UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212023
or
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to _______
Commission File Number 333-255266
|
(Exact name of registrant as specified in its charter) |
Nevada |
| 83-3378978 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
Tampa, FL |
|
|
(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: None
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|
|
|
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
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 ☐ NONo
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 ☐ NONo
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 | ☒ | Smaller reporting company | ☒ |
|
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 12, 2021, there were 16,378,00617, 2023, the registrant had 20,306,870 shares of common shares issued andstock, par value $0.001 per share, outstanding.
TABLE OF CONTENTS
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2 |
Table of Contents |
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except
We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included in this report speak only as of the date hereof, and except as required by applicable law, including the securities laws of the United States, we do not intendundertake no obligation to update publicly any of the forward-looking statements for any reason after the date of this report to conform these statements to actual results.results or to changes in our expectations.
Our unaudited condensed consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares inof our common stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Grove,Upexi, Inc., unless otherwise indicated.
We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
3 |
Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GROVE,UPEXI, INC.
Interim Unaudited Condensed Consolidated Financial Statements
For the Three Month Periods Ended September 30, 20212023 and 2022
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Condensed Consolidated Balance Sheets as of September 30, |
| 5 |
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| 6 |
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| 7 | ||
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| 8 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
| 9 |
4 |
Table of Contents |
|
CONDENSED CONSOLDIATED BALANCE SHEETS (UNAUDITED) |
|
| September 30, |
| June 30, |
|
| September 30, |
| June 30, |
| ||||||
|
| 2021 |
|
| 2021 |
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| 2023 |
|
| 2023 |
| ||||
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ASSETS |
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Current assets |
|
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| ||||||
Cash |
| $ | 13,034,699 |
| $ | 14,534,211 |
|
| $ | 417,108 |
| $ | 4,492,291 |
| ||
Accounts receivable, net of allowance for doubtful accounts of $57,500 and $57,500, respectively |
| 1,103,246 |
| 1,277,662 |
| |||||||||||
Accounts receivable |
| 9,756,622 |
| 7,163,564 |
| |||||||||||
Inventory |
| 3,091,744 |
| 2,094,952 |
|
| 13,786,262 |
| 11,557,128 |
| ||||||
Due from Bloomios |
| - |
| 845,443 |
| |||||||||||
Prepaid expenses and other receivables |
|
| 559,445 |
|
|
| 386,258 |
|
| 957,584 |
| 1,307,299 |
| |||
Current assets of discontinued operations |
|
| - |
|
|
| 89,989 |
| ||||||||
Total current assets |
| 17,789,134 |
| 18,293,083 |
|
| 24,917,576 |
| 25,455,714 |
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Property and equipment, net |
| 2,893,185 |
| 2,832,400 |
|
| 7,744,874 |
| 7,526,463 |
| ||||||
Intangible assets, net |
| 3,218,783 |
| 1,845,166 |
|
| 12,385,139 |
| 13,571,960 |
| ||||||
Goodwill |
| 3,685,593 |
| 2,413,813 |
|
| 11,719,155 |
| 10,251,281 |
| ||||||
Deferred tax asset |
| 1,252,269 |
| 1,403,591 |
|
| 6,076,423 |
| 5,604,056 |
| ||||||
Other assets |
| 49,068 |
| 49,068 |
|
| 365,060 |
| 96,728 |
| ||||||
Assets held for sale |
| - |
| 936,054 |
| |||||||||||
Right-of-use asset |
|
| 323,942 |
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|
| 417,443 |
|
|
| 2,037,515 |
|
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| 410,811 |
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Total other assets |
|
| 11,422,840 |
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| 8,961,481 |
|
| 40,328,166 |
| 38,397,353 |
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Total assets |
| $ | 29,211,974 |
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| $ | 27,254,564 |
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| $ | 65,245,742 |
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| $ | 63,853,067 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
| $ | 1,038,031 |
| $ | 1,604,723 |
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| $ | 4,638,195 |
| $ | 3,969,746 |
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Accrued compensation |
| 859,324 |
| 1,020,936 |
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| 513,934 |
| 533,842 |
| ||||||
Deferred revenue |
| 864,698 |
| 485,973 |
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| 153,769 |
| - |
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Accrued liabilities |
| 276,372 |
| 296,021 |
|
| 3,883,842 |
| 3,365,562 |
| ||||||
Acquisition payable |
| 74,589 |
| 1,764,876 |
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| 300,000 |
| - |
| ||||||
Current portion of notes payable |
| 1,000,000 |
| 447,100 |
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| 4,255,357 |
| 1,302,021 |
| ||||||
Current portion of convertible notes payable |
| - |
| 1,254,167 |
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Current portion of acquisition note payable |
| 5,656,620 |
| 5,656,620 |
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Current portion of related party note payable |
| - |
| 1,429,356 |
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Line of Credit |
| 118,001 |
| 882,845 |
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Current portion of operating lease payable |
|
| 136,889 |
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| 199,532 |
|
| 517,099 |
| 419,443 |
| |||
Current liabilities of discontinued operations |
|
| - |
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| 792,408 |
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Total current liabilities |
|
| 4,249,903 |
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| 5,819,161 |
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| 20,036,817 |
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| 19,606,010 |
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Operating lease payable, net of current portion |
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| 183,673 |
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| 217,430 |
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| 1,600,489 |
