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 December 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 001-40535
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, FL
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 February 14, 2025 the registrant had 1,320,924 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
32
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
Legal Proceedings
38
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
39
SIGNATURES
40
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
Our unaudited condensed consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
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.
Item 1. Financial Statements
Interim Unaudited Condensed Consolidated Financial Statements
Page
Condensed Consolidated Balance Sheets as of December 31, 2024 (Unaudited) and June 30, 2024
5
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2024 and 2023 (Unaudited)
6
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2024 and 2023 (Unaudited)
7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2024 and 2023 (Unaudited)
8
Notes to the Unaudited Condensed Consolidated Financial Statements
9
CONDENSED CONSOLIDATED BALANCE SHEETS
2024
Unaudited
June 30,
ASSETS
Current assets
Cash
Accounts receivable, net
Inventory, net
Due from VitaMedica transition
Prepaid expenses and other receivables
Assets available for sale - Building
Purchase price receivable - VitaMedica
Purchase price receivable - E-core
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax asset
Other assets
Right-of-use asset, net
Total other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued compensation
Deferred revenue
Accrued liabilities
Accrued interest
Acquisition payable
Related party advances, net
Current portion of note payable
Current portion of convertible notes payable
Current portion of related party note payable
Current portion of Cygnet subsidiary notes payable
Note payable on building for sale
Current portion of operating lease payable
Total current liabilities
Operating lease payable, net of current portion
Related party note payable
Note payable
Convertible notes payable
Notes payable - Cygnet subsidiary
Total long-term liabilities
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.001 par value, 100,000,000 shares authorized, and 25,000 and 25,000 shares issued and outstanding, respectively
Common stock, $0.001 par value, 100,000,000 shares authorized, and 1,045,429 and 1,045,429 shares issued and outstanding, respectively
Additional paid in capital
Accumulated deficit
Total stockholders' equity attributable to Upexi, Inc.
Non-controlling interest in subsidiary
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
December 31,
Six Months Ended
2023
Revenue
Cost of Revenue
Gross profit
Operating expenses
Sales and marketing
Distribution costs
General and administrative expenses
Share-based compensation
Amortization of acquired intangible assets
Depreciation
Lease impairment, Delray Beach facility
Loss from operations
Other income (expense), net
Other
Interest (expense) income, net
Loss on operations before income tax
Income tax benefit (expense)
Net loss from continuing operations
Gain (loss) from the sale of:
Interactive Offers
Income (loss) on discontinued operations
Interactive offers
VitaMedica
E-core
Income (loss) income from discontinued operations
Net income (loss) attributable to Upexi, Inc.
Basic income (loss) per share:
Income (loss) per share from continuing operations
(Loss) income per share from discontinued operations
Total income (loss) per share attributable to Upexi shareholders
Diluted income (loss) per share:
Basic weighted average shares outstanding
Fully diluted weighted average shares outstanding
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Preferred Stock
Common Stock
Additional Paid
Accumulated
Non-controlling
Total Shareholders'
Shares
Par
In Capital
Deficit
Interest
Equity
Balance, June 30, 2023
Issuance of stock and equity for purchase of Cygnet
Stock based compensation
Net loss for the three months ended September 30, 2023
Balance, September 30, 2023
Net loss for the three months ended December 31, 2023
Balance, December 31, 2023
Balance, June 30, 2024
Net loss for the three months ended September 30, 2024
Balance, September 30, 2024
Net loss for the three months ended December 31, 2024
Balance, December 31, 2024
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Month's Ended
Cash flows from operating activities
Net loss from operations
Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities:
Depreciation and amortization
Amortization of loan costs
Amortization of consideration discount
Change in deferred tax asset
Changes in assets and liabilities, net of acquired amounts
Accounts receivable
Inventory
Prepaid expenses and other assets
Operating lease payable
Accounts payable and accrued liabilities
Net cash provided by operating activities - Continuing Operations
Net cash provided by (used in) operating activities - Discontinued Operations
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from the sale of the building, net
Proceeds from the sale of E-core
Proceeds from the sale of Interactive Offers, net of liabilities paid
Acquisition of Cygnet Online LLC, net
Acquisition of property and equipment
Net cash provided by (used in) investing activities - Continuing Operations
Net cash (used in) provided by investing activities - Discontinued Operations
Net cash provided by (used in) investing activities
Cash flows from financing activities
Payment on acquisition notes payable
Payment on acquisition notes payable for E-core
Proceeds from related party advance
Proceeds on note payable on building
Net cash used in financing activities - Continuing Operations
Net cash (used in) provided by financing activities - Discontinued Operations
Net cash used in financing activities
Net decrease in cash - Continuing Operations
Net (decrease) increase in cash - Discontinued Operations
Cash, beginning of period
Cash, end of period
Supplemental Cash Flow Disclosures
Interest paid
Income tax paid
Non-cash Investing and Financing Activities
Issuance of common stock for acquisition of Cygnet
Issuance of debt for acquisition of Cygnet
Bloomios non-cash payment of receivables, net
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Background Information
As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “Upexi”, and the “Company” mean Upexi, Inc., a Nevada corporation formed in 2018. The Company has eleven active subsidiaries, which include:
HAVZ, LLC, d/b/a/ Steam Wholesale, a California limited liability company
Gummy Labs, LLC, a Delaware limited liability company
MW Products, Inc., a Nevada corporation
Upexi Holding, LLC, a Delaware limited liability company
o
Upexi Pet Products, LLC, a Delaware limited liability company
Upexi Enterprise, LLC, a Delaware limited liability company
Upexi Distribution LLC, a Delaware limited liability company
Upexi Distribution Management LLC, a Delaware limited liability company
Upexi Property & Assets, LLC, a Delaware limited liability company
■
Upexi 17129 Florida, LLC, a Delaware limited liability company
Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company (100% owned as of September 1, 2023)
Prax Products, LLC, a Florida limited liability company
The following subsidiaries had no activity during the three and six months ended December 31, 2024 and 2023:
Upexi CP, LLC, a Delaware limited liability company
Upexi CP / Canada Inc., a Canadian corporation
Upexi Development and Marketing, LLC., a Delaware limited liability company
Trunano Labs, Inc., a Nevada corporation
The following subsidiaries were divested during the years ended June 30, 2024 and 2023:
VitaMedica, Inc. a Nevada corporation
E-Core Technology, Inc. a Florida corporation
Infusionz LLC, a Colorado limited liability company
Interactive Offers, LLC, a Delaware limited liability company
In addition, the Company has six wholly owned subsidiaries that had no activity during the years ended December 31, 2024 and 2023. All of the entities were dissolved or cancelled as of December 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.
Upexi operates from our corporate location in Tampa, Florida, where direct to consumer, wholesale and Amazon sales are driven by on-site and remote teams for all brands. The Tampa location also supports all the other locations with accounting, corporate oversight, day-to-day finances, business development and operational management operating from this location.
MW Products operates from our corporate headquarters and our Tampa, Florida warehouse, managing direct to consumer, wholesale and Amazon sales for multiple brands and develops new products through our research and development team in Henderson, Nevada and Odessa, Florida.
Lucky Tail operates from our Tampa, Florida warehouse with sales and marketing driven by on-site and remote teams that operate the Amazon sales strategy and daily business operations.
Gummy Labs, LLC operates manufacturing and/or distribution centers in Odessa, Florida, supporting our health and wellness products, including those products manufactured with hemp ingredients and our overall distribution operations. We have continued to manage these operations with corporate focus on larger opportunities that have warranted the majority of corporate focus and investments for the future. While in Nevada, the business operated under the corporation HAVZ, LLC d/b/a/ Steam Wholesale.
Upexi Distribution operates from our Tampa, Florida warehouse providing warehousing, distribution and other services in support of our product sales.
Note 2. Liquidity and Significant Accounting Policies
At each reporting period, we evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Our evaluation entails analyzing prospective operating budgets and forecasts for expectations of our cash needs and comparing those needs to the current cash and cash equivalent balances. We are required to make certain additional disclosures if we conclude substantial doubt exists and it is not alleviated by our plans or when our plans alleviate substantial doubt about our ability to continue as a going concern.
In accordance with Accounting Standards Codification ("ASC") 205-40, going concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. In performing its analysis, management excluded certain elements of its operating plan that cannot be considered probable.
We have incurred net losses of $2.9 million for the six months ended December 31, 2024, and have an accumulated deficit of $49.8 million as of December 31, 2024. Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations, raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these condensed consolidated financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while highly possible, is less than probable because these plans are not entirely within our control. If we are unsuccessful in obtaining financing, we will be required to assess alternative forms of action. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements.
The significant accounting policies followed are:
Use of Estimates - The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates underlying the Company’s reported financial position and results of operations include the allowance for doubtful accounts, useful lives of property and equipment, impairment of long-lived assets, inventory valuation, fair value of stock-based compensation and valuation allowance on deferred tax assets.
Cash- The Company considers all highly liquid investment instruments with a maturity of three months or less to be cash equivalents. Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.
Inventory - The Company reviews the inventory level of all products and raw materials quarterly. For most products that have been in the market for one year or more, we consider inventory levels of greater than one year’s sales to be excess or other items that show slower than projected sales. Due to limited market penetration for our products, we have decided to write down 50% of the cost against certain raw materials and finished products. Products that are no longer part of the current product offering are considered obsolete. The potential for re-sale of slow-moving and obsolete inventories is based upon our assumptions about future demand and market conditions. The recorded cost of obsolete inventories is then reduced to zero. The slow-moving and obsolete inventory is written off and recorded as charges to cost of goods sold. All adjustments for obsolete inventory establish a new cost basis for that inventory as we believe such reductions are permanent declines in the market price of our products. Generally, obsolete inventory is sold to companies that specialize in the liquidation, while we continue to market slow-moving inventories until they are sold or become obsolete.
Inventory consists of raw materials and finished goods and is stated at the lower of cost or net realizable value, cost is determined by the weighted average moving cost inventory method. Net realizable value is determined, with appropriate consideration given to obsolescence, excessive levels, deterioration, and other factors.
Property and Equipment - Property and equipment is recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 20 years. Leasehold improvements are amortized over the shorter of their estimated useful lives of 5 years or the related lease term. Gains and losses upon disposition are reflected in the Statements of Operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred.
Business Combinations - The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the seller’s cash consideration and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as identifiable intangible assets and goodwill.
Goodwill - The Company evaluates its goodwill for possible impairment, simplifying the test for goodwill impairment at least annually and when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.
The Company performed its annual test as of June 30, 2024 and 2023, respectively.
It was determined by management that the goodwill related to Cygnet was completely impaired at June 30, 2024 based on the strategic decision to exit the recommerce business. An impairment of goodwill in the amount of $3,594,745 was recorded at June 30, 2024 eliminating all of the goodwill related to Cygnet.
Revenue Recognition - In accordance with ASC No. 606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.
The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon the distributors’ resale of the products.
Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with inbound freight, are generally included in cost of revenue.
Our business is subject to contingencies related to customer orders, including:
Right of Return:
A large portion of our revenue comes from the sale of consumable products, which are sold in high-volume and low quantities, and are generally maintained at stock levels of less than ninety days in our facility. Customer returns have historically represented a very small percentage of sales on an annual basis. Other product sales relate to some pet products, including small mechanical devices.
Warranties:
The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment. E-Commerce product returns must be completed within 45 days of the date of purchase. The Company accrues an allowance for refunds, returned deposits and discounts given by customer services post shipment of the product based on historical experience and management’s estimate of future expenses, including replacement, freight charges and other fulfilment expenses.
Conditions of Acceptance:
Sales of our consumable products and pet products, generally do not have customer acceptance terms.
The following table discloses disaggregated revenue for the three months ended:
Primary geographical markets
United States of America
Total
Product source
Internally manufactured
Contract manufactured
Purchased as finished good
The following table discloses disaggregated revenue for the six months ended:
Contract Assets
A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. ASC 606, Revenue from Contracts with Customers, distinguishes between a contract asset and a receivable based on whether receipt of the consideration is conditional on something other than the passage of time. When the Company transfers control of goods or services to a customer before the customer pays consideration, the Company records either a contract asset or a receivable depending on the nature of the Company’s right to consideration for its performance. The point at which a contract asset becomes an account receivable may be earlier than the point at which an invoice is issued. The Company assesses a contract asset for impairment in accordance with ASC 310, Receivables.
The following table discloses the deferred revenue:
The deferred revenue or also referred to as funded backlog was $0 at July 1, 2023. We expect to recognize 100% of the deferred revenue at December 31, 2024 and June 30, 2024 as revenue in the year ended June 30, 2025.
Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable.
Advertising - The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing team. The Company believes continual investment in advertising is critical to the development and sale of its branded products. Advertising costs of $447,282 and $472,043 were expensed as incurred during the three months ended December 31, 2024 and 2023, respectively. Advertising costs of $865,121 and $1,096,607 were expensed as incurred during the six months ended December 31, 2024 and 2023, respectively.
Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options and grants of restricted shares as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately.
Leases - The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. Leases with an initial term of 12 months or less are not recorded within the accompanying condensed consolidated balance sheets. GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option will result in an economic penalty. All the Company’s real estate leases are classified as operating leases.
Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional two years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment.
Income Taxes - Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. At December 31, 2024 and June 30, 2024, there was a valuation allowance of approximately $6,883,000 and a $6,100,000 valuation allowance was recorded at December 31, 2024 and June 30, 2024, respectively.
The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s condensed consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There are no material uncertain tax positions at June 30, 2024 or June 30, 2023.
Reverse Stock Split
On September 18, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-20 (the "Reverse Stock Split"), which became effective as of October 3, 2024 (the "Effective Date"). The Reverse Stock Split was approved by the board of directors in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of common stock.
On the Effective Date, every twenty shares of Common Stock issued and outstanding were automatically combined into one share of Common Stock, without any change in the par value per share. As the per-share par value did not change, we reclassified $19,860 from Common Stock to Additional Paid-in-Capital on the Effective Date. The exercise prices and the number of shares issuable upon exercise of outstanding stock options, equity awards and warrants, and the number of shares available for future issuance under the equity incentive plans were adjusted in accordance with their respective terms. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in our Common Stock. We did not issue any fractional shares in connection with the Reverse Stock Split. Instead, fractional shares were initially rounded up to the next largest whole number, resulting in the issuance of 8 shares on October 3, 2024, the Effective Date, and an additional issuance of 38 shares on October 8, 2024. On October 10, 2024, the transfer agent received additional requests to issue a total of 202,183 shares of common stock for round up of fractional shares. These shares were issued on October 23, 2024 and on October 30, 2024 we were notified that the shares were returned to the Company’s transfer agent. Although the Company did receive the common stock back after issuance, the potential dilution remains a risk, and is the subject of a complaint filed by the Company in the United States District Court for the District of Nevada with the purpose of eliminating any said risk. The Reverse Stock Split did not modify the relative rights or preferences of the Common Stock.
Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split.
On October 17, 2024, Company received written notice (the “Compliance Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that it has regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Stock Market maintain a minimum bid price of $1.00 per share. Nasdaq notified the Company in the Compliance Notice that, from October 3, 2024 to October 16, 2024, the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed.
Deferred Revenue - The Company records deposits as deferred revenue when a customer pays in advance of shipping the product. Once the product is shipped, the deposit is recorded as revenue and the related commissions are paid. All products were shipped related to deposits in deferred revenue, in less than one year.
Convertible Debt and Securities - The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.
Reclassifications - Certain reclassifications have been made to the consolidated financial statements as of and for the three and six months ended December 31, 2023 to conform to the presentation as of and for the six months ended December 31, 2024.
Basis of Presentation and Principles of Consolidation - The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of December 31, 2024 and June 30, 2024.
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.
Recent Accounting Pronouncements – From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (“FASB”), or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting pronouncements, including the new provisions of ASC 326 (“Financial Instruments – Credit Losses”) pertaining to “current expected credit losses. ASC 326 was adopted for fiscal year 2024 and did not have a material effect to the accompanying condensed consolidated financial statements.
Note 3. Inventory
Inventory consisted of the following:
Raw materials
Finished goods
The Company writes off the value of inventory deemed excessive or obsolete. During the three months ended December 31, 2024 and December 31, 2023, the Company wrote off inventory valued at $6,322 and had recovery of previously written off inventory of $85,505, net, respectively. During the six months ended December 31, 2024 and December 31, 2023, the Company wrote off inventory valued at $48,692 and had recovery of previously written off inventory of $39,456, net, respectively. The Company had inventory reserves at December 31, 2024 and June 30, 2024 of $605,470 and $605,470, respectively.
Note 4. Property and Equipment
Furniture and fixtures
Computer equipment
Internal use software
Manufacturing equipment
Leasehold improvements
Vehicles
Property and equipment, gross
Less accumulated depreciation
Depreciation expense for the three months ended December 31, 2024, and 2023 was $220,562 and $317,723, respectively.
Depreciation expense for the six months ended December 31, 2024, and 2023 was $460,467 and $595,336, respectively.
Note 5. Intangible Assets
Intangible assets as of December 31, 2024:
Estimated
Life
Cost
Amortization
Net
Book Value
Customer relationships
4 years
Trade name
5 years
Online sales channels
2 years
Vender relationships
For the three months ended December 31, 2024 and 2023, the Company amortized approximately $19,200 and $658,900, respectively.
For the six months ended December 31, 2024 and 2023, the Company amortized approximately $38,400 and $1,317,700, respectively.
Intangible assets as of June 30, 2024:
Future amortization of intangible assets on December 31, 2024 are as follows:
June 30, 2025
June 30, 2026
June 30, 2027
June 30, 2028
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other receivables consist of the following:
Insurance
Prepayment to vendors
Deposits on services
Prepaid monthly rent
Subscriptions and services being amortized over the service period
Stock issued for prepaid interest on convertible note payable
Other receivables
All prepaid expenses are expected to be expensed during the following 12 months from the reporting date.
Note 7. Operating Leases
We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, and equipment. We determine if an arrangement is a lease, or contains a lease, at inception, and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Our lease terms may include one or more options to extend the lease terms, for periods from one year to 20 years, when it is reasonably certain that we will exercise that option. As of December 31, 2024, no option to extend the lease was recognized as right-of-use (“ROU”) assets and lease liabilities. We have lease agreements with lease and non-lease components, and non-lease components are accounted for separately and not included in our ROU assets and corresponding liabilities. We have elected not to present short-term leases on the condensed consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception.
During November 2019, the Company entered into a lease for a Nevada facility that commenced on November 13, 2019, and recorded a right of use asset and corresponding lease liability. The Company used this leased facility for office, manufacturing, and warehouse space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. During the year ended June 30, 2024 the Company used the facility for ongoing operations and recognized approximately $670,200 of expense during the year. The Company moved out of the facility in July 2024.
During May 2021, the Company entered into a lease for an additional Nevada facility that commenced on May 1, 2021, and recorded a right of use asset and corresponding lease liability. The Company used this leased facility for additional warehouse space. The minimum lease payments were $34,956 and $69,684 for the three and six months ended December 31, 2023, respectively. The Company moved out of the facility in April of 2024 when the lease term ended.
During November 2018, the Company entered into a lease for equipment that commenced on November 1, 2018, and recorded a right of use asset and corresponding lease liability. Lease expenses were $3,820 and $3,820 for the six months ended December 31, 2024 and 2023, respectively.
On April 1, 2022, the Company acquired Cygnet which had entered into a lease for a Florida facility that commenced on October 8, 2021, and Cygnet had recorded a right of use asset and corresponding lease liability. The lease was set to expire on October 8, 2026. The Company uses this leased facility for warehouse and office space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases and accounted for as non-lease components and not part of the ROU. Lease expenses were $33,022 and $60,180 for the three and six months ended December 31, 2023, respectively. The Company abandoned the facility in October of 2023 and recognized a lease impairment of $289,969.
On March 15, 2023, the Company entered into a lease for approximately 20,400 square feet of warehouse and office space, located in Tampa, Florida, to be used as the Company’s distribution center. The initial term of the lease is thirty-eight months and was not completed when the lease was signed. The Company moved into the facility in July 2023 and started operations. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases and accounted for as non-lease components and not part of the ROU. During the six months ended December 31, 2024, the Company recognized approximately $201,512 of expense and approximately $170,524 for the six months ended December 31, 2023.
On July 25, 2023, the Company entered into a lease for approximately 5,700 square feet of office space, located in Tampa, Florida, to be used as the Company’s corporate headquarters. The initial term of the lease is sixty-one months. During the six months ended December 31, 2024, the Company recognized approximately $109,677 of expense and $51,137 expense for the six months ended December 31, 2023.
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC, which is owned by our CEO, Allan Marshall. The lease is for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month. The initial term of the lease is five years. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases and accounted for as non-lease components and not part of the ROU. The Company spent $611,768 in leasehold improvements to prepare the facility for product manufacturing, which will be amortized over the five year lease term. Product manufacturing was at full capacity and fully moved from the Nevada facility as of August 1, 2024. During the six months ended December 31, 2024, the Company recognized approximately $159,888 of expense.
Operating leases are included in operating ROU assets, current and non-current operating lease liabilities, and finance leases are included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the condensed consolidated balance sheets. As of December 31, 2024, our finance leases are not material.
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 December 31, 2024:
2025
2026
2027
2028
2029
Total undiscounted future minimum lease payments
Less: Imputed interest
Less: current portion
Present value of operating lease obligation
The liability for the Cygnet lease is included in the undiscounted future minimum lease payments for 2025. The Company continues to work with the lessor to resolve the disputed lease payments.
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of December 31, 2024 are:
Weighted average remaining lease term
37 Months
Weighted average incremental borrowing rate
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of December 31, 2023 are:
43 Months
For the three and six months ended December 31, 2024 and 2023, the components of lease expense, included general and administrative expenses and interest expense in the condensed consolidated statement of operations, are as follows:
December 31, 2024
Six Months
Ended
December 31, 2023
Finance lease expense:
Amortization of ROU assets
Interest expense
Operating lease cost
Short-term lease expense
Variable lease expense
Total lease cost
Note 8. Accrued Liabilities
For the six months ended December 31, 2024 and 2023, the components of lease expense, included general and administrative expenses and interest expense in the condensed consolidated statement of operations, are as follows:
Accrued professional fees
Accrued sales tax
Other accrued liabilities
Note 9. Convertible Promissory Notes and Notes Payable
Convertible promissory notes and notes payable outstanding are summarized below:
Maturity
Date
Convertible Notes:
Promissory Note, 21- month term, as amended, 18.11% interest payable with common stock and subordinate to the Convertible Notes. This note was amended as of November 15, 2023, extending the note to June 1, 2026 and adjusted the interest rate to 12%, paid in cash monthly.
June 1, 2026
Less current portion of notes payable
Notes payable, net of current portion
Notes payable, Cygnet subsidiary:
SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company
October 6, 2021
Inventory consignment note, 60 monthly payments, with first payment due June 30, 2022, 3.5% interest rate and no security interest in the assets of the business
GF Note, 6 annual payments, with first payment due December 31, 2022, 3.5% interest rate and no security interest in the assets of the business
November 7, 2026
Notes payable, Cygnet subsidiary, current
Notes payable, Cygnet subsidiary, net of current
Notes Payable on Building for sale:
Mortgage Loan, 10-year term note, 4.8% interest, collateralized by land and warehouse building
September 26, 2032
Note Payable:
Promissory Note, 21-month term note, 10% cash interest and subordinate to the Convertible Notes. This note was amended as of November 15, 2023, extending the note to June 1, 2026 and adjusted the interest rate to 12%, paid in cash monthly.
Notes payable, current
Discount on notes payable, current
Notes payable, current net of discount
Notes payable, long-term
Discount on notes payable, long-term
Notes payable, long-term, net
Related Notes Payable:
Marshall Loan, 2-year term note, 12% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes. November of 2023 extended to June 1, 2026 and interest was adjusted to 12% cash interest, paid monthly
Discount on related party note payable, current
Notes payable, current, net of discount
Discount on related party note payable, long term
Notes payable, long term, net
Total convertible notes payable, acquisition notes payable, notes payable and related party note payable
Future payments on notes payable are as follows as of December 31, 2024:
Note Payable
Related Party Note Payable
Convertible Notes
Cygnet Subsidiary Notes Payable
Note original discount
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $1,500,000 (“Marshall Loan”). The promissory note has a 2-year term and bears cash interest at the rate of 8.5% per annum with an additional PIK of 3.5% per annum. The promissory note provides for monthly payments of principal, on an even line 36-month basis, plus cash interest, with a balloon payment of all outstanding principal, cash interest, and PIK interest at maturity. The Company received and deposited the principal amount on July 31, 2022. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter the amortization of the note over a 12-month period, starting in June of 2025. The principal currently outstanding is $500,000. In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 18,750 shares of the Company’s common stock for five years at a per share price of $22.00. The note has been classified as long-term in the condensed consolidated financial statements. $1,000,000 of the promissory note was used by the investor in the purchase of VitaMedica.
On October 19, 2022, Upexi, Inc. (the “Company”) and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement, promissory note and related agreements with Professional Bank, a Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N. Clearwater, Florida. The Company received $3,000,000 in connection with the transaction. The principal is to be repaid to Professional Bank over a term of ten years. The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC in the amount of $2,780,200. As of March 31, 2023, the Company was not in compliance with the debt service ratio. The Company received a forbearance agreement from the bank until June 30, 2024 to return to compliance of the debt service ratio of 1.25 to 1, until that time the Company will pay an interest rate of 10% instead of the contractual terms of 4.8% and has paid the original principal and adjusted interest through this report. The building was sold for $4,300,000 on July 8, 2024.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. On November 15, 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12-month period, starting in June of 2025. The principal currently outstanding is $560,000. In addition to this, the Company issued the investor a warrant to purchase up to 6,250 shares of the Company’s common stock for five years at a per share price of $22.00.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000. In November of 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12-month period, starting in June of 2025. The principal currently outstanding is $2,150,000. In addition to this, the Company issued the investor a warrant to purchase up to 25,000 shares of the Company’s common stock at a per share price of $22.00. In addition, $100,000 of the promissory note was used by the investor in the purchase of VitaMedica. Subsequent to December 31, 2024, the investor agreed to convert $650,000 of the principal balance into 285,000 shares of the Company’s common stock or an average price of $2.28 per common share. The remaining principal at the time of this report is $950,000.
Note 10. Related Party Transactions
In June 2024, Allan Marshall, the Company’s CEO advanced the Company $100,000 to enable the Company to purchase equipment needed for the new warehouse facility. This advance was paid in July 2024. No interest or other fees were paid related to this transaction. Subsequent to December 31, 2024, Mr. Marshall advanced the Company $400,000 to cover short term negative cash flow. This is expected to be repaid with no interest or fees prior to the end of February 2025.
On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC, which is owned by our CEO, Allan Marshall. The lease is for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month on a triple net basis. The initial term of the lease is five years. The Company spent $611,768 in leasehold improvements to prepare the facility for product manufacturing, which will be amortized over the five year lease term. At June 30, 2024 there was $100,004 accrued for the deposit, 3 months’ rent, and 3 months estimated expenses, this was paid in July 2024 and is now kept current. Product manufacturing was at full capacity and fully moved from the Nevada facility as of August 1, 2024.
On June 13, 2024, the Company entered into a Stock Purchase Agreement (“SPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary VitaMedica, Inc. to three investors (the “Buyers”). One of the minority interest buyers is Allan Marshall, the Company’s CEO. The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments. The proceeds of the transaction will be used for working capital, the reduction of debt and the reduction of other liabilities currently outstanding.
In June 2022, the Company entered into a promissory note with a member of management. The loan was for $1,500,000 and has a two-year term with an interest rate of 8.5% per annum with an additional PIK of 3.5% per annum. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter, the amortization of the note over a 12-month period, starting in June of 2025. $1,000,000 of the principal was used as part of the VitaMedica purchase price. The principal outstanding and accrued interest at June 30, 2024 was $500,000 and $169,662, respectively. The accrued interest was paid in July of 2024. The principal outstanding and accrued interest at December 31, 2024 was $500,000 and $30,760, respectively. In addition, the Company issued Mr. Marshall a warrant to purchase up to 18,750 shares of the Company’s common stock for five years at a per share price of $22.00. The note has been classified as long-term in the condensed consolidated financial statements.
The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties.
Note 11. Equity Transactions
Convertible Preferred Stock
The Company has 25,000 shares of Preferred Stock issued and outstanding to Allan Marshall, CEO. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all matters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock.
In September of 2023, the Company issued 4,505 shares of common stock for the purchase of the remaining 45% of Cygnet Online, LLC. The shares were valued at $162,727 or $36.12 per common share. These shares were held due to a dispute with the seller.
On January 18, 2024, the Company issued 25,081 shares of common stock as repayment of $500,000 of the Company’s long-term debt. The shares were valued at $500,000 or 19.94 per common share.
On March 18, 2024, the Company issued 5,000 shares of common stock as an incentive-restricted stock grant to certain employees. The shares were valued at $85,000 or $17 per common share.
The Company effectuated a reverse stock split, at a rate of 20 to 1, effective at 12:01 am ET, October 3, 2024. The total issued and outstanding shares of the Company’s common stock, post reverse stock split was 1,040,886. The Depository Trust Company (“DTC”) has requested an additional 202,183 shares of the Company’s common stock to round up, pursuant to the terms of the reverse stock split, the holdings of DTC’s beneficial holders. These shares were issued on October 23, 2024 and on October 30, 2024 we were notified that the shares were returned to the Company’s transfer agent. Although the Company did receive the common stock back after issuance, the potential dilution remains a risk, and is the subject of a complaint filed by the Company in the United States District Court for the District of Nevada with the purpose of eliminating any said risk. The Reverse Stock Split did not modify the relative rights or preferences of the Common Stock.
Subsequent to December 31, 2024, the Company issued 260,000 shares of common stock to two different investors for the repayment of $550,000 of outstanding debt. The weight average share price for the repayment of debt was approximately $2.12 per common share issued.
Subsequent to December 31, 2024, the Company issued 220,000 shares of common stock shares of common stock as an incentive-restricted stock grant to certain employees and consultants. The shares were valued at $754,200 or approximately $3.43 per common share.
Note 12. Stock Based Compensation
The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares. The options are exercisable for a period of up to 10 years from the date of the grant.
A summary of stock option activity for the six months ended December 31, 2024 is as follows:
Weighted
Average
Remaining
Aggregated
Options
Exercise
Contractual
Intrinsic
Outstanding
Price
Life (Years)
Value
Outstanding at June 30, 2024
Exercised
Forfeited
Granted
Options outstanding at December 31, 2024
Options exercisable at December 31, 2024 (vested)
A summary of stock option activity for the six months ended December 31, 2023 is as follows:
Outstanding at June 30, 2023
Stock-based compensation expense attributable to stock options was $32,578 and $330,584 for the three months ended December 31, 2024, and 2023, respectively. Stock-based compensation expense attributable to stock options was $173,876 and $752,471 for the six months ended December 31, 2024, and 2023, respectively. As of December 31, 2024, there was approximately $91,300 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was approximately 2 years.
There were no stock options granted during the three or six months ended December 31, 2024.
There were 213,214 shares available for issuance as of December 31, 2024, under the 2019 Plan as amended.
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 six months ended December 31, 2023:
Dividend rate
Risk free interest rate
Expected term
Expected volatility
Grant date stock price
Subsequent to December 31, 2024, the Board of Directors canceled approximately 161,095 to increase the availability under the 2019 Plan. As an incentive to retain employees and the board members, the Company granted options to purchase 85,000 shares of the Company common stock, at an exercise price of approximately $3.46 per common shares and issued restricted stock grants that vest over a three to six month period of 220,000 shares.
Note 13. Income Taxes
The Company computed the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax income and adjusted for discrete tax items in the period. For the three and six months ended December 31, 2024 the Company reserved 100% of the benefit calculated as income tax benefit and calculated a benefit of $348,225 and $783,225 for the three and six months December 31, 2024, respectively.
For the three and six months ended December 31, 2024, the difference between the U.S. statutory rate and the Company’s effective tax rate is due to the additional valuation allowance on the Company’s deferred tax assets during the period. The income tax benefit for the three months and six months ended December 31, 2024, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately 25.83%. The income tax benefit for the three months and six months ended December 31, 2023, was primarily attributable to federal and state income taxes and non-deductible expenses for an effective tax rate of approximately 24.45%.
Deferred tax assets and liabilities resulting from temporary differences in the recognition of income and expenses for tax and financial reporting purposes. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred taxes. Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of June 30, 2024 the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. The Company determined that it is more likely than not that the Company will have future taxable income. The Company used $2,506,514 of the federal net operating loss carryover during the year ended June 30, 2022, however during the years ended June 30, 2024 and June 30, 2023 the federal net operating loss increased significantly and management recorded a valuation reserve of $6,100,000. As of December 31, 2024 the Company had a valuation reserve of approximately $6,883,225.
We file federal and state income tax returns in jurisdictions with varying statutes of limitations. Income tax returns generally remain subject to examination by federal and most state tax authorities. We are not currently under examination in any federal or state jurisdiction.
Note 14. Risks and Uncertainties
There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration, or DEA, and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.
Note 15. Discontinued Operations – Sale of Interactive Offers
On August 31, 2023, the Company sold Interactive offers to Amplifyir Inc. The purchase price is $1,250,000 with a provision to adjust the final purchase price based on the business being transferred to Amplifyer Inc. with a net zero working capital. In addition, the Buyer is obligated to pay the Company two-and one-half percent (2.5%) of certain advertising revenues of Interactive for a two-year period post-closing. Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from continuing operations.
Summary of discontinued operations:
Three Months
Discontinued Operations
Cost of sales
Sales, general and administrative expenses
Income (loss) from discontinued operations
Accounts receivable net of allowance for doubtful accounts
Fixed assets, net of accumulated depreciation
Total liabilities
Note 16. Discontinued Operations – Sale of VitaMedica
On June 13, 2024, the Company sold VitaMedica, Inc. to three investors and had an effective day of June 1, 2024. One of the minority interest investors is Allan Marshall, the Company’s Chief Executive Officer. The purchase price for the stock was $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 both continuing operations for all periods presented. Discontinued operations of VitaMedica excluded in the condensed consolidated financial statements for the three and six months ended December 31, 2023 are as follows:
Other expenses
Note 17. Discontinued Operations – Sale of E-Core
E-Core, Technology Inc. and its subsidiaries
On August 1, 2024, the Company closed a sale transaction in which, effective as of June 30, 2024, it sold 100% of the outstanding stock of its wholly owned subsidiary E-Core Technology, Inc., a Florida corporation (d/b/a New England Technology, Inc.) (“E-core”), to E-Core Holdings, LLC, a Florida limited liability company (the “Buyer”) pursuant to the terms of an Agreement to Unwind Securities Purchase Agreement dated July 31, 2024 (the “Agreement”). The principals of the Buyer are the three individuals from whom the Company acquired E-core in October 2022. The purchase price in the transaction was $2,000,000 paid by the Buyer to the Company at closing. In addition, in connection with the closing of the transaction (i) the Company was released as a guarantor from E-core’s commercial loan facility, and (ii) all subordinated promissory notes issued by the Company in connection with the Company’s initial acquisition of E-core were cancelled and any outstanding principal and interest thereunder was deemed paid in full. The Agreement contains standard representations and warranties, conditions to closing, and covenants, for a transaction of this nature.
Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented. Discontinued operations of E-core excluded in the condensed consolidated financial statements for the three and six months ended December 31, 2023 are as follows:
Income from discontinued operations
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
As used in this current report and unless otherwise indicated, the terms “we”, “us” and “our” mean Upexi, Inc.
The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
For the three and six months ended December 31, 2024, the condensed consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the condensed consolidated financial statements for the three and six months ended December 31, 2023.
Interactive Offers, LLC a Delaware limited liability corporation; VitaMedica, a Nevada corporation; and E-Core Technology, Inc. d/b/a New England Technology, Inc. have been classified as discontinued operations for the three and six months ended December 31, 2023 and the assets and liabilities have been classified as current assets, and liabilities of discontinued operations and assets held for sale on the balance sheets for December 31, 2023. There were no operations, assets or liabilities related to these discontinued operations for the three and six months ended December 31, 2024.
All intercompany accounts and transactions have been eliminated as a result of the consolidation.
Operating Segments
The Company’s financial reporting is organized into a single segment that includes production, sales and distribution of branded products, following the sale of E-Core, Technology Inc. and its subsidiaries. Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, products, production, distribution processes and regulatory environment as the other product sales or directly support the Company’s single segment.
Results of Operations
The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three months ended December 31, 2024 and 2023, which are included herein.
Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023
December 31
Change
Cost of revenue
Sales and marketing expenses
Other operating expenses
Other expenses (income)
Net (loss) gain on the sale of business
Net income (loss) from discontinued operations
Net (loss) income from continuing operations
Revenues declined by $3,457,388 or 46% to $4,005,492 compared with revenue of $7,462,880 in the same period last year. Approximately $3,350,000 of the decline was related to the strategic shift away from recommerce business and approximately $350,000 decline in our MW Products, direct to consumer sales. These declines were offset by increased sales of approximately $275,000 in manufacturing and the LuckyTail pet products sales. Management has augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products.
Cost of revenue decreased by 1,864,452 or 64% compared with the same period last year. The cost of revenue decrease is directly related to the sales declines described above. The gross profit decreased by approximately $1,593,000 compared with the same period last year, although the gross profit margin increase approximately 13% to 74% compared to 61% from the same period last year Management expects the trend to continue with the focus on sales of branded products.
Sales and marketing expenses decreased by $536,311 or 36% compared with the same period last year. The decrease in sales and marketing expenses was primarily related to the reduction of unnecessary agency expenses and a focused strategy on our core products.
Distribution costs decreased by $1,223,790 or 49% compared with the same period last year. The decrease in distribution costs was primarily related to the overall decline in the recommerce revenue. Management will continue to reduce overall distribution costs with the consolidation of products and facilities.
General and administrative expenses decreased by $35,749 or 2% compared with the same period last year. Since the consolidation to Florida and other changes in the business, management has actively been reducing general and administrative costs. Management expects that general and administrative expenses to continue to decline, with the most significant declines being realized in periods ending after December 31, 2024.
Other operating expenses decreased by $1,034,835 or , or 79%, compared with the same period last year. The decrease was primarily related to the impairment of intangibles at the end of the prior year, which drastically reduced amortization expense for the current period of acquired intangible assets and the decreased amortization of stock-based compensation.
Other expenses, which is primarily interest decreased by $814,101 or 78% compared with the same period last year. The decrease in interest expense was primarily related to the elimination of the acquisition debt on continuing entities for E-core and VitaMedica in the prior year.
A loss of $39,691 was recognized on the sale of Interactive offers and there was net income from discontinued operations of $88,524 and $460,570 from VitaMedica and E-core, respectively for the three months ended December 31, 2023.
The Company had a net loss of $1,301,310 for the three months ended December 31, 2024 compared to a loss of $2,438,919 for the three months ended December 31, 2023. The decrease in the net loss is primarily related to the above-mentioned changes.
Six Months Ended December 31, 2024 Compared to Six Months Ended December 31, 2023
Revenues declined by $7,375,563 or 47% to $8,362,007 compared with revenue of $15,737,570 in the same period last year. Approximately $6,500,000 of the decline was related to the strategic shift away from recommerce business and approximately $800,000 net decline in our branded products and manufacturing. Management expects that these declines are temporary as the primary factor was the transition and consolidation of the business to facilities in Florida. Management has augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products.
Cost of revenue decreased by 3,283,206 or 57% compared with the same period last year. The cost of revenue decrease is directly related to the sales declines described above. The gross profit decreased by approximately $4,092,000 compared with the same period last year, although the gross profit margin increased approximately 7% to 71% compared to 64% from the same period last year Management expects the trend to continue with the focus on sales of branded products.
Sales and marketing expenses decreased by $1,311,588 or 40% compared with the same period last year. The decrease in sales and marketing expenses was primarily related to the reduction of unnecessary agency expenses and a focused strategy on our core products.
Distribution costs decreased by $1,899,957 or 41% compared with the same period last year. The decrease in distribution costs was primarily related to the overall decline in the recommerce revenue. Management will continue to reduce overall distribution costs with the consolidation of products and facilities.
General and administrative expenses decreased by $246,409 or 8% compared with the same period last year. Since the consolidation to Florida and other changes in the business, management has actively been reducing general and administrative costs. Management expects that general and administrative expenses to continue to decline, with the most significant declines being realized in periods ending after December 31, 2024.
Other operating expenses decreased by $2,282,769 or 77% compared with the same period last year. The decrease was primarily related to the impairment of intangibles at the end of the prior year, which drastically reduced amortization expense for the current period of acquired intangible assets, and the decreased amortization of stock-based compensation.
Other expenses, which is primarily interest decreased by $1,376,972 or 73% compared with the same period last year. The decrease in interest expense was primarily related to the elimination of the acquisition debt on continuing entities for the sale E-core and VitaMedica in the prior year.
A gain of $340,933 was recognized on the sale of Interactive offers and there was net income from discontinued operations of $157,930 and $649,811 from VitaMedica and E-core, respectively for the three months ended December 31, 2023.
The Company had a net loss of $2,926,887 for the six months ended December 31, 2024 compared to a loss of $3,794,307 for the six months ended December 31, 2023. The decrease in the net loss is primarily related to the above-mentioned changes.
Liquidity and Capital Resources
Working Capital
As of
Working capital
Cash Flows
Cash flows used in operating activities – continuing operations
Cash flows provided by (used in) investing activities – continuing operations
Cash flows (used in) provided by financing activities – continuing operations
Cash flows provided by (used in) operating activities – discontinued operations
Cash flows (used in) investing activities – discontinued operations
Cash flows provided by (used in) financing activities – discontinued operations
Net decrease in cash during the period
On December 31, 2024, the Company had cash of $406,347, a decrease of $255,068 from June 30, 2024. The decrease in cash was primarily the operating losses, the increase in account receivable and the increase in inventory. This was offset by the sale of the building and the collection of the purchase price for E-core.
Net cash from operating activities benefited from non-cash expenses of $675,294, which was offset by an approximate $550,000 increase in accounts receivable and an increase in inventory of approximately $800,000 and the reduction of several liabilities. The negative cash flow from operations was anticipated by management as the Company augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products.
Net cash provided by investing activities for the six months ended December 31, 2024 was $5,838,106 and net cash used in investing activities for the six months ended December 31, 2023 was $832,864. For the six months ended December 31, 2024 the primary cash provided was the sale of the building and the collection of the purchase price for E-core. For the three months ended December 31, 2023, $147,592 was provided by the sale of Interactive offers, net of liabilities paid, $500,000 was used for the purchase of the remaining equity of Cygnet and $345,586 was used for the acquisition of property and equipment, respectively.
Net cash flows used in financing activities for the six months ended December 31, 2024 was $2,734,538 compared to $2,702,648 used during the six months ended December 31, 2024. The $100,000 advance to the Company by Allan Marshall, the CEO, and the loan on the building of $2,634,538 was repaid during the six months ended December 31, 2024. During the six months ended December 31, 2023 the use of cash was for the scheduled repayment of debts and the Company made a $2,000,000 payment and instalment payments of $313,818 on the acquisition debt related to E-core.
The net cash flow provided by discontinued operations for the six months ended December 31, 2023 was $1,346,534. Cash flow from financing activities increased $3,284,532 from an increase in the E-core line of credit and offset by cash flows used in operating activities of discontinued operations from increases in inventory and accounts receivables.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand, cash flow from operations, proceeds from the sale of VitaMedica not yet received and additional short term debt financings, if necessary.
We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all of our debt obligations.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Going Concern
Management has determined during the quarter that its strategic plan will require additional capital in the near term. While the Company is in the process of pursuing capital raises, those funds have not be realized as of the date of this report. As such, Management has disclosure in the financial statements the effect of this determination. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
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 December 31, 2024 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
In performing the above-referenced assessment, our management identified the following material weaknesses:
(i)
inadequate segregation of duties consistent with control objectives; and
(ii)
lack of multiple levels of supervision and review.
We believe the weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible. However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the appointment of additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies, by the end of our 2025 fiscal year as resources allow.
We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended December 31, 2024, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
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.
On March 14, 2024, Get Fit Fast Supplements, LLC, filed a lawsuit against Cygnet Online, LLC, et al., including, but not limited to the Company and Eric Hanig. The case is presently in active arbitration and is styled Get Fit Fast Supplements, LLC v. Cygnet Online, LLC, et al., American Arbitration Association Case No. 01-24-0003-1085. The foregoing action, and related actions that have been combined in the same arbitration, are principally a series of breach of contract and fraud cases related to the rights and obligations of the parties under the various transaction documents associated with the acquisition by the Company of Cygnet Online, LLC, and the acquisition, prior thereto, by Cygnet Online, LLC, of Get Fit Fast Supplements, LLC. The parties are seeking monetary damages in their various claims and counterclaims against one another. The Company is vigorously defending all claims made against it in the case.
Other than the foregoing, the Company is not involved in any pending legal proceeding or litigation, and, to the best of its knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of its properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
All of the securities issued by the Company were issued pursuant to the exemption for transactions by an issuer not involved in any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and corresponding state securities laws. For more information regarding securities issued, see the Liquidity and Capital Resources section to our Unaudited Condensed Consolidated Financial Statements included herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Item 5. Other Information
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.
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.
Dated: February 14, 2025
/s/ Allan Marshall
Allan Marshall
President, Chief Executive Officer, and Director
(Principal Executive Officer)
/s/ Andrew J. Norstrud
Andrew J. Norstrud
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)