UPXI 10-Q
Upexi, Inc. (UPXI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
____________________________________________________________
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of December 19, 2024 the registrant had
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
Our unaudited condensed consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
A description of these and other risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in our Annual Report on Form 10-K which we filed with the Securities and Exchange Commission (“SEC”) on December 16, 2024 (the “Form 10-K”). The risks and uncertainties described under “Risk Factors” are not exhaustive.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to shares of our common stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Upexi, Inc., unless otherwise indicated.
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| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UPEXI, INC.
Interim Unaudited Condensed Consolidated Financial Statements
For the Three Month Periods Ended September 30, 2024 and 2023
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Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and June 30, 2024 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
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ASSETS |
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Current assets |
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Cash |
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Accounts receivable, net |
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Inventory, net |
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Due from VitaMedica transition |
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Prepaid expenses and other receivables |
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Assets available for sale - Building |
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Purchase price receivable - VitaMedica |
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Purchase price receivable - E-core |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Deferred tax asset |
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Other assets |
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Right-of-use asset, net |
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Total other assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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Accrued compensation |
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Deferred revenue |
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Accrued liabilities |
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Accrued interest |
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Acquisition payable |
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Related party advances, net |
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Current portion of note payable |
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Current portion of convertible notes payable |
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Current portion of related party note payable |
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Current portion of Cygnet subsidiary notes payable |
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Note payable on building for sale |
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Current portion of operating lease payable |
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Total current liabilities |
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Operating lease payable, net of current portion |
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Related party note payable |
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Note payable |
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Convertible notes payable |
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Total long-term liabilities |
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Commitments and contingencies |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
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Revenue |
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Revenue |
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Cost of Revenue |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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Distribution costs |
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General and administrative expenses |
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Share-based compensation |
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Amortization of acquired intangible assets |
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Depreciation |
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Loss from operations |
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Other expense, net |
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Other |
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Interest expense, net |
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Other expense, net |
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Loss on operations before income tax |
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Income tax benefit |
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Net loss from continuing operations |
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Gain from the sale of: |
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Interactive Offers |
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Income (loss) on discontinued operations |
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Interactive offers |
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VitaMedica |
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Income discontinued operations |
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Net loss attributable to Upexi, Inc. |
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Basic income (loss) per share: |
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Loss per share from continuing operations |
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Income per share from discontinued operations |
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Total income (loss) per share attributable to Upexi shareholders |
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Diluted income (loss) per share: |
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Loss per share from continuing operations |
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Income per share from discontinued operations |
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Total loss per share attributable to Upexi shareholders |
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Basic weighted average shares outstanding |
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Fully diluted weighted average shares outstanding |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) |
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| Preferred Stock |
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| Common Stock |
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2023 |
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Balance, June 30, 2023 |
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Issuance of stock and equity for purchase of Cygnet |
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Stock based compensation |
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Net loss for the three months ended September 30, 2023 |
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Balance, September 30, 2023 |
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2024 |
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Balance, June 30, 2024 |
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Stock based compensation |
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Net loss for the three months ended September 30, 2024 |
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Balance, September 30, 2024 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
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Cash flows from operating activities |
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Net loss from operations |
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Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of loan costs |
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Amortization of consideration discount |
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Change in deferred tax asset |
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Stock based compensation |