| 163,359 |
| |||
Related party note payable |
| 1,444,493 |
| - |
| |||||||||||
Convertible notes payable |
| 2,150,000 |
| 895,833 |
| |||||||||||
Acquisition notes payable, net of current |
| 7,968,497 |
| 7,605,085 |
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Notes payable, net of current portion |
|
| 4,475,450 |
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| 7,746,157 |
| ||||||||
Total long-term liabilities |
|
| 183,673 |
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| 217,430 |
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| 17,638,929 |
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| 16,410,434 |
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Commitments and contingencies |
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| 0 |
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| 0 |
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Stockholders' equity |
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Preferred stock, $0.001 par value, 100,000,000 shares authorized, and 500,000 and 500,000 shares issued and outstanding, respectively |
| 500 |
| 500 |
|
| 500 |
| 500 |
| ||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, and 15,711,339 and 15,262,394 shares issued and outstanding, respectively |
| 15,711 |
| 15,262 |
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Common stock, $0.001 par value, 100,000,000 shares authorized, and 20,306,870 and 16,713,345 shares issued and outstanding, respectively |
| 20,307 |
| 20,216 |
| |||||||||||
Additional paid in capital |
| 28,420,512 |
| 25,372,247 |
|
| 52,106,752 |
| 51,522,229 |
| ||||||
Accumulated deficit |
|
| (3,658,325 | ) |
|
| (4,170,036 | ) |
|
| (24,557,563 | ) |
|
| (23,201,175 | ) |
Total stockholders' equity attributable to Upexi, Inc. |
|
| 27,569,996 |
|
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| 28,341,770 |
| ||||||||
Non-controlling interest in subsidiary |
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| (505,147 | ) | ||||||||
Total stockholders' equity |
|
| 24,778,398 |
|
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| 21,217,973 |
|
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| 27,569,996 |
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| 27,836,623 |
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| ||||||
Total liabilities and stockholders' equity |
| $ | 29,211,974 |
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| $ | 27,254,564 |
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| $ | 65,245,742 |
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| $ | 63,853,067 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
Table of Contents |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
|
| Three Month's Ended September 30, |
| |||||
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| 2021 |
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| 2020 |
| ||
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Revenue |
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Revenue |
|
| 8,449,754 |
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| 2,937,442 |
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Cost of Revenue |
|
| 3,067,376 |
|
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| 1,619,208 |
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Gross profit |
|
| 5,382,378 |
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| 1,318,234 |
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Operating expenses |
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Sales and marketing |
|
| 1,511,687 |
|
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| 365,258 |
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General and administrative expenses |
|
| 3,435,148 |
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| 1,713,062 |
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| 4,946,835 |
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| 2,078,320 |
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Income (loss) from operations |
|
| 435,543 |
|
|
| (760,086 | ) |
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Other income (expense), net |
|
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Interest (expense) income, net |
|
| (15,956 | ) |
|
| (42,691 | ) |
Loss on sale of assets |
|
| 0 |
|
|
| (6,296 | ) |
Gain on SBA PPP loan extinguishment |
|
| 300,995 |
|
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| 0 |
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|
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Other income (expense), net |
|
| 285,039 |
|
|
| (48,987 | ) |
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Income (loss) before income tax |
|
| 720,582 |
|
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| (809,073 | ) |
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Income tax expense |
|
| (208,871 | ) |
|
| 0 |
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Net income (loss) |
|
| 511,711 |
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| (809,073 | ) |
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Basic income (loss) per share |
| $ | 0.03 |
|
| $ | (0.08 | ) |
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Diluted income (loss) per share |
| $ | 0.03 |
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| $ | (0.08 | ) |
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Weighted average shares outstanding |
|
| 15,452,453 |
|
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| 10,384,439 |
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Fully diluted weighted average shares outstanding |
|
| 17,220,564 |
|
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| 10,384,439 |
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| Three Months Ended September 30, |
| |||||
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| 2023 |
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| 2022 |
| ||
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Revenue |
|
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Revenue |
| $ | 27,347,642 |
|
| $ | 11,218,799 |
|
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Cost of Revenue |
|
| 18,639,793 |
|
|
| 5,401,316 |
|
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Gross profit |
|
| 8,707,849 |
|
|
| 5,817,483 |
|
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Operating expenses |
|
|
|
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Sales and marketing |
|
| 2,848,667 |
|
|
| 1,727,469 |
|
Distribution costs |
|
| 2,850,616 |
|
|
| 2,487,834 |
|
General and administrative expenses |
|
| 2,255,928 |
|
|
| 2,127,846 |
|
Share-based compensation |
|
| 421,887 |
|
|
| 927,326 |
|
Amortization of acquired intangible assets |
|
| 1,186,821 |
|
|
| 729,909 |
|
Depreciation |
|
| 286,084 |
|
|
| 194,497 |
|
|
|
| 9,850,003 |
|
|
| 8,194,881 |
|
