (used in) provided by investing
activities                                                 (10,071,882 )        94,954
Cash flows (used in) provided by financing
activities                                                  (2,125,888 )     1,038,080

Net increase (decrease) in cash during the period $(10,031,225) $1,230,662

To March 31, 2022the Company had a cash position of $4,502,986 a decrease of $10,031,225
from June 30, 2021.

Operating activities increased cash from net income and non-cash expenses from
$3,677,408 offset by $2,034,740 in changes in assets and liabilities.

Net cash (used) from investing activities for the nine months ended
March 31, 2022 and 2021 was ($10,071,882) and $94,954, respectively. For the period ended March 31, 2022the use of cash is mainly due to the

paid for the acquisition of VitaMedica, $500,000 for the payment of the loan related to the acquisition of VitaMedica, $1,854,193 paid for the acquisition of Interactive and $5,649,100 in the construction, renovation of buildings and the purchase of equipment. In the prior year, cash provided by investing activities came from net cash acquired from the purchase of Infusionz and the sale of fixed assets.

Net cash flows (used by) provided by financing activities for the nine months ended March 31, 2022been $2,125,888 compared to $1,038,080 provided during the nine months ended March 31, 2021. Use of cash for the period ended March 31, 2021 mainly due to the ordinary share buyback program of $1,975,888 and repayment of notes payable from $150,000, not including the note payable related to the acquisition of VitaMedica. In the nine months ended March 31, 2021the Company has issued notes payable for $1,750,080 counting and selling preferred shares for $50,000net of the repayment of notes payable from $762,000.



         23

  Table of Contents



As part of the acquisition of VitaMedica, the Company issued two notes for a total of $1,000,000. On January 31, 2022the company paid $515,188 to VitaMedica for principal and interest on the six-month note. The remaining bill payable to VitaMedica will be paid by August 1, 2022.

On October 19, 2021the company made a $2,100,000 cash payment for the acquisition of Interactive and committed to an additional $600,000 cash payment in the form of a earn-out payment based on certain revenue milestones in accordance with and subject to the terms and conditions of the I/O Agreement over the next 12 months.

In the three months ended March 31, 2022the Company repurchased 467,765 common shares for $1,975,888 or an average of $4.22 per ordinary share.

We estimate that we will have sufficient working capital to fund our operations for the twelve months following the date of publication of these condensed consolidated financial statements and to service all our debts.

In December 2019, a new strain of coronavirus (COVID-19) has surfaced. The spread of COVID-19 around the world has caused significant volatility in WE and international markets. There is great uncertainty about the magnitude and duration of business disruptions related to COVID-19, as well as its impact on the WE and international economies and as such the Company has transitioned to a combination of working from home and social distancing operations. The transition had minimal impact on our internal operations. The Company is unable to determine whether there will be a material future impact on the operations of its customers and, ultimately, an impact on the Company’s overall revenues.

Off-balance sheet arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, our revenues or expenses, our results of operations, our liquidity, capital expenditures or capital resources that are important to investors.

© Edgar Online, source Previews

Comments are closed.