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Changes in assets and liabilities, net of acquired amounts |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other assets |
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Operating lease assets and liabilities, net |
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Accounts payable and accrued liabilities |
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Deferred revenue |
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Net cash used in operating activities - Continuing Operations |
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Net cash used in operating activities - Discontinued Operations |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Proceeds from the sale of the building, net |
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Proceeds from the sale of E-core |
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Proceeds from the sale of Interactive Offers, net of liabilities paid |
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Acquisition of Cygnet Online LLC, net |
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Acquisition of property and equipment |
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Net cash provided by investing activities - Continuing Operations |
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Net cash provided by investing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payment on acquisition notes payable |
|
|
|
|
| ( | ) | |
Proceeds from related party advance |
|
| ( | ) |
|
|
| |
Proceeds on note payable on building |
|
| ( | ) |
|
| ( | ) |
Net cash used in financing activities - Continuing Operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash - Continuing Operations |
|
|
|
|
| ( | ) | |
Net decrease in cash - Discontinued Operations |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures |
|
|
|
|
|
|
|
|
Interest paid |
| $ |
|
| $ |
| ||
Income tax paid |
| $ |
|
| $ |
| ||
Non-cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of Cygnet |
| $ |
|
| $ |
| ||
Issuance of debt for acquisition of Cygnet |
| $ |
|
| $ |
| ||
Bloomios non-cash payment of receivables, net |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
| Table of Contents |
UPEXI, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Background Information
As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “Upexi”, and the “Company” mean Upexi, Inc., a Nevada corporation formed in 2018. The Company has eleven active subsidiaries, which include:
| ☐ | HAVZ, LLC, d/b/a/ Steam Wholesale, a California limited liability company | ||
| ☐ | Gummy Labs, LLC, a Delaware limited liability company | ||
| ☐ | MW Products, Inc., a Nevada corporation | ||
| ☐ | Upexi Holding, LLC, a Delaware limited liability company | ||
|
| o | Upexi Pet Products, LLC, a Delaware limited liability company | |
| ☐ | Upexi Enterprise, LLC, a Delaware limited liability company | ||
|
| o | Upexi Distribution LLC, a Delaware limited liability company | |
|
| o | Upexi Distribution Management LLC, a Delaware limited liability company | |
|
| o | Upexi Property & Assets, LLC, a Delaware limited liability company | |
|
|
| ■ | Upexi 17129 Florida, LLC, a Delaware limited liability company |
| ☐ | Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company (100% owned as of September 1, 2023) | ||
The following subsidiaries had no activity during the three months ended September 30, 2024 and 2023:
| ☐ | Upexi CP, LLC, a Delaware limited liability company |
| ☐ | Upexi CP / Canada Inc., a Canadian corporation |
| ☐ | Prax Products, LLC, a Florida limited liability company |
| ☐ | Upexi Development and Marketing, LLC., a Delaware limited liability company |
| ☐ | Trunano Labs, Inc., a Nevada corporation |
The following subsidiaries were divested during the year ended June 30, 2024 and all activity for the three months ended September 30, 2023 was classified as discontinued operations:
| ☐ | VitaMedica, Inc. a Nevada corporation |
| ☐ | E-Core Technology, Inc. a Florida corporation |
| ☐ | Interactive Offers, LLC, a Delaware limited liability company |
In addition, the Company has six wholly owned subsidiaries that had no activity during the three months ended September 30, 2023. All of the entities were dissolved or cancelled as of June 30, 2024.
| · | Steam Distribution, LLC, a California limited liability company |
| · | One Hit Wonder, Inc., a California corporation |
| · | One Hit Wonder Holdings, LLC, a California limited liability company |
| · | Vape Estate, Inc., a Nevada Corporation |
| · | SWCH, LLC, a Delaware limited liability company |
| · | Cresco Management, LLC, a California limited liability company |
| 9 |
| Table of Contents |
Our products are distributed in the United States of America and internationally through multiple entities and managed through our locations in Florida.
Upexi operates from our corporate location in Tampa, Florida, where direct to consumer, wholesale and Amazon sales are driven by on-site and remote teams for all brands. The Tampa location also supports all the other locations with accounting, corporate oversight, day-to-day finances, business development and operational management operating from this location.
MW Products operates from our corporate headquarters and our Tampa, Florida warehouse, managing direct to consumer, wholesale and Amazon sales for multiple brands and developing new products through our research and development team in Henderson, Nevada and Odessa, Florida.
Lucky Tail operates from our Tampa, Florida warehouse with sales and marketing driven by on-site and remote teams that operate the Amazon sales strategy and daily business operations.
HAVZ, LLC, d/b/a/ Steam Wholesale operates manufacturing and/or distribution centers in Odessa, Florida, supporting our health and wellness products, including those products manufactured with hemp ingredients and our overall distribution operations. We have continued to manage these operations with corporate focus on larger opportunities that have warranted the majority of corporate focus and investments for the future.
Upexi Distribution operates from our Tampa, Florida warehouse providing warehousing, distribution and other services in support of our product sales.
Note 2. Significant Accounting Policies
The significant accounting policies followed are:
Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates underlying the Company’s reported financial position and results of operations include the allowance for doubtful accounts, useful lives of property and equipment, impairment of long-lived assets, inventory valuation, fair value of stock-based compensation and valuation allowance on deferred tax assets.
Cash- The Company considers all highly liquid investment instruments with a maturity of three months or less to be cash equivalents. Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.
Accounts Receivable - Amounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within a specified time from the invoice date. The trade terms vary based on the customer and typically range from prepaid to 45 days from the invoice date. Interest is not charged by the Company on past due accounts. The carrying amount of receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical experience, current conditions and as applicable, reasonable supportable forecasts. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. The net accounts receivable balances at September 30, 2024 June 30, 2024, September 30, 2023, and June 30, 2023 were $
| 10 |
| Table of Contents |
Inventory - The Company reviews the inventory level of all products and raw materials quarterly. For most products that have been in the market for one year or more, we consider inventory levels of greater than one year’s sales to be excess or other items that show slower than projected sales. Due to limited market penetration for our products, we have decided to write down 50% of the cost against certain raw materials and finished products. Products that are no longer part of the current product offering are considered obsolete. The potential for re-sale of slow-moving and obsolete inventories is based upon our assumptions about future demand and market conditions. The recorded cost of obsolete inventories is then reduced to zero. The slow-moving and obsolete inventory is written off and recorded as charges to cost of goods sold. All adjustments for obsolete inventory establish a new cost basis for that inventory as we believe such reductions are permanent declines in the market price of our products. Generally, obsolete inventory is sold to companies that specialize in the liquidation, while we continue to market slow-moving inventories until they are sold or become obsolete.
Inventory consists of raw materials and finished goods and is stated at the lower of cost or net realizable value, cost is determined by the weighted average moving cost inventory method. Net realizable value is determined, with appropriate consideration given to obsolescence, excessive levels, deterioration, and other factors. On September 30, 2024, the Company had $
Property and Equipment - Property and equipment is recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from
Business Combinations - The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the seller’s cash consideration and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as identifiable intangible assets and goodwill.
Goodwill - The Company evaluates its goodwill for possible impairment, simplifying the test for goodwill impairment at least annually and when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.
The Company performed its annual test as of June 30, 2024 and 2023, respectively.
It was determined by management that the goodwill related to Cygnet was completely impaired at June 30, 2024 based on the strategic decision to exit the recommerce business. An impairment of goodwill in the amount of $
It was determined by management that the goodwill related to Interactive Offers was completely impaired at June 30, 2023 based on the sale of the business at September 1, 2023. An impairment of goodwill in the amount of $
Revenue Recognition - In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.
The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon the distributors’ resale of the products.
| 11 |
| Table of Contents |
Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with inbound freight, are generally included in cost of revenue.
Our business is subject to contingencies related to customer orders, including:
Right of Return:
A large portion of our revenue comes from the sale of consumable products, which are sold in high-volume and low quantities, and are generally maintained at stock levels of less than ninety days in our facility. Customer returns have historically represented a very small percentage of sales on an annual basis. Other product sales relate to some pet products, including small mechanical devices.
Warranties:
The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment. E-Commerce product returns must be completed within 45 days of the date of purchase. The Company accrues an allowance for refunds, returned deposits and discounts given by customer services post shipment of the product based on historical experience and management’s estimate of future expenses, including replacement, freight charges and other fulfilment expenses.
Conditions of Acceptance:
Sales of our consumable products and pet products, generally do not have customer acceptance terms.
Contract Assets
A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. ASC 606, Revenue from Contracts with Customers, distinguishes between a contract asset and a receivable based on whether receipt of the consideration is conditional on something other than the passage of time. When the Company transfers control of goods or services to a customer before the customer pays consideration, the Company records either a contract asset or a receivable depending on the nature of the Company’s right to consideration for its performance. The point at which a contract asset becomes an account receivable may be earlier than the point at which an invoice is issued. The Company assesses a contract asset for impairment in accordance with ASC 310, Receivables.
The following table discloses disaggregated revenue:
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Primary geographical markets |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
United States of America |
| $ |
|
| $ |
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product source |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally manufactured |
| $ |
|
| $ |
| ||
Contract manufactured |
|
|
|
|
|
| ||
Purchased as finished good |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
The following table discloses the deferred revenue:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
Deferred revenue |
| $ |
|
| $ |
| ||
The deferred revenue or also referred to as funded backlog was $
Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable.
| 12 |
| Table of Contents |
Advertising - The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing team. The Company believes continual investment in advertising is critical to the development and sale of its branded products. Advertising costs of $
Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options and grants of restricted shares as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately.
Non-employee Stock-based Payments - The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Accounting Standards Codification (ASC) 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Stock-based payments related to non-employees are accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
Fair Value Measurements - The Company accounts for financial instruments in accordance with FASB ASC 820 “Fair Value Measurement and Disclosures” (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| · | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|
|
|
| · | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
|
|
|
| · | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
| 13 |
| Table of Contents |
The estimated fair value of certain financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, deferred revenue and debt are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Leases - The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. Leases with an initial term of 12 months or less are not recorded within the accompanying consolidated balance sheets. GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option will result in an economic penalty. All the Company’s real estate leases are classified as operating leases.
Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional two years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment.
Income Taxes - Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. A $
The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
| 14 |
| Table of Contents |
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There are no material uncertain tax positions at September 30, 2024 or June 30, 2024.
On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate and the net operating loss incurred after December 31, 2017 can be carried forward indefinitely and the two year net operating loss carried back was eliminated (prohibited).
Reverse Stock Split
On September 18, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-20 (the "Reverse Stock Split"), which became effective as of October 3, 2024 (the "Effective Date"). The Reverse Stock Split was approved by the board of directors in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of common stock.
On the Effective Date, every twenty shares of Common Stock issued and outstanding were automatically combined into one share of Common Stock, without any change in the par value per share. As the per-share par value did not change, we reclassified $
Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split.
On October 17, 2024, Company received written notice (the “Compliance Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that it has regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Stock Market maintain a minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from October 3, 2024 to October 16, 2024, the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed.
Deferred Revenue - The Company records deposits as deferred revenue when a customer pays in advance of shipping the product. Once the product is shipped, the deposit is recorded as revenue and the related commissions are paid. All products were shipped related to deposits in deferred revenue, in less than one year.
| 15 |
| Table of Contents |
Convertible Debt and Securities - The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.
Non-controlling Interests in Consolidated financial statements - In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in consolidated financial statements”. This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance.
Reclassifications - Certain reclassifications have been made to the consolidated financial statements as of and for the three months ended September 30, 2023 to conform to the presentation as of and for the three months ended September 30, 2024.
Basis of Presentation and Principles of Consolidation - The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of September 30, 2024 and June 30, 2024.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending June 30, 2025. Certain notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for fiscal year 2024 have been omitted. This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended June 30, 2024 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on December 16, 2024.
Recent Accounting Pronouncements – From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (“FASB”), or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting pronouncements, including the new provisions of ASC 326 (“Financial Instruments – Credit Losses”) pertaining to “current expected credit losses. ASC 326 was adopted for fiscal year 2024 and did not have a material effect to the accompanying consolidated financial statements.
Note 3. Inventory
Inventory consisted of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
The Company writes off the value of inventory deemed excessive or obsolete. During the three months ended September 30, 2024 and September 30, 2023, the Company wrote off inventory valued at $
| 16 |
| Table of Contents |
Note 4. Property and Equipment
Property and equipment consist of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Computer equipment |
|
|
|
|
|
| ||
Internal use software |
|
|
|
|
|
| ||
Manufacturing equipment |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Property and equipment, gross |
|
|
|
|
|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
Depreciation expense for the three months ended September 30, 2024, and 2023 was $
Note 5. Intangible Assets
Intangible assets as of September 30, 2024:
|
| Estimated Life |
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
Customer relationships |
|
| $ |
|
| $ |
|
| $ |
| ||||
Trade name |
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| ||||
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Online sales channels |
|
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| ||||
Vender relationships |
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| ||||
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|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
| |||
For the three months ended September 30, 2024 and 2023, the Company amortized approximately $
Intangible assets as of June 30, 2024:
|
| Estimated Life |
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
Customer relationships |
|
| $ |
|
| $ |
|
| $ |
| ||||
Trade name |
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| ||||
Online sales channels |
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Vender relationships |
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|
|
| $ |
|
| $ |
|
| $ |
| |||
| 17 |
| Table of Contents |
Future amortization of intangible assets at September 30, 2024 are as follows:
June 30, 2025 |
| $ |
| |
June 30, 2026 |
|
|
| |
June 30, 2027 |
|
|
| |
June 30, 2028 |
|
|
| |
|
| $ |
|
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other receivables consist of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
Insurance |
| $ |
|
| $ |
| ||
Prepayment to vendors |
|
|
|
|
|
| ||
Deposits on services |
|
|
|
|
|
| ||
Prepaid monthly rent |
|
|
|
|
|
| ||
Subscriptions and services being amortized over the service period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Stock issued for prepaid interest on convertible note payable |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Other receivables |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
All prepaid expenses will be expensed during the following 12 months.
| 18 |
| Table of Contents |
Note 7. Operating Leases
We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, and equipment. We determine if an arrangement is a lease, or contains a lease, at inception, and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
During November 2019, the Company entered into a lease for a Nevada facility that commenced on November 13, 2019, and recorded a right of use asset and corresponding lease liability. The Company uses this leased facility for office, manufacturing, and warehouse space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. During the year ended June 30, 2024 the Company used the facility for ongoing operations and recognized approximately $
During May 2021, the Company entered into a lease for an additional Nevada facility that commenced on May 1, 2021, and recorded a right of use asset and corresponding lease liability. The Company uses this leased facility for additional warehouse space. The minimum lease payments were $
During November 2018, the Company entered into a lease for equipment that commenced on November 1, 2018, and recorded a right of use asset and corresponding lease liability. Lease expenses were $
On April 1, 2022, the Company acquired Cygnet which had entered into a lease for a Florida facility that commenced on October 8, 2021, and Cygnet had recorded a right of use asset and corresponding lease liability. The lease expires on
On March 15, 2023, the
On July 25, 2023,
| 19 |
| Table of Contents |
On April 1, 2024,
Operating leases are included in operating ROU assets, current and non-current operating lease liabilities, and finance leases are included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the Consolidated Balance Sheets.
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the consolidated balance sheet as of September 30, 2024:
2025 |
| $ |
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
Total undiscounted future minimum lease payments |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
|
|
|
| |
Less: current portion |
|
| ( | ) |
Present value of operating lease obligation |
| $ |
|
The liability for the Cygnet lease is included in the undiscounted future minimum lease payments for 2025. The Company continues to work with the lessor to resolve the disputed lease payments.
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2024 are:
Weighted average remaining lease term |
|
| ||
Weighted average incremental borrowing rate |
|
| % | |
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2023 are:
Weighted average remaining lease term |
|
| ||
Weighted average incremental borrowing rate |
|
| % | |
For the three months ended September 30, 2024 and 2023, the components of lease expense, included general and administrative expenses and interest expense in the condensed consolidated statement of operations, are as follows:
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Finance lease expense: |
|
|
|
|
|
| ||
Amortization of ROU assets |
| $ |
|
| $ |
| ||
Interest expense |
|
|
|
|
|
| ||
Operating lease cost |
|
|
|
|
|
| ||
Short-term lease expense |
|
|
|
|
|
| ||
Variable lease expense |
|
|
|
|
|
| ||
Total lease cost |
| $ |
|
| $ |
| ||
| 20 |
| Table of Contents |
Note 8. Accrued Liabilities
Accrued liabilities consisted of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
Accrued professional fees |
|
|
|
|
|
| ||
Accrued sales tax |
|
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
Acquisition Payable consists of the following:
|
| September 30, 2024 |
|
| June 30, 2024 |
| ||
Payments related to the acquisition of Cygnet |
| $ |
|
| $ |
| ||
|
| $ |
|
| $ |
| ||
| 21 |
| Table of Contents |
Note 9. Convertible Promissory Notes and Notes Payable
Convertible promissory notes and notes payable outstanding as of September 30, 2024 and June 30, 2024 are summarized below:
|
| Maturity |
| September 30, |
|
| June 30, |
| ||
|
| Date |
| 2024 |
|
| 2024 |
| ||
Convertible Notes: |
|
|
|
|
|
|
|
| ||
Promissory Note, 21- month term, as amended, 18.11% interest payable with common stock and subordinate to the Convertible Notes. This note was amended as of November 15, 2023, extending the note to June 1, 2026 and adjusted the interest rate to 12%, paid in cash monthly. |
|
| $ |
|
| $ |
| |||
Less current portion of notes payable |
|
|
|
|
|
|
|
| ||
Notes payable, net of current portion |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Notes payable, Cygnet subsidiary: |
|
|
|
|
|
|
|
|
|
|
SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company |
|
|
|
|
|
|
| |||
Inventory consignment note, 60 monthly payments, with first payment due June 30, 2022, 3.5% interest rate and no security interest in the assets of the business |
|
|
|
|
|
|
| |||
GF Note, 6 annual payments, with first payment due December 31, 2022, 3.5% interest rate and no security interest in the assets of the business |
|
|
|
|
|
|
| |||
Total |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Notes payable, Cygnet subsidiary, current |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
Notes payable, Cygnet subsidiary, net of current |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Notes Payable on Building for sale: |
|
|
|
|
|
|
|
|
|
|
Mortgage Loan, 10-year term note, 4.8% interest, collateralized by land and warehouse building |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
Note Payable: |
|
|
|
|
|
|
|
|
|
|
Promissory Note, 21-month term note, 10% cash interest and subordinate to the Convertible Notes. This note was amended as of November 15, 2023, extending the note to June 1, 2026 and adjusted the interest rate to 12%, paid in cash monthly. |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
Notes payable, current |
|
|
|
|
|
|
|
| ||
Discount on notes payable, current |
|
|
|
|
|
|
|
| ||
Notes payable, current net of discount |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Notes payable, long-term |
|
|
|
|
|
|
|
| ||
Discount on notes payable, long-term |
|
|
|
|
|
|
| ( | ) | |
Notes payable, long-term, net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Related Notes Payable: |
|
|
|
|
|
|
|
|
|
|
Marshall Loan, 2-year term note, 12% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes. November of 2023 extended to June 1, 2026 and interest was adjusted to 12% cash interest, paid monthly |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
Discount on related party note payable, current |
|
|
|
|
|
|
|
| ||
Notes payable, current, net of discount |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Discount on related party note payable, long term |
|
|
|
|
|
|
|
| ||
Notes payable, long term, net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, acquisition notes payable, notes payable and related party note payable |
|
|
| $ |
|
| $ |
| ||
| 22 |
| Table of Contents |
Future payments on notes payable are as follows:
For the three months ended September 30: |
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Note Payable |
|
| Related Party Note Payable |
|
| Convertible Notes |
|
| Cygnet Subsidiary Notes Payable |
|
| Total |
| |||||
12-months |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
1-year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Note original discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $
On October 19, 2022, Upexi, Inc. (the “Company”) and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement, promissory note and related agreements with Professional Bank, a Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N. Clearwater, Florida. The Company received $
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $
| 23 |
| Table of Contents |
Note 10. Related Party Transactions
In June 2024, Allan Marshall, the Company’s CEO advanced the Company $
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC, which is owned by our CEO, Allan Marshall. The lease is for approximately
On June 13, 2024, the Company entered into a Stock Purchase Agreement (“SPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary VitaMedica, Inc. to three investors (the “Buyers”). One of the minority interest buyers is Allan Marshall, the Company’s CEO. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. The proceeds of the transaction will be used for working capital, the reduction of debt and the reduction of other liabilities currently outstanding.
In June 2022, the Company entered into a promissory note with a member of management. The loan was for $
The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties.
Note 11. Equity Transactions
Convertible Preferred Stock
The Company has
Common Stock
In September of 2023, the Company issued
On January 18, 2024, the Company issued
On March 18, 2024, the Company issued
| 24 |
| Table of Contents |
The Company effectuated a reverse stock split, at a rate of
Note 12. Stock Based Compensation
The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares. The options are exercisable for a period of up to
The following table reflects the continuity of stock options for the three months ended September 30, 2024 and 2023:
A summary of stock option activity for the three months ended September 30, 2024 is as follows:
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregated |
| |||||
|
| Options |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| Outstanding |
|
| Price |
|
| Life (Years) |
|
| Value |
| ||||
Outstanding at June 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Exercised |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Forfeited |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Granted |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Options outstanding at September 30, 2024 |
|
|
|
| $ |
|
|
|
|
|
|
| ||||
Options exercisable at September 30, 2024 (vested) |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
A summary of stock option activity for the three months ended September 30, 2023 is as follows:
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregated |
| |||||
|
| Options |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| Outstanding |
|
| Price |
|
| Life (Years) |
|
| Value |
| ||||
Outstanding at June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Exercised |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Forfeited |
|
| ( | ) |
| $ |
|
|
|
|
|
|
| |||
Granted |
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Options outstanding at September 30, 2023 |
|
|
|
| $ |
|
|
|
|
|
|
| ||||
Options exercisable at September 30, 2023 (vested) |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Stock-based compensation expense attributable to stock options was $
There were no stock options granted during the three months ended September 30, 2024 or 2023.
There were
| 25 |
| Table of Contents |
Note 13. Income Taxes
The Company computed the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax income and adjusted for discrete tax items in the period. For the three months ended September 30, 2024 the Company reserved
For the three months ended September 30, 2024, the difference between the U.S. statutory rate and the Company’s effective tax rate is due to the full valuation allowance on the Company’s deferred tax assets. The income tax benefit for the three months ended September 30, 2023, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of June 30, 2024 the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. The Company determined that it is more likely than not that the Company will have future taxable income. The Company used $
We file federal and state income tax returns in jurisdictions with varying statutes of limitations. Income tax returns generally remain subject to examination by federal and most state tax authorities. We are not currently under examination in any federal or state jurisdiction.
Note 14. Risks and Uncertainties
There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration, or DEA, and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.
| 26 |
| Table of Contents |
Note 15. Discontinued Operations – Sale of Interactive Offers
On August 31, 2023, the Company sold Interactive offers to Amplifyir Inc. The purchase price is $
Summary of discontinued operations:
|
| Three months ended September 30, 2023 |
| |
Discontinued Operations |
|
|
| |
Revenue |
| $ |
| |
Cost of sales |
| $ |
| |
Sales, general and administrative expenses |
| $ |
| |
Depreciation and amortization |
| $ |
| |
Income (loss) from discontinued operations |
| $ | ( | ) |
Accounts receivable net of allowance for doubtful accounts |
| $ |
| |
Fixed assets, net of accumulated depreciation |
| $ |
| |
Total assets |
| $ |
| |
Total liabilities |
| $ |
| |
Note 16. Discontinued Operations – Sale of VitaMedica
On June 13, 2024, the Company sold VitaMedica, Inc. to three investors and had an effective day of June 1, 2024. One of the minority interest investors is Allan Marshall, the Company’s Chief Executive Officer. The purchase price for the stock was $
Summary of discontinued operations:
|
| Three months ended September 30, 2023 |
| |
Discontinued Operations |
|
|
| |
Revenue |
| $ |
| |
Cost of sales |
| $ |
| |
Sales, general and administrative expenses |
| $ |
| |
Depreciation and amortization |
| $ |
| |
Other expenses |
| $ |
| |
Income (loss) from discontinued operations |
| $ |
| |
Accounts receivable net of allowance for doubtful accounts |
| $ |
| |
Fixed assets, net of accumulated depreciation |
| $ |
| |
Total assets |
| $ |
| |
Total liabilities |
| $ |
| |
| 27 |
| Table of Contents |
Note 17. Discontinued Operations – Sale of E-Core
E-Core, Technology Inc. and its subsidiaries
On August 1, 2024, the Company closed a sale transaction in which, effective as of June 30, 2024, it sold
Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented. Discontinued operations of E-core included in the consolidated financial statements for the three months ended September 30, 2023 are as follows:
Summary of discontinued operations:
|
| Three months ended September 30, 2023 |
| |
Discontinued Operations |
|
|
| |
Revenue |
| $ |
| |
Cost of sales |
| $ |
| |
Sales, general and administrative expenses |
| $ |
| |
Depreciation and amortization |
| $ |
| |
Other expenses |
| $ |
| |
Income from discontinued operations |
| $ |
| |
Accounts receivable net of allowance for doubtful accounts |
| $ |
| |
Fixed assets, net of accumulated depreciation |
| $ |
| |
Total assets |
| $ |
| |
Total liabilities |
| $ |
| |
| 28 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
As used in this current report and unless otherwise indicated, the terms “we”, “us” and “our” mean Upexi, Inc.
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.
For the three months ended September 30, 2024, the consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the consolidated financial statements for the three months ended September 30, 2023.
Interactive Offers, LLC a Delaware limited liability corporation; VitaMedica, a Nevada corporation; and E-Core Technology, Inc. d/b/a New England Technology, Inc. have been classified as discontinued operations for the three months ended September 30, 2023 and the assets and liabilities have been classified as current assets, and liabilities of discontinued operations and assets held for sale on the balance sheets for September 30, 2023. There were no operations, assets or liabilities related to these discontinued operations for the three months ended September 30, 2024.
All intercompany accounts and transactions have been eliminated as a result of the consolidation.
Operating Segments
The Company’s financial reporting is organized into a single segment that includes production, sales and distribution of branded products, following the sale of E-Core, Technology Inc. and its subsidiaries. Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, products, production, distribution processes and regulatory environment as the other product sales or directly support the Company’s single segment.
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 months ended September 30, 2024 and 2023, which are included herein.
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
|
| September 30, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
Revenue |
| $ | 4,356,515 |
|
| $ | 8,274,690 |
|
| $ | (3,918,175 | ) |
Cost of revenue |
| $ | 1,426,447 |
|
| $ | 2,845,201 |
|
| $ | (1,418,754 | ) |
Sales and marketing expenses |
| $ | 1,041,425 |
|
| $ | 1,816,702 |
|
| $ | (775,277 | ) |
Distribution costs |
| $ | 1,455,725 |
|
| $ | 2,131,892 |
|
| $ | (676,167 | ) |
General and administrative expenses |
| $ | 1,367,690 |
|
| $ | 1,578,350 |
|
| $ | (210,660 | ) |
Other operating expenses |
| $ | 400,393 |
|
| $ | 1,358,358 |
|
| $ | (957,965 | ) |
Other expenses (income) |
| $ | 290,412 |
|
| $ | 853,283 |
|
| $ | (562,871 | ) |
Gain on the sale of business |
| $ | - |
|
| $ | 380,624 |
|
| $ | (380,624 | ) |
Discontinued operations |
| $ | - |
|
| $ | 100,717 |
|
| $ | (100,717 | ) |
Net (loss) income from continuing operations |
| $ | (1,625,577 | ) |
| $ | (1,355,388 | ) |
| $ | (270,189 | ) |
Revenues declined by $3,918,175 or 47% to $4,356,515 compared with revenue of $8,274,690 in the same period last year. Approximately $3,170,000 of the decline was related to the discontinued recommerce business in other subsidiaries after the sale of E-core. Management has augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products. In addition, sales were affected by the manufacturing consolidation to Florida, which was completed by August 1, 2024, with manufacturing returning to full production.
Cost of revenue decreased by 1,418,754 or 50% compared with the same period last year. The cost of revenue decrease is directly related to the sales declines described above. Gross margin remained the same between the two periods with less than a 2% change.
Sales and marketing expenses decreased by $775,277 or 43% compared with the same period last year. The decrease in sales and marketing expenses was primarily related to the reduction of unnecessary agency expenses and a focused strategy on our core products.
Distribution costs decreased by $676,167 or 32% compared with the same period last year. The decrease in distribution costs was primarily related to the overall decline in the recommerce revenue. Management will continue to reduce overall distribution costs with the consolidation of products and facilities.
| 29 |
| Table of Contents |
General and administrative expenses decreased by $210,660 or 13% compared with the same period last year. Since the consolidation to Florida and other changes in the business, management has actively been reducing general and administrative costs. Management expects that general and administrative expenses to continue to decline, with the most significant declines being realized in periods ending after December 31, 2024.
Other operating expenses decreased by $957,965 or 71% compared with the same period last year. The decrease in other operating expenses was primarily related to the change in amortization of acquired intangible assets and the decreased amortization of stock-based compensation.
Other expenses, which is primarily interest decreased by $562,871 or 66% compared with the same period last year. The decrease in interest expense was primarily related to the elimination of the acquisition debt for E-core and the elimination of debt with the sale of VitaMedica in the prior year.
A gain of $380,624 was recognized on the sale of Interactive offers and there was net income of $100,717 from discontinued operations.
The Company had a net loss of $1,625,577 for the three months ended September 30, 2024 compared to a loss of $1,333,388 for the three months ended September 30, 2023. The increase in the net loss is primarily related to the above-mentioned changes.
Liquidity and Capital Resources
Working Capital
|
| As of September 30, 2024 |
|
| As of June 30, 2024 |
| ||
Current assets |
| $ | 6,790,280 |
|
| $ | 11,419,918 |
|
Current liabilities |
|
| 9,771,401 |
|
|
| 12,655,152 |
|
Working capital |
| $ | (2,981,121 | ) |
| $ | (1,235,234 | ) |
Cash Flows
|
| Three Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash flows used by operating activities – continuing operations |
| $ | (1,974,592 | ) |
| $ | (2,073,232 | ) |
Cash flows used by investing activities – continuing operations |
|
| 5,838,106 |
|
|
| 145,324 |
|
Cash flows (used in) provided by financing activities – continuing operations |
|
| (2,734,538 | ) |
|
| (325,942 | ) |
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities – discontinued operations |
|
| - |
|
|
| (1,718,972 | ) |
Cash flows used by investing activities – discontinued operations |
|
| - |
|
|
| - |
|
Cash flows provided (used by) financing activities – discontinued operations |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash during the period |
| $ | 1,128,976 |
|
| $ | (3,972,822 | ) |
On September 30, 2024, the Company had cash of $1,790,391, an increase of $1,128,976 from June 30, 2024. The increase in cash was primarily the sale of the building and the collection of the purchase price for E-core.
Net cash from operating activities benefited from non-cash expenses of $402,964, which was offset by an approximate $400,000 increase in accounts receivable and inventory and approximately $500,000 in the reduction of several liabilities. The negative cash flow from operations was anticipated by management as the Company augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products.
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| Table of Contents |
Net cash provided by investing activities for the three months ended September 30, 2024 and 2023 was $5,838,106 and $145,324, respectively. For the three months ended September 30, 2024 the primary cash provided was the sale of the building and the collection of the purchase price for E-core. For the three months ended September 30, 2023, $940,000 was provided by the sale of Interactive offers and $500,000 and $294,676 was used for the purchase of the remaining equity of Cygnet and the acquisition of property and equipment, respectively.
Net cash flows used in financing activities for the three months ended September 30, 2024 was $2,734,538 compared to $325,942 used during the three months ended September 30, 2023. $2,634,538 used was the repayment of the loan collateralized by the building and the $100,000 advance to the Company by Allan Marshall, the CEO, was repaid during the three months ended September 30, 2024. During the three months ended September 30, 2023 the use of cash was for the scheduled repayment of debts.
We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all of our debt obligations.
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 financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2023 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
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In performing the above-referenced assessment, our management identified the following material weaknesses:
| (i) | inadequate segregation of duties consistent with control objectives; and |
|
|
|
| (ii) | lack of multiple levels of supervision and review. |
We believe the weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible. However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the appointment of additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies, by the end of our 2024 fiscal year as resources allow.
We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended September 30, 2024, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. The Company has added significant qualified resources to ensure proper segregation of duties and proper review of the financial reporting policies and procedures.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not involved in any pending legal proceeding or litigation, and, to the best of its knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of its properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
All of the securities issued by the Company were issued pursuant to the exemption for transactions by an issuer not involved in any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and corresponding state securities laws. For more information regarding securities issued, see the Liquidity and Capital Resources section to our Unaudited Condensed Consolidated Financial Statements included herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Number |
| Description |
| ||
| ||
101** |
| Interactive Data File |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
_________________
* | Filed herewith. |
** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| UPEXI, INC. |
|
|
|
| |
Dated: December 19, 2024 |
| /s/ Allan Marshall |
|
|
| Allan Marshall |
|
|
| President, Chief Executive Officer, and Director |
|
|
| (Principal Executive Officer) |
|
Dated: December 19, 2024 |
| /s/ Andrew J. Norstrud |
|
|
| Andrew J. Norstrud |
|
|
| Chief Financial Officer |
|
|
| (Principal Financial Officer and Principal Accounting Officer) |
|
| 35 |