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Loss from operations |
|
| (1,142,154 | ) |
|
| (2,377,398 | ) |
|
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Other expense (income), net |
|
|
|
|
|
|
|
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Change in derivative liability |
|
| - |
|
|
| (1,770 | ) |
Interest expense, net |
|
| 874,185 |
|
|
| 433,478 |
|
|
|
|
|
|
|
|
|
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Other expense (income), net |
|
| 874,185 |
|
|
| 431,708 |
|
|
|
|
|
|
|
|
|
|
Loss from operations before income tax |
|
| (2,016,339 | ) |
|
| (2,809,106 | ) |
Gain (Loss) from the sale of Interactive Offers |
|
| 380,624 |
|
|
| - |
|
(Loss) income from discontinued operations |
|
| (193,040 | ) |
|
| (644,615 | ) |
Income tax benefit |
|
| 472,367 |
|
|
| 708,201 |
|
Net (loss) income |
|
| (1,356,388 | ) |
|
| (2,745,520 | ) |
|
|
|
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|
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Net loss attributable to noncontrolling interest |
|
| - |
|
|
| 148,005 |
|
|
|
|
|
|
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Net (loss) income attributable to Upexi, Inc. |
| $ | (1,356,388 | ) |
| $ | (2,597,515 | ) |
|
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Basic and Diluted loss per share: |
|
|
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|
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|
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(Loss) income per share from continuing operations |
| $ | (0.07 | ) |
| $ | (0.16 | ) |
(Loss) income per share from discontinued operations |
| $ | (0.01 | ) |
| $ | (0.04 | ) |
Total (loss) income per share |
| $ | (0.07 | ) |
| $ | (0.16 | ) |
|
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|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 20,244,618 |
|
|
| 16,713,345 |
|
Fully diluted weighted average shares outstanding |
|
| 20,244,618 |
|
|
| 16,713,345 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Table of Contents |
|
CONDENSED CONSOLIDATED STATEMENTS OF |
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| Preferred Stock |
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| Preferred Stock |
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| Common Stock |
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| Common Stock |
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| Additional Paid |
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| Accumulated |
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| Non-controlling |
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| Total Shareholders' |
| ||||||||
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| In Capital |
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| Deficit |
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| Interest |
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| Equity |
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2020 |
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Balance, June 30, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 10,222,223 |
|
| $ | 10,223 |
|
| $ | 7,314,341 |
|
| $ | (7,098,984 | ) |
| $ | 1,953,801 |
|
| $ | 2,179,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Trunano subsidiary stock into Grove common stock |
|
| - |
|
|
| 0 |
|
|
| 1,277,778 |
|
|
| 1,278 |
|
|
| 1,952,523 |
|
|
| 0 |
|
|
| (1,953,801 | ) |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of Infusionz |
|
| - |
|
|
| 0 |
|
|
| 222,223 |
|
|
| 223 |
|
|
| 339,777 |
|
|
| 0 |
|
|
| 0 |
|
|
| 340,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition costs |
|
| - |
|
|
| 0 |
|
|
| 83,334 |
|
|
| 83 |
|
|
| 127,417 |
|
|
| 0 |
|
|
| 0 |
|
|
| 127,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| 0 |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 93,193 |
|
|
| 0 |
|
|
|
|
|
|
| 93,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (809,073 | ) |
|
| 0 |
|
|
| (809,073 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020 |
|
| - |
|
| $ | 0 |
|
|
| 11,805,558 |
|
| $ | 11,807 |
|
| $ | 9,827,251 |
|
| $ | (7,908,057 | ) |
| $ | 0 |
|
| $ | 1,931,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
| 500,000 |
|
| $ | 500 |
|
|
| 15,262,394 |
|
| $ | 15,262 |
|
| $ | 25,372,247 |
|
| $ | (4,170,036 | ) |
| $ | 0 |
|
| $ | 21,217,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of Infusionz |
|
| - |
|
|
| 0 |
|
|
| 306,945 |
|
|
| 307 |
|
|
| 1,764,569 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,764,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of VitaMedica |
|
| - |
|
|
| 0 |
|
|
| 100,000 |
|
|
| 100 |
|
|
| 481,900 |
|
|
| 0 |
|
|
| 0 |
|
|
| 482,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition costs |
|
| - |
|
|
| 0 |
|
|
| 7,000 |
|
|
| 7 |
|
|
| 33,733 |
|
|
| 0 |
|
|
| 0 |
|
|
| 33,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 593,098 |
|
|
| 0 |
|
|
| 0 |
|
|
| 593,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services |
|
| - |
|
|
| 0 |
|
|
| 35,000 |
|
|
| 35 |
|
|
| 174,965 |
|
|
| 0 |
|
|
| 0 |
|
|
| 175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 511,711 |
|
|
| 0 |
|
|
| 511,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021 |
|
| 500,000 |
|
| $ | 500 |
|
|
| 15,711,339 |
|
| $ | 15,711 |
|
| $ | 28,420,512 |
|
| $ | (3,658,325 | ) |
| $ | 0 |
|
| $ | 24,778,398 |
|
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common Stock |
|
| Common Stock |
|
| Additional Paid |
|
| Accumulated |
|
| Non-controlling |
|
| Total Shareholders' |
| ||||||||
|
| Shares |
|
| Par |
|
| Shares |
|
| Par |
|
| In Capital |
|
| Deficit |
|
| Interest |
|
| Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, June 30, 2022 |
|
| 500,000 |
|
| $ | 500 |
|
|
| 16,713,345 |
|
| $ | 16,713 |
|
| $ | 34,985,597 |
|
| $ | (6,270,886 | ) |
| $ | 54,820 |
|
| $ | 28,786,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 927,326 |
|
|
| - |
|
|
| - |
|
|
| 927,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of common stock issuance for services |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| 70,350 |
|
|
| - |
|
|
| - |
|
|
| 70,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the three months ended September 30, 2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,597,515 | ) |
|
| (148,005 | ) |
|
| (2,745,520 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2022 |
|
| 500,000 |
|
| $ | 500 |
|
|
| 16,713,345 |
|
| $ | 16,713 |
|
| $ | 35,983,273 |
|
| $ | (8,868,401 | ) |
| $ | (93,185 | ) |
| $ | 27,038,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2023 |
|
| 500,000 |
|
| $ | 500 |
|
|
| 20,215,961 |
|
| $ | 20,216 |
|
| $ | 51,522,229 |
|
| $ | (23,201,175 | ) |
| $ | (505,147 | ) |
| $ | 27,836,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock and equity for purchase of Cygnet |
|
|
|
|
|
|
|
|
|
| 90,909 |
|
|
| 91 |
|
|
| 162,636 |
|
|
|
|
|
|
| 505,147 |
|
|
| 667,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 421,887 |
|
|
| - |
|
|
| - |
|
|
| 421,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended September 30, 2023 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,356,388 | ) |
|
| - |
|
|
| (1,356,388 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2023 |
|
| 500,000 |
|
| $ | 500 |
|
|
| 20,306,870 |
|
| $ | 20,307 |
|
| $ | 52,106,752 |
|
| $ | (24,557,563 | ) |
| $ | - |
|
| $ | 27,569,996 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7 |
Table of Contents |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
|
|
|
|
| ||||
|
| Three Month's Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 511,711 |
|
| $ | (809,073 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 365,737 |
|
|
| 279,899 |
|
Inventory write-offs |
|
| 50,000 |
|
|
| 0 |
|
Issuance of common stock for acquisition costs |
|
| 0 |
|
|
| 127,500 |
|
Shares issued for services |
|
| 175,000 |
|
|
| 0 |
|
Shares issued for finder fee |
|
| 33,740 |
|
|
| 0 |
|
Bad debt expense |
|
| 0 |
|
|
| 1,165 |
|
Loss on sale of equipment |
|
| 0 |
|
|
| 6,292 |
|
Gain on forgiveness of SBA PPP loan |
|
| (300,995 | ) |
|
| 0 |
|
Stock based compensation |
|
| 593,098 |
|
|
| 93,193 |
|
Changes in assets and liabilities, net of acquired amounts |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 281,862 |
|
|
| (257,858 | ) |
Inventory |
|
| (426,955 | ) |
|
| (269,818 | ) |
Prepaid expenses and other assets |
|
| (55,919 | ) |
|
| (30,231 | ) |
Change in deferred tax asset |
|
| 151,322 |
|
|
| 0 |
|
Accounts payable and accrued liabilities |
|
| (939,969 | ) |
|
| 21,225 |
|
Deferred revenue |
|
| 378,725 |
|
|
| 200,521 |
|
Net cash provided by (used in) operating activities |
|
| 817,357 |
|
|
| (637,185 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisition of VitaMedica |
|
| (2,000,000 | ) |
|
| 0 |
|
Acquisition of Infusionz, Inc., net of cash acquired |
|
| 0 |
|
|
| 212,122 |
|
Proceeds from sale of property and equipment |
|
| 0 |
|
|
| 64,000 |
|
Acquisition of property and equipment |
|
| (166,869 | ) |
|
| (5,454 | ) |
Net cash (used in) provided by investing activities |
|
| (2,166,869 | ) |
|
| 270,668 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Repayment of notes payable |
|
| (150,000 | ) |
|
| (12,000 | ) |
Net cash used in financing activities |
|
| (150,000 | ) |
|
| (12,000 | ) |
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| (1,499,512 | ) |
|
| (378,517 | ) |
Cash, beginning of period |
|
| 14,534,211 |
|
|
| 887,517 |
|
Cash, end of period |
| $ | 13,034,699 |
|
| $ | 509,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 0 |
|
| $ | 0 |
|
Income tax paid |
| $ | 0 |
|
| $ | 0 |
|
Non-cash financing activities |
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of Infusionz |
| $ | 1,764,876 |
|
| $ | 340,000 |
|
Issuance of common stock for acquisition of VitaMedica |
| $ | 482,000 |
|
| $ | 0 |
|
Repayment of Infusionz LLC debt to Grove, Inc. |
| $ | 0 |
|
| $ | 72,000 |
|
Issuance of debt for acquisition of VitaMedica |
| $ | 1,000,000 |
|
| $ | 0 |
|
Liabilities assumed from acquisition of Infusionz |
| $ | 0 |
|
| $ | (680,480 | ) |
Liabilities assumed from acquisition of VitaMedica |
| $ | (309,574 | ) |
| $ | 0 |
|
Stock issuance for payroll accrual |
| $ | 0 |
|
| $ | 0 |
|
|
| Three Month's Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss from operations |
| $ | (1,356,388 | ) |
| $ | (2,745,520 | ) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) income from continuing operations to net cash (used) provided by |
|
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 1,472,905 |
|
|
| 924,406 |
|
Amortization of loan costs |
|
| 15,137 |
|
|
| 49,158 |
|
Amortization of consideration discount |
|
| (108,955 | ) |
|
| - |
|
Change in deferred tax asset |
|
| - |
|
|
| (729,483 | ) |
Change in derivative liability |
|
| - |
|
|
| 1,770 |
|
Stock based compensation |
|
| 421,887 |
|
|
| 927,326 |
|
Changes in assets and liabilities, net of acquiried amounts |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (2,435,858 | ) |
|
| (180,525 | ) |
Inventory |
|
| (1,138,306 | ) |
|
| (912,492 | ) |
Prepaid expenses and other assets |
|
| 257,797 |
|
|
| (681,964 | ) |
Accounts payable and accrued liabilities |
|
| 690,004 |
|
|
| 969,770 |
|
Accrued liabilities related to acquisition |
|
| - |
|
|
| (139,233 | ) |
Deferred revenue |
|
| 19,819 |
|
|
| - |
|
Net cash used by operating activities - Continuing Operations |
|
| (2,120,290 | ) |
|
| (2,516,787 | ) |
Net cash (used) provided by operating activities - Discontinued Operations |
|
| (223,957 | ) |
|
| (4,240 | ) |
Net cash (used) provided by operating activities |
|
| (2,344,247 | ) |
|
| (2,521,027 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from the sale of Interactive Offers, net of liabilities paid |
|
| 147,592 |
|
|
| - |
|
Acquisition of Lucky Tail |
|
| - |
|
|
| (2,000,000 | ) |
Acquisition of VitaMedica, Inc., net of cash acquired |
|
| - |
|
|
| (500,000 | ) |
Acquisition of Cygnet, Inc., net of cash acquired |
|
| (500,000 | ) |
|
| - |
|
Acquisition of property and equipment |
|
| (296,313 | ) |
|
| (147,930 | ) |
Net cash used in investing activities - Continuing Operations |
|
| (648,721 | ) |
|
| (2,647,930 | ) |
Net cash used in investing activities - Discontinued Operations |
|
| - |
|
|
| - |
|
Net cash used in investing activities |
|
| (648,721 | ) |
|
| (2,647,930 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Repayment of related party note payable |
|
| - |
|
|
| 1,470,000 |
|
Payment of note payable |
|
| (317,371 | ) |
|
| (152,186 | ) |
Change in line of credit, net |
|
| (764,844 | ) |
|
| - |
|
Net cash provided (used) by financing activities - Continuing Operations |
|
| (1,082,215 | ) |
|
| 1,317,814 |
|
Net cash provided by financing activities - Discontinued Operations |
|
| - |
|
|
| - |
|
Net cash provided (used) by financing activities |
|
| (1,082,215 | ) |
|
| 1,317,814 |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash - Continuing Operations |
|
| (3,851,226 | ) |
|
| (3,846,903 | ) |
Net (decrease) increase in cash - Discontinued Operations |
|
| (223,957 | ) |
|
| (4,240 | ) |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
| 4,492,291 |
|
|
| 7,149,806 |
|
Cash, end of period |
| $ | 417,108 |
|
| $ | 3,298,663 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 94,860 |
|
| $ | 239,117 |
|
Income tax paid |
| $ | - |
|
| $ | - |
|
Issuance of common stock for acquisition of Cygnet |
| $ | 162,727 |
|
| $ | - |
|
Issuance of debt for the acquisition payable for Cygnet |
| $ | 300,000 |
|
| $ | - |
|
Bloomios non-cash payment of receivable, net |
| $ | 845,443 |
|
| $ | - |
|
Stock issued for construction services for property and equipment |
| $ | - |
|
| $ | 70,350 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements..
8 |
Table of Contents |
GROVE,UPEXI, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Background Information
Upexi is a multi-faceted brand owner with established brands in health, wellness, pet, beauty and other growing markets. We operate in emerging industries with high growth trends and look to drive organic growth of our current brands. We focus on direct to consumer and Amazon brands that are scalable and have anticipated, high industry growth trends. Our goal is to continue to accumulate consumer data and build out a significant customer database across all industries we sell into. The growth of our current customer database has been key to the year-over-year gains in the businesssales and profits. To drive additional growth, we have and will continue to acquire profitable Amazon and eCommerce businesses that can scale quickly and reduce costs through corporate synergies. We utilize our in-house SaaS programmatic ad technology to help achieve a lower cost per acquisition and accumulate consumer data for increased cross-selling between our growing portfolio of developing, producing, marketing, and selling raw materials, white label products and end consumer products containing the hemp plant extract, Cannabidiol (“CBD”). We sell to numerous consumer markets including the nutraceutical, beauty care, pet care and functional food sectors. We seek to take advantage of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers.brands.
In addition, we are an operator of an annual tradeshow in the United States related to the CBD industry. The Company only has one trade show, CBD.IO, which is held in November each year. Because event revenue is recognized when a particular event is held, the Company experiences fluctuations in quarterly revenue based on the completion of the trade show event.
Grove,Upexi, Inc. (the “Company”) is a Nevada Corporation andcorporation with fourteen active subsidiaries through which the Company primarily conducts its business. The Company’s fourteen active subsidiaries are as follows:
☐ | HAVZ, LLC, d/b/a/ Steam Wholesale, a California limited liability company | |||
o | SWCH, LLC, a Delaware limited liability company | |||
o | Cresco Management, LLC, a California limited liability company | |||
☐ | Trunano Labs, Inc., a Nevada corporation | |||
☐ | MW Products, Inc., a Nevada corporation | |||
☐ | Upexi Holding, LLC, a Delaware limited liability company | |||
o | Upexi Pet Products, LLC, a Delaware limited liability company | |||
☐ | VitaMedica, Inc, a Nevada corporation | |||
☐ | Upexi Enterprise, LLC, a Delaware limited liability company | |||
o | Upexi Property & Assets, LLC, a Delaware limited liability company | |||
■ | Upexi 17129 Florida, LLC, a Delaware limited liability company | |||
o | E-Core Technology, Inc. | |||
o | Upexi Distribution Management LLC, a Delaware limited liability company | |||
☐ | Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company. |
In addition, the Company has ninefour wholly owned subsidiaries Trunano Labs,that had no activity during the three months ended September 30, 2023 and September 30, 2022, respectively.
· | Steam Distribution, LLC, a California limited liability company | |
· | One Hit Wonder, Inc., a California corporation | |
· | One Hit Wonder Holdings, LLC, a California limited liability company | |
· | Vape Estate, Inc., a Nevada Corporation |
Our products are distributed in the United States of America and internationally through multiple entities and managed through our locations in Florida, California, and Nevada.
Upexi operates from our corporate location in Tampa, Florida where direct to consumer and Amazon sales are driven by on-site and remote teams for all brands. The Tampa location also supports all the other locations with accounting, corporate oversight, day-to-day finances, business development and operational management operating from this location.
VitaMedica operates mainly from our California location with product development and day to day management with the primary fulfillment center located in Tampa Florida.
Cygnet Online operates from our South Florida location with a full on-site GMP warehouse and distribution center, day-to-day operations of our Amazon liquidation business team from this location with support of remote team members.
Lucky Tail operates from our Clearwater, Florida location with sales and marketing driven by on-site and remote teams that operate the Amazon sales strategy and daily business operations.
HAVZ, LLC, d/b/a/ SteamWholesale operates manufacturing and/or distribution centers in Henderson, Nevada corporation, Cresco Management,supporting our health and wellness products, including those products manufactured with hemp ingredients and our overall distribution operations. We have continued to manage these operations with corporate focus on larger opportunities that have warranted the majority of corporate focus and investments for the future.
9 |
Table of Contents |
Business Acquisitions
On April 1, 2022, the Company entered into a California corporation, Steam Distribution,securities purchase agreement with a single investor to acquire 55% of the equity interest in Cygnet Online, LLC, a CaliforniaDelaware limited liability company; One Hit Wonder, Inc.,corporation. The agreement also enables the Company to purchase the remaining 45% over the following two years. On September 1, 2023, the Company purchased the remaining 45% of Cygnet Online, LLC for $500000 cash, 90,909 shares of the Company’s common stock and a California corporation; Havz,$300,000 cash payment due on September 1, 2024.
On August 12, 2022, the Company entered into an asset purchase agreement with GA Solutions, LLC, d/b/a Steam Wholesale, a CaliforniaDelaware limited liability company Grove Acquisition Subsidiary, Inc,(“LuckyTail”), pursuant to which the Company acquired substantially all of the assets of LuckyTail. LuckyTail sells pet nail grinders and other pet products through various sales channels including some international sales channels.
On October 31, 2022, the Company and its wholly owned subsidiary Upexi Enterprise, LLC, entered into a securities purchase agreement to purchase the outstanding stock of E-Core Technology, Inc. d/b/a VitaMedicaNew England Technology, Inc. (“E-Core”), a Nevada corporation, One Hit Wonder Holdings, LLCFlorida corporation. E-Core distributes non-owned branded products to national retail distributors and has branded products in the toy industry that E-core sells direct to consumers through online sales channels and sells to national retail distributors.
Business Divested
On October 26, 2022, the Company entered into a California corporation,membership interest purchase agreement to sell 100% of the membership interests of Infusionz LLC, a Colorado corporationlimited liability company (“Infusionz”), included in the sale was all of the rights to Infusionz brands and SWCH,the manufacturing of certain private label business. Infusionz was originally purchased by the Company in July of 2020. The divestiture of Infusionz and related private label manufacturing represents a Delaware corporation.strategic shift in our operations and will allow us to become a predominantly product distribution focused company for both our Company owned brands and non-owned brands. As a result, the results of the business were classified as discontinued operations in our condensed statements of operations and excluded from both continuing operations and segment results for all periods presented.
On August 31, 2023, Upexi, Inc. (the “Company”) entered into an Equity Interest Purchase Agreement (“EIPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary Interactive Offers, LLC (“Interactive”) to Amplifyir Inc. (the “Buyer”). The purchase price for the Interests was One Million Two Hundred Fifty Thousand Dollars ($1,250,000), subject to certain customary post-closing adjustments. In addition, the Buyer is obligated to pay the Company two-and one- half percent (2.5%) of certain advertising revenues of Interactive for a two-year period post-closing. Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented.
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of September 30, 20212023 and June 30, 2021.2023.
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessarynecessarily be indicative of annual results.
The significant accounting policies adopted during the 2022 fiscal year are as follows:
In August 2020, the FASB issued ASU 2020-06-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its Convertible Debt and reduce its reported interest expense. In addition, the Company will be required to use the if-converted method for calculating diluted earnings per share. We adopted ASU 2020-06 as of the beginning of our 2022 fiscal year. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements as there were no unamortized beneficial conversion features as of June 30, 2021.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removed certain exceptions related to the approach for intraperiod tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for investments. This guidance also simplified aspects of accounting for recognizing deferred taxes for taxable goodwill. We adopted ASU 2019-12 as of the beginning of our 2022 fiscal year. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements.
The Company uses the same accounting policies in preparing quarterly and annual financial statements, except for the adoption of ASU 2020-06 and ASU 2019-12 for the current fiscal year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s annual audited consolidated financial statements as of and for the years ended June 30, 2021 and 2020 as filed with the Securities and Exchange Commission on September 28, 2021.
Note 2. Acquisitions
Trunano Labs Inc.
On July 1, 2020, the noncontrolling shareholders of the Company’s subsidiary, Trunano Labs Inc., converted 1,761,261 shares of Trunano Labs, Inc. stock, representing all the outstanding stock by minority interest holders, into 1,277,778 shares of Grove, Inc. common stock, 10.8% of the then outstanding shares. As of July 1, 2020, Trunano Labs, Inc. is a wholly owned subsidiary of Grove, Inc.
Infusionz LLC
On July 1, 2020, the Company entered into an agreement and plan of merger with Infusionz LLC (the “Infusionz Agreement”) with the members of Infusionz LLC. Pursuant to the terms of the Infusionz Agreement, on July 1, 2020, the Company acquired 100% of the outstanding membership interests of Infusionz LLC.
On September 1, 2021, the Company issued 306,945 shares of Common Stock in relations to the July 1, 2020, acquisition of Infusionz LLC. The shares were issued at a $5.75 per common share and extinguished the remaining acquisition liability related to the Infusionz LLC acquisition.
VitaMedica Corporation
Effective August 1, 2021, the Company entered into and closed an asset purchase agreement (the “VitaMedica Agreement”) with Grove Acquisition Subsidiary, Inc., a Nevada corporation and wholly owned subsidiary of the Company and VitaMedica Corporation, a California corporation, David Rahm and Yvette La-Garde (Seller). VitaMedica Corporation is a leading online seller of supplements for surgery, recovery, skin, beauty, health and wellness.
Pursuant to the terms and conditions of the VitaMedica Agreement, the Company agreed to purchase substantially all of the assets of the Seller as of August 1, 2021. The purchase price for the sale consists of $500,000 of Grove’s common stock, a non-negotiable promissory note from Grove in favor of the Seller in the original principal amount of $500,000, a non-negotiable convertible promissory note from Grove in favor of the Seller in the original principal amount of $500,000, convertible at $5.00 per share for a total of 100,000 shares of Grove Common Stock and a cash payment of $2,000,000, which was paid August 5, 2021.
Under the purchase method of accounting, the transaction was valued at an estimated fair value of $3,556,589. The purchase price for the sale consists of 100,000 shares of the Company’s common stock valued at $482,000, $4.82 per common share, the closing price on August 4, 2021 (close date of the transaction), a non-negotiable promissory note from Grove in favor of the Seller in the original principal amount of $500,000, a non-negotiable convertible promissory note from Grove in favor of the Seller in the original principal amount of $500,000, convertible at $5.00 per share for a total of 100,000 shares of Grove Common Stock and a cash payment of $2,000,000 which was paid on August 5, 2021. In addition, $74,589 cash payment was made on October 29, 2021, for the excess working capital acquired.
A finder’s fee of $103,740 was paid by the Company, $70,000 in cash and 7,000 share of common stock, valued at $33,740, $4.82 per common share, the closing market price on August 4, 2021 (close date of the transaction). These fees were expensed in the three month period ended September 30, 2021.
10 |
Table of Contents |
The intangibles will be recorded,Discontinued Operations
A discontinued operation is a component of an entity that has either been disposed of or that is classified as held for sale, which represents a separate major line of business or geographic area of options and is part of a single coordinated plan to dispose of a separate line of business or geographical area of operations. In accordance with the rules regarding the presentation of discontinued operations, the assets, liabilities, and activity of Infusionz and certain manufacturing business has been reclassified as discontinued operations for all periods presented.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguished between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability and are developed based on the Company’s preliminary estimatebest information available in the circumstances.
ASC 820 identified fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 established a three-tier fair value hierarchy that distinguishes between the following:
Level 1—Quoted market prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.
Level 3—Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value which are expectedrequires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to consist primarilythe fair value measurement.
The carrying amounts reflected in the balance sheets for cash and cash equivalents, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature.
Reclassification
Certain reclassifications have been made to the condensed consolidated financial statements as of customer listsand for the three months ended September 30, 2023, and for the three month period ended September 30, 2022 to conform to the presentation as of and for the three months ended September 30, 2023.
Note 2. Acquisitions
Cygnet Online, LLC
The Company acquired 55% of Cygnet Online, LLC, on April 1, 2022. The purchase price was $5,515,756, as amended.
The following table summarizes the consideration transferred to acquire Interactive and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
11 |
Table of Contents |
Fair value of consideration transferred:
Cash |
| $ | 1,500,000 |
|
Convertible note payable, convertible at $6.00 per common share |
|
| 1,050,000 |
|
Earnout payment |
|
| - |
|
Common stock, 555,489 shares valued at $5.34 per common share, the closing price on April 1, 2022. |
|
| 2,965,756 |
|
|
| $ | 5,515,756 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
|
|
|
|
|
Cash |
| $ | 471,237 |
|
Accounts receivable |
|
| 860,882 |
|
Inventory |
|
| 2,337,208 |
|
Prepaid expenses |
|
| 6,900 |
|
Property and equipment |
|
| 7,602 |
|
Right to use asset |
|
| 410,365 |
|
Other asset |
|
| 6,545 |
|
Online sales channels |
|
| 1,800,000 |
|
Vendor relationships |
|
| 6,000,000 |
|
Accrued liabilities |
|
| (701,606 | ) |
Notes payable |
|
| (7,298,353 | ) |
Operating lease |
|
| (422,479 | ) |
Total identifiable net assets |
| $ | 3,478,301 |
|
Goodwill |
| $ | 2,037,455 |
|
55% of the business was acquired through a stock purchase agreement on April 1, 2022. The purchase agreement provided for an increase in the purchase price of up to $700,000 based on the attainment of certain sales threshold in the first year. Our management believed that the attainment of those sales threshold at the time of acquisition was unlikely and valued the contingency at $0. The sales thresholds were not met, and no consideration was recorded for the contingency. The equity interest purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $950,000 and was repaid to the Company with an estimated life of fivethe reduction in the loan to ten years and goodwill. Upon completion of athe seller. The 55% purchase price allocation the allocation intangible assets will be adjusted accordingly.is final and is no longer subject to change.
The assetsCompany’s consolidated financial statements for the three months ended September 30, 2023 and liabilities2022, include the actual results of VitaMedica are recorded at their preliminary respective fair values asCygnet.
On September 1, 2023, the Company completed the acquisition of the closing dateremaining 45% interest for structured cash payments equaling $800,000 and 90,909 shares of the VitaMedica Agreement,Company’s common stock valued at $162,727.
Fair value of consideration transferred:
Cash |
| $ | 800,000 |
|
Noncontrolling interest |
|
| 505,147 |
|
Common stock, 90,909 shares valued at $1.79 per common share, the closing price on September 1, 2023. |
|
| 162,727 |
|
|
| $ | 1,467,874 |
|
12 |
Table of Contents |
The additional consideration was recorded as goodwill by management and will be subject to change based on the final purchase price allocation.
The acquisition of Cygnet provided the Company with the opportunity to expand its operations as an Amazon and eCommerce seller. The resulting combination increased Cygnet’s product offerings through the Company’s distributors and partnerships as it continues to focus on over-the-counter supplements and beauty products. Cygnet will be the anchor company for Upexi’s Amazon strategy. These are the factors of goodwill recognized in the acquisition.
LuckyTail
On August 13, 2022, the Company acquired the pet product brand and the rights to the products of LuckyTail from GA Solutions, LLC.
The following table summarizes these valuesthe consideration transferred to acquire LuckyTail and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
Fair value of consideration transferred:
Cash |
| $ | 2,000,000 |
|
Cash payment, 90 days after close |
|
| 484,729 |
|
Cash payment, 180 days after close |
|
| 469,924 |
|
Contingent consideration |
|
| 112,685 |
|
Cash payment, working capital adjustment |
|
| 460,901 |
|
|
| $ | 3,528,239 |
|
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Inventory |
| $ | 460,901 |
|
Trade name |
|
| 383,792 |
|
Customer list |
|
| 1,834,692 |
|
Total identifiable net assets |
| $ | 2,679,385 |
|
Goodwill |
| $ | 848,854 |
|
The business was acquired through an asset purchase agreement, that acquired all elements of the business, including all of the tangible and intangible assets of the LuckyTail business. The purchase agreement provided for an increase in the purchase price based on the balance sheetattainment of certain sales thresholds in the first six months. The Company estimated the value of this at approximately $150,000 at the time of purchase. The sales calculated to a $112,685 payout and the purchase price was adjusted. The asset purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was increased by $460,901 for the excess working capital that was transferred in the business and the final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.
The Company’s consolidated financial statements for the three months ended September 30, 2023, include the actual results of LuckyTail. The consolidated financial statements for the three months ended September 30, 2022, include the actual results of LuckyTail from August 1, 2021,13, 2022 through September 30, 2022. The Company recorded interest on the effective closingconsideration of $63,282 during the year ended June 30, 2023.
The acquisition of LuckyTail provided the Company with a foothold in the pet care industry and a strong presence on Amazon and its eCommerce store, offering nutritional and grooming products domestically and internationally. The acquisition provided both top line growth and improved EBITDA for the Company. These are the factors of goodwill recognized in the acquisition.
13 |
Table of Contents |
E-Core, Technology Inc. and its subsidiaries
On October 21, 2022, the Company acquired E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”).
The following table summarizes the consideration transferred to acquire E-Core and the amount of identified assets acquired, and liabilities assumed at the acquisition date.
Tangible Assets |
| $ | 860,738 |
|
Intangible Assets |
|
| 1,624,000 |
|
Goodwill |
|
| 1,271,780 |
|
Liabilities Acquired |
|
| (199,929 | ) |
Total Purchase Price |
| $ | 3,556,589 |
|
Fair value of consideration transferred: |
|
|
| |
|
|
|
| |
Cash |
| $ | 100,000 |
|
Cash payment, 120 days |
|
| 3,000,000 |
|
Note payable |
|
| 5,189,718 |
|
Note payable 2 |
|
| 4,684,029 |
|
Convertible note payable, convertible at $4.81 per common share |
|
| 2,418,860 |
|
Common stock, 1,247,402 shares valued at $4.81 per common share, the calculated closing price on October 21, 2022. |
|
| 6,000,000 |
|
|
| $ | 21,039,765 |
|
Recognized amounts of identifiable assets acquired, and liabilities assumed:
Cash | $ | 1,014,610 | ||
Accounts receivable | 6,699,945 | |||
Inventory | 7,750,011 | |||
Prepaid expenses | 75,721 | |||
Trade name | 1,727,249 | |||
Customer relationships | 5,080,305 | |||
Accrued liabilities | (192,051 | ) | ||
Line of credit | (7,201,079 | ) | ||
Total identifiable net assets | $ | 14,635,673 | ||
Goodwill | $ | 6,404,092 |
The business was acquired through a membership interest purchase agreement on October 21, 2022. There was no contingent consideration payable under the asset purchase agreement, although a provision was used to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was decreased by $33,803, net and was repaid to the Company with an adjustment to the $3,000,000 cash payment. The final purchase price allocation was completed by an independent consulting firm and is no longer subject to change.
The Company’s consolidated financial statements for the three months ended September 30, 2023, include the actual results of E-Core. The Company recorded interest on the consideration of $969,098 during the year ended June 30, 2023. At June 30, 2023 there was $1,738,295 of unamortized debt discount that will be expensed over the next two years.
The acquisition of E-Core provided the Company with an entrance into the children’s toy sector as well as national retail distribution for owned and non-owned branded products. The acquisition expands the Company’s ability to leverage direct-to-consumer distribution and further develops the broad distribution capabilities of E-Core. These are the factors of goodwill recognized in the acquisition.
Revenue from acquisitions included in the financial statements.
|
| Three months ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cygnet |
|
| 4,669,367 |
|
|
| 7,247,519 |
|
LuckyTail |
|
| 802,504 |
|
|
| 824,775 |
|
E-Core |
|
| 17,092,372 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| $ | 22,564,243 |
|
| $ | 8,072,294 |
|
Consolidated pro-forma unaudited financial statements.
The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, LuckyTail and VitaMedica,E-Core after giving effect to the Company’s acquisitionacquisitions as if the acquisitions occurred on July 1, 2020.2022.
The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2020,2022, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the three months ended September 30, 2021 and 20202022, as if the acquisitionacquisitions occurred on July 1, 2020. 2022. The results of operations for VitaMedica, Interactive and Cygnet are included in the three months ended September 30, 2022 and the results of operations for LuckyTail are included from August 13, 2022 to September 30, 2022.
14 |
Table of Contents |
Operating expenses for the three months ended September 30, 2022 have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of LuckyTail and E-Core by approximately $413,000$44,619, and $134,625, per year.month respectively and $363,415 of interest expense.
Pro Forma, Unaudited |
|
|
|
|
| Proforma |
|
|
| |||||||
Three months ended September 30, 2021 |
| Grove, Inc. |
|
| VitaMedica |
|
| Adjustments |
|
| Proforma |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 8,449,754 |
|
| $ | 384,391 |
|
|
|
|
| $ | 8,834,145 |
| |
Cost of sales |
| $ | 3,067,376 |
|
| $ | 93,509 |
|
|
|
|
| $ | 3,160,885 |
| |
Operating expenses |
| $ | 4,946,835 |
|
| $ | 255,286 |
|
| $ | 34,417 |
|
| $ | 5,236,538 |
|
Net income (loss) |
| $ | 511,711 |
|
| $ | 35,596 |
|
|
| (34,417 | ) |
| $ | 512,890 |
|
Basic income per common share |
| $ | 0.03 |
|
| $ | 0.36 |
|
|
|
|
|
| $ | 0.03 |
|
Weighted average shares outstanding |
|
| 15,452,453 |
|
|
| 100,000 |
|
|
|
|
|
|
| 15,552,453 |
|
Pro Forma, Unaudited |
|
|
|
|
| Proforma |
|
|
|
|
|
|
| Proforma |
|
| ||||||||||||||||||||
Three months ended September 30, 2020 |
| Grove, Inc. |
|
| VitaMedica |
|
| Adjustments |
|
| Proforma |
| ||||||||||||||||||||||||
Three months ended September 30, 2022 |
| Upexi, Inc. |
|
| LuckyTail |
|
| E-Core |
|
| