UPXI 10-Q
Upexi, Inc. (UPXI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to _______
Commission File Number
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
_______________________________________________________________
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 17, 2023, the registrant had
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
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.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to shares of our common stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Upexi, Inc., unless otherwise indicated.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UPEXI, INC.
Interim Unaudited Condensed Consolidated Financial Statements
For the Three Month Periods Ended September 30, 2023 and 2022
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Condensed Consolidated Balance Sheets as of September 30, 2023 and June 30, 2023 (Unaudited) |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED) |
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ASSETS |
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Current assets |
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Cash |
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Accounts receivable |
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Inventory |
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Due from Bloomios |
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Prepaid expenses and other receivables |
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Current assets of discontinued operations |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Deferred tax asset |
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Other assets |
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Assets held for sale |
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Right-of-use asset |
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Total other assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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Accrued compensation |
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Deferred revenue |
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Accrued liabilities |
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Acquisition payable |
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Current portion of notes payable |
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Current portion of convertible notes payable |
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Current portion of acquisition note payable |
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Current portion of related party note payable |
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Line of Credit |
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Current portion of operating lease payable |
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Current liabilities of discontinued operations |
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Total current liabilities |
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Operating lease payable, net of current portion |
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Related party note payable |
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Convertible notes payable |
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Acquisition notes payable, net of current |
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Notes payable, net of current portion |
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Total long-term liabilities |
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Commitments and contingencies |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total stockholders' equity attributable to Upexi, Inc. |
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Non-controlling interest in subsidiary |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
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Revenue |
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Revenue |
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Cost of Revenue |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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Distribution costs |
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General and administrative expenses |
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Share-based compensation |
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Amortization of acquired intangible assets |
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Depreciation |
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Loss from operations |
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Other expense (income), net |
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Change in derivative liability |
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Interest expense, net |
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Other expense (income), net |
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Loss from operations before income tax |
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Gain (Loss) from the sale of Interactive Offers |
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(Loss) income from discontinued operations |
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Income tax benefit |
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Net (loss) income |
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Net loss attributable to noncontrolling interest |
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Net (loss) income attributable to Upexi, Inc. |
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Basic and Diluted loss per share: |
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(Loss) income per share from continuing operations |
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(Loss) income per share from discontinued operations |
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Total (loss) income per share |
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Basic weighted average shares outstanding |
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Fully diluted weighted average shares outstanding |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) |
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2022 |
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Balance, June 30, 2022 |
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Stock based compensation |
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Amortization of common stock issuance for services |
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Net income for the three months ended September 30, 2022 |
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Balance, September 30, 2022 |
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2023 |
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Balance, June 30, 2023 |
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Issuance of stock and equity for purchase of Cygnet |
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Stock based compensation |
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Net loss for the three months ended September 30, 2023 |
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Balance, September 30, 2023 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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| Table of Contents |
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
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Cash flows from operating activities |
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Net loss from operations |
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Adjustments to reconcile net (loss) income from continuing operations to net cash (used) provided by |
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operating activities: |
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Depreciation and amortization |
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Amortization of loan costs |
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Amortization of consideration discount |
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Change in deferred tax asset |
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Change in derivative liability |
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Stock based compensation |
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Changes in assets and liabilities, net of acquiried amounts |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other assets |
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Accounts payable and accrued liabilities |
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Accrued liabilities related to acquisition |
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Deferred revenue |
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Net cash used by operating activities - Continuing Operations |
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Net cash (used) provided by operating activities - Discontinued Operations |
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Net cash (used) provided by operating activities |
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Cash flows from investing activities |
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Proceeds from the sale of Interactive Offers, net of liabilities paid |
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Acquisition of Lucky Tail |
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Acquisition of VitaMedica, Inc., net of cash acquired |
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Acquisition of Cygnet, Inc., net of cash acquired |
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Acquisition of property and equipment |
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Net cash used in investing activities - Continuing Operations |
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Net cash used in investing activities - Discontinued Operations |
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Net cash used in investing activities |
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|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Repayment of related party note payable |
|
|
|
|
|
| ||
Payment of note payable |
|
| ( | ) |
|
| ( | ) |
Change in line of credit, net |
|
| ( | ) |
|
|
| |
Net cash provided (used) by financing activities - Continuing Operations |
|
| ( | ) |
|
|
| |
Net cash provided by financing activities - Discontinued Operations |
|
|
|
|
|
| ||
Net cash provided (used) by financing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net decrease in cash - Continuing Operations |
|
| ( | ) |
|
| ( | ) |
Net (decrease) increase in cash - Discontinued Operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Interest paid |
| $ |
|
| $ |
| ||
Income tax paid |
| $ |
|
| $ |
| ||
Issuance of common stock for acquisition of Cygnet |
| $ |
|
| $ |
| ||
Issuance of debt for the acquisition payable for Cygnet |
| $ |
|
| $ |
| ||
Bloomios non-cash payment of receivable, net |
| $ |
|
| $ | - |
| |
Stock issued for construction services for property and equipment |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
| Table of Contents |
UPEXI, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Background Information
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 | ||
|
| o | SWCH, LLC, a Delaware limited liability company | |
|
| o | Cresco Management, LLC, 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 | |
| ☐ | VitaMedica, Inc, a Nevada corporation | ||
| ☐ | 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 | |
| ☐ | Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company. | ||
In addition, the Company has four wholly owned subsidiaries that had no activity during the three months ended September 30, 2023 and September 30, 2022, respectively.
| · | 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 |
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.
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.
VitaMedica operates mainly from our California location with product development and day to day management with the primary fulfillment center located in Tampa Florida.
Cygnet Online operates from our South Florida location with a full on-site GMP 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 Clearwater, 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.
| 9 |
| Table of Contents |
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 $500000 cash, 90,909 shares of the Company’s common stock and a $300,000 cash payment due on September 1, 2024.
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 of 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 of 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.
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.
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of September 30, 2023 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.
| 10 |
| Table of Contents |
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 and certain manufacturing business has 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.
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 and cash equivalents, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature.
Reclassification
Certain reclassifications have been made to the condensed consolidated financial statements as of and for the three months ended September 30, 2023, and for the three month period ended September 30, 2022 to conform to the presentation as of and for the three months ended September 30, 2023.
Note 2. Acquisitions
Cygnet Online, LLC
The Company acquired
The following table summarizes the consideration transferred to acquire Interactive and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
| 11 |
| Table of Contents |
Fair value of consideration transferred:
Cash |
| $ |
| |
Convertible note payable, convertible at $6.00 per common share |
|
|
| |
Earnout payment |
|
|
| |
Common stock, 555,489 shares valued at $5.34 per common share, the closing price on April 1, 2022. |
|
|
| |
|
| $ |
| |
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
|
|
|
|
|
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Inventory |
|
|
| |
Prepaid expenses |
|
|
| |
Property and equipment |
|
|
| |
Right to use asset |
|
|
| |
Other asset |
|
|
| |
Online sales channels |
|
|
| |
Vendor relationships |
|
|
| |
Accrued liabilities |
|
| ( | ) |
Notes payable |
|
| ( | ) |
Operating lease |
|
| ( | ) |
Total identifiable net assets |
| $ |
| |
Goodwill |
| $ |
|
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 threshold 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 the reduction in the loan to the seller. The 55% purchase price allocation is final and is no longer subject to change.
The Company’s consolidated financial statements for the three months ended September 30, 2023 and 2022, include the actual results of Cygnet.
On September 1, 2023, the Company completed the acquisition of the remaining
Fair value of consideration transferred:
Cash |
| $ |
| |
Noncontrolling interest |
|
|
| |
Common stock, 90,909 shares valued at $1.79 per common share, the closing price on September 1, 2023. |
|
|
| |
|
| $ |
|
| 12 |
| Table of Contents |
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.
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 |
| $ |
| |
Cash payment, 90 days after close |
|
| 484,729 |
|
Cash payment, 180 days after close |
|
| 469,924 |
|
Contingent consideration |
|
|
| |
Cash payment, working capital adjustment |
|
|
| |
|
| $ |
|
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Inventory |
| $ |
| |
Trade name |
|
|
| |
Customer list |
|
|
| |
Total identifiable net assets |
| $ |
| |
Goodwill |
| $ |
|
The business was acquired through an asset purchase agreement, that acquired all elements of the business, including all of 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 $
The Company’s consolidated financial statements for the three months ended September 30, 2023, include the actual results of LuckyTail. The consolidated financial statements for the three months ended September 30, 2022, include the actual results of LuckyTail from August 13, 2022 through September 30, 2022. The Company recorded interest on the consideration of $
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.
| 13 |
| Table of Contents |
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 |
| $ |
| |
Cash payment, 120 days |
|
| 3,000,000 |
|
Note payable |
|
|
| |
Note payable 2 |
|
|
| |
Convertible note payable, convertible at $4.81 per common share |
|
|
| |
Common stock, 1,247,402 shares valued at $4.81 per common share, the calculated closing price on October 21, 2022. |
|
|
| |
|
| $ |
| |
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Cash | $ | |||
Accounts receivable | ||||
Inventory | ||||
Prepaid expenses | ||||
Trade name | ||||
Customer relationships | ||||
Accrued liabilities | ( | ) | ||
Line of credit | ( | ) | ||
Total identifiable net assets | $ | |||
Goodwill | $ |
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 $
The Company’s consolidated financial statements for the three months ended September 30, 2023, include the actual results of E-Core. The Company recorded interest on the consideration of $
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.
Revenue from acquisitions included in the financial statements.
|
| Three months ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cygnet |
|
|
|
|
|
| ||
LuckyTail |
|
|
|
|
|
| ||
E-Core |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
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.
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 three months ended September 30, 2022, as if the acquisitions occurred on July 1, 2022. The results of operations for VitaMedica, Interactive and Cygnet are included in the three months ended September 30, 2022 and the results of operations for LuckyTail are included from August 13, 2022 to September 30, 2022.
| 14 |
| Table of Contents |
Operating expenses for the three months ended September 30, 2022 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 $
Pro Forma, Unaudited |
|
|
|
|
|
|
| Proforma |
|
|
| |||||||||
Three months ended September 30, 2022 |
| Upexi, Inc. |
|
| LuckyTail |
|
| E-Core |
|
| Adjustments |
|
| Proforma |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost of sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Operating expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Net income (loss) from continuing operations |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||
Basic income (loss) per common share |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
|
| $ | ( | ) | ||
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
The LuckyTail annual amortization expense is $
The E-Core annual amortization expense is $
External legal, accounting and consulting services directly related to completed acquisitions, due diligence, and review of possible target acquisitions are included in the general and administrative expenses on the Company’s condensed consolidated statements of operations.
Note 3. Inventory
Inventory consisted of the following:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
The Company periodically reviews its inventory and makes adjustments to net realizable value, as appropriate.
During the three months ended September 30, 2023 and 2022, the Company wrote off inventory valued at $
| 15 |
| Table of Contents |
Note 4. Property and Equipment
Property and equipment consist of the following:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Furniture and fixtures |
| $ |
|
| $ |
| ||
Computer equipment |
|
|
|
|
| 156,283 |
| |
Internal use software |
|
|
|
|
|
| ||
Manufacturing equipment |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Building |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Property and equipment, gross |
|
|
|
|
|
| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
|
| $ | 7,744,873 |
|
| $ | 7,526,463 |
|
Depreciation expense for the three months ended September 30, 2023 and 2022 was $
Note 5. Intangible Assets
Intangible assets as of September 30, 2023:
|
| Estimated Life |
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
Customer relationships |
|
| $ |
|
| $ |
|
| $ |
| ||||
Trade name |
|
|
|
|
|
|
|
|
|
| ||||
Non-compete agreements |
| Term of agreement |
|
|
|
|
|
|
|
|
| |||
Online sales channels |
|
|
|
|
|
|
|
|
|
| ||||
Vender relationships |
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
| |||
For the three months ended September 30, 2023 and 2022, the Company amortized approximately $
Intangible assets as of June 30, 2023:
|
| Estimated Life |
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
Customer relationships |
| 4 years |
| $ |
|
| $ |
|
| $ |
| |||
Trade name |
| 5 years |
|
|
|
|
|
|
|
|
| |||
Non-compete agreements |
| Term of agreement |
|
|
|
|
|
|
|
|
| |||
Online sales channels |
| 2 years |
|
|
|
|
|
|
|
|
| |||
Vender relationships |
| 5 years |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
| |||
| 16 |
| Table of Contents |
The following intangible assets were added during the year ended June 30, 2023, from the acquisitions noted below:
LuckyTail: |
|
|
| |
|
|
|
| |
Customer relationships |
| $ |
| |
Trade name |
|
|
| |
Intangible Assets from Purchase |
| $ |
| |
|
|
|
|
|
E-Core: |
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ |
| |
Trade name |
|
|
| |
Intangible Assets from Purchase |
| $ |
| |
| 17 |
| Table of Contents |
The following intangible assets were added during the year ended June 30, 2022, from the acquisition of VitaMedica, Interactive and Cygnet.
Customer relationships |
| $ |
| |
Trade name |
|
|
| |
Non-compete agreements |
|
|
| |
Online sales channels |
|
|
| |
Vender relationships |
|
|
| |
|
|
|
|
|
Intangible Assets from Purchase |
| $ |
|
Future amortization of intangible assets at September 30, 2023 are as follows:
June 30, 2024 |
| $ |
| |
June 30, 2025 |
|
|
| |
June 30, 2026 |
|
|
| |
June 30, 2027 |
|
|
| |
June 30, 2028 |
|
|
| |
Thereafter |
|
|
| |
|
| $ |
|
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other current assets consist of the following:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Insurance |
| $ |
|
| $ |
| ||
Prepayment to vendors |
|
|
|
|
|
| ||
Deposits on services |
|
|
|
|
|
| ||
Prepaid monthly rent |
|
|
|
|
|
| ||
Subscriptions and services being amortized over the service period |
|
|
|
|
|
| ||
Prepaid sales tax |
|
|
|
|
|
|
| |
Other deposits |
|
|
|
|
|
| ||
Stock issued for prepaid interest on convertible note payable |
|
|
|
|
|
| ||
Other prepaid expenses |
|
|
|
|
|
| ||
Other receivables |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
| 18 |
| Table of Contents |
Note 7. Operating Leases
The Company has operating leases for corporate offices, warehouses and office equipment that have remaining lease terms of
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the condensed consolidated balance sheet as of September 30, 2023:
2024 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted future minimum lease payments |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease obligation |
| $ |
|
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2023 are:
Weighted average remaining lease term |
|
| ||
Weighted average incremental borrowing rate |
|
| % | |
For the three months ended September 30, 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 Ended September 30, 2023 |
| |
Operating lease cost: |
|
|
| |
Operating lease cost |
| $ |
| |
Amortization of ROU assets |
|
|
| |
Interest expense |
|
|
| |
Total lease cost |
| $ |
| |
Note 8. Accrued Liabilities
Accrued liabilities consist of the following:
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Accrued interest |
| $ |
|
| $ |
| ||
Accrued vendor liabilities |
|
|
|
|
|
| ||
Accrued sales tax |
|
|
|
|
|
| ||
Accrued expenses from sale of manufacturing operations |
|
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| 19 |
| Table of Contents |
Note 9. Convertible Promissory Notes and Notes Payable
Convertible promissory notes and notes payable outstanding as of September 30, 2023 and June 30, 2023 are summarized below:
|
| Maturity |
| September 30, |
|
| June 30, |
| ||
|
| Date |
| 2023 |
|
| 2023 |
| ||
Convertible Notes: |
|
|
|
|
|
|
|
| ||
Promissory Note, 21- month term note, 18.11% interest payable with common stock and subordinate to the Convertible Notes |
|
| $ |
|
| $ |
| |||
Less current portion of notes payable |
|
|
|
| - |
|
|
|
| |
Notes payable, net of current portion |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Acquisition Notes: |
|
|
|
|
|
|
|
|
|
|
Convertible Notes, 36-month term notes, 0% cash interest, collateralized with all the assets of the Company |
|
|
|
|
|
|
| |||
Subordinated Promissory Notes, 24-month term notes, 4% cash interest, collateralized with all the assets of the Company |
|
|
|
|
|
|
| |||
Subordinated Promissory Notes, 12-month term notes, 4% cash interest, collateralized with all the assets of the Company |
|
|
|
|
|
|
| |||
Total |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Discount on acquisition notes payable, current |
|
|
|
| ( | ) |
|
| ( | ) |
Acquisition notes payable, current |
|
|
|
|
|
|
|
| ||
Acquisition notes payable, current net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Discount on acquisition notes payable, long-term |
|
|
|
| ( | ) |
|
| ( | ) |
Acquisition notes payable, long-term |
|
|
|
|
|
|
|
| ||
Acquisition notes payable, long-term net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Notes Payable: |
|
|
|
|
|
|
|
|
|
|
Mortgage Loan, 10-year term note, 4.8% interest, collateralized by land and warehouse building |
|
| $ |
|
| $ |
| |||
Promissory Note, 21-month term note, 10% cash interest and subordinate to the Convertible Notes |
|
|
|
|
|
|
| |||
SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company |
|
|
|
|
|
|
| |||
Inventory consignment note, 60 monthly payments, with first payment due June 30, 2022, 3.5% interest rate and no security interest in the assets of the business |
|
|
|
|
|
|
| |||
GF Note, 6 annual payments, with first payment due December 31, 2022, 3.5% interest rate and no security interest in the assets of the business |
|
|
|
|
|
|
| |||
Total notes payable |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
Discount on notes payable, current |
|
|
|
| ( | ) |
|
| ( | ) |
Notes payable, current |
|
|
|
|
|
|
|
| ||
Notes payable, current net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Discount on notes payable, long-term |
|
|
|
| ( | ) |
|
| ( | ) |
Notes payable, long-term |
|
|
|
|
|
|
|
| ||
Notes payable, long-term, net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Related Notes Payable: |
|
|
|
|
|
|
|
|
|
|
Marshall Loan, 2-year term note, 8.5% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
Discount on related party note payable, long term |
|
|
|
| ( | ) |
|
| ( | ) |
Notes payable, long term |
|
|
|
|
|
|
|
| ||
Notes payable, long term net |
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, acquisition notes payable, notes payable and related party note payable |
|
|
| $ |
|
| $ |
| ||
Future payments on notes payable are as follows:
For the year ended June 30:
|
| Notes Payable |
|
| Convertible Notes |
|
| Acquisition Notes Payable |
|
| Related Party Note Payable |
|
| Total |
| |||||
2024 |
| $ |
|
| $ |
|
|
| $ |
|
| $ |
|
|
| $ |
| |||
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
| $ |
| |||||
Note original discount |
|
| ( | ) |
|
| - |
|
|
| ( | ) |
|
| ( | ) |
| ( | ) | |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Convertible Notes Payable:
In June 2022, the Company entered into a securities purchase agreement with two accredited investors pursuant to which the Company could receive up to $
| 20 |
| Table of Contents |
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000 together with the issuance of
Acquisition Notes Payable:
On August 1, 2021, the Company entered into a non-negotiable convertible promissory note related to the purchase of VitaMedica in the original principal amount of $500,000 (“VitaMedica Note”), convertible at $
On April 15, 2022, the Company entered into a non-negotiable convertible promissory note in the original principal amount of $
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 $
Notes Payable:
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $
On October 19, 2022, Upexi, Inc. (the “Company”) and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement, promissory note and related agreements with Professional Bank, a Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N. Clearwater, Florida. The Company received $
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. The promissory note has a 21-month term and bears cash interest at the rate of
| 21 |
| Table of Contents |
Cygnet Online had certain loans outstanding prior to the acquisition, which continued to be outstanding post acquisition.
| · | Cygnet Online, entered into a loan for $ |
|
|
|
| · | Cygnet Online, entered into a |
|
|
|
| · | Cygnet Online, executed a promissory note in the amount of $ |
Line of Credit:
The Company through its wholly owned subsidiary, New England Technology, Inc., maintains a $
Note 10. Related Party Transactions
The Company purchased Interactive Offers, LLC, a Delaware limited liability company in October 2021. The Company’s CEO and Chairman, Allan Marshall, is the controlling stockholder and the president of MFA Holdings Corp., which owned
During the year ended June 30, 2022, the Company entered into a promissory note with a member of management. The loan was for $
Note 11. Equity Transactions
Convertible Preferred Stock
The Company has
Common Stock
Subsequent to September 30, 2022, the Company issued
The Company issued
The Company agreed to sell
In September of 2023, the Company issued
| 22 |
| Table of Contents |
Note 12. Stock Based Compensation
The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares. The options are exercisable for a period of up to
The following table reflects the continuity of stock options for the three months ended September 30, 2023:
A summary of stock option activity is as follows:
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregated |
| ||||
|
| Options |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| Outstanding |
|
| Price |
|
| Life (Years) |
|
| Value |
| ||||
Outstanding at June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
|
|
| $ |
|
|
|
|
|
|
|
| |||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Options outstanding at September 30, 2023 |
|
|
|
| $ |
|
|
| 6.30 |
|
|
|
| |||
Options exercisable at September 30, 2023 (vested) |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Stock-based compensation expense attributable to stock options was $
There were no stock options granted during the three months ended September 30, 2023.
There were
| 23 |
| 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 $
The income tax expense for the three months ended September 30, 2023, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of June 30, 2023 and 2022, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. The Company determined that it is more likely than not that the Company will have future taxable income. The Company used $2,506,514 of the federal net operating loss carryover during the year ended June 30, 2022.
As of September 30, 2023, there was approximately $
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.
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company has transition to a combination of work from home and social distancing operations and there has been minimal impact to our internal operations from the transition. The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues.
Note 15. Significant Customers
The Company had significant customers during the three months ended September 30, 2023. A significant customer is defined as one that makes up ten percent or more of total revenues in a particular period or ten percent of outstanding accounts receivable balance as of the period. The Company had no significant customers during the three months ended September 30, 2022.
| 24 |
| Table of Contents |
Net revenues for the three months ended September 30, 2023, include revenues from significant customers in the product segment as follows:
|
| September 30, 2023 |
| |
Customer A |
|
| % | |
Accounts receivable balances as of September 30, 2023, from significant customers are as follows:
|
| September 30, |
| |
|
| 2023 |
| |
Customer A |
|
| % | |
Note 16. 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 $
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 managements estimated fair value based on the balance sheet on October 26, 2022, the effective closing date.
Tangible assets, inventory / working capital* |
| $ | ( | ) |
Tangible assets, warehouse and manufacturing equipment, net of accumulated depreciation* |
|
| ( | ) |
Goodwill |
|
| ( | ) |
Intangible assets, net of accumulated amortization |
|
| (946,996 | ) |
Accrued and incurred expenses related to the transaction and additional working capital* |
|
| ( | ) |
Consideration received, including cash, debt and equity, net |
|
|
| |
Total gain recognized |
| $ |
|
*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
Advance for payroll |
| $ |
| |
Operating expense |
|
|
| |
Management fees |
|
|
| |
Excess working capital |
|
|
| |
Accrued Interest |
|
|
| |
Subtotal due from Bloomios |
| $ |
| |
Reserve |
|
|
| |
Total due from Bloomios |
| $ |
|
| 25 |
| Table of Contents |
For several reasons, including but not limited to the non-payment per the terms of several agreements and the continuous delay in getting the business transitioned, the Company notified Bloomios of its termination of the transition agreement. Management accrued a reserve on the receivable balance of $
During the three months ended, September 30, 2023 the Company recorded the following non-cash amounts against the receivable balance.
Inventory |
| $ |
| |
Accounts receivable |
|
|
| |
Accounts payable and accrued liabilities |
|
| ( | ) |
Customer deposits |
|
| ( | ) |
Fixed assets |
|
|
| |
Net assets |
| $ |
| |
|
|
|
|
|
Due from Bloomios |
| $ | - |
|
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.
Summary of discontinued operations:
|
| Three months ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Discontinued Operations |
|
|
|
|
|
| ||
Revenue |
| $ |
|
| $ |
| ||
Cost of sales |
| $ |
|
| $ |
| ||
Sales, general and administrative expenses |
| $ |
|
| $ |
| ||
Depreciation and amortization |
| $ |
|
| $ |
| ||
Income (loss) from discontinued operations |
| $ | ( | ) |
| $ | ( | ) |
Accounts receivable net of allowance for doubtful accounts |
| $ |
|
| $ |
| ||
Fixed assets, net of accumulated depreciation |
| $ |
|
| $ |
| ||
Total assets |
| $ |
|
| $ |
| ||
Total liabilities |
| $ |
|
| $ |
| ||
| 26 |
| Table of Contents |
Note 17. Subsequent Events
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer and a Director, in the original principal amount of $
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $
On November 2, 2023, the Company paid $
With the purchase of the remaining 45% of the Cygnet business, the Company was notified that it was in default and the Company would not qualify to refinance Cygent’s SBA loan. The SBA presented the Company with a demand notice of $
| 27 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
As used in this current report and unless otherwise indicated, the terms “we”, “us” and “our” mean Upexi, Inc.
For the three months ended September 30, 2022 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, and VitaMedica a Nevada corporation, Cygnet Online, LLC a Delaware limited liability corporation and Upexi Pet Products, LLC (“LuckyTail”), a Delaware limited liability corporation as of August 12, 2022.
For the three months ended September 30, 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 months ended September 30, 2022 and include E-Core Technology, Inc. (“E-Core”).
All intercompany accounts and transactions have been eliminated as a result of the consolidation.
| 28 |
| Table of Contents |
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, products production, distribution processes and regulatory environment as the other product sales.
Segment Information
The Company provides the following segments: (a) branded product segment and (b) product distribution segment.
For the three months ended September 30, 2023:
|
| Branded Products |
|
| Recommerce |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 6,562,613 |
|
| $ | 20,785,029 |
|
| $ | 27,347,642 |
|
Loss from operations |
| $ | (1,334,082 | ) |
| $ | 191,928 |
|
| $ | (1,142,154 | ) |
Other (expense) |
| $ | (842,137 | ) |
| $ | (32,048 | ) |
| $ | (874,185 | ) |
Depreciation expense |
| $ | 286,084 |
|
| $ | - |
|
| $ | 286,084 |
|
Income tax (expense) benefit |
| $ | 511,525 |
|
| $ | (39,158 | ) |
| $ | 472,367 |
|
Segment assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment |
| $ | 504,495 |
|
| $ | - |
|
| $ | 504,495 |
|
Total assets |
| $ | 35,029,593 |
|
| $ | 29,743,782 |
|
| $ | 64,773,375 |
|
For the three months ended September 30, 2022:
|
| Branded Products |
|
| Recommerce |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 3,971,280 |
|
| $ | 7,247,519 |
|
| $ | 11,218,799 |
|
Loss from operations |
| $ | (1,965,497 | ) |
| $ | (411,901 | ) |
| $ | (2,377,398 | ) |
Other (expense) |
| $ | (427,278 | ) |
| $ | (4,430 | ) |
| $ | (431,708 | ) |
Depreciation expense |
| $ | 194,497 |
|
| $ | - |
|
| $ | 194,497 |
|
Income tax benefit |
| $ | 580,725 |
|
| $ | 127,476 |
|
| $ | 708,201 |
|
Segment assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment |
| $ | 218,280 |
|
| $ | - |
|
| $ | 218,280 |
|
Total assets |
| $ | 50,056,078 |
|
| $ | 13,796,989 |
|
| $ | 63,853,067 |
|
| 29 |
| Table of Contents |
Results of Operations
The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three months ended September 30, 2023 and 2022, which are included herein.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
|
| September 30, |
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
Revenue |
| $ | 27,347,642 |
|
| $ | 11,218,799 |
|
| $ | 16,128,843 |
|
Cost of revenue |
|
| 18,639,793 |
|
|
| 5,401,316 |
|
|
| 13,238,477 |
|
Sales and marketing expenses |
|
| 2,848,667 |
|
|
| 1,727,469 |
|
|
| 1,121,198 |
|
Distribution costs |
|
| 2,850,616 |
|
|
| 2,127,846 |
|
|
| 722,770 |
|
General and administrative expenses |
|
| 2,255,928 |
|
|
| 2,127,846 |
|
|
| 128,082 |
|
Other operating expenses |
|
| 1,894,792 |
|
|
| 1,851,732 |
|
|
| 43,060 |
|
Other expenses (income) |
|
| 874,185 |
|
|
| 431,708 |
|
|
| 442,477 |
|
Net (loss) income from continuing operations |
| $ | (1,142,154 | ) |
| $ | (2,745,520 | ) |
| $ | 916,765 |
|
Revenues increased by $16,128,843 or 144% to $27,347,642 compared with revenue of $11,218,799 in the same period last year. The revenue growth was primarily the result of the acquisition of E-Core and growth in our Brand sales and offset by a slowing of the Recommerce Amazon sales channel. The Company’s strategy will continue to focus on the growth of our brands organically and through expansion into additional international markets.
Cost of revenue increased by $13,238,477 or 245% compared with the same period last year. The cost of revenue increase was primarily related to the acquisition of E-Core’s Recommerce business. Gross profit increased by $2,890,366 compared to the prior year. The combined Recommerce segment only increased $782,038 while the Brands increased gross profit by over $2,100,000. Gross margin declined by approximately 20% to 32% as a result of significant increases in the lower margin sales of the Recommerce business segment.
Sales and marketing expenses increased by $1,121,198 or 65% compared with the same period last year. The increase in sales and marketing expenses was primarily related to the focus on the Brand segment revenue growth and strategic marketing to maximize the return on long-term recurring customer growth.
Distribution costs increased $722,770 or 34% compared with the same period last year. The increase in distribution costs was primarily related to the overall growth of revenue, however management has implemented several consolidation, repackaging and pricing strategies to continue to reduce the overall distribution costs of our product sales. Management expects the implementation of its initial strategies to be completed by March of 2024.
General and administrative expenses increased by $128,082 or 6% compared with the same period last year. Management continues to operate the Company efficiently to enable sales growth without significant increases in general and administrative costs.
Other operating expenses increased by $43,060 or 2% compared with the same period last year. The increase in other operating expenses was primarily related to the amortization of acquired intangible assets, offset by a decrease of the amortization of stock-based compensation.
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During the three months ended September 30, 2023, the Company incurred interest expense of $874,185 compared to $453,829 in interest expense incurred during the three months ended September 30, 2022. The increase of interest expense for the three months ended September 30, 2023, was primarily due to the $363,412 of imputed interest amortization related to acquisitions.
The Company had a net loss from continued operations of $1,828,755 for the three months ended September 30, 2023 compared to a loss of $2,745,520 for the three months ended September 30, 2022. The decrease in the net loss from continuing operations is primarily related to the above-mentioned changes.
Liquidity and Capital Resources
Working Capital
|
| As of September 30, 2023 |
|
| As of June 30, 2023 |
| ||
Current assets |
| $ | 24,917,576 |
|
| $ | 25,455,714 |
|
Current liabilities |
|
| 20,036,817 |
|
|
| 19,606,010 |
|
Working capital |
| $ | 4,880,759 |
|
| $ | 5,849,704 |
|
Cash Flows
|
| Three Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows used by operating activities – continuing operations |
| $ | (2,120,290 | ) |
| $ | (2,516,787 | ) |
Cash flows used by investing activities – continuing operations |
|
| (648,721 | ) |
|
| (2,647,930 | ) |
Cash flows (used in) provided by financing activities – continuing operations |
|
| (1,082,215 | ) |
|
| 1,317,814 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities – discontinued operations |
|
| (223,957 | ) |
|
| (4,240 | ) |
Cash flows used by investing activities – discontinued operations |
|
| - |
|
|
| - |
|
Cash flows provided (used by) financing activities – discontinued operations |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash during the period |
| $ | (4,075,183 | ) |
| $ | (3,851,143 | ) |
On September 30, 2023, the Company had cash of $417,108, a decrease of $4,492,291 from June 30, 2023.
Net cash from operating activities benefited from non-cash expenses of $2,273,341, which was used in operating for the growth of accounts receivable of $2,435,858 and inventory of $1,138,306 and payment of prepaid expenses and liabilities. The negative cash flow from operations was anticipated by management related to the sales in the first quarter to wholesale and distributors and our purchases of inventory in anticipation of sales growth in the second fiscal quarter. Management anticipates inventory and accounts receivable balances to normalize to historical levels and free up cash flow in January 2024.
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Net cash used in investing activities for the three months ended September 30, 2023 was $648,721 and was primarily related to the $500,000 cash used to purchase the remaining 45% ownership of Cygnet and expenses related to the consolidation project to eliminate redundant cost.
Net cash used by financing activities for the three months ended September 30, 2023, was $1,080,215 compared to cash provided of $1,317,814 during the three months ended September 30, 2022. The cash used by financing activities was the repayment of $764,844 on the line of credit and $317,917 repayment of notes payable.
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.
On October 31, 2022, Upexi, Inc., 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 terminates the agreement with the noteholders. The Company also intends to terminate the registration statement covering the senior secured debt.
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. On November 15, 2023, the Company executed an amendment to the promissory note with Allan Marshall, the Company’s Chief Executive Officer, to pay interest only for 18 months at an interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal 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 $1.05. 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 $560,000. On November 15, 2023, the Company executed an amendment to the promissory note with an investor to pay interest only for 18 months at cash interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal 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 $1.05. 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 an investor to pay interest only for 18 months at cash interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal 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 $1.05. The note has been classified as long-term in the financial statements.
On May 12, 2023, the Company agreed to sell 2,121,213 shares of common for a purchase price of approximately $7,000,000. After deducting the underwriter’s commissions, discounts, and offering expenses payable by the company, the Company expects to receive net proceeds of approximately $6,060,000. In addition, the Company issued warrants to purchase approximately 169,000 shares of the Company’s common stock at a purchase price of $4.774 per common share.
The Company through its wholly owned subsidiary, New England Technology, Inc., maintains a $10,000,000 inventory and accounts receivable line of credit, interest rate of prime minus ½% payable monthly. The outstanding balance at September 30, 2023 was $118,001 and $882,845 at June 30, 2023. The availability under the line of credit at September 30, 2023 was $6,220,013.
We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all of our debt obligations.
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Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2023 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
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| Table of Contents |
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.
We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended September 30, 2023, 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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| Table of Contents |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not involved in any pending legal proceeding or litigation, and, to the best of its knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of its properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
All of the securities issued by the Company were issued pursuant to the exemption for transactions by an issuer not involved in any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and corresponding state securities laws. For more information regarding securities issued, see the Liquidity and Capital Resources section to our Unaudited Condensed Consolidated Financial Statements included herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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| Table of Contents |
Item 6. Exhibits
Exhibit Number |
| Description |
| ||
| ||
101** |
| Interactive Data File |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
__________
* | Filed herewith. |
** | Furnished herewith. |
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| Table of Contents |
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: November 20, 2023 |
| /s/ Allan Marshall |
|
|
| Allan Marshall |
|
|
| President, Chief Executive Officer, and Director |
|
|
| (Principal Executive Officer) |
|
Dated: November 20, 2023 |
| /s/ Andrew J. Norstrud |
|
|
| Andrew J. Norstrud |
|
|
| Chief Financial Officer |
|
|
| (Principal Financial Officer and Principal Accounting Officer) |
|
| 37 |