10-Q
UPEXI, INC. (UPXI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2024
or
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from __________ to _______
Commission File Number 333-255266
| UPEXI, INC. | |
|---|---|
| (Exact name of registrant as specified in its charter) | |
| Nevada | 83-3378978 |
| --- | --- |
| (State or other jurisdiction of<br><br>incorporation or organization) | (IRS Employer<br><br>Identification No.) |
| 3030 North Rocky Point Drive<br><br>Tampa, Florida | 33607 |
| --- | --- |
| (Address of principal executive offices) | (Zip Code) |
(701) 353-5425
(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 |
|---|---|---|
| Common Stock, par value $0.001 | UPXI | The NASDAQ Stock Market LLC |
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. ☒ Yes ☐ NO
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). ☒ Yes ☐ NO
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 | ☐ |
|---|---|---|---|
| Non-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) ☐ YES ☒ NO
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 5, 2024, the registrant had 20,889,384 shares of common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
|---|---|---|
| Item 1. | Interim Unaudited Condensed Consolidated Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 5 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 12 |
| Item 4. | Controls and Procedures | 13 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 14 |
| Item 1A. | Risk Factors | 14 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. | Defaults Upon Senior Securities | 14 |
| Item 4. | Mine Safety Disclosures | 14 |
| Item 5. | Other Information | 14 |
| Item 6. | Exhibits | 15 |
| SIGNATURES | 16 | |
| 2 | ||
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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.
We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
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, as well as the other risks and uncertainties disclosed under the heading “Item 1A. Risk Factors” in our most recent annual report on Form 10-K.
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.
| 3 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UPEXI, INC.
Interim Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended March 31, 2024 and 2023
| Page | |||||
|---|---|---|---|---|---|
| Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and June 30, 2023 | F-1 | ||||
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2024 and 2023 (Unaudited) | F-2 | ||||
| Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2024 and 2023 (Unaudited) | F-3 | ||||
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2024 and 2023 (Unaudited) | F-4 | ||||
| Notes to the Unaudited Condensed Consolidated Financial Statements | F-5 | ||||
| 4 | |||||
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| Table of Contents | |||||
| UPEXI, INC. | |||||
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| CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED) | |||||
| June 30, | |||||
| --- | --- | --- | --- | --- | --- |
| 2023 | |||||
| ASSETS | |||||
| Current assets | |||||
| Cash | 498,287 | $ | 4,492,291 | ||
| Accounts receivable | 4,707,128 | 6,963,915 | |||
| Inventory | 8,801,901 | 9,267,892 | |||
| Due from Bloomios | - | 845,443 | |||
| Prepaid expenses and other receivables | 720,582 | 1,283,617 | |||
| Current assets of discontinued operations | 2,111,952 | 2,602,556 | |||
| Total current assets | 16,839,850 | 25,455,714 | |||
| Property and equipment, net | 7,520,005 | 7,442,623 | |||
| Intangible assets, net | 9,469,923 | 12,588,124 | |||
| Goodwill | 10,847,791 | 9,290,501 | |||
| Deferred tax asset | 8,273,049 | 5,604,056 | |||
| Other assets | 368,004 | 76,728 | |||
| Assets held for sale | 1,675,112 | 2,984,868 | |||
| Right-of-use asset | 1,513,693 | 410,453 | |||
| Total other assets | 39,667,577 | 38,397,353 | |||
| Total assets | 56,507,427 | $ | 63,853,067 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities | |||||
| Accounts payable | 2,124,024 | $ | 3,930,540 | ||
| Accrued compensation | 841,064 | 533,842 | |||
| Deferred revenue | 111,519 | - | |||
| Accrued liabilities | 2,551,149 | 3,350,541 | |||
| Acquisition payable | 300,000 | - | |||
| Current portion of notes payable | 5,473,136 | 1,302,021 | |||
| Current portion of convertible notes payable | - | 1,254,167 | |||
| Current portion of acquisition note payable | 8,048,562 | 5,656,620 | |||
| Current portion of related party note payable | - | 1,429,356 | |||
| Line of Credit | 3,938,772 | 882,845 | |||
| Current portion of operating lease payable | 803,558 | 419,443 | |||
| Current liabilities of discontinued operations | - | 975,310 | |||
| Total current liabilities | 24,191,784 | 19,734,685 | |||
| Operating lease payable, net of current portion | 1,055,301 | 34,684 | |||
| Related party note payable | 1,479,815 | - | |||
| Convertible notes payable | 1,650,000 | 895,833 | |||
| Acquisition notes payable, net of current | 2,929,393 | 7,605,085 | |||
| Notes payable, net of current portion | 3,144,327 | 7,746,157 | |||
| Total long-term liabilities | 10,258,836 | 16,281,759 | |||
| Commitments and contingencies | |||||
| Stockholders' equity | |||||
| Preferred stock, 0.001 par value, 100,000,000 shares authorized, and 500,000 and 500,000 shares issued and outstanding, respectively | 500 | 500 | |||
| Common stock, 0.001 par value, 100,000,000 shares authorized, and 20,906,870 and 20,215,961 shares issued and outstanding, respectively | 20,909 | 20,216 | |||
| Additional paid in capital | 53,149,492 | 51,522,229 | |||
| Accumulated deficit | (31,114,094 | ) | (23,201,175 | ) | |
| Total stockholders' equity attributable to Upexi, Inc. | 22,056,807 | 28,341,770 | |||
| Non-controlling interest in subsidiary | (505,147 | ) | |||
| Total stockholders' equity | 22,056,807 | 27,836,623 | |||
| Total liabilities and stockholders' equity | 56,507,427 | $ | 63,853,067 |
All values are in US Dollars.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-1 | ||||||||||||
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| Table of Contents | ||||||||||||
| UPEXI, INC. | ||||||||||||
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| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||||||
| Three Month's Ended March 31, | Nine Month's Ended March 31, | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2024 | 2023 | 2024 | 2023 | |||||||||
| Revenue | ||||||||||||
| Revenue | $ | 14,444,957 | $ | 21,883,445 | $ | 59,586,148 | $ | 56,282,542 | ||||
| Cost of Revenue | 11,561,834 | 14,305,698 | 42,864,857 | 35,555,746 | ||||||||
| Gross profit | 2,883,123 | 7,577,747 | 16,721,291 | 20,726,796 | ||||||||
| Operating expenses | ||||||||||||
| Sales and marketing | 1,547,161 | 2,258,937 | 5,427,358 | 5,331,948 | ||||||||
| Distribution costs | 2,291,945 | 2,352,684 | 7,516,748 | 8,010,373 | ||||||||
| General and administrative expenses | 2,399,387 | 2,602,312 | 6,685,881 | 6,807,739 | ||||||||
| Share-based compensation | 212,758 | 1,146,299 | 965,229 | 3,126,472 | ||||||||
| Amortization of acquired intangible assets | 1,062,734 | 1,124,500 | 3,188,201 | 2,709,167 | ||||||||
| Depreciation | 306,185 | 225,879 | 901,521 | 649,883 | ||||||||
| 7,820,170 | 9,710,611 | 24,684,938 | 26,635,582 | |||||||||
| Loss from operations | (4,937,047 | ) | (2,132,864 | ) | (7,963,647 | ) | (5,908,786 | ) | ||||
| Other income (expense), net | ||||||||||||
| Change in derivative liability | - | - | - | (1,770 | ) | |||||||
| Interest (expense) income, net | 661,878 | 152,360 | 2,612,617 | 2,370,294 | ||||||||
| Other income (expense), net | 661,878 | 152,360 | 2,612,617 | 2,368,524 | ||||||||
| Income (loss) on operations before income tax | (5,598,925 | ) | (1,980,504 | ) | (10,576,264 | ) | (8,277,310 | ) | ||||
| Gain on sale of Infusionz and select assets | - | - | - | 7,564,363 | ||||||||
| Gain (loss) from the sale of Interactive Offers | (103,263 | ) | - | 237,670 | ||||||||
| Lease settlement, California facility | - | - | - | |||||||||
| Lease impairment, Delray Beach facility | - | - | (289,968 | ) | ||||||||
| Income tax benefit (expense) | 1,501,595 | 496,880 | 2,668,769 | 449,828 | ||||||||
| Net income (loss) from continuing operations | (4,200,593 | ) | (1,483,624 | ) | (7,959,793 | ) | (263,119 | ) | ||||
| (Loss) income from discontinued operations | 81,981 | (287,119 | ) | 46,874 | (1,663,451 | ) | ||||||
| Net loss attributable to non-controlling interest | - | 124,804 | - | 358,390 | ||||||||
| Net income (loss) attributable to Upexi, Inc. | $ | (4,118,612 | ) | $ | (1,645,939 | ) | $ | (7,912,919 | ) | $ | (1,568,180 | ) |
| Basic and dilutive loss per share: | ||||||||||||
| Income (loss) per share from continuing operations | $ | (0.20 | ) | $ | (0.08 | ) | $ | (0.39 | ) | $ | (0.02 | ) |
| (Loss) income per share from discontinued operations | $ | - | $ | (0.02 | ) | $ | 0.00 | $ | (0.10 | ) | ||
| Total income (loss) per share | $ | (0.20 | ) | $ | (0.09 | ) | $ | (0.39 | ) | $ | (0.09 | ) |
| Basic weighted average shares outstanding | 20,723,542 | 18,015,837 | 20,423,924 | 17,418,877 | ||||||||
| Fully diluted weighted average shares outstanding | 20,723,542 | 18,015,837 | 20,423,924 | 17,418,877 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 | |||||||||||||||||||
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| Table of Contents | |||||||||||||||||||
| UPEXI, INC. | |||||||||||||||||||
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| CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) | |||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Common Stock | Additional Paid | Accumulated | Non-controlling | Total<br><br>Stockholders' | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Shares | Par | Shares | Par | In Capital | Deficit | Interest | Equity | ||||||||||||
| 2023 | |||||||||||||||||||
| Balance, June 30, 2022 | 500,000 | $ | 500 | 16,713,345 | $ | 16,713 | $ | 34,985,597 | $ | (6,270,886 | ) | $ | 54,820 | $ | 28,786,744 | ||||
| Amortization of common stock issuance for services | - | - | - | - | 70,350 | - | - | 70,350 | |||||||||||
| Stock based compensation | - | - | - | - | 927,326 | - | - | 927,326 | |||||||||||
| Net loss for the three months ended September 30, 2022 | - | - | - | - | - | (2,597,515 | ) | (148,005 | ) | (2,745,520 | ) | ||||||||
| Balance, September 30, 2022 | 500,000 | $ | 500 | 16,713,345 | $ | 16,713 | $ | 35,983,273 | $ | (8,868,401 | ) | $ | (93,185 | ) | $ | 27,038,900 | |||
| Amortization of common stock issuance for services | - | - | - | - | 70,350 | - | - | 70,350 | |||||||||||
| Stock based compensation | - | - | - | - | 1,052,847 | - | - | 1,052,847 | |||||||||||
| Issuance of common stock for acquisition of E-Core | - | - | 1,247,403 | 1,247 | 5,998,753 | - | - | 6,000,000 | |||||||||||
| Net loss for the three months ended December 31, 2022 | - | - | - | - | - | 2,669,679 | (85,581 | ) | 2,584,098 | ||||||||||
| Balance, December 31, 2022 | 500,000 | $ | 500 | 17,960,748 | $ | 17,960 | $ | 43,105,223 | $ | (6,198,722 | ) | $ | (178,766 | ) | $ | 36,746,195 | |||
| Stock based compensation | - | - | - | - | 1,146,299 | - | - | 1,146,299 | |||||||||||
| Issuance of common stock for interest on note payable | - | - | 134,000 | 134 | 606,870 | - | - | 607,004 | |||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | - | - | - | (1,643,884 | ) | (124,804 | ) | (1,768,688 | ) | ||||||||
| Balance, March 31, 2023 | 500,000 | $ | 500 | 18,094,748 | $ | 18,094 | $ | 44,858,392 | $ | (7,842,606 | ) | $ | (303,570 | ) | $ | 36,730,810 | |||
| 2023 | |||||||||||||||||||
| Balance, June 30, 2023 | 500,000 | $ | 500 | 20,215,961 | $ | 20,216 | $ | 51,522,229 | $ | (23,201,175 | ) | $ | (505,147 | ) | $ | 27,836,623 | |||
| Issuance of stock and equity for purchase of Cygnet | - | - | 90,909 | 91 | 162,636 | - | 505,147 | 667,874 | |||||||||||
| Stock based compensation | - | - | - | - | 421,887 | - | - | 421,887 | |||||||||||
| Net loss for the three months ended September 30, 2023 | - | - | - | - | - | (1,356,388 | ) | - | (1,356,388 | ) | |||||||||
| Balance, September 30, 2023 | 500,000 | $ | 500 | 20,306,870 | $ | 20,307 | $ | 52,106,752 | $ | (24,557,563 | ) | $ | - | $ | 27,569,996 | ||||
| Stock based compensation | - | - | - | - | 330,584 | - | - | 330,584 | |||||||||||
| Net income (loss) for the three months ended December 31, 2023 | - | - | - | - | - | (2,437,919 | ) | - | (2,437,919 | ) | |||||||||
| Balance, December 31, 2023 | 500,000 | $ | 500 | 20,306,870 | $ | 20,307 | $ | 52,437,336 | $ | (26,995,482 | ) | $ | - | $ | 25,462,661 | ||||
| Issuance of stock for conversion of debt | - | - | 500,000 | 502 | 499,498 | - | - | 500,000 | |||||||||||
| . | |||||||||||||||||||
| Stock based compensation | - | - | 100,000 | 100 | 212,658 | - | - | 212,758 | |||||||||||
| Net income (loss) for the three months ended March 31, 2024 | - | - | - | - | - | (4,118,612 | ) | - | (4,118,612 | ) | |||||||||
| Balance, March 31, 2024 | 500,000 | $ | 500 | 20,906,870 | $ | 20,909 | $ | 53,149,492 | $ | (31,114,094 | ) | $ | - | $ | 22,056,807 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 | ||||||
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| Table of Contents | ||||||
| UPEXI, INC. | ||||||
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| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||
| Nine Month's Ended<br><br>March 31, | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| 2024 | 2023 | |||||
| Cash flows from operating activities | ||||||
| Net (loss) income from operations | $ | (7,912,919 | ) | $ | (1,568,180 | ) |
| Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 4,089,722 | 3,359,050 | ||||
| Accrued interest on note recievable from Bloomios | - | (141,635 | ) | |||
| Amortization of senior security original issue discount | - | (455,450 | ) | |||
| Unreimburesed transition fees from Bloomios | - | (428,500 | ) | |||
| Amortization of loan costs | 50,459 | - | ||||
| Amortization of consideration discount | 900,339 | - | ||||
| Non-cash consideration for sale of Infusionz and select assets, net | - | (7,564,363 | ) | |||
| Inventory write-offs | 1,812,319 | 34,328 | ||||
| Gain on sale of interactive offers | (237,670 | ) | - | |||
| Change in deferred tax asset | (2,668,993 | ) | (515,089 | ) | ||
| Noncontrolling interest | - | (358,390 | ) | |||
| Shares issued for finder fee | - | 1,770 | ||||
| Stock based compensation | 965,229 | 3,126,472 | ||||
| Changes in assets and liabilities, net of acquired amounts | ||||||
| Accounts receivable | 2,413,987 | 2,175,850 | ||||
| Inventory | (255,500 | ) | 2,561,502 | |||
| Prepaid expenses and other assets | 492,343 | 94,178 | ||||
| Operating lease payable | 301,492 | (22,830 | ) | |||
| Accounts payable and accrued liabilities | (2,775,503 | ) | 1,744,961 | |||
| Deferred revenue | (22,431 | ) | - | |||
| Net cash provided by operating activities - Continuing Operations | (2,847,126 | ) | 2,043,674 | |||
| Net cash provided by (used in) operating activities - Discontinued Operations | (187,280 | ) | 190,539 | |||
| Net cash provided by operating activities | (3,034,406 | ) | 2,234,213 | |||
| Cash flows from investing activities | ||||||
| Acquisition of Lucky Tail | - | (3,012,327 | ) | |||
| Acquisition of VitaMedica, Inc., net of cash acquired | - | (500,000 | ) | |||
| Acquisition of New England Technology, Inc. | - | (1,698,748 | ) | |||
| Proceeds from the sale of Interactive Offers, net of liabilities paid | 940,000 | - | ||||
| Acquisition of patent rights for Tytan Tiles | (70,000 | ) | - | |||
| Acquisition of Cygnet Online LLC, net of cash acquired | (500,000 | ) | (1,050,000 | ) | ||
| Proceeds from the sale of Infusionz and selected assets | - | 5,173,610 | ||||
| Acquisition of property and equipment | (770,721 | ) | (278,683 | ) | ||
| Net cash provided by (used in) investing activities - Continuing Operations | (400,721 | ) | (1,366,148 | ) | ||
| Net cash (used in) provided by investing activities - Discontinued Operations | - | - | ||||
| Net cash provided by (used in) investing activities | (400,721 | ) | (1,366,148 | ) | ||
| Cash flows from financing activities | ||||||
| Repayment of notes payable | (430,715 | ) | (470,168 | ) | ||
| Repayment of the senior convertible notes payable | - | (6,307,775 | ) | |||
| Proceeds (payments) on line of credit, net | 3,055,927 | (6,826,338 | ) | |||
| Payment on acquisition notes payable | (3,184,089 | ) | ||||
| Repayment of SBA note payable | (254,804 | ) | ||||
| Proceeds from convertible note payable | - | 2,650,000 | ||||
| Proceeds on note payable on building | - | 3,000,000 | ||||
| Repayment on note payable on building | (97,744 | ) | ||||
| Proceeds on note payable, related party | - | 1,470,000 | ||||
| Net cash used in financing activities - Continuing Operations | (558,877 | ) | (6,836,829 | ) | ||
| Net cash (used in) provided by financing activities - Discontinued Operations | - | - | ||||
| Net cash used in financing activities | (558,877 | ) | (6,836,829 | ) | ||
| Net decrease in cash - Continuing Operations | (3,806,724 | ) | (6,159,303 | ) | ||
| Net (decrease) increase in cash - Discontinued Operations | (187,280 | ) | 190,539 | |||
| Cash, beginning of period | 4,492,291 | 7,149,806 | ||||
| Cash, end of period | $ | 498,287 | $ | 1,181,042 | ||
| Supplemental cash flow disclosures | ||||||
| Interest paid | $ | 1,505,162 | $ | 326,918 | ||
| Income tax paid | $ | - | $ | - | ||
| Issuance of common stock for acquisition of Cygnet | $ | 162,727 | $ | - | ||
| Issuance of debt for acquisition of Cygnet | $ | 300,000 | $ | - | ||
| Bloomios non-cash payment of receivables, net | $ | 845,443 | $ | - | ||
| Issuance of common stock for the repayment of convertible note payable | $ | 500,000 | $ | - | ||
| Liabilities assumed from acquisition of E-Core | $ | - | $ | (7,712,168 | ) | |
| Issuance of stock for acquisition of E-Core | $ | - | $ | 6,000,000 | ||
| Assets available for sale | $ | - | $ | 6,446,210 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
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| Table of Contents |
UPEXI, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Background Information
Upexi is a multi-faceted brand owner with established brands in health, wellness, pet, beauty, and other growing markets. We operate in emerging industries with high growth trends and look to drive organic growth of our current brands. We focus on direct to consumer and Amazon brands that are scalable and have anticipated, high industry growth trends. Our goal is to continue to accumulate consumer data and build out a significant customer database across all industries we sell into. The growth of our current customer database has been key to the year-over-year gains in sales and profits. To drive additional growth, we have and will continue to acquire profitable Amazon and eCommerce businesses that can scale quickly and reduce costs through corporate synergies. We utilize our in-house SaaS programmatic ad technology to help achieve a lower cost per acquisition and accumulate consumer data for increased cross-selling between our growing portfolio of brands.
Upexi, Inc. (the “Company”) is a Nevada corporation with fourteen active subsidiaries through which the Company primarily conducts its business. The Company’s fourteen active subsidiaries are as follows:
| ☐ | HAVZ, LLC, d/b/a/ Steam Wholesale, a California limited liability company | ||
|---|---|---|---|
| ☐ | Trunano Labs, Inc., a Nevada corporation | ||
| ☐ | 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 Property & Assets, LLC, a Delaware limited liability company | ||
| ■ | Upexi 17129 Florida, LLC, a Delaware limited liability company | ||
| o | E-Core Technology, Inc. | ||
| o | Upexi Distribution Management LLC, a Delaware limited liability company | ||
| o | Upexi Distribution LLC, a Delaware limited liability company | ||
| ☐ | Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company. |
In addition, the Company has six wholly owned subsidiaries that had no activity during the three and nine months ended March 31, 2024 and March 31, 2023, respectively. All of the entities were dissolved or cancelled in the three months ended March 31, 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 |
Our products are distributed in the United States of America and internationally through multiple entities and managed through our locations in Florida, California, and Nevada.
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Upexi operates from our corporate location in Tampa, Florida where direct to consumer 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.
Cygnet Online operates from our Florida warehouse and distribution center, day to day operations of our Amazon liquidation business team from this location with support of remote team members.
Lucky Tail operates from our Florida location 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 Henderson, Nevada 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.
Business Acquisitions
On April 1, 2022, the Company entered into a securities purchase agreement with a single investor to acquire 55% of the equity interest in Cygnet Online, LLC, a Delaware limited liability corporation. The agreement also enables the Company to purchase the remaining 45% over the following two years. On September 1, 2023, the Company purchased the remaining 45% of Cygnet Online, LLC for $500,000 cash, 90,909 shares of the Company’s common stock and a $300,000 cash payment due on September 1, 2024. The Company has not released the shares to the seller.
On August 12, 2022, the Company entered into an asset purchase agreement with GA Solutions, LLC, a Delaware limited liability company (“LuckyTail”), pursuant to which the Company acquired substantially all the assets of LuckyTail. LuckyTail sells pet nail grinders and other pet products through various sales channels including some international sales channels.
On October 31, 2022, the Company and its wholly owned subsidiary Upexi Enterprise, LLC, entered into a securities purchase agreement to purchase the outstanding stock of E-Core Technology, Inc. d/b/a New England Technology, Inc. (“E-Core”), a Florida corporation. E-Core distributes non-owned branded products to national retail distributors and has branded products in the toy industry that E-Core sells direct to consumers through online sales channels and sells to national retail distributors.
Business Divested
On October 26, 2022, the Company entered into a membership interest purchase agreement to sell 100% of the membership interests of Infusionz LLC, a Colorado limited liability company (“Infusionz”), included in the sale was all the rights to Infusionz brands and the manufacturing of certain private label business. Infusionz was originally purchased by the Company in July of 2020. The divestiture of Infusionz and related private label manufacturing represents a strategic shift in our operations and will allow us to become a predominantly product distribution focused company for both our Company owned brands and non-owned brands. As a result, the results of the business were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for all periods presented.
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On August 31, 2023, Upexi, Inc. (the “Company”) entered into an Equity Interest Purchase Agreement (“EIPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary Interactive Offers, LLC (“Interactive”) to Amplifyir Inc. (the “Buyer”). The purchase price for the Interests was One Million Two Hundred Fifty Thousand Dollars ($1,250,000), subject to certain customary post-closing adjustments. In addition, the Buyer is obligated to pay the Company two-and one- half percent (2.5%) of certain advertising revenues of Interactive for a two-year period post-closing. 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.
On June 13, 2024, Upexi, Inc. (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 Chief Executive Officers. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. In addition, the Buyers are obligated to pay the Company for services provided according to the Transition Services Agreement. 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.
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 March 31, 2024, and June 30, 2023.
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
Discontinued Operations
A discontinued operation is a component of an entity that has either been disposed of or that is classified as held for sale, which represents a separate major line of business or geographic area of options and is part of a single coordinated plan to dispose of a separate line of business or geographical area of operations. In accordance with the rules regarding the presentation of discontinued operations, the assets, liabilities, and activity of Infusionz, Interactive Offers, VitaMedica and certain manufacturing business have been reclassified as discontinued operations for all periods presented.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguished between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
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ASC 820 identified fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 established a three-tier fair value hierarchy that distinguishes between the following:
Level 1—Quoted market prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.
Level 3—Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts reflected in the balance sheets for cash, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature. For the three months ended September 30, 2022, management believed it necessary to record a reserve against the debt and equity instruments obtained in the sale of Infusionz of $8,500,000.
Reclassification
Certain reclassifications have been made to the condensed consolidated financial statements as of and for the three and nine months ended March 31, 2024, for the three and nine month periods ended March 31, 2023, and as of June 30, 2023 to conform to the presentation as of and for the three and nine months ended March 31, 2024.
Note 2. Acquisitions
Cygnet Online, LLC
The Company acquired 55% of Cygnet Online, LLC, on April 1, 2022. The purchase price was $5,515,756, as amended.
The following table summarizes the consideration transferred to acquire Cygnet Online, LLC and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
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Fair value of consideration transferred:
| Cash | 1,500,000 | |
|---|---|---|
| Convertible note payable, convertible at 6.00 per common share | 1,050,000 | |
| Earnout payment | - | |
| Common stock, 555,489 shares valued at 5.34 per common share, the closing price on April 1, 2022. | 2,965,756 | |
| 5,515,756 | ||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||
| Cash | 471,237 | |
| Accounts receivable | 860,882 | |
| Inventory | 2,337,208 | |
| Prepaid expenses | 6,900 | |
| Property and equipment | 7,602 | |
| Right to use asset | 410,365 | |
| Other asset | 6,545 | |
| Online sales channels | 1,800,000 | |
| Vendor relationships | 6,000,000 | |
| Accrued liabilities | (701,606 | ) |
| Notes payable | (7,298,353 | ) |
| Operating lease | (422,479 | ) |
| Total identifiable net assets | 3,478,301 | |
| Goodwill | 2,037,455 |
All values are in US Dollars.
55% of the business was acquired through a stock purchase agreement on April 1, 2022. The purchase agreement provided for an increase in the purchase price of up to $700,000 based on the attainment of certain sales thresholds in the first year. Our management believed that the attainment of those sales threshold at the time of acquisition was unlikely and valued the contingency at $0. The sales thresholds were not met, and no consideration was recorded for the contingency. The equity interest purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $950,000 and was repaid to the Company with a reduction in the loan to the seller. The 55% purchase price allocation is final and is no longer subject to change.
On September 1, 2023, the Company completed the acquisition of the remaining 45% interest for structured cash payments equaling $800,000, the forgiveness of advances of $89,416 and 90,909 shares of the Company’s common stock valued at $162,727. As of June 24, 2024, the Company has not released the 90,909 shares or paid the remaining $300,000 owed related to this additional acquisition.
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Fair value of consideration transferred:
| Cash | 800,000 |
|---|---|
| Noncontrolling interest | 505,147 |
| Forgiveness of advances | 89,416 |
| Common stock, 90,909 shares valued at 1.79 per common share, the closing price on September 1, 2023. | 162,727 |
| 1,557,290 |
All values are in US Dollars.
The additional consideration was recorded as goodwill by management and will be subject to change based on the final purchase price allocation.
The acquisition of Cygnet provided the Company with the opportunity to expand its operations as an Amazon and eCommerce seller. The resulting combination increased Cygnet’s product offerings through the Company’s distributors and partnerships as it continues to focus on over-the-counter supplements and beauty products. Cygnet will be the anchor company for Upexi’s Amazon strategy. These are the factors of goodwill recognized in the acquisition. The Company’s management is evaluating the intangible assets of this acquisition and had not reached a conclusion on any impairment of these intangible assets at the time of this report.
LuckyTail
On August 13, 2022, the Company acquired the pet product brand and the rights to the products of LuckyTail from GA Solutions, LLC.
The following table summarizes the consideration transferred to acquire LuckyTail and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
| Fair value of consideration transferred: | ||
|---|---|---|
| Cash | $ | 2,000,000 |
| Cash payment, 90 days after close | 484,729 | |
| Cash payment, 180 days after close | 469,924 | |
| Contingent consideration | 112,685 | |
| Cash payment, working capital adjustment | 460,901 | |
| $ | 3,528,239 | |
| Recognized amounts of identifiable assets acquired, and liabilities assumed: | ||
| Inventory | $ | 460,901 |
| Trade name | 383,792 | |
| Customer list | 1,834,692 | |
| Total identifiable net assets | $ | 2,679,385 |
| Goodwill | $ | 848,854 |
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The business was acquired through an asset purchase agreement, that acquired all elements of the business, including all the tangible and intangible assets of the LuckyTail business. The purchase agreement provided for an increase in the purchase price based on the attainment of certain sales thresholds in the first six months. The Company estimated the value of this at approximately $150,000 at the time of purchase. The sales calculated to a $112,685 payout and the purchase price was adjusted. The asset purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was increased by $460,901 for the excess working capital that was transferred in the business and the final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.
The consolidated financial include the actual results of LuckyTail from August 13, 2022 through March 31, 2024. The Company recorded interest on the consideration of $63,282 during the year ended June 30, 2023.
The acquisition of LuckyTail provided the Company with a foothold in the pet care industry and a strong presence on Amazon and its eCommerce store, offering nutritional and grooming products domestically and internationally. The acquisition provided both top line growth and improved EBITDA for the Company. These are the factors of goodwill recognized in the acquisition. The purchase price allocation was performed by a third party and is no longer subject to change.
E-Core, Technology Inc., and its subsidiaries
On October 21, 2022, the Company acquired E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”).
The following table summarizes the consideration transferred to acquire E-Core and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
| Fair value of consideration transferred: | |
|---|---|
| Cash | 100,000 |
| Cash payment, 120 days | 3,000,000 |
| Note payable | 5,189,718 |
| Note payable 2 | 4,684,029 |
| Convertible note payable, convertible at 4.81 per common share | 2,418,860 |
| Common stock, 1,247,402 shares valued at 4.81 per common share, the calculated closing price on October 21, 2022. | 6,000,000 |
| 21,039,765 |
All values are in US Dollars.
Recognized amounts of identifiable assets acquired, and liabilities assumed:
| Cash | $ | 1,014,610 | |
|---|---|---|---|
| Accounts receivable | 6,699,945 | ||
| Inventory | 7,750,011 | ||
| Prepaid expenses | 75,721 | ||
| Trade name | 1,727,249 | ||
| Customer relationships | 5,080,305 | ||
| Accrued liabilities | (192,051 | ) | |
| Line of credit | (7,201,079 | ) | |
| Total identifiable net assets | $ | 14,635,673 | |
| Goodwill | $ | 6,404,092 | |
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The business was acquired through a membership interest purchase agreement on October 21, 2022. There was no contingent consideration payable under the asset purchase agreement, although a provision was used to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $33,803, net and was repaid to the Company with an adjustment to the $3,000,000 cash payment. The final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.
The Company’s consolidated financial statements include the actual results of E-Core from November 1, 2022 to March 31, 2024. The Company recorded interest on the consideration of $969,098 during the year ended June 30, 2023 and $900,339 during the nine months ended March 31, 2024. At June 30, 2023 there was $1,738,295 of unamortized debt discount that will be expensed over the next two years. At March 31, 2024 there was $810,545 of unamortized debt discount that will be expensed over the following nineteen months.
The acquisition of E-Core provided the Company with an entrance into the children’s toy sector as well as national retail distribution for owned and non-owned branded products. The acquisition expands the Company’s ability to leverage direct-to-consumer distribution and further develops the broad distribution capabilities of E-Core. These are the factors of goodwill recognized in the acquisition. The purchase price allocation was performed by a third party and is no longer subject to change.
Revenue from acquisitions included in the financial statements.
| Nine months ended<br><br>March 31, | ||||
|---|---|---|---|---|
| 2024 | 2023 | |||
| Cygnet | $ | 10,629,121 | $ | 20,806,317 |
| LuckyTail | 2,219,111 | 3,573,727 | ||
| E-Core | 38,625,335 | 25,822,931 | ||
| $ | 51,473,567 | $ | 50,202,975 | |
| Three months ended<br><br>March 31, | ||||
| --- | --- | --- | --- | --- |
| 2024 | 2023 | |||
| Cygnet | 1,956,310 | 7,359,955 | ||
| LuckyTail | 673,738 | 1,394,459 | ||
| E-Core | 9,221,715 | 13,647,412 | ||
| $ | 11,851,763 | $ | 22,401,826 |
Consolidated pro-forma unaudited financial statements.
The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, LuckyTail and E-Core after giving effect to the Company’s acquisitions as if the acquisitions occurred on July 1, 2022.
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The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2022, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the nine months ended March 31, 2023, as if the acquisitions occurred on July 1, 2022. The results of operations for Cygnet, LuckyTail and E-Core are included in the three and nine months ended March 31, 2024. The results of operations for include LuckyTail from August 13, 2022 to March 31, 2023 and E-Core from October 21, 2022 to March 31, 2023.
Operating expenses for the nine months ended March 31, 2023 have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of LuckyTail and E-Core by approximately $44,619, and $134,625, per month respectively and $363,415 of interest expense.
| Pro Forma, Unaudited | Proforma | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine months ended March 31, 2023 | Upexi, Inc. | LuckyTail | E-Core | Adjustments | Proforma | |||||||
| Net sales | $ | 56,282,542 | $ | 892,270 | $ | 12,905,836 | $ | - | $ | 70,080,648 | ||
| Cost of sales | $ | 35,555,746 | $ | 137,088 | $ | 11,177,032 | $ | - | $ | 46,869,866 | ||
| Operating expenses | $ | 26,635,582 | $ | 383,476 | $ | 1,050,602 | $ | 567,721 | $ | 28,637,381 | ||
| Net income (loss) from continuing operations | $ | (263,119 | ) | $ | 371,706 | $ | 660,860 | $ | (567,721 | ) | $ | 201,726 |
| Basic income (loss) per common share | $ | (0.02 | ) | $ | - | $ | 0.53 | $ | - | $ | 0.01 | |
| Weighted average shares outstanding | 17,418,877 | - | 1,247,402 | (693,001 | ) | 17,973,278 |
Note 3. Inventory
Inventory consisted of the following:
| March 31,<br><br>2024 | June 30,<br><br>2023 | |||
|---|---|---|---|---|
| Raw materials | $ | 1,007,749 | $ | - |
| Finished goods | 7,794,152 | 11,557,128 | ||
| $ | 8,801,901 | $ | 11,557,128 |
The Company writes off the value of inventory deemed excessive or obsolete.
During the three and nine months ended March 31, 2024, the Company wrote off inventory valued at $1,722,289 and $1,812,319, respectively. During the three and nine months ended March 31, 2023, the Company wrote off inventory valued none and $34,328, respectively.
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Note 4. Property and Equipment
Property and equipment consist of the following:
| March 31,<br><br>2024 | June 30,<br><br>2023 | |||||
|---|---|---|---|---|---|---|
| Furniture and fixtures | $ | 216,143 | $ | 172,663 | ||
| Computer equipment | 166,569 | 155,506 | ||||
| Internal use software | 570,645 | 541,705 | ||||
| Manufacturing equipment | 3,495,666 | 3,291,557 | ||||
| Leasehold improvements | 1,554,771 | - | ||||
| Building | 4,923,464 | 4,923,464 | ||||
| Vehicles | 261,362 | 261,362 | ||||
| Property and equipment, gross | 10,325,160 | 9,346,256 | ||||
| Less accumulated depreciation | (2,805,155 | ) | (1,903,633 | ) | ||
| $ | 7,520,005 | $ | 7,442,623 |
Depreciation expense for the three months ended March 31, 2024, and 2023 was $264,817 and $225,879, respectively.
Depreciation expense for the nine months ended March 31, 2024, and 2023 was $901,521 and $649,883, respectively.
Note 5. Intangible Assets
Intangible assets as of March 31, 2024:
| Estimated<br><br>Life | Cost | Accumulated<br><br>Amortization | Net<br><br>Book Value | ||||
|---|---|---|---|---|---|---|---|
| Customer relationships, amortized over four years | 4 years | $ | 6,914,897 | $ | 2,597,503 | $ | 4,317,394 |
| Trade name, amortized over five years | 5 years | 2,111,041 | 628,512 | 1,482,529 | |||
| Online sales channels | 2 years | 1,800,000 | 1,800,000 | - | |||
| Vender relationships | 5 years | 6,000,000 | 2,400,000 | 3,600,000 | |||
| Tytan Tiles Patents | 15 years | 70,000 | - | 70,000 | |||
| $ | 16,825,938 | $ | 7,426,015 | $ | 9,469,923 | ||
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For the three months ended March 31, 2024 and 2023, the Company amortized approximately $1,062,734 and $1,124,500, respectively.
For the nine months ended March 31, 2024 and 2023, the Company amortized approximately $3,188,201 and $2,709,167, respectively.
The following intangible asset was added during the nine months ended March 31, 2024:
| Patent | $ | 70,000 |
|---|
Intangible assets as of June 30, 2023:
| Estimated<br><br>Life | Cost | Accumulated<br><br>Amortization | Net<br><br>Book Value | ||||
|---|---|---|---|---|---|---|---|
| Customer relationships, amortized over four years | 4 years | $ | 6,914,897 | $ | 1,300,958 | $ | 5,613,939 |
| Trade name, amortized over five years | 5 years | 2,111,041 | 311,856 | 1,799,185 | |||
| Online sales channels | 2 years | 1,800,000 | 1,125,000 | 675,000 | |||
| Vender relationships | 5 years | 6,000,000 | 1,500,000 | 4,500,000 | |||
| $ | 16,825,938 | $ | 4,237,814 | $ | 12,588,124 |
The following intangible assets were added during the year ended June 30, 2023, from the acquisitions noted below:
LuckyTail
| Customer relationships | $ | 1,834,692 |
|---|---|---|
| Trade name | 383,792 | |
| Intangible Assets from Purchase | $ | 2,218,484 |
| E-Core: | ||
| Customer relationships | $ | 5,080,205 |
| Trade name | 1,727,249 | |
| Intangible Assets from Purchase | $ | 6,807,454 |
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Future amortization of intangible assets at March 31, 2024 are as follows:
| June 30, 2024 | $ | 838,900 |
|---|---|---|
| June 30, 2025 | 3,355,599 | |
| June 30, 2026 | 3,355,599 | |
| June 30, 2027 | 1,754,640 | |
| June 30, 2028 | 115,018 | |
| June 30, 2029 | 4,667 | |
| Thereafter | 45,500 | |
| $ | 9,469,923 |
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other receivables consist of the following:
| March 31,<br><br>2024 | June 30,<br><br>2023 | |||
|---|---|---|---|---|
| Insurance | $ | 84,249 | $ | 187,949 |
| Prepayment to vendors | 68,143 | 239,970 | ||
| Deposits on services | 21,000 | 45,678 | ||
| Prepaid monthly rent | 22,500 | 27,813 | ||
| Prepaid sales tax | - | 70,021 | ||
| Other deposits | - | 70,826 | ||
| Stock issued for prepaid interest on convertible note payable | 161,189 | 465,595 | ||
| Other prepaid expenses | 155,946 | 31,000 | ||
| Other receivables | 207,555 | 144,765 | ||
| Total | $ | 720,582 | $ | 1,307,299 |
All prepaid expenses will be expensed in the following 12 months.
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Note 7. Operating Leases
The Company has operating leases for corporate offices, warehouses and office equipment that have remaining lease terms of 1 year to 5 years.
The table below reconciles the undiscounted future minimum lease payments (displayed by fiscal 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 condensed consolidated balance sheet as of March 31, 2024:
| 2024 | $ | 131,679 | |
|---|---|---|---|
| 2025 | 508,665 | ||
| 2026 | 529,284 | ||
| 2027 | 268,530 | ||
| 2028 | 246,013 | ||
| Thereafter | 21,114 | ||
| Total undiscounted future minimum lease payments | 1,705,285 | ||
| Less: Imputed interest | (137,670 | ) | |
| Accrued adverse lease obligation | 291,244 | ||
| Present value of operating lease obligation | $ | 1,858,859 |
In October 2023, the Company consolidated its Delray Beach facility with the Tampa facility and recognized a lease impairment of 291,244, which is accrued as part of the $803,558 current portion of operating lease payable.
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, 2024 are:
| Weighted average remaining lease term | 43 Months | ||
|---|---|---|---|
| Weighted average incremental borrowing rate | 5.0 | % |
For the three and nine months ended March 31, 2024, the components of lease expense, included in general and administrative expenses and interest expense in the condensed consolidated statement of operations, are as follows:
| Three Months<br><br>Ended<br><br>March 31,<br><br>2024 | Nine Months<br><br>Ended<br><br>March 31,<br><br>2024 | |||
|---|---|---|---|---|
| Operating lease cost: | ||||
| Operating lease cost | $ | 148,794 | $ | 462,496 |
| Amortization of ROU assets | 144,983 | 455,006 | ||
| Interest expense | 19,587 | 66,832 | ||
| Total lease cost | $ | 313,364 | $ | 984,334 |
For the three and nine months ended March 31, 2023, the components of lease expense, included in general and administrative expenses and interest expense in the condensed consolidated statement of operations, are as follows:
| Three Months<br><br>Ended<br><br>March 31,<br><br>2023 | Nine Months<br><br>Ended<br><br>March 31,<br><br>2023 | |||
|---|---|---|---|---|
| Operating lease cost: | ||||
| Operating lease cost | $ | 99,101 | $ | 285,855 |
| Amortization of ROU assets | 67,088 | 233,409 | ||
| Interest expense | 4,595 | 25,030 | ||
| Total lease cost | $ | 170,784 | $ | 544,294 |
| F-17 | ||||
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| Table of Contents |
Note 8. Accrued Liabilities and Acquisition Payable
Accrued liabilities consist of the following:
| March 31,<br><br>2024 | June 30,<br><br>2023 | |||
|---|---|---|---|---|
| Accrued interest | $ | 876,775 | 655,187 | |
| Accrued vendor liabilities | 278,689 | 861,664 | ||
| Accrued sales tax | 35,491 | 47,070 | ||
| Accrued expenses from sale of manufacturing operations | 1,191,423 | 1,360,000 | ||
| Other accrued liabilities | 168,771 | 441,641 | ||
| $ | 2,551,149 | $ | 3,365,562 |
Acquisition Payable consists of the following:
| March 31,<br><br>2024 | June 30,<br><br>2023 | |||
|---|---|---|---|---|
| Payments related to the acquisition of Cygnet | $ | 300,000 | $ | - |
| $ | 300,000 | $ | - |
These payables are amounts estimated by management that are due to the sellers of and acquisition and include the original purchase price installment payments not represented with a debt, equity, or other instrument, estimates of excess or deficiencies in working capital and estimates of future earnout payments.
| F-18 |
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| Table of Contents |
Note 9. Convertible Promissory Notes and Notes Payable
Convertible promissory notes and notes payable outstanding as of March 31, 2024 and June 30, 2023 are summarized below:
| Maturity | March 31, | June 30, | |||||
|---|---|---|---|---|---|---|---|
| Date | 2024 | 2023 | |||||
| Convertible Notes: | |||||||
| Promissory Note, 21- month term note, 18.11% interest payable with common stock and subordinate to the Convertible Notes | June 1, 2026 | $ | 1,650,000 | $ | 2,150,000 | ||
| Less current portion of notes payable | - | 1,254,167 | |||||
| Notes payable, net of current portion | $ | 1,650,000 | $ | 895,833 | |||
| Acquisition Notes: | |||||||
| Convertible Notes, 36-month term notes, 0% cash interest, collateralized with all the assets of the Company | October 31, 2025 | 3,500,000 | 3,500,000 | ||||
| Subordinated Promissory Notes, 24-month term notes, 4% cash interest, collateralized with all the assets of the Company | October 31, 2024 | 5,750,000 | 5,750,000 | ||||
| Subordinated Promissory Notes, 12-month term notes, 4% cash interest, collateralized with all the assets of the Company | October 31, 2024 | 2,538,500 | 5,750,000 | ||||
| Total | $ | 11,788,500 | $ | 15,000,000 | |||
| Acquisition notes payable | 8,288,500 | 5,750,000 | |||||
| Discount on acquisition notes payable, current | (239,938 | ) | (93,380 | ) | |||
| Acquisition notes payable, current | 8,048,562 | 5,656,620 | |||||
| 3,500,000 | 9,250,000 | ||||||
| Discount on acquisition notes payable, long-term | (507,607 | ) | (1,644,915 | ) | |||
| Acquisition notes payable, net of current and discount | $ | 2,929,393 | $ | 7,605,085 | |||
| Notes Payable: | |||||||
| Mortgage Loan, 10-year term note, 4.8% interest, collateralized by land and warehouse building | September 26, 2032 | $ | 2,660,679 | $ | 2,841,566 | ||
| Promissory Note, 21-month term note, 10% cash interest and subordinate to the Convertible Notes | November 22, 2024 | 560,000 | 560,000 | ||||
| SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company | October 6, 2021 | 3,729,096 | 3,910,767 | ||||
| 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 | June 30, 2027 | 1,000,290 | 1,099,592 | ||||
| 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 | November 7, 2026 | 683,968 | 683,968 | ||||
| Total notes payable | 8,715,063 | 9,095,893 | |||||
| Notes payable, current | 5,473,136 | 1,326,214 | |||||
| Discount on notes payable, current | - | (24,193 | ) | ||||
| Notes payable, current net of discount | $ | 5,473,136 | $ | 1,302,021 | |||
| Notes payable, long-term | 3,160,450 | 7,769,679 | |||||
| Discount on notes payable, long-term | (16,123 | ) | (23,522 | ) | |||
| Notes payable, long-term, net | $ | 3,144,327 | $ | 7,746,157 | |||
| Related Notes Payable: | |||||||
| Marshall Loan, 2-year term note, 8.5% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes. November of 2023 extended to 2.5 year term note | December 28, 2026 | $ | 1,500,000 | $ | 1,500,000 | ||
| Discount on related party note payable, current | - | (70,644 | ) | ||||
| Notes payable, current, net of discount | $ | - | $ | 1,429,356 | |||
| Discount on related party note payable, long term | (20,185 | ) | - | ||||
| Notes payable, long term net | $ | 1,479,815 | $ | - | |||
| Total convertible notes payable, acquisition notes payable, notes payable and related party note payable | $ | 22,725,233 | $ | 25,889,239 | |||
| F-19 | |||||||
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| Table of Contents |
Future payments on notes payable are as follows:
| 2024 | $ | 6,399,920 | |
|---|---|---|---|
| 2025 | 11,946,259 | ||
| 2026 | 3,766,391 | ||
| 2027 | 279,649 | ||
| 2028 | 293,565 | ||
| 2029 | 307,961 | ||
| Thereafter | 578,341 | ||
| $ | 23,572,086 | ||
| Convertible notes, original discount and related fees and costs | (846,853 | ) | |
| $ | 22,725,233 |
On April 15, 2022, the Company entered into a non-negotiable convertible promissory note in the original principal amount of $1,050,000, as adjusted, (“Cygnet Note”) which can be converted into common stock of the Company at a price of $6.00 per share and is payable in full, to the extent not previously converted, on April 15, 2023.
In June 2022, the Company entered into a securities purchase agreement with two accredited investors pursuant to which the Company could receive up to $15,000,000 during the following twelve months of the agreement. The Company received $6,678,506 for Convertible Notes in the original principal amount of $7,500,000 (the “Convertible Notes”), representing the original purchase amount, less fees, costs, and a $500,000 holdback by the investors. In addition to the Convertible Notes, the investors received Common Stock Purchase Warrants (the “Warrants”) to acquire an aggregate of 56,250 shares of common stock. The Warrants are exercisable for five years at an exercise price of $4.44 per share, provide for customary anti-dilution protection, and an investor put right to require the Company to redeem the Warrants for a total of $250,000. There was a loss of $3,540 for the change in the derivative liability for the period ended December 31, 2022. On October 31, 2022, the Company entered into a letter agreement with the accredited investors in which all amounts owed were paid in full, and the related convertible notes and all security interests were canceled. Additionally, the Company terminated the related Form S-3 registration statement.
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $1,500,000 (“Marshall Loan”). The promissory note has a 2-year term and bears cash interest at the rate of 8.5% per annum with an additional PIK of 3.5% per annum. The promissory note provides for monthly payments of principal, on an even line 36-month basis, plus cash interest, with a balloon payment of all outstanding principal, cash interest, and PIK interest at maturity. The Company received and deposited the principal amount on July 31, 2022. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter the amortization of the note over a 12 month period, starting in June of 2025. The principal currently outstanding is $1,500,000. In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 375,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
| F-20 |
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| Table of Contents |
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 $3,000,000 in connection with the transaction. The principal is to be repaid to Professional Bank over a term of ten years. The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC in the amount of $2,780,200. As of March 31, 2023, the Company was not in compliance with the debt service ratio. The Company received a forbearance agreement from the bank until June 30, 2024 to return to compliance of the debt service ratio of 1.25 to 1, until that time the Company will pay an interest rate of 10% instead of the contractual terms of 4.8% and has paid the original principal and adjusted interest through this report. The building is currently under contract to sell for a sales price of $4,300,000 and is expected to close on or about July 8, 2024.
On October 31, 2022, the Company and its wholly owned subsidiary, Upexi Enterprises, LLC entered into a securities purchase agreement with E-Core Technology, Inc. d/b/a New England Technology, Inc., a Florida corporation, and its three principals. The Company entered into a series of promissory notes with the principal parties: (a) promissory notes in the total original principal amount of $5,750,000 payable upon maturity with a term of 12 months at an interest rate of 4%, $600,000 of which shall be satisfied through the cancellation of an equal amount owed by one of the principals to the Company; (b) promissory notes in the total original principal amount of $5,750,000 payable upon maturity with a term of 24 months at an interest rate of 4%; and (c) promissory notes in the original principal amounts of $3,500,000 with a term of 36 months at an interest rate of 0.0%. The principals may convert the notes into shares of the Company’s restricted common stock at a conversion price equal to $4.81. If the principals do not exercise their conversion rights, the principal balance of the notes will be paid in 12 equal monthly payments commencing on the two-year anniversary of the issuance of the notes, subject to adjustments based on the Company’s EBITDA over the term of the notes.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. On November 15, 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12-month period, starting in June of 2025. The principal currently outstanding is $560,000. In addition to this, the Company issued the investor a warrant to purchase up to 125,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000. In November of 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12-month period, starting in June of 2025. The principal currently outstanding is $2,150,000. In addition to this, the Company issued the investor a warrant to purchase up to 500,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
Note 10. Related Party Transactions
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC. The lease is a for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month on a triple net basis. The initial term is five years.
On June 13, 2024, Upexi, Inc. (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 Chief Executive Officers. 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.
| F-21 |
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| Table of Contents |
In June 2022, the Company entered into a promissory note with a member of management. The loan was for $1,500,000 and has a two-year term with an interest rate of 8.5% per annum with an additional PIK of 3.5% per annum. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter, the amortization of the note over a 12-month period, starting in June of 2025. The principal currently outstanding is $1,500,000. In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 375,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
Note 11. Equity Transactions
Convertible Preferred Stock
The Company has 500,000 shares of Preferred Stock issued and outstanding to Allan Marshall, CEO. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all matters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock.
Common Stock
On October 31, 2022, the Company issued 1,247,403 shares of common stock for the acquisition of E-Core Technologies Inc., a Florida corporation, valued at $6,000,000.
On September 1, 2023, the Company issued 90,909 shares of common stock for the acquisition of the remaining 45% of Cygnet Online, LLC. The shares were valued at $162,727 or $1.79 per common share. The Company has not released these to the seller as of this report.
On January 18, 2024, the Company issued 501,605 shares of common stock as repayment of $500,000 of the Company’s long-term debt. The shares were valued at 500,000 or .09868 per common share.
On March 18, 2024, the Company issued 100,000 shares of common stock as an incentive-restricted stock grant to certain employees. The shares were valued at $85,000 or $0.85 per common share.
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 10 years from the date of the grant.
The following table reflects the continuity of stock options for the nine months ended March 31, 2024:
| F-22 |
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| Table of Contents |
A summary of stock option activity during the nine months ended March 31, 2024 is as follows:
| Weighted | Average | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Average | Remaining | Aggregated | |||||||
| Options | Exercise | Contractual | Intrinsic | ||||||
| Outstanding | Price | Life (Years) | Value | ||||||
| Outstanding at June 30, 2023 | 4,839,278 | $ | 3.31 | 6.23 | $ | 1,342,280 | |||
| Forfeited | (532,000 | ) | 4.34 | - | - | ||||
| Granted | 400,000 | 1.47 | 1 | 32,000 | |||||
| Options outstanding at March31, 2024 | 4,791,278 | $ | 3.36 | 5.44 | $ | - | |||
| Options exercisable at March 31, 2024 (vested) | 4,557,361 | $ | 2.92 | 5.50 | - |
A summary of stock option activity during the nine months ended March 31, 2023 is as follows:
| Weighted | Average | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Average | Remaining | Aggregated | |||||||
| Options | Exercise | Contractual | Intrinsic | ||||||
| Outstanding | Price | Life (Years) | Value | ||||||
| Outstanding at June 30, 2022 | 4,279,888 | $ | 3.05 | 7.42 | $ | 4,919,182 | |||
| Forfeited | (143,613 | ) | 1.21 | - | - | ||||
| Granted | 897,000 | 2.52 | 10 | - | |||||
| Options outstanding at March31, 2023 | 5,033,275 | $ | 3.38 | 6.42 | $ | 4,724,980 | |||
| Options exercisable at March 31, 2023 (vested) | 3,894,776 | $ | 3.04 | 6.72 | 4,550,343 |
Stock-based compensation expense attributable to stock options was $212,758 and $1,146,299 for the three months ended March 31, 2024, and 2023, respectively. Stock-based compensation expense attributable to stock options was $965,229 and $3,126,472 for the nine months ended March 31, 2024, and 2023, respectively. As of March 31, 2024, there was $330,455 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was approximately year.
The value of each grant is estimated at the grant date using the Black-Scholes option model with the following assumptions for options granted during the nine months ended March31, 2024 and March 31, 2023:
| March 31,<br><br>2024 | March 31,<br><br>2023 | |||||
|---|---|---|---|---|---|---|
| Dividend rate | - | - | ||||
| Risk free interest rate | 3.95 | % | 2.07-4.06 | % | ||
| Expected term | 1 | 1 | ||||
| Expected volatility | 63 | % | 70-77 | % | ||
| Grant date stock price | $ | 1.47 | $ | 3.87-5.30 |
The basis for the above assumptions are as follows: the dividend rate is based upon the Company’s history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Company’s historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated based upon historical trends in the Company’s stock prices.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at 0% for each of the nine months ended March 31, 2024 and 2023.
| F-23 |
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| 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. The Company’s income tax benefit was $1,501,595 and $2,668,769 for the three and nine months ended March 31, 2024, respectively, and $496,880 and $449,828 for the three and nine months ended March 31, 2023, respectively.
The income tax expense for the three and nine months ended March 31, 2024, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately 29%. For the three and nine months ended March 31, 2023, 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.
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. The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. 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 to fully realize the Company’s deferred tax asset.
As of March 31, 2024, there was approximately $10,472,757 of losses available to reduce federal taxable income in future years and can be carried forward indefinitely.
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.
Note 15. Discontinued Operations – Sale of Infusionz to Bloomios
On October 28, 2022, the Company determined that the best course of action related to Infusionz, LLC and certain manufacturing business was to accept an offer to sell those operations.
The Company received from Bloomios, Inc., (OTCQB:BLMS), the purchaser (i) $5,500,000 paid at closing; (ii) a convertible secured subordinated promissory note in the original principal amount of $5,000,000; (iii) 85,000 shares of Series D convertible preferred stock, with a total stated value of $8,500,000; (iv) a senior secured convertible debenture with a subscription amount of $4,500,000, after original issue discount of $779,117; and (v) a common stock purchase warrant to purchase up to 2,853,910 shares of Bloomios’s common stock. The Company recorded the consideration received at the estimated value at the time of the transaction and as part of that estimate valued the additional warrants to purchase Bloomios shares of common stock at $8,500,000 and a valuation allowance of $8,500,000.
| F-24 |
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| Table of Contents |
The assets transferred were recorded at their respective book values, the accrued and incurred expenses estimated by management were recorded and the consideration received was recorded at management's estimated fair value based on the balance sheet on October 26, 2022, the effective closing date.
| Tangible assets, inventory / working capital* | $ | (1,344,000 | ) |
|---|---|---|---|
| Tangible assets, warehouse and manufacturing equipment, net of accumulated depreciation* | (679,327 | ) | |
| Goodwill | (2,413,814 | ) | |
| Intangible assets, net of accumulated amortization | (946,996 | ) | |
| Accrued and incurred expenses related to the transaction and additional working capital* | (2,051,500 | ) | |
| Consideration received, including cash, debt and equity, net | 15,000,000 | ||
| Total gain recognized | $ | 7,564,363 |
*During the continuing transition period, all of the inventory or working capital has not been transferred to the buyer.
At closing, the Company provided working capital, in the form of inventory, in excess of the working capital agreement and during the transition period, there are certain expenses and purchases incurred that are to be netted against funds collected on behalf of the buyer. June 30, 2023, there was a receivable balance from the buyer of $845,443, net of a reserve of $931,613.
| Advance for payroll | $ | 50,000 |
|---|---|---|
| Operating expense | 652,891 | |
| Management fees | 685,600 | |
| Excess working capital | 388,565 | |
| Accrued Interest | 247,885 | |
| Subtotal due from Bloomios | $ | 2,024,941 |
| Reserve | 1,179,498 | |
| Total due from Bloomios | $ | 845,443 |
Note 16. Discontinued Operations – Sale of Interactive Offers
On August 31, 2023, the Company sold Interactive offers to Amplifyir Inc. The purchase price is $1,250,000 with a provision to adjust the final purchase price based on the business being transferred to Amplifyer Inc. with a net zero working capital. In addition, the Buyer is obligated to pay the Company two-and-one-half percent (2.5%) of certain advertising revenues of Interactive for a two-year period post-closing. 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.
| F-25 |
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| Table of Contents |
Summary of discontinued operations:
| Three months ended<br><br>March 31, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| Discontinued Operations | ||||||
| Revenue | $ | - | $ | 604,625 | ||
| Cost of sales | $ | - | $ | 230,967 | ||
| Sales, general and administrative expenses | $ | - | $ | 971,657 | ||
| Depreciation and amortization | $ | - | $ | 1,798 | ||
| Loss from discontinued operations | $ | - | $ | (928,215 | ) | |
| Accounts receivable net of allowance for doubtful accounts | $ | - | $ | 56,961 | ||
| Fixed assets, net of accumulated depreciation | $ | - | $ | 5,195 | ||
| Total assets | $ | - | $ | 405,721 | ||
| Total liabilities | $ | - | $ | 562,953 | ||
| Nine months ended<br><br>March 31, | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| 2024 | 2023 | |||||
| Discontinued Operations | ||||||
| Revenue | $ | 158,147 | $ | 1,054,935 | ||
| Cost of sales | $ | 11,982 | $ | 254,028 | ||
| Sales, general and administrative expenses | $ | 339,205 | $ | 1,646,949 | ||
| Depreciation and amortization | $ | - | $ | 455,357 | ||
| Loss from discontinued operations | $ | (193,040 | ) | $ | (1,305,261 | ) |
| Accounts receivable net of allowance for doubtful accounts | $ | - | $ | 45,314 | ||
| Fixed assets, net of accumulated depreciation | $ | - | $ | 3,593 | ||
| Total assets | $ | - | $ | 4,843,723 | ||
| Total liabilities | $ | - | $ | 415,660 | ||
| F-26 | ||||||
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| Table of Contents |
Note 17. Discontinued Operations – Sale of VitaMedica
On June 13, 2024, Upexi, Inc. (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 Chief Executive Officer. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. In addition, the Buyers are obligated to pay the Company for services provided according to the Transition Services Agreement. 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.
Summary of discontinued operations:
| Three months ended<br><br>March 31, | |||||
|---|---|---|---|---|---|
| 2024 | 2023 | ||||
| Discontinued Operations | |||||
| Revenue | $ | 2,673,744 | $ | 1,491,373 | |
| Cost of sales | $ | 587,142 | $ | 201,409 | |
| Sales, general and administrative expenses | $ | 1,888,490 | $ | 1,536,773 | |
| Depreciation and amortization | $ | 115,896 | $ | 151,599 | |
| Income (loss) from discontinued operations | $ | 81,978 | $ | (149,966 | ) |
| Accounts receivable net of allowance for doubtful accounts | $ | 444,730 | $ | 16,715 | |
| Fixed assets, net of accumulated depreciation | $ | 54,791 | $ | 102,988 | |
| Total assets | $ | 4,901,950 | $ | 4,420,502 | |
| Total liabilities | $ | 403,460 | $ | 164,077 | |
| Nine months ended<br><br>March 31, | |||||
| --- | --- | --- | --- | --- | --- |
| 2024 | 2023 | ||||
| Discontinued Operations | |||||
| Revenue | $ | 6,708,021 | $ | 5,525,651 | |
| Cost of sales | $ | 1,480,486 | $ | 1,094,753 | |
| Sales, general and administrative expenses | $ | 4,694,350 | $ | 4,342,632 | |
| Depreciation and amortization | $ | 353,646 | $ | 389,349 | |
| Income (loss) from discontinued operations | $ | 239,908 | $ | (307,899 | ) |
| Accounts receivable net of allowance for doubtful accounts | $ | 444,730 | $ | 16,715 | |
| Fixed assets, net of accumulated depreciation | $ | 54,791 | $ | 102,988 | |
| Total assets | $ | 4,901,950 | $ | 4,420,502 | |
| Total liabilities | $ | 403,460 | $ | 164,077 |
Note 18. Subsequent Events
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC. The lease is a for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida, for $20,060 per month on a triple net basis. The initial term is five years. MFA 2510 Merchant LLC is owned by the Chief Executive Officer Allan Marshall.
On May 28, 2024, the Company entered into an agreement to sell its Clearwater warehouse for a sale price of 4,300,000. The Company expects to receive approximately $1,350,000 after repayment of the mortgage and transaction expenses. The $1,350,000 will be used for working capital and the repayment of other outstanding debts. The transaction is expected to close on or around July 8, 2024.
| F-27 |
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| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
As used in this quarterly report and unless otherwise indicated, the terms “we”, “us” and “our” mean Upexi, Inc.
For the nine months ended March 31, 2023 the condensed consolidated financial statements of Upexi, Inc. include the accounts of the Company and its wholly-owned subsidiaries; Trunano Labs, Inc., a Nevada corporation, Steam Distribution, LLC, a California limited liability company; One Hit Wonder, Inc., a California corporation; HAVZ, LLC, d/b/a Steam Wholesale, a California limited liability company, One Hit Wonder Holdings, LLC a California corporation; SWCH LLC, a Delaware limited liability company; Cresco Management LLC, a California limited liability company; VitaMedica, Inc., a Nevada corporation, Cygnet Online, LLC a Delaware limited liability corporation; Upexi Pet Products, LLC (“LuckyTail”), a Delaware limited liability corporation as of August 12, 2022; and E-Core Technology, Inc. (“E-core”) a Florida Corporation as of October 21, 2022
For the three months ended March 31, 2023, the condensed consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the condensed consolidated financial statements for the three and nine months ended March 31, 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 two segments: Our Branded Product segment and our Recommerce segment. Our Branded Product segment is focused on the development, growth, and distribution of the branded products that we own. Our Recommerce segment is focused on the purchase and sale of new and used products through channels such as Amazon and wholesale distributors. Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, product production, distribution processes and regulatory environment as the other product sales.
For the three months ended March 31, 2024 and March 31, 2023, the share-based compensation of 212,758 and $1,146,299, respectively was allocated to the Branded Product segment. For the nine months ended March 31, 2024 and March 31, 2023, the share-based compensation of $965,299 and 3,126,472, respectively was allocated to the Branded Product segment.
All indirect corporate and public company general and administrative expenses are allocated to the Branded Product Segment.
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Segment Information
The Company provides the following segments: (a) branded products segment and (b) recommerce segment.
For the three months ended March 31, 2024:
| Branded Products | Recommerce | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 4,888,666 | $ | 9,560,291 | $ | 14,444,957 | |||
| Loss from operations | $ | (3,066,816 | ) | $ | (1,870,231 | ) | $ | (4,937,047 | ) |
| Other expense | $ | (471,788 | ) | $ | (190,090 | ) | $ | (661,878 | ) |
| Depreciation expense | $ | 306,185 | $ | - | $ | 306,185 | |||
| Income tax benefit | $ | 820,351 | $ | 681,244 | $ | 1,501,595 | |||
| Segment assets: | |||||||||
| Additions to property, plant, and equipment | $ | 498,448 | 498,448 | ||||||
| Total assets | $ | 22,418,439 | $ | 34,088,988 | $ | 56,507,427 |
For the three months ended March 31, 2023:
| Branded Products | Recommerce | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 4,339,750 | $ | 17,543,695 | $ | 21,883,445 | |||
| Loss from operations | $ | (1,700,804 | ) | $ | (432,060 | ) | $ | (2,132,864 | ) |
| Other expense | $ | (40,177 | ) | $ | (112,183 | ) | $ | (152,360 | ) |
| Depreciation expense | $ | 225,879 | $ | - | $ | 225,879 | |||
| Income tax benefit | $ | 379,689 | $ | 117,191 | $ | 496,880 | |||
| Segment assets: | |||||||||
| Additions to property, plant, and equipment | $ | 97,910 | $ | - | $ | 97,910 | |||
| Total assets | $ | 27,560,849 | $ | 36,292,218 | $ | 63,853,067 | |||
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For the nine months ended March 31, 2024:
| Branded Products | Recommerce | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 15,072,684 | $ | 44,513,464 | $ | 59,586,148 | |||
| Loss from operations | $ | (5,307,384 | ) | $ | (2,656,263 | ) | $ | (7,963,647 | ) |
| Other expense | $ | (2,118,982 | ) | $ | (493,635 | ) | $ | (2,612,617 | ) |
| Depreciation expense | $ | 901,521 | $ | - | $ | 901,521 | |||
| Income tax benefit | $ | 1,701,208 | $ | 967,561 | $ | 2,668,769 | |||
| Segment assets: | |||||||||
| Additions to property, plant, and equipment | $ | 978,904 | $ | - | $ | 978,904 | |||
| Total assets | $ | 22,418,439 | $ | 34,088,988 | $ | 56,507,427 |
For the nine months ended March 31, 2023:
| Branded Products | Recommerce | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | $ | 12,850,078 | $ | 43,432,464 | $ | 56,282,542 | |||
| Loss from operations | $ | (5,215,259 | ) | $ | (693,527 | ) | $ | (5,908,786 | ) |
| Other expense | $ | (2,031,513 | ) | $ | (337,011 | ) | $ | (2,368,524 | ) |
| Depreciation expense | $ | 649,883 | $ | - | $ | 649,883 | |||
| Income tax benefit | $ | 264,656 | $ | 185,172 | $ | 449,828 | |||
| Segment assets: | |||||||||
| Additions to property, plant, and equipment | $ | 281,879 | $ | - | $ | 281,879 | |||
| Total assets | $ | 27,560,849 | $ | 36,292,218 | $ | 63,853,067 |
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 March 31, 2024, and 2023, which are included herein.
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Three Months Ended March 31, 2024, Compared to Three Months Ended March 31, 2023
| March 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||
| Revenue | $ | 14,444,957 | $ | 21,883,445 | $ | (7,438,488 | ) | ||
| Cost of revenue | $ | 11,561,834 | $ | 14,305,698 | $ | (2,743,864 | ) | ||
| Sales and marketing expenses | $ | 1,547,161 | $ | 2,258,937 | $ | (711,776 | ) | ||
| Distribution costs | $ | 2,291,945 | $ | 2,352,684 | $ | (60,739 | ) | ||
| General and administrative expenses | $ | 2,399,387 | $ | 2,602,312 | $ | (202,925 | ) | ||
| Other operating expenses | $ | 1,581,677 | $ | 2,496,678 | $ | (915,001 | ) | ||
| Other expenses | $ | 661,878 | $ | 152,360 | $ | 509,518 | |||
| Net loss attributable to Upexi, Inc. | $ | 4,118,612 | ) | $ | (1,645,939 | ) | $ | (2,472,673 | ) |
Revenues decreased by $7,438,488 or 34% to $14,444,957 compared with revenue of $21,883,445 in the same period last year. The revenue decline was primarily the result of lower recommerce revenue through both Amazon channels and wholesale. Management made a decision to discontinue sales of electronic products in its Amazon channels after analyzing the high rate of returned products, lower margins after thirty to sixty days and the low liquidation value of Amazon returns. Branded Product sales increased slightly with increases in both the pet care products, children’s toy product and other branded products that are not heavily reliant on the Amazon sales channel. Management is focused on restructuring the Company to have more consistent sales from both product sales revenue and adding service revenue.
Cost of revenue decreased by $2,743,864 or 19% to $11,561,834 compared with cost of revenue of $14,305,698 in the same period last year. The cost of revenue decline was primarily related to the lower recommerce revenue. Gross profit decreased by approximately $1.7 million compared to the same period in the previous form significant write offs of inventory that was obsolete or unsellable. These products that were written off were primarily related to the recommerce business with many of them being Amazon returns or bulk products that could no longer be sold.
Sales and marketing expenses decreased by $711,776 or 32% compared with the same period in the prior year. The decreased in sales and marketing expenses was primarily related to management’s efforts to refine sales strategies to focus on long-term recurring sales growth through subscription revenue and sales channel expansion. Management will continue to manage the sales and marketing expenses on branded product sales and expects the overall sales and marketing to revenue to decrease and improve profitability.
Distribution costs decreased $60,739 or 3% compared with the same period in the prior year. The decrease in distribution costs was not related to sales and is expected to decrease overall as management has completed the consolidation of facilities and the distribution network at the end of June 2024.
General and administrative expenses decreased by $202,925 or 8% compared with the same period in the prior year. With the consolidation of facilities and ongoing adjustments for the sale of VitaMedica, Infusionz and Interactive Offers, management has managed the general and administrative costs and will continue to implement strategies to decrease the percentage of general and administrative costs when compared to total sales.
Other operating expenses decreased by $915,001 or 37% compared with the same period in the prior year. These expenses are primarily non-cash expenses and have decreased based on the decreased amortization of stock compensation and offset by increases in depreciation.
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During the three months ended March 31, 2024, the Company had other expense of $661,878 compared to expense of $152,360 during the same period in the prior year. The increase is primarily related to the interest on debt. Management is working on eliminated this high interest debt as it restructures the Company.
The Company had a net loss of $4,118,612 compared a loss of $1,645,939 in the same period in the prior year. The decrease in net income is related to the decreased sales, the non-cash write off of 1.7 million in inventory and the costs associated with the distribution network until it was consolidated in June of 2024. Management expects additional administrative expenses related to the consolidation of the distribution network through June of 2024 and will then be able to recognize the improvements in fiscal year 2025.
Nine Months Ended March 31, 2024, Compared to Nine Months Ended March 31, 2023
| March 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||
| Revenue | $ | 59,586,148 | $ | 56,282,542 | $ | 3,303,606 | |||
| Cost of revenue | $ | 42,864,857 | $ | 35,555,746 | $ | 7,309,111 | |||
| Sales and marketing expenses | $ | 5,427,358 | $ | 5,331,948 | $ | 95,410 | |||
| Distribution costs | $ | 7,516,748 | $ | 8,010,373 | $ | (493,625 | ) | ||
| General and administrative expenses | $ | 6,685,881 | $ | 6,807,739 | $ | (121,858 | ) | ||
| Other operating expenses | $ | 5,054,951 | $ | 6,485,522 | $ | (1,430,571 | ) | ||
| Other expenses | $ | 2,612,617 | $ | 2,368,524 | $ | 244,093 | |||
| Net loss attributable to Upexi, Inc. | $ | (7,912,919 | ) | $ | (1,568,180 | ) | $ | (6,344,739 | ) |
Revenues increased by $3,303,606 or 6% to $59,586,148 compared with revenue of $56,282,542 in the same period in the prior year. The revenue growth is based on the full nine months of E-core and Luckytail revenue in the current period compared to the prior year as those two entities were acquired during the prior year. Overall, the revenue has declined in the recommerce business in both Amazon channels and wholesale channels. Branded Product sales increased slightly with increases in both the pet care products, children’s toy product and other branded products that are not heavily reliant on the Amazon sales channel. Management is focused on restructuring the Company to have more consistent sales from both product sales revenue and adding service revenue.
Cost of revenue increased by $7,309,111 or 21% to $42,864,857 compared with cost of revenue of $35,555,746 in the same period in the prior year. Gross profit decreased by approximately $1.8 million compared to the same period in the previous form significant write-offs of inventory that was obsolete or unsellable. These products that were written off were primarily related to the recommerce business with many of them being Amazon returns or bulk products that could no longer be sold. Management will seek to improve the gross profit and the overall gross margin in the next 12 months as we are able to leverage the consolidate our operations and restructuring management is currently in process of.
Sales and marketing expenses increased by $95,410 or 10% compared with the same period in the previous year. The increase in sales and marketing expenses was primarily related to the increase in the Branded Products segment, although the trend of these expenses is declining and the increase was primarily during the first two quarters of the year. Management will continue to manage the sales and marketing expenses on branded product sales and expects the overall sales and marketing to revenue to decrease and improve profitability.
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Distribution costs decreased $493,625 or 6% compared with the same period in the previous year. Distribution costs are expected to continue to decrease as the consolidation efforts are completed and these operational improvements are expected to improve the Company’s profitability in fiscal year 2025. Management will continue its efforts to consolidate and streamline our distribution network and decrease the costs as a percentage of revenue.
General and administrative expenses decreased by $121,858 or 2% compared with the same period in the previous year. As the Company has consolidated the acquisitions and adjusted for the sale of Infusionz and Interactive Offers, management has controlled the general and administrative costs and will continue to implement strategies to decrease the percentage of general and administrative costs when compared to total sales.
Other operating expenses decreased by $1,430,571 or 22% compared with the same period in the previous year. These expenses are primarily non-cash and decreased based on the lower amortization of stock compensation offset by increases in depreciation.
During the nine months ended March 31, 2024, the Company had other expense of $2,612,617 compared to expense of $2,224,547 during the nine months ended March 31, 2023. .
In addition, during the nine months ended March 31, 2023, the Company recognized a gain on the sale of Interactive Offers, and an impairment on the Delray Beach facility, that was consolidated into the Tampa facility. These were offset by the gain on the lease settlement for the California facility and an income tax benefit. During the nine months ended March 31, 2024, the Company recognized a gain on the sale of Infusionz and select assets, which was later adjusted for lack of payment from the buyer and an income tax expense.
The Company had a net loss of $7,912,919 compared to $1,568,180 in the same period in the previous year. The decrease in net income is primarily related to the items mentioned above.
We will continue to improve the gross profit, while reducing the general and administrative expenses as compared to the sales as the Company continues to focus on sales growth while continuing to improve net income through the consolidation of operations.
Liquidity and Capital Resources
Working Capital
| As of<br><br>March 31,<br><br>2024 | As of<br><br>June 30,<br><br>2023 | ||||
|---|---|---|---|---|---|
| Current assets | $ | 16,839,850 | $ | 25,455,714 | |
| Current liabilities | 24,191,784 | 19,734,685 | |||
| Working capital | $ | (7,351,934 | ) | $ | 5,721,029 |
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Cash Flows
| Nine Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| Cash flows provided by operating activities – continuing operations | $ | (2,847,126 | ) | $ | 2,043,674 | |
| Cash flows used in investing activities – continuing operations | (400,721 | ) | (1,166,148 | ) | ||
| Cash flows used in financing activities – continuing operations | (558,877 | ) | (6,836,829 | ) | ||
| Cash flows used by operating activities – discontinued operations | (187,280 | ) | (190,539 | ) | ||
| Cash flows provided by (used by) investing activities – discontinued operations | ||||||
| Cash flows provided by (used by) financing activities – discontinued operations | ||||||
| Net decrease in cash during the period | $ | (3,994,004 | ) | $ | (5,968,764 | ) |
On March 31, 2024, the Company had cash of $498,287, a decrease of $3,994,004 from June 30, 2023.
Net cash from operating activities benefited from non-cash expenses of $4,911,405, a $2,413,987 decrease in accounts receivable, which were offset $2,775,503 paydown of accounts payable and accrued liabilities.
Net cash used in investing activities for the nine months ended March 31, 2024 was $400,721 and was primarily related to the $500,000 paid for the remaining 45% of Cygnet Online LLC and the acquisition of property and equipment, which was offset by the proceeds from the sale of interactive offers. The acquisition of property and equipment primarily related to equipment and leasehold improvement for the final phase of our consolidation strategy, which was completed in June 2024.
Net cash used by financing activities for the nine months ended March 31, 2024, was $558,877 compared to the use of $6,836,829 during the nine months ended March 31, 2023. The cash used in financing activities during the nine months ended March 31, 2024 related to the repayment of notes payable and acquisition notes payable and was offset by the Company’s line of credit.
For the nine months ended March 31, 2023 used by financing activities was the repayment of $7,201,079 to the line of credit, the repayment and termination of the senior convertible note and the installment payments of several other notes. The Company obtained a note from a related party and a mortgage on the building purchased in the prior year. The funds obtained were used for investing activities and the repayment of the senior convertible note.
On October 19, 2022, the Company and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement 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 $3,000,000 in connection with the transaction. The principal is to be paid back to Professional Bank over a term of ten years. The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC in the amount of $2,780,200, net of fees and other expenses. There is a contract to sell this property that would repay this loan and provided approximately $1,350,000 of working capital.
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On October 31, 2022, Upexi, Inc. (the “Company”), paid $4,275,071 in principal, $613,466 in accrued interest, $250,000 for settlement of a put option and $7,900 in miscellaneous fees for a total of $5,146,437 to the holders of the $15 million senior secured convertible notes entered into on June 28, 2022. The payment terminated the agreement with the noteholders. The Company also terminated the registration statement covering the senior secured notes payable.
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC. The lease is a for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month on a triple net basis. The initial term is five years. The estimated cost of this facility is a reduction of overall facility costs of approximately $220,000 in rent and approximately $138,000 per year in utilities, repairs and maintenance. Management also expects to have additional savings in labor and administrative costs, which is expected to add additional cash flow for fiscal year 2025.
On May 28, 2024, the Company entered into an agreement to sell its Clearwater warehouse for a sale price of 4,300,000. The Company expects to receive approximately $1,350,000 after repayment of the mortgage and transaction expenses. The $1,350,000 will be used for working capital and the repayment of other outstanding debts. The transaction is expected to close on or around July 8, 2024.
On June 13, 2024, Upexi, Inc. (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 Chief Executive Officers. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. In addition, the Buyers are obligated to pay the Company for services provided according to the Transition Services Agreement. The Company estimates the fees from these services provided to VitaMedica will be approximately $300,000 annually.
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 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.
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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 March 31, 2024 (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.
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 March 31, 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 as described above 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 the foregoing transaction, see Note 11 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<br><br>Number | Description |
|---|---|
| 31.1* | Certification of Principal Executive Officer, pursuant to Rule 13a-14a and 15-d-14a of the Securities Exchange Act of 1934 |
| 31.2* | Certification of Principal Financial Officer, pursuant to Rule 13a-14a and 15-d-14a of the Securities Exchange Act of 1934 |
| 32.1* | Certification of Principal Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2* | Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 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: July 5, 2024 | /s/ Allan Marshall |
| Allan Marshall | |
| President, Chief Executive Officer, and Director | |
| (Principal Executive Officer) | |
| Dated: July 5, 2024 | /s/ Andrew J. Norstrud |
| --- | --- |
| Andrew J. Norstrud | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) | |
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upxi_ex311.htm EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Allan Marshall, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Upexi, Inc.; | |
|---|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: July 5, 2024 | /s/ Allan Marshall |
|---|
| | Allan Marshall, |
| | President, Chief Executive Officer and Director |
| | (Principal Executive Officer) |
upxi_ex312.htm EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew J. Norstrud, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Upexi, Inc.; | |
|---|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: July 5, 2024 | /s/ Andrew J. Norstrud |
|---|
| | Andrew J. Norstrud, |
| | Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting Officer) |
upxi_ex321.htm EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Allan Marshall, President and Chief Executive Officer of Upexi, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | the quarterly report on Form 10-Q of Upexi, Inc. for the period ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|---|---|
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Upexi, Inc. |
| Dated: July 5, 2024 | /s/ Allan Marshall |
|---|
| | Allan Marshall |
| | President, Chief Executive Officer, and Director |
| | (Principal Executive Officer) |
upxi_ex322.htm EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Andrew J. Norstrud, Chief Financial Officer of Upexi, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | the quarterly report on Form 10-Q of Upexi, Inc. for the period ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|---|---|
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Upexi, Inc. |
| Dated: July 5, 2024 | /s/ Andrew J. Norstrud |
|---|
| | Andrew J. Norstrud, |
| | Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting Officer) |