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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 March 31, 2024
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.) |
3030 North Rocky Point Drive Tampa, Florida | | 33607 |
(Address of principal executive offices) | | (Zip Code) |
(701) 353-5425
(Registrant’s telephone number, including area code)
_______________________________________________________________
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 | UPXI | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 5, 2024, the registrant had 20,889,384 shares of common stock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
Our unaudited condensed consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report, as well as the other risks and uncertainties disclosed under the heading “Item 1A. Risk Factors” in our most recent annual report on Form 10-K.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to shares of our common stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Upexi, Inc., unless otherwise indicated.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UPEXI, INC.
Interim Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended March 31, 2024 and 2023
UPEXI, INC. |
CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED) |
| | March 31, | | | June 30, | |
| | 2024 | | | 2023 | |
| | | | | | |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash | | $ | 498,287 | | | $ | 4,492,291 | |
Accounts receivable | | | 4,707,128 | | | | 6,963,915 | |
Inventory | | | 8,801,901 | | | | 9,267,892 | |
Due from Bloomios | | | - | | | | 845,443 | |
Prepaid expenses and other receivables | | | 720,582 | | | | 1,283,617 | |
Current assets of discontinued operations | | | 2,111,952 | | | | 2,602,556 | |
Total current assets | | | 16,839,850 | | | | 25,455,714 | |
| | | | | | | | |
Property and equipment, net | | | 7,520,005 | | | | 7,442,623 | |
Intangible assets, net | | | 9,469,923 | | | | 12,588,124 | |
Goodwill | | | 10,847,791 | | | | 9,290,501 | |
Deferred tax asset | | | 8,273,049 | | | | 5,604,056 | |
Other assets | | | 368,004 | | | | 76,728 | |
Assets held for sale | | | 1,675,112 | | | | 2,984,868 | |
Right-of-use asset | | | 1,513,693 | | | | 410,453 | |
Total other assets | | | 39,667,577 | | | | 38,397,353 | |
| | | | | | | | |
Total assets | | $ | 56,507,427 | | | $ | 63,853,067 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 2,124,024 | | | $ | 3,930,540 | |
Accrued compensation | | | 841,064 | | | | 533,842 | |
Deferred revenue | | | 111,519 | | | | - | |
Accrued liabilities | | | 2,551,149 | | | | 3,350,541 | |
Acquisition payable | | | 300,000 | | | | - | |
Current portion of notes payable | | | 5,473,136 | | | | 1,302,021 | |
Current portion of convertible notes payable | | | - | | | | 1,254,167 | |
Current portion of acquisition note payable | | | 8,048,562 | | | | 5,656,620 | |
Current portion of related party note payable | | | - | | | | 1,429,356 | |
Line of Credit | | | 3,938,772 | | | | 882,845 | |
Current portion of operating lease payable | | | 803,558 | | | | 419,443 | |
Current liabilities of discontinued operations | | | - | | | | 975,310 | |
Total current liabilities | | | 24,191,784 | | | | 19,734,685 | |
| | | | | | | | |
Operating lease payable, net of current portion | | | 1,055,301 | | | | 34,684 | |
Related party note payable | | | 1,479,815 | | | | - | |
Convertible notes payable | | | 1,650,000 | | | | 895,833 | |
Acquisition notes payable, net of current | | | 2,929,393 | | | | 7,605,085 | |
Notes payable, net of current portion | | | 3,144,327 | | | | 7,746,157 | |
Total long-term liabilities | | | 10,258,836 | | | | 16,281,759 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Stockholders' equity | | | | | | | | |
Preferred stock, $0.001 par value, 100,000,000 shares authorized, and 500,000 and 500,000 shares issued and outstanding, respectively | | | 500 | | | | 500 | |
Common stock, $0.001 par value, 100,000,000 shares authorized, and 20,906,870 and 20,215,961 shares issued and outstanding, respectively | | | 20,909 | | | | 20,216 | |
Additional paid in capital | | | 53,149,492 | | | | 51,522,229 | |
Accumulated deficit | | | (31,114,094 | ) | | | (23,201,175 | ) |
Total stockholders' equity attributable to Upexi, Inc. | | | 22,056,807 | | | | 28,341,770 | |
Non-controlling interest in subsidiary | | | | | | | (505,147 | ) |
Total stockholders' equity | | | 22,056,807 | | | | 27,836,623 | |
| | | | | | | | |
Total liabilities and stockholders' equity | | $ | 56,507,427 | | | $ | 63,853,067 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
| | Three Month's Ended March 31, | | | Nine Month's Ended March 31, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | | | | | | | | |
Revenue | | | | | | | | | | | | |
Revenue | | $ | 14,444,957 | | | $ | 21,883,445 | | | $ | 59,586,148 | | | $ | 56,282,542 | |
| | | | | | | | | | | | | | | | |
Cost of Revenue | | | 11,561,834 | | | | 14,305,698 | | | | 42,864,857 | | | | 35,555,746 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 2,883,123 | | | | 7,577,747 | | | | 16,721,291 | | | | 20,726,796 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Sales and marketing | | | 1,547,161 | | | | 2,258,937 | | | | 5,427,358 | | | | 5,331,948 | |
