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

 

For the quarterly period ended September 30, 2022

 

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 333-255266

 

UPEXI, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

83-3378978

(State or other jurisdiction of

 incorporation or organization)

 

(IRS Employer

Identification No.)

 

17129 US Hwy 19 N.

Clearwater, FL

 

33760

(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 November 11, 2022, the registrant had 17,960,748 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Interim Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

27

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

29

 

 

 

 

 

 

Item 1A.

Risk Factors

 

29

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

29

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

29

 

 

 

 

 

 

Item 5.

Other Information

 

29

 

 

 

 

 

 

Item 6.

Exhibits

 

30

 

 

 

 

 

 

SIGNATURES

 

31

 

 
2

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. In light of 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.

 

 
3

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

UPEXI, INC.

 

Interim Unaudited Condensed Consolidated Financial Statements

For the Three Month Periods Ended September 30, 2022 and 2021

 

 

 

Page

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and June 30, 2022 (Unaudited)

 

 5

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2022 and 2021 (Unaudited)

 

 6

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2022 and 2021 (Unaudited)

 

 7

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2022 and 2021 (Unaudited)

 

 8

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

 9

 

 
4

Table of Contents

 

UPEXI, INC.

CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED)

 

 

 

September 30,

 

 

June 30,

 

 

 

2022

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 3,298,663

 

 

$ 7,149,806

 

Accounts receivable

 

 

1,315,933

 

 

 

1,137,637

 

Inventory

 

 

6,090,242

 

 

 

4,725,685

 

Deferred tax asset, current

 

 

462,070

 

 

 

462,070

 

Prepaid expenses and other receivables

 

 

1,231,941

 

 

 

840,193

 

Assets of discontinued operations, net

 

 

6,404,209

 

 

 

6,157,543

 

Total current assets

 

 

18,803,058

 

 

 

20,472,934

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,367,844

 

 

 

7,343,783

 

Intangible assets, net

 

 

12,716,153

 

 

 

10,933,049

 

Goodwill

 

 

6,223,393

 

 

 

5,887,393

 

Deferred tax asset

 

 

2,732,242

 

 

 

2,002,759

 

Other assets

 

 

413,956

 

 

 

100,372

 

Right-of-use asset

 

 

843,901

 

 

 

926,570

 

Total other assets

 

 

30,297,489

 

 

 

27,193,926

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 49,100,547

 

 

$ 47,666,860

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 2,092,122

 

 

$ 2,018,541

 

Accrued compensation

 

 

695,278

 

 

 

531,259

 

Deferred revenue

 

 

120,973

 

 

 

105,848

 

Accrued liabilities

 

 

1,769,989

 

 

 

955,327

 

Acquisition payable

 

 

1,351,589

 

 

 

-

 

Current portion of notes payable

 

 

5,424,752

 

 

 

5,424,752

 

Current portion of operating lease payable

 

 

274,847

 

 

 

257,029

 

Total current liabilities

 

 

11,729,550

 

 

 

9,292,756

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

9,743,104

 

 

 

8,886,949

 

Operating lease payable, net of current portion

 

 

588,993

 

 

 

700,411

 

Total long-term liabilities

 

 

10,332,097

 

 

 

9,587,360

 

 

 

 

 

 

 

 

 

 

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 16,713,345 and 16,713,345 shares issued and outstanding, respectively

 

 

16,713

 

 

 

16,713

 

Additional paid in capital

 

 

35,983,273

 

 

 

34,985,597

 

Accumulated deficit

 

 

(8,868,401 )

 

 

(6,270,886 )

Total stockholders' equity attributable to Upexi, Inc.

 

 

27,132,085

 

 

 

28,731,924

 

Non-controlling interest in subsidiary

 

 

(93,185 )

 

 

54,820

 

Total stockholders' equity

 

 

27,038,900

 

 

 

28,786,744

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$ 49,100,547

 

 

$ 47,666,860

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
5

Table of Contents

 

UPEXI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

Revenue

 

$ 11,557,011

 

 

$ 3,870,110

 

 

 

 

 

 

 

 

 

 

Cost of Revenue

 

 

5,516,280

 

 

 

1,271,729

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

6,040,731

 

 

 

2,598,381

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

2,025,460

 

 

 

1,000,064

 

Distribution costs

 

 

2,487,834

 

 

 

111,833

 

General and administrative expenses

 

 

2,498,869

 

 

 

1,582,432

 

Share-based compensation

 

 

927,326

 

 

 

626,838

 

Amortization of acquired intangible assets

 

 

880,896

 

 

 

68,834

 

Depreciation

 

 

194,497

 

 

 

87,506

 

 

 

 

9,014,882

 

 

 

3,477,507

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,974,151 )

 

 

(879,126 )

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

 

 

 

 

 

 

Change in derivative liability

 

 

(1,770 )

 

 

-

 

Interest expense, net

 

 

435,829

 

 

 

15,538

 

 

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

434,059

 

 

 

15,538

 

 

 

 

 

 

 

 

 

 

Loss from operations before income tax

 

 

(3,408,210 )

 

 

(894,664 )

(Loss) income from discontinued operations

 

 

(45,511 )

 

 

1,147,472

 

Income tax benefit

 

 

708,201

 

 

 

258,903

 

Net (loss) income from continuing operations

 

 

(2,745,520 )

 

 

511,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

 

148,005

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Upexi, Inc.

 

$ (2,597,515 )

 

$ 511,711

 

 

 

 

 

 

 

 

 

 

Basic (loss) income per share:

 

 

 

 

 

 

 

 

(Loss) income per share from continuing operations

 

$ (0.16 )

 

$ 0.03

 

(Loss) income per share from discontinued operations

 

$ (0.00 )

 

$ 0.07

 

Total (loss) income per share

 

$ (0.16 )

 

$ 0.03

 

 

 

 

 

 

 

 

 

 

Diluted (loss) income per share:

 

 

 

 

 

 

 

 

(Loss) income per share from continuing operations

 

$ (0.16 )

 

$ 0.03

 

(Loss) income per share from discontinued operations

 

$ (0.00 )

 

$ 0.07

 

Total (loss) income per share

 

$ (0.16 )

 

$ 0.03

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

16,713,345

 

 

 

15,452,453

 

Fully diluted weighted average shares outstanding

 

 

16,713,345

 

 

 

17,220,564

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
6

Table of Contents

 

UPEXI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

 

 

Preferred

Stock

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Common

Stock

 

 

Additional

Paid

 

 

Accumulated

 

 

Non-controlling

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Par

 

 

In Capital

 

 

Deficit

 

 

Interest

 

 

Equity

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

500,000

 

 

$ 500

 

 

 

15,262,394

 

 

$ 15,262

 

 

$ 25,372,247

 

 

$ (4,170,036 )

 

$ -

 

 

$ 21,217,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Infusionz

 

 

-

 

 

 

-

 

 

 

306,945

 

 

 

307

 

 

 

1,764,569

 

 

 

-

 

 

 

-

 

 

 

1,764,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of VitaMedica

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

100

 

 

 

481,900

 

 

 

-

 

 

 

-

 

 

 

482,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition costs

 

 

-

 

 

 

-

 

 

 

7,000

 

 

 

7

 

 

 

33,733

 

 

 

-

 

 

 

-

 

 

 

33,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

593,098

 

 

 

-

 

 

 

-

 

 

 

593,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

35,000

 

 

 

35

 

 

 

174,965

 

 

 

-

 

 

 

-

 

 

 

175,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the three months ended September 30, 2021

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

511,711

 

 

 

-

 

 

 

511,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2021

 

 

500,000

 

 

$ 500

 

 

 

15,711,339

 

 

$ 15,711

 

 

$ 28,420,512

 

 

$ (3,658,325 )

 

$ -

 

 

$ 24,778,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
7

Table of Contents

 

UPEXI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Three Month's Ended September 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income from continuing operations

 

$ (2,745,520 )

 

$ 511,711

 

(Loss) income from discontinued operations

 

$ (45,511 )

 

$ 1,147,472

 

Net loss from operations

 

 

(2,700,009 )

 

 

(635,761 )

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net (loss) income from continuing operations to net cash (used) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,075,393

 

 

 

156,340

 

Amortization of loan costs

 

 

49,158

 

 

 

-

 

Change in deferred tax asset

 

 

(729,483 )

 

 

-

 

Shares issued for services

 

 

-

 

 

 

175,000

 

Shares issued for finders fee

 

 

-

 

 

 

33,740

 

Change in derivative liability

 

 

1,770

 

 

 

-

 

Stock based compensation

 

 

927,326

 

 

 

593,098

 

Changes in assets and liabilities, net of acquired amounts

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(139,539 )

 

 

19,689

 

Inventory

 

 

(912,492 )

 

 

(420,808 )

Prepaid expenses and other assets

 

 

(716,263 )

 

 

210,695

 

Accounts payable and accrued liabilities

 

 

1,050,492

 

 

 

279,895

 

Accrued liabilities related to acquisition

 

 

(139,233 )

 

 

(482,235 )

Deferred revenue

 

 

15,125

 

 

 

-

 

Net cash used by operating activities - Continuing Operations

 

 

(2,217,755 )

 

 

(70,347 )

Net cash (used) provided by operating activities - Discontinued Operations

 

 

(292,177 )

 

 

887,704

 

Net cash (used) provided by operating activities

 

 

(2,509,932 )

 

 

817,357

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisition of Lucky Tail

 

 

(2,000,000 )

 

 

-

 

Acquisition of VitaMedica, Inc., net of cash acquired

 

 

(500,000 )

 

 

(2,000,000 )

Acquisition of property and equipment

 

 

(148,208 )

 

 

(166,869 )

Net cash used in investing activities - Continuing Operations

 

 

(2,648,208 )

 

 

(2,166,869 )

Net cash used in investing activities - Discontinued Operations

 

 

-

 

 

 

-

 

Net cash used in investing activities

 

 

(2,648,208 )

 

 

(2,166,869 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of note payable

 

 

(163,003 )

 

 

(150,000 )

Proceeds from issuance of related party notes payable

 

 

1,470,000

 

 

 

-

 

Net cash provided (used) by financing activities - Continuing Operations

 

 

1,306,997

 

 

 

(150,000 )

Net cash provided by financing activities - Discontinued Operations

 

 

-

 

 

 

-

 

Net cash provided (used) by financing activities

 

 

1,306,997

 

 

 

(150,000 )

 

 

 

 

 

 

 

 

 

Net decrease in cash - Continuing Operations

 

 

(3,558,966 )

 

 

(2,387,216 )
Net (decrease) increase in cash - Discontinued Operations

 

 

(292,177 )

 

 

887,704

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

7,149,806

 

 

 

14,534,211

 

Cash, end of period

 

$ 3,298,663

 

 

$ 13,034,699

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Interest paid

 

$ 239,117

 

 

$ -

 

Income tax paid

 

$ -

 

 

$ -

 

Issuance of common stock for acquisition of Infusionz

 

$ -

 

 

$ 1,764,876

 

Issuance of common stock for acquisition of VitaMedica

 

$ -

 

 

$ 482,000

 

Issuance of debt for the acquisition of VitaMedica

 

$ -

 

 

$ 1,000,000

 

Liabilities assumed from acquisition of VitaMedica

 

$ -

 

 

$ (309,574 )
Liabilities assumed from acquisition of LuckyTail

 

$ 1,490,822

 

 

$ -

 

Stock issued for construction services for property and equipment

 

$ 70,350

 

 

$ -

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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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.

 

The Company primarily conducts its business operations through the following subsidiaries:

 

 

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

 

Infusionz, Inc., a Nevada corporation

 

Upexi Holding, LLC, a Delaware limited liability company

 

 

o

Upexi Pet Products, LLC, a Delaware limited liability company

 

Infusionz LLC (“Infusionz”), a Colorado limited liability company

 

Grove Acquisition Subsidiary, Inc. (“VitaMedica”), 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

 

Interactive Offers, LLC (“Interactive”), a Delaware limited liability company

 

Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company, 55% owned

 

We operate throughout our locations in the USA with operations in Florida, California, Nevada, Colorado through our various Brands and entities.

 

Upexi operates from our corporate location in Clearwater, Florida where direct to consumer and Amazon sales are driven by on-site and remote teams for all brands. The location also supports all the other locations with the accounting, corporate oversight, day to day finances and all business growth and management operating from this location.

 

VitaMedica operates mainly from our California location with product development, fulfillment, and day-to-day operations from that location.

 

Interactive Offers operates from its Florida office with day-to-day operations supported by various off site remote positions, with the majority of the development team operating out of Portugal.

 

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.

 

LuckyTail 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.

 

 
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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 August 1, 2021, the Company completed an asset purchase agreement with Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company and the members of VitaMedica Corporation, a California corporation to purchase all the assets and assume certain liabilities of VitaMedica. VitaMedica is a leading online seller of supplements for surgery, recovery, skin, beauty, health, and wellness.

 

On October 1, 2021, the Company entered into an equity Interest purchase agreement with Gyprock Holdings LLC, a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company to acquire all of the outstanding membership interest of Interactive Offers, LLC, a Delaware limited liability corporation.

 

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 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.

 

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, 2022 and June 30, 2022.

 

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.

 

 
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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 a discontinued operations for all periods presented. 

 

Reclassification

 

Certain reclassifications have been made to the condensed consolidated financial statements as of and for the year ended June 30, 2022, and for the three month period ended September 30, 2021 to conform to the presentation as of and for the three months ended September 30, 2022.

 

Note 2. Acquisitions

 

VitaMedica Corporation

 

Effective August 1, 2021, the Company entered into and closed an asset purchase agreement (the “VitaMedica Agreement”) with Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company and VitaMedica Corporation, a California corporation, David Rahm and Yvette La-Garde (“Seller”). VitaMedica Corporation is a leading online seller of supplements for surgery, recovery, skin, beauty, health and wellness.

 

The Company agreed to purchase substantially all of the assets of the Seller as of August 1, 2021.  The transaction was valued at an estimated fair value of $3,556,589. The purchase price consisted of 100,000 shares of the Company’s common stock valued at $482,000, $4.82 per common share, the closing price on August 4, 2021 (close date of the transaction), a non-negotiable promissory note from the Company in favor of the Seller in the original principal amount of $500,000, a non-negotiable convertible promissory note from the Company in favor of the Seller in the original principal amount of $500,000, convertible at $5.00 per share for a total of 100,000 shares of Company Common Stock and a cash payment of $2,000,000 which was paid on August 5, 2021. In addition, a $74,589 cash payment was made on October 29, 2021, for the excess working capital acquired.

 

A finder’s fee of $103,740 was paid by the Company, $70,000 in cash and 7,000 shares of common stock, valued at $33,740, $4.82 per common share, the closing market price on August 4, 2021 (close date of the transaction). These fees were expensed during the three-month period ended September 30, 2021.

 

The assets and liabilities of VitaMedica are recorded at their respective fair values and the following table summarizes these values based on the balance sheet on August 1, 2021, the effective closing date.

 

Tangible Assets

 

$ 860,738

 

Intangible Assets

 

 

1,935,000

 

Goodwill

 

 

960,780

 

Liabilities Acquired

 

 

(199,929 )

Total Purchase Price

 

$ 3,556,589

 

 

The Company’s condensed consolidated financial statements for the three months ended September 30, 2022 include the actual results for VitaMedica.  For the three months ended September 30, 2021 the Company’s condensed consolidated financial statements include the actual results of VitaMedica for the period August 1, 2021 to September 30, 2021.

 

Interactive Offers, LLC

 

Effective October 1, 2021, the Company entered into an Equity Interest Purchase Agreement (the “I/O Agreement”) with Gyprock Holdings LLC, a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company (each an “I/O Seller” and collectively the “I/O Sellers”). The I/O Sellers owned all the membership interests in Interactive Offers, LLC, a Delaware limited liability company (“Interactive”). The Company’s CEO and Chairman, Allan Marshall, was the controlling stockholder and the president of MFA Holdings Corp. MFA Holdings Corp., owning 20% of the outstanding membership interests in Interactive. Interactive provides programmatic advertising with its SaaS platform which allows for programmatic advertisement placement automatically on any partners’ sites from a simple dashboard.

 

 
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Table of Contents

 

The Company purchased all the outstanding membership interests of Interactive as of October 1, 2021. The purchase price for the sale was $4,833,630, as amended, which consisted of 560,170 shares of common stock of the Company valued at $2,733,630, $4.88 per share, the stock price on October 1, 2022, and a cash payment of $2,100,000. 

 

The assets and liabilities of Interactive are recorded at their respective fair values and the following table summarizes these values based on the balance sheet on October 1, 2021, the effective closing date.

 

Tangible Assets

 

$ 413,465

 

Intangible Assets

 

 

2,631,000

 

Goodwill

 

 

2,889,158

 

Liabilities Acquired

 

 

(1,099,993 )

Total Purchase Price

 

$ 4,833,630

 

 

The Company’s condensed consolidated financial statements for the three months ended September 30, 2022 include the actual results of Interactive.

 

Cygnet Online, LLC

 

The Company entered into a Securities Purchase Agreement to purchase Cygnet Online, LLC, a Delaware limited liability company effective as of April 1, 2022. The Company purchased 55% of the equity in the business with a purchase price of $5,100,000, as amended. The consideration consisted of $1,500,000 in cash, $2,550,000 or 555,489 shares of restricted common stock and a non-negotiable convertible promissory note in the original principal amount of $1,050,000, 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. The purchase price is subject to a two-way adjustment based on the amount of Closing Working Capital, as defined in the agreement.

 

Additionally, Seller will be paid up to $700,000 in the form of an earn-out payment based on 7% of Cygnet’s net revenue during the earn-out period, in accordance with and subject to the terms and conditions of the agreement. The earn-out payment, if any, will be paid 50% in immediately available funds and 50% in Company restricted common stock.

 

The Agreement contains customary confidentiality, non-competition, and non-solicitation provisions for the Seller and Seller’s affiliates.

 

In addition, the Company has the right to purchase Seller’s remaining membership interests in Cygnet. Commencing on October 10, 2022 and continuing for 180 days thereafter, the Company has the right, but not the obligation, to cause the Seller to sell 15% of the membership interests in Cygnet for $1,650,000 in immediately available funds. Commencing on the date that the Company completes its financial statements for the year ended December 31, 2023, and continuing for 120 days thereafter, the Company has the right, but not the obligation, to cause the Seller to sell the remaining 30% of the membership interests in Cygnet for 30% of the amount equal to four times Cygnet’s Adjusted EBITDA (as defined in the Call Agreement) for calendar year 2023, payable by wire transfer of immediately available funds equal to at least 50% of said purchase price with the balance payable through the issuance to Seller of shares of restricted common stock of the Company.

 

The Seller has the right, but not the obligation, at any time commencing on the date that is 120 days after the date the Company completes Cygnet’s financial statements for the year ended December 31, 2023, and continuing for 90 days thereafter, to cause the Company to purchase all of the Seller’s remaining membership interests in Cygnet for a purchase price equal to the product of (i) four times Cygnet’s Adjusted EBITDA (as defined in the Put Agreement) for calendar year 2023, and (ii) the percentage of Cygnet membership interests being sold, payable in shares of restricted common stock of the Company.

 

 
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Table of Contents

 

The assets and liabilities of Cygnet are recorded at their preliminary respective fair values as of the closing date of the Cygnet Agreement, and the following table summarizes these values based on the balance sheet on April 1, 2022, the effective closing date.

 

Tangible Assets

 

$ 3,683,829

 

Intangible Assets

 

 

7,800,000

 

Goodwill

 

 

2,037,455

 

Liabilities Acquired

 

 

(8,421,284 )

Total Purchase Price

 

$ 5,100,000

 

 

The Company’s condensed consolidated financial statements for the three months ended September 30, 2022, include the actual results of Cygnet.

 

LuckyTail

 

The Company entered into an asset purchase agreement with GA Solutions, LLC to acquire substantially all of the assets of the business. The base consideration totals $3,000,000 plus the amount of working capital transferred to the Company. The consideration for the purchase consisted of $2,000,000, paid into escrow and released when certain assets were transferred to the Company, (ii) $500,000 payable on the latter of the release from escrow and 90 days post-closing, and (iii) $500,000 payable on the latter of the release from escrow and 180 days post-closing. In addition, the Company has agreed to purchase certain inventory from the Seller upon its valuation having been determined, at close the inventory and other current assets were estimated at $490,822. The asset purchase agreement also provides for a two-way post-closing adjustment based on a target adjusted revenue for the business acquired of $1,492,329 for the period of August 1, 2022 through December 31, 2022.

 

The Agreement contains customary confidentiality, non-competition, and non-solicitation provisions for the Seller and Seller’s affiliates.

 

The assets and liabilities of LuckyTail are recorded at their preliminary respective fair values as of the closing date of the asset purchase agreement, and the following table summarizes these values based on the balance sheet on August 12, 2022, the effective closing date. 

 

Tangible Assets

 

$ 490,822

 

Intangible Assets

 

 

2,664,000

 

Goodwill

 

 

336,000

 

Liabilities Acquired

 

 

-

 

Total Purchase Price

 

$ 3,490,822

 

 

The Company’s condensed 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.

 

Consolidated pro-forma unaudited financial statements.

 

The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, VitaMedica, Interactive, Cygnet, and LuckyTail after giving effect to the Company’s acquisitions as if the acquisitions occurred on July 1, 2021.  

 

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, 2021, 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 and the three months ended September 30, 2021, as if the acquisitions occurred on July 1, 2021.  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. 

 

 
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Table of Contents

 

Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of VitaMedica, Interactive, Cygnet, and LuckyTail by approximately $41,363, $50,329, $175,000, and $54,000 per month, respectively.

  

Pro Forma, Unaudited

 

 

 

 

 

 

 

Proforma

 

 

 

 

Three months ended September 30, 2022

 

Grove, Inc.

 

 

LuckyTail

 

 

Adjustments

 

 

Proforma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$ 11,557,011

 

 

$ 892,270

 

 

$

 

 

$ 12,449,281

 

Cost of sales

 

$ 5,516,280

 

 

$ 137,088

 

 

$

 

 

$ 5,653,368

 

Operating expenses

 

$ 9,014,882

 

 

$ 383,476

 

 

$ 81,000

 

 

$ 9,479,358

 

Net income (loss)

 

$ (2,597,515 )

 

$ 371,706

 

 

$ (81,000 )

 

$ (2,306,809 )
Basic income (loss) per common share

 

$ (0.16 )

 

$ -

 

 

$

 

 

$ (0.14 )
Weighted average shares outstanding

 

 

16,713,345

 

 

 

 

 

 

 

 

 

 

 

16,713,345

 

  

Pro Forma, Unaudited

 

 

 

 

 

 

 

 

 

 

 

Proforma

 

 

 

Three months ended September 30, 2021

 

Grove, Inc.

 

 

VitaMedica

 

 

Interactive

 

 

Cygnet

 

 

LuckyTail

 

 

Adjustments

 

 

Proforma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$ 3,870,110

 

 

$ 384,391

 

 

$ 732,519

 

 

$ 7,527,927

 

 

$ 991,024

 

 

$

 

 

$ 13,505,971

 

Cost of sales

 

$ 1,271,729

 

 

$ 93,509

 

 

$ -

 

 

$ 4,460,702

 

 

$ 296,849

 

 

$

 

 

$ 6,122,789

 

Operating expenses

 

$ 3,477,507

 

 

$ 255,286

 

 

$ 1,348,035

 

 

$ 2,607,304

 

 

$ 495,637

 

 

$ 879,350

 

 

$ 9,063,119

 

Net income (loss)

 

$ 511,711

 

 

$ 35,596

 

 

$ (795,507 )

 

$ 327,657

 

 

$ 198,537

 

 

$ (879,350 )

 

$ (556,356 )

Basic income (loss) per common share

 

$ 0.03

 

 

$ 0.36

 

 

$ (1.42 )

 

$ 0.67

 

 

$ -

 

 

$

 

 

$ (0.03 )

Weighted average shares outstanding

 

 

15,452,453

 

 

 

100,000

 

 

 

560,170

 

 

 

555,489

 

 

 

-

 

 

 

 

 

 

 

16,668,112

 

 

VitaMedica amortization expense of $496,356 annually and $41,363 monthly is based on the purchase price allocation report.  For the three months ended September 30, 2021, the proforma adjustment included $41,363, one month of amortization expense.

 

Interactive amortization expense at $603,948 annually and $50,329 monthly is based on the purchase price allocation report.  For the three months ended September 30, 2021, the proforma adjustment included $150,987, three months of amortization expense.

 

The Company estimated the annual Cygnet amortization expense at $2,100,000 annually and $175,000 monthly, based on management’s preliminary allocation of the purchase price. For the three months ended September 30, 2021, the proforma adjustment included $525,000, three months of amortization expense.

 

The Company estimated the annual LuckyTail amortization expense at $648,000 annually and $54,000 monthly, based on the allocation of the purchase price. For the one and a half months ended September 30, 2022, the proforma adjustment included $81,000, one and a half months of amortization expense and for the three months ended September 30, 2021, the proforma adjustment included $162,000, three months of amortization expense.

 

Note 3. Inventory

 

Inventory consisted of the following:

 

 

 

September 30,

2022

 

 

June 30,

2022

 

Raw materials

 

$ -

 

 

$ -

 

Finished goods

 

 

6,090,242

 

 

 

4,725,685

 

 

 

$ 6,090,242

 

 

$ 4,725,685

 

 

The Company writes off the value of inventory deemed excessive or obsolete. During the three months ended September 30, 2022, and 2021, the Company did not write off any inventory.

 

 
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Table of Contents

 

Note 4. Property and Equipment

 

Property and equipment consist of the following:

 

 

 

September 30,

2022

 

 

June 30,

2022

 

Furniture and fixtures

 

$ 51,273

 

 

$ 51,273

 

Computer equipment

 

 

115,519

 

 

 

103,615

 

Manufacturing equipment

 

 

1,111,086

 

 

 

1,002,796

 

Leasehold improvements

 

 

2,144,341

 

 

 

2,144,341

 

Building

 

 

4,754,799

 

 

 

4,656,435

 

Vehicles

 

 

253,229

 

 

 

253,229

 

Property and equipment, gross

 

 

8,430,247

 

 

 

8,112,689

 

Less accumulated depreciation

 

 

(1,062,403 )

 

 

(867,906 )

 

 

7,367,844

 

 

7,343,783

 

 

Depreciation expense for the three months ended September 30, 2022 and 2021 was $194,497 and $87,506, respectively. 

 

Note 5. Intangible Assets

 

Intangible assets as of September 30, 2022:

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

Book Value

 

Customer relationships, amortized over four years

 

$ 4,396,000

 

 

$ 650,375

 

 

$ 3,745,625

 

Trade name, amortized over five years

 

 

969,000

 

 

 

146,056

 

 

 

822,944

 

Non-compete agreements, amortized over the term of the agreement

 

 

275,000

 

 

 

149,416

 

 

 

125,584

 

Online sales channels, amortized over two years

 

 

1,800,000

 

 

 

450,000

 

 

 

1,350,000

 

Vender relationships, amortized over five years

 

 

6,000,000

 

 

 

600,000

 

 

 

5,400,000

 

Software, amortized over five years

 

 

1,590,000

 

 

 

318,000

 

 

 

1,272,000

 

 

 

$ 15,030,000

 

 

$ 2,313,847

 

 

$ 12,716,153

 

 

For the three months ended September 30, 2022 and 2021, the Company amortized approximately $880,896 and $68,834, respectively.

 

The following intangible assets were added during the three months ended September 30, 2022, from the acquisition of LuckyTail.

 

Customer relationships

 

$ 2,304,000

 

Trade name

 

 

360,000

 

Intangible Assets from Purchase

 

$ 2,664,000

 

 

Intangible assets as of June 30, 2022:

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

Book Value

 

Customer relationships, amortized over four years

 

$ 2,092,000

 

 

$ 447,626

 

 

$ 1,644,374

 

Trade name, amortized over five years

 

 

609,000

 

 

 

106,783

 

 

 

502,217

 

Non-compete agreements, amortized over the term of the agreement

 

 

275,000

 

 

 

115,042

 

 

 

159,958

 

Online sales channels, amortized over two years

 

 

1,800,000

 

 

 

225,000

 

 

 

1,575,000

 

Vender relationships, amortized over five years

 

 

6,000,000

 

 

 

300,000

 

 

 

5,700,000

 

Software, amortized over five years

 

 

1,590,000

 

 

 

238,500

 

 

 

1,351,500

 

 

 

$ 12,366,000

 

 

$ 1,388,401

 

 

$ 10,933,049

 

 

 
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The following intangible assets were added during the year ended June 30, 2022, from the acquisition of VitaMedica, Interactive and Cygnet.

 

Customer relationships

 

$ 2,092,000

 

Trade name

 

 

609,000

 

Non-compete agreements

 

 

275,000

 

Online sales channels

 

 

1,800,000

 

Vender relationships

 

 

6,000,000

 

Software

 

 

1,590,000

 

Intangible Assets from Purchase

 

$ 12,366,000

 

 

Future amortization of intangible assets at September 30, 2022 are as follows:

 

June 30, 2023

 

$ 2,886,228

 

June 30, 2024

 

 

3,733,255

 

June 30, 2025

 

 

3,710,796

 

June 30, 2026

 

 

2,146,063

 

June 30, 2027

 

 

230,811

 

 Thereafter

 

 

9,000

 

 

 

$ 12,716,153

 

 

Note 6. Prepaid Expense and Other Current Assets

 

Prepaid and other current assets consist of the following:

 

 

 

September 30,

2022

 

 

June 30,

2022

 

Insurance

 

$ 509,223

 

 

$ 32,045

 

Prepayment to vendors

 

 

256,267

 

 

 

175,378

 

Deposits on services

 

 

94,837

 

 

 

13,762

 

Prepaid monthly rent

 

 

72,058

 

 

 

6,900

 

Subscriptions and services being amortized over the service period

 

 

256,267

 

 

 

274,959

 

Other deposits

 

 

43,289

 

 

 

337,149

 

Total

 

$ 1,231,941

 

 

$ 840,193

 

  

 
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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 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, 2022:

 

2023

 

$ 274,847

 

2024

 

 

350,757

 

2025

 

 

155,670

 

2026

 

 

113,633

 

2027

 

 

28,684

 

Total undiscounted future minimum lease payments

 

 

923,591

 

Less: Imputed interest

 

 

(59,751 )

Present value of operating lease obligation

 

$ 863,840

 

 

The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2022 are:

 

Weighted average remaining lease term

 

35 Months

 

Weighted average incremental borrowing rate

 

 

5.0 %

 

For the three months ended September 30, 2022, 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, 2022

 

Operating lease cost:

 

 

 

Operating lease cost

 

$ 93,377

 

Amortization of ROU assets

 

 

82,678

 

Interest expense

 

 

10,700

 

Total lease cost

 

$ 186,755

 

 

Note 8. Accrued Liabilities

 

Accrued liabilities consist of the following:

 

 

 

September 30,

2022

 

 

June 30,

2022

 

Accrued expenses for loyalty program

 

$ 8,618

 

 

$ 6,418

 

Accrued interest

 

 

283,593

 

 

 

147,887

 

Accrued vendor liabilities

 

 

345,694

 

 

 

29,960

 

Accrued expenses on credit cards

 

 

566,143

 

 

 

108,735

 

Accrued sales tax

 

 

-

 

 

 

108,425

 

Derivative liability

 

 

80,139

 

 

 

81,909

 

Other accrued liabilities

 

 

485,802

 

 

 

471,993

 

 

 

$ 1,769,989

 

 

$ 955,327

 

 

 
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Note 9. Convertible Promissory Notes and Notes Payable

 

Convertible promissory notes and notes payable outstanding as of September 30, 2022 are summarized below:

 

 

 

Maturity

Date

 

September 30,

2022

 

Convertible Notes, 30 month term note, 8.5% cash interest, 3.5% PIK interest and collateralized with all the assets of the Company

 

December 28, 2024

 

$ 6,437,830

 

Marshall Loan, 2-year term note, 8.5% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes

 

June 28, 2024

 

 

1,386,734

 

Capital lease, warehouse equipment under a five-year lease, interest rate of 5%

 

November 7, 2026

 

 

27,871

 

Cygnet Loan, 1-year term note, 6% interest and is convertible at $6.00 per share

 

April 15, 2023

 

 

1,050,000

 

SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company

 

October 6, 2031

 

 

4,131,803

 

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

 

 

1,283,618

 

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

 

 

850,000

 

Total notes payable

 

 

 

 

15,167,856

 

Less current portion of notes payable

 

 

 

 

5,424,752

 

Notes payable, net of current portion

 

 

 

$ 9,743,104

 

 

Future payments on notes payable are as follows:

 

For the year ended June 30:

 

 

 

 

 

 

 

2023

 

$ 5,424,752

 

2024

 

 

4,537,633

 

2025

 

 

4,251,181

 

2026

 

 

1,092,278

 

2027

 

 

952,421

 

Thereafter

 

 

166,031

 

 

 

$ 16,424,296

 

 

 

 

 

 

Convertible notes, remaining holdback not received

 

 

(500,000 )

Convertible notes, original discount and related fees and costs

 

 

(756,440 )

 

 

$ 15,167,856

 

 

On June 3, 2020, the Company entered into a loan for $150,000 with the Small Business Administration. The promissory note has a fixed payment schedule commencing on June 3, 2021, consisting of principal and interest payments of $731 monthly. The balance of the principal and interest will be payable thirty years from the date of the promissory note. The note bears interest at a rate of 3.75% per annum. The Company repaid this note in August of 2022 and the UCC has been terminated.

 

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 $5.00 per share for a total of 100,000 shares of Company Common Stock. The Company repaid the note in full during August of 2022.

 

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.

 

 
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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 gain of $1,770 for the change in the derivative liability for the period ended September 30, 2022.  The Company has the option, until June 28, 2023, to draw down up to an additional $7,500,000 of Convertible Notes under the Securities Purchase Agreement to provide financing for acquisitions, pursuant to certain underwriting conditions set forth in the Securities Purchase Agreement. The Company is subject to customary covenants, financial and otherwise, under the Securities Purchase Agreement.

 

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.

 

Note 10. Related Party Transactions

 

During the year ended June 30, 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 interest rate of 8.5% per annum with an additional PIK of 3.5% per annum. 

 

The above related party transaction is not necessarily indicative of the amounts and terms that would have been incurred had a comparable transaction been entered into with independent parties.

 

Note 11. Equity Transactions

 

Convertible Preferred Stock

 

On February 2, 2021, the Company sold the 500,000 shares of Preferred Stock to Allan Marshall, CEO for net proceeds of $50,000. 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

 

During the three months ended September 30, 2021, the Company issued 306,945 shares of common stock for the acquisition of Infusionz, the shares were valued at $1,764,876.

 

During the three months ended September 30, 2021, the Company issued 100,000 shares of common stock for the acquisition of VitaMedica, the shares were valued at $482,000.

 

During the three months ended September 30, 2021, the Company issued 7,000 shares of common stock as a finder’s fee, the shares were valued at $33,740.

 

During the three months ended September 30, 2021, the Company issued 35,000 shares of common stock for consulting services to be provided over 6 months. The shares were valued at $175,000.

 

Subsequent to September 30, 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.

 

 
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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 three months ended September 30, 2022:

 

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, 2022

 

 

4,279,888

 

 

$ 3.05

 

 

 

7.42

 

 

$ 4,919,182

 

Exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

513,000

 

 

 

4.41

 

 

 

10

 

 

 

-

 

Options outstanding at September 30, 2022

 

 

4,792,888

 

 

$ 3.20

 

 

 

6.92

 

 

$ 4,628,260

 

Options exercisable at September 30, 2022 (vested)

 

 

3,156,568

 

 

$ 2.65

 

 

 

7.12

 

 

 

4,357,698

 

 

Stock-based compensation expense attributable to stock options was $927,326 and $593,098 for the three months ended September 30, 2022, and 2021, respectively.  As of September 30, 2022, there was $4,122,181 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was approximately 2 years.

 

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 three months ended September 30, 2022:

 

 

 

September 30,

2022

 

Dividend rate

 

 

-

 

Risk free interest rate

 

2.07–4.06

%

Expected term

 

 

5

 

Expected volatility

 

70-71

%

Grant date stock price

 

$3.87 - $4.86

 

 

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 Charlotte’s Web Holdings, Inc. (CWBHF) stock prices for periods prior to the date the Company’s trading information was available. Management selected Charlotte’s Web Holdings, Inc. for its length of time as a publicly trading company and the similarities of the business and industry.

 

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 three months ended September 30, 2022, and 2021.

 

 
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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 and expense was $708,201 for the three months ended September 30, 2022 and $258,903 income tax expense for the three months ended September 30, 2021.

 

The income tax expense for the three months ended September 30, 2022, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately 29%. For the three months ended September 30, 2022, 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 September 30, 2022, there was approximately $4,738,862 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.

 

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.  Discontinued Operations

 

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 and focus the Company’s resources on product sales and product distribution.  The business will continue to operate during the transition period of up to ninety days after the closing of the transaction and management intends to continue to employ some of the workforce in the consolidation of other acquisition and the overall operations of the business.

 

 
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The Company received from Bloomios, Inc., the purchaser (i) Five Million Five Hundred Thousand Dollars ($5,500,000) paid at closing; (ii) a convertible secured subordinated promissory note in the original principal amount of Five Million Dollars ($5,000,000); (iii) Eighty-Five Thousand shares of Series D Convertible Preferred Stock, with a total stated value of Eight Million Five Hundred Thousand Dollars ($8,500,000); (iv) a senior secured convertible debenture with a subscription amount of Four Million Five Hundred Thousand ($4,500,000) (with an original principal amount, after OID, of Five Million Two Hundred Ninety-Four Thousand One Hundred Seventeen and 60/100 Dollars ($5,294,117.60)); and (v) a common stock purchase warrant to purchase up to Two Million Eight Hundred Fifty-Three Thousand Nine Hundred Ten (2,853,910) shares of its common stock. 

 

 

 

Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

Discontinued Operations

 

 

 

 

 

 

Revenue

 

$ 2,623,626

 

 

$ 4,579,644

 

Cost of sales

 

 

1,558,814

 

 

 

1,688,340

 

Sales, general and administrative expenses

 

 

902,160

 

 

 

1,529,631

 

Depreciation and amortization

 

 

208,163

 

 

 

214,201

 

Income (loss) from discontinued operations

 

 

(45,511 )

 

 

1,147,472

 

Accounts receivable net of allowance for doubtful accounts

 

 

1,030,266

 

 

 

1,007,783

 

Fixed assets, net of accumulated depreciation

 

 

670,528

 

 

 

702,703

 

Total assets

 

 

6,951,601

 

 

 

6,981,718

 

Total liabilities

 

$ 547,392

 

 

$ 824,175

 

 

Note 16. Subsequent Events

 

Refinancing of Building Mortgage

 

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.

 

Sale of membership interests of Infusionz LLC and select CBD assets

 

On October 26, 2022, Upexi, Inc. (the “Company”) entered into a membership interest purchase agreement with Bloomios, Inc., a Nevada corporation (“Bloomios”) and its wholly owned subsidiary Infused Confections LLC, a Wyoming limited liability company (together with Bloomios, the Buyers) whereby the Company sold 100% of the membership interest of Infusionz LLC, a Colorado limited liability company to the Buyers for consideration of $23,500,000, subject to adjustments. The consideration consists of $5,500,000 in cash paid at closing, a convertible secured subordinated promissory note in the original principal amount of $5,000,000, 85,000 shares of Bloomios Series D Convertible Preferred Stock with a stated value of $8,500,000, a senior secured convertible debenture with a subscription amount of $4,500,000 (with an original principal amount, after OID, of $5,294,118) and a common stock purchase warrant to purchase up to 2,853,910 shares of Bloomios common stock. The agreement provides for a two-way, post-closing working capital adjustment based on target working capital of $1,275,000.

 

The agreement contains customary confidentiality, non-competition, and non-solicitation provisions for the Company, Bloomios and their affiliates.

 

 
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Table of Contents

 

Acquisition of E-Core, Inc. and its subsidiaries

 

On October 31, 2022, Upexi, Inc. (the “Company”), and its wholly owned subsidiary Upexi Enreprises, LLC entered into a Securities Purchase Agreement, effective October 21, 2022, to purchase 100% of E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”), for $24,100,000, subject to adjustments. The consideration consisted of $3,100,000 in cash, 1,247,402 shares of the Company’s restricted common stock with a value equal to $6,000,000, two promissory notes in the original principal amount of $5,750,000 each, payable upon maturity and a convertible promissory note in the original principal amount of $3,500,000, convertible in full on the two-year anniversary of the issuance of the note at a conversion price of $4.81 per share. If the conversion right is not exercised, the principal balance will be paid in twelve monthly installments beginning on the two-year anniversary of the executed promissory note. The principal amount of the convertible promissory note is subject to a two-way adjustment based on the Company’s Adjusted EBITDA for the three-year period commencing on the closing date.

 

In addition, on October 31, 2022, the Company issued options to purchase up to 360,000 shares of the Company’s common stock at an exercise price of $5.30 per share.

 

The agreement contains customary confidentiality, non-competition, and non-solicitation provisions for E-Core and its affiliates.

 

Within 90 days after the closing date, Buyer shall prepare and deliver to E-Core a statement, setting forth Buyer’s calculation of closing working capital and the purchase price resulting therefrom. The two-way post-closing adjustment based on target working capital shall be an amount equal to the closing working capital minus the target closing working capital.

 

Payoff of outstanding balance on $15 million senior secured debt

 

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 terminates the agreement with the noteholders. The Company also intends to terminate the registration statement covering the senior secured debt.

 

 
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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 current report and unless otherwise indicated, the terms “we”, “us” and “our” mean Upexi, Inc.

 

For the three months ended September 30, 2021 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, Infusionz, 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 Grove Acquisition Subsidiary, Inc. d/b/a/ VitaMedica a Nevada corporation as of August 1, 2021, Interactive Offers, LLC a Delaware limited liability corporation as of October 1, 2021 and Cygnet Online, LLC a Delaware limited liability corporation, as of April 1, 2022.

 

For the three months ended September 30, 2022, 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, 2021 and include the subsidiaries in which the Company holds a controlling financial interest as of September 30, 2022, which includes Upexi Pet Products, LLC (“LuckyTail”), a Delaware limited liability corporation as of August 12, 2022.

 

All intercompany accounts and transactions have been eliminated as a result of the consolidation.

 

 
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Table of Contents

 

Operating Segments

 

The Company’s financial reporting is organized into only one segment, product sales. The Company’s internal reporting for product sales is organized into three channels of distribution: Upexi, Inc. branded products, customers’ branded products and white label products that are sold under customer brands. These product sales are aggregated and viewed by management as one reportable segment due to their similar economic characteristics, products, production, distribution processes and regulatory environment.

 

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, 2022 and 2021, which are included herein.

 

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

 

 

 

September 30,

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

Revenue

 

$ 11,557,011

 

 

$ 3,870,110

 

 

$ 7,686,901

 

Cost of revenue

 

 

5,516,280

 

 

 

1,271,729

 

 

 

4,244,551

 

Sales and marketing expenses

 

 

2,025,460

 

 

 

1,000,064

 

 

 

1,025,396

 

Distribution costs

 

 

2,487,834

 

 

 

111,833

 

 

 

2,376,001

 

General and administrative expenses

 

 

2,498,869

 

 

 

1,582,432

 

 

 

916,437

 

Other operating expenses

 

 

2,002,719

 

 

 

783,178

 

 

 

1,219,541

 

Other expenses (income)

 

 

434,059

 

 

 

15,538

 

 

 

418,521

 

Net (loss) income from continuing operations

 

$ (2,745,520 )

 

$ 511,711

 

 

$ (3,257,231 )

 

Revenues increased by $7,686,901 or 199% to $11,557,011 compared with revenue of $3,870,110 in the same period last year. The revenue growth was primarily the result of the four acquisitions and was offset from the sale of Infusionz.  The Company’s growth strategy will continue to focus on both acquisition and organic growth, while also expanding to international markets. 

 

Cost of revenue increased by $4,244,551 or 334% compared with the same period last year.  The cost of revenue growth was primarily related to the acquisition of four companies and offset with the sale of Infusionz.  The gross profit increase increased by $3,442,350 compared to the prior year, however the gross margin declined by approximately 15% to 52% as a result of significant increases in the lower margin sales to distributors and the use of third-party distribution of our direct-to-consumer sales. 

 

Sales and marketing expenses increase by $1,025,396 or 103% compared with the same period last year.  The increase in sales and marketing expenses was primarily related to the four acquisitions, offset by the sale of Infusionz and the classification of these expenses as part of discontinued operations.

 

Distribution costs increased $2,376,001 or 2,125% compared with the same period last year.  The increase in distribution costs was primarily related to the four acquisitions, offset by the sale of Infusionz and the classification of these expenses as part of discontinued operations.

 

General and administrative expenses increased by $916,437 or 58% compared with the same period last year.  The increase in these expenses was primarily related to the four acquisitions, offset by the sale of Infusionz and the classification of these expenses as part of discontinued operations.

 

Other operating expenses increased by $1,219,541 or 156% compared with the same period last year. The increase in other operating expenses was primarily related to the four acquisitions and an increase of $300,488 in non-cash expenses of share-based compensation, an increase of $812,462 in amortization of acquired intangible assets and an increase of $106,991 for depreciation.  These costs were offset by the sale of Infusionz and the classification of these expenses as part of discontinued operations.

 

 
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During the three months ended September 30, 2022, the Company incurred interest expense of $435,829 compared to $15,538 in interest expense incurred during the three months ended September 30, 2021.  The increase of interest expense for the three months ended September 30, 2022, was due to the debt incurred in June of 2022 and subsequently repaid in October of 2022.

 

The Company had a net loss from continued operations of $2,745,520 compared to net income of $511,711 for the three months ended September 30, 2022 and 2021, respectively. The decrease in net income is primarily related to the above-mentioned changes.

 

Liquidity and Capital Resources

 

Working Capital

 

 

 

As of

September 30,

2022

 

 

As of

June 30,

2022

 

Current assets

 

$ 18,803,058

 

 

$ 20,472,934

 

Current liabilities

 

 

11,729,550

 

 

 

9,292,756

 

Working capital

 

$ 7,073,508

 

 

$ 11,180,178

 

 

Cash Flows

 

 

 

Three Months Ended September 30,

 

 

 

2022

 

 

2021

 

Cash flows used by operating activities – continuing operations

 

$ (2,217,755 )

 

$ (70,347 )

Cash flows used by investing activities – continuing operations

 

 

(2,648,208 )

 

 

(2,166,869 )

Cash flows provided by financing activities – continuing operations

 

 

1,306,997

 

 

 

(150,000 )

 

 

 

 

 

 

 

 

 

Cash flows (used by) provided by operating activities – discontinued operations

 

 

(292,177 )

 

 

887,704

 

Cash flows used by investing activities – discontinued operations

 

 

-

 

 

 

-

 

Cash flows provided (used by) financing activities – discontinued operations

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net decrease in cash during the period

 

$ (3,851,143 )

 

$ (1,499,512 )

 

On September 30, 2022, the Company had cash of $3,298,663, a decrease of $3,851,143 from June 30, 2022.

 

Net cash from operating activities benefited from non-cash expenses of $1,322,394, which were offset by the net loss from operations of $2,700,009, $840,140 in changes in assets and liabilities and $292,177 used in discontinued operations. 

 

 
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Net cash used in investing activities for the three months ended September 30, 2022 and 2021 was $2,648,208 and $2,166,869, respectively. For the period ended September 30, 2022, the use of cash was primarily related to the acquisition of LuckyTail and the final payment for the acquisition of VitaMedica.  For the period ended September 30, 2021, the use of cash was for the VitaMedica acquisition.  In both years, there was similar use of cash related to the acquisition of property and equipment. 

 

Net cash provided (used) by financing activities for the three months ended September 30, 2022, was $1,306,997 compared to the use of $150,000 during the three months ended September 30, 2021.  The cash provided by financing activities was a note obtained from a related party during the period and offset by the repayment of outstanding notes payable.   The use of cash for the period ended September 30, 2021, was due to repayment of notes payable of $150,000. 

 

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. (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 terminates the agreement with the noteholders. The Company also intends to terminate the registration statement covering the senior secured debt.

 

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.

 

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 transitioned to a combination of work from home and social distancing operations. 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.

 

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, 2022 (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.

 

 

 

 

(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 following changes by the end of our 2023 fiscal year as resources allow:

 

(i)

Appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; and

 

 

 

 

(ii)

We will attempt to implement the remediation efforts set out herein by the end of the 2023 fiscal year.

 

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended September 30, 2022, are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

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, 2022, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

 

 
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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

 

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.

 

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 16 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

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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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 11, 2022

 

/s/ Allan Marshall

 

 

 

Allan Marshall

 

 

 

President, Chief Executive Officer, and Director

 

 

 

(Principal Executive Officer)

 

 

Dated: November 11, 2022

 

/s/ Andrew J. Norstrud

 

 

 

Andrew J. Norstrud

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 
31

 

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