Distribution costs | | | 2,291,945 | | | | 2,352,684 | | | | 7,516,748 | | | | 8,010,373 | |
General and administrative expenses | | | 2,399,387 | | | | 2,602,312 | | | | 6,685,881 | | | | 6,807,739 | |
Share-based compensation | | | 212,758 | | | | 1,146,299 | | | | 965,229 | | | | 3,126,472 | |
Amortization of acquired intangible assets | | | 1,062,734 | | | | 1,124,500 | | | | 3,188,201 | | | | 2,709,167 | |
Depreciation | | | 306,185 | | | | 225,879 | | | | 901,521 | | | | 649,883 | |
| | | 7,820,170 | | | | 9,710,611 | | | | 24,684,938 | | | | 26,635,582 | |
| | | | | | | | | | | | | | | | |
Loss from operations | | | (4,937,047 | ) | | | (2,132,864 | ) | | | (7,963,647 | ) | | | (5,908,786 | ) |
| | | | | | | | | | | | | | | | |
Other income (expense), net | | | | | | | | | | | | | | | | |
Change in derivative liability | | | - | | | | - | | | | - | | | | (1,770 | ) |
Interest (expense) income, net | | | 661,878 | | | | 152,360 | | | | 2,612,617 | | | | 2,370,294 | |
| | | | | | | | | | | | | | | | |
Other income (expense), net | | | 661,878 | | | | 152,360 | | | | 2,612,617 | | | | 2,368,524 | |
| | | | | | | | | | | | | | | | |
Income (loss) on operations before income tax | | | (5,598,925 | ) | | | (1,980,504 | ) | | | (10,576,264 | ) | | | (8,277,310 | ) |
Gain on sale of Infusionz and select assets | | | - | | | | - | | | | - | | | | 7,564,363 | |
Gain (loss) from the sale of Interactive Offers | | | (103,263 | ) | | | - | | | | 237,670 | | | | | |
Lease settlement, California facility | | | - | | | | - | | | | - | | | | | |
Lease impairment, Delray Beach facility | | | - | | | | - | | | | (289,968 | ) | | | | |
Income tax benefit (expense) | | | 1,501,595 | | | | 496,880 | | | | 2,668,769 | | | | 449,828 | |
| | | | | | | | | | | | | | | | |
Net income (loss) from continuing operations | | | (4,200,593 | ) | | | (1,483,624 | ) | | | (7,959,793 | ) | | | (263,119 | ) |
| | | | | | | | | | | | | | | | |
(Loss) income from discontinued operations | | | 81,981 | | | | (287,119 | ) | | | 46,874 | | | | (1,663,451 | ) |
| | | | | | | | | | | | | | | | |
Net loss attributable to non-controlling interest | | | - | | | | 124,804 | | | | - | | | | 358,390 | |
| | | | | | | | | | | | | | | | |
Net income (loss) attributable to Upexi, Inc. | | $ | (4,118,612 | ) | | $ | (1,645,939 | ) | | $ | (7,912,919 | ) | | $ | (1,568,180 | ) |
| | | | | | | | | | | | | | | | |
Basic and dilutive loss per share: | | | | | | | | | | | | | | | | |
Income (loss) per share from continuing operations | | $ | (0.20 | ) | | $ | (0.08 | ) | | $ | (0.39 | ) | | $ | (0.02 | ) |
(Loss) income per share from discontinued operations | | $ | - | | | $ | (0.02 | ) | | $ | 0.00 | | | $ | (0.10 | ) |
Total income (loss) per share | | $ | (0.20 | ) | | $ | (0.09 | ) | | $ | (0.39 | ) | | $ | (0.09 | ) |
| | | | | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 20,723,542 | | | | 18,015,837 | | | | 20,423,924 | | | | 17,418,877 | |
Fully diluted weighted average shares outstanding | | | 20,723,542 | | | | 18,015,837 | | | | 20,423,924 | | | | 17,418,877 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) |
| | Preferred Stock | | | Preferred Stock | | | Common Stock | | | Common Stock | | | Additional Paid | | | Accumulated | | | Non-controlling | | | Total Stockholders' | |
| | Shares | | | Par | | | Shares | | | Par | | | In Capital | | | Deficit | | | Interest | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2023 | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | | 500,000 | | | $ | 500 | | | | 16,713,345 | | | $ | 16,713 | | | $ | 34,985,597 | | | $ | (6,270,886 | ) | | $ | 54,820 | | | $ | 28,786,744 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of common stock issuance for services | | | - | | | | - | | | | - | | | | - | | | | 70,350 | | | | - | | | | - | | | | 70,350 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 927,326 | | | | - | | | | - | | | | 927,326 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the three months ended September 30, 2022 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,597,515 | ) | | | (148,005 | ) | | | (2,745,520 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2022 | | | 500,000 | | | $ | 500 | | | | 16,713,345 | | | $ | 16,713 | | | $ | 35,983,273 | | | $ | (8,868,401 | ) | | $ | (93,185 | ) | | $ | 27,038,900 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of common stock issuance for services | | | - | | | | - | | | | - | | | | - | | | | 70,350 | | | | - | | | | - | | | | 70,350 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 1,052,847 | | | | - | | | | - | | | | 1,052,847 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock for acquisition of E-Core | | | - | | | | - | | | | 1,247,403 | | | | 1,247 | | | | 5,998,753 | | | | - | | | | - | | | | 6,000,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the three months ended December 31, 2022 | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,669,679 | | | | (85,581 | ) | | | 2,584,098 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2022 | | | 500,000 | | | $ | 500 | | | | 17,960,748 | | | $ | 17,960 | | | $ | 43,105,223 | | | $ | (6,198,722 | ) | | $ | (178,766 | ) | | $ | 36,746,195 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 1,146,299 | | | | - | | | | - | | | | 1,146,299 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock for interest on note payable | | | - | | | | - | | | | 134,000 | | | | 134 | | | | 606,870 | | | | - | | | | - | | | | 607,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the three months ended March 31, 2023 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,643,884 | ) | | | (124,804 | ) | | | (1,768,688 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2023 | | | 500,000 | | | $ | 500 | | | | 18,094,748 | | | $ | 18,094 | | | $ | 44,858,392 | | | $ | (7,842,606 | ) | | $ | (303,570 | ) | | $ | 36,730,810 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2023 | | | 500,000 | | | $ | 500 | | | | 20,215,961 | | | $ | 20,216 | | | $ | 51,522,229 | | | $ | (23,201,175 | ) | | $ | (505,147 | ) | | $ | 27,836,623 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of stock and equity for purchase of Cygnet | | | - | | | | - | | | | 90,909 | | | | 91 | | | | 162,636 | | | | - | | | | 505,147 | | | | 667,874 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 421,887 | | | | - | | | | - | | | | 421,887 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the three months ended September 30, 2023 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,356,388 | ) | | | - | | | | (1,356,388 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2023 | | | 500,000 | | | $ | 500 | | | | 20,306,870 | | | $ | 20,307 | | | $ | 52,106,752 | | | $ | (24,557,563 | ) | | $ | - | | | $ | 27,569,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | 330,584 | | | | - | | | | - | | | | 330,584 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) for the three months ended December 31, 2023 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,437,919 | ) | | | - | | | | (2,437,919 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2023 | | | 500,000 | | | $ | 500 | | | | 20,306,870 | | | $ | 20,307 | | | $ | 52,437,336 | | | $ | (26,995,482 | ) | | $ | - | | | $ | 25,462,661 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of stock for conversion of debt | | | - | | | | - | | | | 500,000 | | | | 502 | | | | 499,498 | | | | - | | | | - | | | | 500,000 | |
| | | | | | | | | | . | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation | | | - | | | | - | | | | 100,000 | | | | 100 | | | | 212,658 | | | | - | | | | - | | | | 212,758 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) for the three months ended March 31, 2024 | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,118,612 | ) | | | - | | | | (4,118,612 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2024 | | | 500,000 | | | $ | 500 | | | | 20,906,870 | | | $ | 20,909 | | | $ | 53,149,492 | | | $ | (31,114,094 | ) | | $ | - | | | $ | 22,056,807 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UPEXI, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
| | Nine Month's Ended March 31, | |
| | 2024 | | | 2023 | |
Cash flows from operating activities | | | | | | |
Net (loss) income from operations | | $ | (7,912,919 | ) | | $ | (1,568,180 | ) |
| | | | | | | | |
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 4,089,722 | | | | 3,359,050 | |
Accrued interest on note recievable from Bloomios | | | - | | | | (141,635 | ) |
Amortization of senior security original issue discount | | | - | | | | (455,450 | ) |
Unreimburesed transition fees from Bloomios | | | - | | | | (428,500 | ) |
Amortization of loan costs | | | 50,459 | | | | - | |
Amortization of consideration discount | | | 900,339 | | | | - | |
Non-cash consideration for sale of Infusionz and select assets, net | | | - | | | | (7,564,363 | ) |
Inventory write-offs | | | 1,812,319 | | | | 34,328 | |
Gain on sale of interactive offers | | | (237,670 | ) | | | - | |
Change in deferred tax asset | | | (2,668,993 | ) | | | (515,089 | ) |
Noncontrolling interest | | | - | | | | (358,390 | ) |
Shares issued for finder fee | | | - | | | | 1,770 | |
Stock based compensation | | | 965,229 | | | | 3,126,472 | |
Changes in assets and liabilities, net of acquired amounts | | | | | | | | |
Accounts receivable | | | 2,413,987 | | | | 2,175,850 | |
Inventory | | | (255,500 | ) | | | 2,561,502 | |
Prepaid expenses and other assets | | | 492,343 | | | | 94,178 | |
Operating lease payable | | | 301,492 | | | | (22,830 | ) |
Accounts payable and accrued liabilities | | | (2,775,503 | ) | | | 1,744,961 | |
Deferred revenue | | | (22,431 | ) | | | - | |
Net cash provided by operating activities - Continuing Operations | | | (2,847,126 | ) | | | 2,043,674 | |
Net cash provided by (used in) operating activities - Discontinued Operations | | | (187,280 | ) | | | 190,539 | |
Net cash provided by operating activities | | | (3,034,406 | ) | | | 2,234,213 | |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Acquisition of Lucky Tail | | | - | | | | (3,012,327 | ) |
Acquisition of VitaMedica, Inc., net of cash acquired | | | - | | | | (500,000 | ) |
Acquisition of New England Technology, Inc. | | | - | | | | (1,698,748 | ) |
Proceeds from the sale of Interactive Offers, net of liabilities paid | | | 940,000 | | | | - | |
Acquisition of patent rights for Tytan Tiles | | | (70,000 | ) | | | - | |
Acquisition of Cygnet Online LLC, net of cash acquired | | | (500,000 | ) | | | (1,050,000 | ) |
Proceeds from the sale of Infusionz and selected assets | | | - | | | | 5,173,610 | |
Acquisition of property and equipment | | | (770,721 | ) | | | (278,683 | ) |
Net cash provided by (used in) investing activities - Continuing Operations | | | (400,721 | ) | | | (1,366,148 | ) |
Net cash (used in) provided by investing activities - Discontinued Operations | | | - | | | | - | |
Net cash provided by (used in) investing activities | | | (400,721 | ) | | | (1,366,148 | ) |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Repayment of notes payable | | | (430,715 | ) | | | (470,168 | ) |
Repayment of the senior convertible notes payable | | | - | | | | (6,307,775 | ) |
Proceeds (payments) on line of credit, net | | | 3,055,927 | | | | (6,826,338 | ) |
Payment on acquisition notes payable | | | (3,184,089 | ) | | | | |
Repayment of SBA note payable | | | | | | | (254,804 | ) |
Proceeds from convertible note payable | | | - | | | | 2,650,000 | |
Proceeds on note payable on building | | | - | | | | 3,000,000 | |
Repayment on note payable on building | | | | | | | (97,744 | ) |
Proceeds on note payable, related party | | | - | | | | 1,470,000 | |
Net cash used in financing activities - Continuing Operations | | | (558,877 | ) | | | (6,836,829 | ) |
Net cash (used in) provided by financing activities - Discontinued Operations | | | - | | | | - | |
Net cash used in financing activities | | | (558,877 | ) | | | (6,836,829 | ) |
| | | | | | | | |
Net decrease in cash - Continuing Operations | | | (3,806,724 | ) | | | (6,159,303 | ) |
Net (decrease) increase in cash - Discontinued Operations | | | (187,280 | ) | | | 190,539 | |
| | | | | | | | |
Cash, beginning of period | | | 4,492,291 | | | | 7,149,806 | |
Cash, end of period | | $ | 498,287 | | | $ | 1,181,042 | |
| | | | | | | | |
Supplemental cash flow disclosures | | | | | | | | |
Interest paid | | $ | 1,505,162 | | | $ | 326,918 | |
Income tax paid | | $ | - | | | $ | - | |
Issuance of common stock for acquisition of Cygnet | | $ | 162,727 | | | $ | - | |
Issuance of debt for acquisition of Cygnet | | $ | 300,000 | | | $ | - | |
Bloomios non-cash payment of receivables, net | | $ | 845,443 | | | $ | - | |
Issuance of common stock for the repayment of convertible note payable | | $ | 500,000 | | | $ | - | |
Liabilities assumed from acquisition of E-Core | | $ | - | | | $ | (7,712,168 | ) |
Issuance of stock for acquisition of E-Core | | $ | - | | | $ | 6,000,000 | |
Assets available for sale | | $ | - | | | $ | 6,446,210 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UPEXI, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Background Information
Upexi is a multi-faceted brand owner with established brands in health, wellness, pet, beauty, and other growing markets. We operate in emerging industries with high growth trends and look to drive organic growth of our current brands. We focus on direct to consumer and Amazon brands that are scalable and have anticipated, high industry growth trends. Our goal is to continue to accumulate consumer data and build out a significant customer database across all industries we sell into. The growth of our current customer database has been key to the year-over-year gains in sales and profits. To drive additional growth, we have and will continue to acquire profitable Amazon and eCommerce businesses that can scale quickly and reduce costs through corporate synergies. We utilize our in-house SaaS programmatic ad technology to help achieve a lower cost per acquisition and accumulate consumer data for increased cross-selling between our growing portfolio of brands.
Upexi, Inc. (the “Company”) is a Nevada corporation with fourteen active subsidiaries through which the Company primarily conducts its business. The Company’s fourteen active subsidiaries are as follows:
| ☐ | HAVZ, LLC, d/b/a/ Steam Wholesale, a California limited liability company |
| ☐ | Trunano Labs, Inc., a Nevada corporation |
| ☐ | MW Products, Inc., a Nevada corporation |
| ☐ | Upexi Holding, LLC, a Delaware limited liability company |
| | o | Upexi Pet Products, LLC, a Delaware limited liability company |
| ☐ | Upexi Enterprise, LLC, a Delaware limited liability company |
| | o | Upexi Property & Assets, LLC, a Delaware limited liability company |
| | | ■ | Upexi 17129 Florida, LLC, a Delaware limited liability company |
| | o | E-Core Technology, Inc. |
| | o | Upexi Distribution Management LLC, a Delaware limited liability company |
| | o | Upexi Distribution LLC, a Delaware limited liability company |
| ☐ | Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company. |
In addition, the Company has six wholly owned subsidiaries that had no activity during the three and nine months ended March 31, 2024 and March 31, 2023, respectively. All of the entities were dissolved or cancelled in the three months ended March 31, 2024.
| · | Steam Distribution, LLC, a California limited liability company |
| · | One Hit Wonder, Inc., a California corporation |
| · | One Hit Wonder Holdings, LLC, a California limited liability company |
| · | Vape Estate, Inc., a Nevada Corporation |
| · | SWCH, LLC, a Delaware limited liability company |
| · | Cresco Management, LLC, a California limited liability company |
Our products are distributed in the United States of America and internationally through multiple entities and managed through our locations in Florida, California, and Nevada.
Upexi operates from our corporate location in Tampa, Florida where direct to consumer and Amazon sales are driven by on-site and remote teams for all brands. The Tampa location also supports all the other locations with accounting, corporate oversight, day-to-day finances, business development and operational management operating from this location.
Cygnet Online operates from our Florida warehouse and distribution center, day to day operations of our Amazon liquidation business team from this location with support of remote team members.
Lucky Tail operates from our Florida location with sales and marketing driven by on-site and remote teams that operate the Amazon sales strategy and daily business operations.
HAVZ, LLC, d/b/a/ Steam Wholesale operates manufacturing and/or distribution centers in Henderson, Nevada supporting our health and wellness products, including those products manufactured with hemp ingredients and our overall distribution operations. We have continued to manage these operations with corporate focus on larger opportunities that have warranted the majority of corporate focus and investments for the future.
Business Acquisitions
On April 1, 2022, the Company entered into a securities purchase agreement with a single investor to acquire 55% of the equity interest in Cygnet Online, LLC, a Delaware limited liability corporation. The agreement also enables the Company to purchase the remaining 45% over the following two years. On September 1, 2023, the Company purchased the remaining 45% of Cygnet Online, LLC for $500,000 cash, 90,909 shares of the Company’s common stock and a $300,000 cash payment due on September 1, 2024. The Company has not released the shares to the seller.
On August 12, 2022, the Company entered into an asset purchase agreement with GA Solutions, LLC, a Delaware limited liability company (“LuckyTail”), pursuant to which the Company acquired substantially all the assets of LuckyTail. LuckyTail sells pet nail grinders and other pet products through various sales channels including some international sales channels.
On October 31, 2022, the Company and its wholly owned subsidiary Upexi Enterprise, LLC, entered into a securities purchase agreement to purchase the outstanding stock of E-Core Technology, Inc. d/b/a New England Technology, Inc. (“E-Core”), a Florida corporation. E-Core distributes non-owned branded products to national retail distributors and has branded products in the toy industry that E-Core sells direct to consumers through online sales channels and sells to national retail distributors.
Business Divested
On October 26, 2022, the Company entered into a membership interest purchase agreement to sell 100% of the membership interests of Infusionz LLC, a Colorado limited liability company (“Infusionz”), included in the sale was all the rights to Infusionz brands and the manufacturing of certain private label business. Infusionz was originally purchased by the Company in July of 2020. The divestiture of Infusionz and related private label manufacturing represents a strategic shift in our operations and will allow us to become a predominantly product distribution focused company for both our Company owned brands and non-owned brands. As a result, the results of the business were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for all periods presented.
On August 31, 2023, Upexi, Inc. (the “Company”) entered into an Equity Interest Purchase Agreement (“EIPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary Interactive Offers, LLC (“Interactive”) to Amplifyir Inc. (the “Buyer”). The purchase price for the Interests was One Million Two Hundred Fifty Thousand Dollars ($1,250,000), subject to certain customary post-closing adjustments. In addition, the Buyer is obligated to pay the Company two-and one- half percent (2.5%) of certain advertising revenues of Interactive for a two-year period post-closing. Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented.
On June 13, 2024, Upexi, Inc. (the “Company”) entered into a Stock Purchase Agreement (“SPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary VitaMedica, Inc. to three investors (the “Buyers”). One of the minority Interest Buyers is Allan Marshall, the Company’s Chief Executive Officers. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. In addition, the Buyers are obligated to pay the Company for services provided according to the Transition Services Agreement. Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented.
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of March 31, 2024, and June 30, 2023.
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
Discontinued Operations
A discontinued operation is a component of an entity that has either been disposed of or that is classified as held for sale, which represents a separate major line of business or geographic area of options and is part of a single coordinated plan to dispose of a separate line of business or geographical area of operations. In accordance with the rules regarding the presentation of discontinued operations, the assets, liabilities, and activity of Infusionz, Interactive Offers, VitaMedica and certain manufacturing business have been reclassified as discontinued operations for all periods presented.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguished between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identified fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 established a three-tier fair value hierarchy that distinguishes between the following:
Level 1—Quoted market prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.
Level 3—Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying amounts reflected in the balance sheets for cash, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature. For the three months ended September 30, 2022, management believed it necessary to record a reserve against the debt and equity instruments obtained in the sale of Infusionz of $8,500,000.
Reclassification
Certain reclassifications have been made to the condensed consolidated financial statements as of and for the three and nine months ended March 31, 2024, for the three and nine month periods ended March 31, 2023, and as of June 30, 2023 to conform to the presentation as of and for the three and nine months ended March 31, 2024.
Note 2. Acquisitions
Cygnet Online, LLC
The Company acquired 55% of Cygnet Online, LLC, on April 1, 2022. The purchase price was $5,515,756, as amended.
The following table summarizes the consideration transferred to acquire Cygnet Online, LLC and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
Fair value of consideration transferred:
Cash | | $ | 1,500,000 | |
Convertible note payable, convertible at $6.00 per common share | | | 1,050,000 | |
Earnout payment | | | - | |
Common stock, 555,489 shares valued at $5.34 per common share, the closing price on April 1, 2022. | | | 2,965,756 | |
| | $ | 5,515,756 | |
| | | | |
Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | |
| | | | |
Cash | | $ | 471,237 | |
Accounts receivable | | | 860,882 | |
Inventory | | | 2,337,208 | |
Prepaid expenses | | | 6,900 | |
Property and equipment | | | 7,602 | |
Right to use asset | | | 410,365 | |
Other asset | | | 6,545 | |
Online sales channels | | | 1,800,000 | |
Vendor relationships | | | 6,000,000 | |
Accrued liabilities | | | (701,606 | ) |
Notes payable | | | (7,298,353 | ) |
Operating lease | | | (422,479 | ) |
Total identifiable net assets | | $ | 3,478,301 | |
Goodwill | | $ | 2,037,455 | |
55% of the business was acquired through a stock purchase agreement on April 1, 2022. The purchase agreement provided for an increase in the purchase price of up to $700,000 based on the attainment of certain sales thresholds in the first year. Our management believed that the attainment of those sales threshold at the time of acquisition was unlikely and valued the contingency at $0. The sales thresholds were not met, and no consideration was recorded for the contingency. The equity interest purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $950,000 and was repaid to the Company with a reduction in the loan to the seller. The 55% purchase price allocation is final and is no longer subject to change.
On September 1, 2023, the Company completed the acquisition of the remaining 45% interest for structured cash payments equaling $800,000, the forgiveness of advances of $89,416 and 90,909 shares of the Company’s common stock valued at $162,727. As of June 24, 2024, the Company has not released the 90,909 shares or paid the remaining $300,000 owed related to this additional acquisition.
Fair value of consideration transferred:
Cash | | $ | 800,000 | |
Noncontrolling interest | | | 505,147 | |
Forgiveness of advances | | | 89,416 | |
Common stock, 90,909 shares valued at $1.79 per common share, the closing price on September 1, 2023. | | | 162,727 | |
| | $ | 1,557,290 | |
The additional consideration was recorded as goodwill by management and will be subject to change based on the final purchase price allocation.
The acquisition of Cygnet provided the Company with the opportunity to expand its operations as an Amazon and eCommerce seller. The resulting combination increased Cygnet’s product offerings through the Company’s distributors and partnerships as it continues to focus on over-the-counter supplements and beauty products. Cygnet will be the anchor company for Upexi’s Amazon strategy. These are the factors of goodwill recognized in the acquisition. The Company’s management is evaluating the intangible assets of this acquisition and had not reached a conclusion on any impairment of these intangible assets at the time of this report.
LuckyTail
On August 13, 2022, the Company acquired the pet product brand and the rights to the products of LuckyTail from GA Solutions, LLC.
The following table summarizes the consideration transferred to acquire LuckyTail and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
Fair value of consideration transferred: | | | |
| | | |
Cash | | $ | 2,000,000 | |
Cash payment, 90 days after close | | | 484,729 | |
Cash payment, 180 days after close | | | 469,924 | |
Contingent consideration | | | 112,685 | |
Cash payment, working capital adjustment | | | 460,901 | |
| | $ | 3,528,239 | |
| | | | |
Recognized amounts of identifiable assets acquired, and liabilities assumed: | | | | |
| | | | |
Inventory | | $ | 460,901 | |
Trade name | | | 383,792 | |
Customer list | | | 1,834,692 | |
Total identifiable net assets | | $ | 2,679,385 | |
Goodwill | | $ | 848,854 | |
The business was acquired through an asset purchase agreement, that acquired all elements of the business, including all the tangible and intangible assets of the LuckyTail business. The purchase agreement provided for an increase in the purchase price based on the attainment of certain sales thresholds in the first six months. The Company estimated the value of this at approximately $150,000 at the time of purchase. The sales calculated to a $112,685 payout and the purchase price was adjusted. The asset purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was increased by $460,901 for the excess working capital that was transferred in the business and the final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.
The consolidated financial include the actual results of LuckyTail from August 13, 2022 through March 31, 2024. The Company recorded interest on the consideration of $63,282 during the year ended June 30, 2023.
The acquisition of LuckyTail provided the Company with a foothold in the pet care industry and a strong presence on Amazon and its eCommerce store, offering nutritional and grooming products domestically and internationally. The acquisition provided both top line growth and improved EBITDA for the Company. These are the factors of goodwill recognized in the acquisition. The purchase price allocation was performed by a third party and is no longer subject to change.
E-Core, Technology Inc., and its subsidiaries
On October 21, 2022, the Company acquired E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”).
The following table summarizes the consideration transferred to acquire E-Core and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
Fair value of consideration transferred: | | | |
| | | |
Cash | | $ | 100,000 | |
Cash payment, 120 days | | | 3,000,000 | |
Note payable | | | 5,189,718 | |
Note payable 2 | | | 4,684,029 | |
Convertible note payable, convertible at $4.81 per common share | | | 2,418,860 | |
Common stock, 1,247,402 shares valued at $4.81 per common share, the calculated closing price on October 21, 2022. | | | 6,000,000 | |
| | $ | 21,039,765 | |
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Cash | | $ | 1,014,610 | |
Accounts receivable | | | 6,699,945 | |
Inventory | | | 7,750,011 | |
Prepaid expenses | | | 75,721 | |
Trade name | | | 1,727,249 | |
Customer relationships | | | 5,080,305 | |
Accrued liabilities | | | (192,051 | ) |
Line of credit | | | (7,201,079 | ) |
Total identifiable net assets | | $ | 14,635,673 | |
Goodwill | | $ | 6,404,092 | |
The business was acquired through a membership interest purchase agreement on October 21, 2022. There was no contingent consideration payable under the asset purchase agreement, although a provision was used to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $33,803, net and was repaid to the Company with an adjustment to the $3,000,000 cash payment. The final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.
The Company’s consolidated financial statements include the actual results of E-Core from November 1, 2022 to March 31, 2024. The Company recorded interest on the consideration of $969,098 during the year ended June 30, 2023 and $900,339 during the nine months ended March 31, 2024. At June 30, 2023 there was $1,738,295 of unamortized debt discount that will be expensed over the next two years. At March 31, 2024 there was $810,545 of unamortized debt discount that will be expensed over the following nineteen months.
The acquisition of E-Core provided the Company with an entrance into the children’s toy sector as well as national retail distribution for owned and non-owned branded products. The acquisition expands the Company’s ability to leverage direct-to-consumer distribution and further develops the broad distribution capabilities of E-Core. These are the factors of goodwill recognized in the acquisition. The purchase price allocation was performed by a third party and is no longer subject to change.
Revenue from acquisitions included in the financial statements.
| | Nine months ended March 31, | |
| | 2024 | | | 2023 | |
Cygnet | | $ | 10,629,121 | | | $ | 20,806,317 | |
LuckyTail | | | 2,219,111 | | | | 3,573,727 | |
E-Core | | | 38,625,335 | | | | 25,822,931 | |
| | | | | | | | |
| | $ | 51,473,567 | | | $ | 50,202,975 | |
| | Three months ended March 31, | |
| | 2024 | | | 2023 | |
Cygnet | | | 1,956,310 | | | | 7,359,955 | |
LuckyTail | | | 673,738 | | | | 1,394,459 | |
E-Core | | | 9,221,715 | | | | 13,647,412 | |
| | | | | | | | |
| | $ | 11,851,763 | | | $ | 22,401,826 | |
Consolidated pro-forma unaudited financial statements.
The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, LuckyTail and E-Core after giving effect to the Company’s acquisitions as if the acquisitions occurred on July 1, 2022.
The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2022, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the nine months ended March 31, 2023, as if the acquisitions occurred on July 1, 2022. The results of operations for Cygnet, LuckyTail and E-Core are included in the three and nine months ended March 31, 2024. The results of operations for include LuckyTail from August 13, 2022 to March 31, 2023 and E-Core from October 21, 2022 to March 31, 2023.
Operating expenses for the nine months ended March 31, 2023 have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of LuckyTail and E-Core by approximately $44,619, and $134,625, per month respectively and $363,415 of interest expense.
Pro Forma, Unaudited | | | | | | | | | | | Proforma | | | | |
Nine months ended March 31, 2023 | | Upexi, Inc. | | | LuckyTail | | | E-Core | | | Adjustments | | | Proforma | |
| | | | | | | | | | | | | | | |
Net sales | | $ | 56,282,542 | | | $ | 892,270 | | | $ | 12,905,836 | | | $ | - | | | $ | 70,080,648 | |
Cost of sales | | $ | 35,555,746 | | | $ | 137,088 | | | $ | 11,177,032 | | | $ | - | | | $ | 46,869,866 | |
Operating expenses | | $ | 26,635,582 | | | $ | 383,476 | | | $ | 1,050,602 | | | $ | 567,721 | | | $ | 28,637,381 | |
Net income (loss) from continuing operations | | $ | (263,119 | ) | | $ | 371,706 | | | $ | 660,860 | | | $ | (567,721 | ) | | $ | 201,726 | |
Basic income (loss) per common share | | $ | (0.02 | ) | | $ | - | | | $ | 0.53 | | | $ | - | | | $ | 0.01 | |
Weighted average shares outstanding | | | 17,418,877 | | | | - | | | | 1,247,402 | | | | (693,001 | ) | | | 17,973,278 | |
Note 3. Inventory
Inventory consisted of the following:
| | March 31, 2024 | | | June 30, 2023 | |
Raw materials | | $ | 1,007,749 | | | $ | - | |
Finished goods | | | 7,794,152 | | | | 11,557,128 | |
| | $ | 8,801,901 | | | $ | 11,557,128 | |
The Company writes off the value of inventory deemed excessive or obsolete.
During the three and nine months ended March 31, 2024, the Company wrote off inventory valued at $1,722,289 and $1,812,319, respectively. During the three and nine months ended March 31, 2023, the Company wrote off inventory valued none and $34,328, respectively.
Note 4. Property and Equipment
Property and equipment consist of the following:
| | March 31, 2024 | | | June 30, 2023 | |
Furniture and fixtures | | $ | 216,143 | | | $ | 172,663 | |
Computer equipment | | | 166,569 | | | | 155,506 | |
Internal use software | | | 570,645 | | | | 541,705 | |
Manufacturing equipment | | | 3,495,666 | | | | 3,291,557 | |
Leasehold improvements | | | 1,554,771 | | | | - | |
Building | | | 4,923,464 | | | | 4,923,464 | |
Vehicles | | | 261,362 | | | | 261,362 | |
Property and equipment, gross | | | 10,325,160 | | | | 9,346,256 | |
Less accumulated depreciation | | | (2,805,155 | ) | | | (1,903,633 | ) |
| | $ | 7,520,005 | | | $ | 7,442,623 | |
Depreciation expense for the three months ended March 31, 2024, and 2023 was $264,817 and $225,879, respectively.
Depreciation expense for the nine months ended March 31, 2024, and 2023 was $901,521 and $649,883, respectively.
Note 5. Intangible Assets
Intangible assets as of March 31, 2024:
| Estimated Life | | Cost | | | Accumulated Amortization | | | Net Book Value | |
Customer relationships, amortized over four years | 4 years | | $ | 6,914,897 | | | $ | 2,597,503 | | | $ | 4,317,394 | |
Trade name, amortized over five years | 5 years | | | 2,111,041 | | | | 628,512 | | | | 1,482,529 | |
Online sales channels | 2 years | | | 1,800,000 | | | | 1,800,000 | | | | - | |
Vender relationships | 5 years | | | 6,000,000 | | | | 2,400,000 | | | | 3,600,000 | |
Tytan Tiles Patents | 15 years | | | 70,000 | | | | - | | | | 70,000 | |
| | | $ | 16,825,938 | | | $ | 7,426,015 | | | $ | 9,469,923 | |
For the three months ended March 31, 2024 and 2023, the Company amortized approximately $1,062,734 and $1,124,500, respectively.
For the nine months ended March 31, 2024 and 2023, the Company amortized approximately $3,188,201 and $2,709,167, respectively.
The following intangible asset was added during the nine months ended March 31, 2024:
Intangible assets as of June 30, 2023:
| Estimated Life | | Cost | | | Accumulated Amortization | | | Net Book Value | |
Customer relationships, amortized over four years | 4 years | | $ | 6,914,897 | | | $ | 1,300,958 | | | $ | 5,613,939 | |
Trade name, amortized over five years | 5 years | | | 2,111,041 | | | | 311,856 | | | | 1,799,185 | |
Online sales channels | 2 years | | | 1,800,000 | | | | 1,125,000 | | | | 675,000 | |
Vender relationships | 5 years | | | 6,000,000 | | | | 1,500,000 | | | | 4,500,000 | |
| | | | | | | | | | | | | |
| | | $ | 16,825,938 | | | $ | 4,237,814 | | | $ | 12,588,124 | |
The following intangible assets were added during the year ended June 30, 2023, from the acquisitions noted below:
LuckyTail
Customer relationships | | $ | 1,834,692 | |
Trade name | | | 383,792 | |
Intangible Assets from Purchase | | $ | 2,218,484 | |
E-Core: | | | | |
Customer relationships | | $ | 5,080,205 | |
Trade name | | | 1,727,249 | |
Intangible Assets from Purchase | | $ | 6,807,454 | |
Future amortization of intangible assets at March 31, 2024 are as follows:
June 30, 2024 | | $ | 838,900 | |
June 30, 2025 | | | 3,355,599 | |
June 30, 2026 | | | 3,355,599 | |
June 30, 2027 | | | 1,754,640 | |
June 30, 2028 | | | 115,018 | |
June 30, 2029 | | | 4,667 | |
Thereafter | | | 45,500 | |
| | $ | 9,469,923 | |
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other receivables consist of the following:
| | March 31, 2024 | | | June 30, 2023 | |
Insurance | | $ | 84,249 | | | $ | 187,949 | |
Prepayment to vendors | | | 68,143 | | | | 239,970 | |
Deposits on services | | | 21,000 | | | | 45,678 | |
Prepaid monthly rent | | | 22,500 | | | | 27,813 | |
Prepaid sales tax | | | - | | | | 70,021 | |
Other deposits | | | - | | | | 70,826 | |
Stock issued for prepaid interest on convertible note payable | | | 161,189 | | | | 465,595 | |
Other prepaid expenses | | | 155,946 | | | | 31,000 | |
Other receivables | | | 207,555 | | | | 144,765 | |
Total | | $ | 720,582 | | | $ | 1,307,299 | |
All prepaid expenses will be expensed in the following 12 months.
Note 7. Operating Leases
The Company has operating leases for corporate offices, warehouses and office equipment that have remaining lease terms of 1 year to 5 years.
The table below reconciles the undiscounted future minimum lease payments (displayed by fiscal year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the condensed consolidated balance sheet as of March 31, 2024:
2024 | | $ | 131,679 | |
2025 | | | 508,665 | |
2026 | | | 529,284 | |
2027 | | | 268,530 | |
2028 | | |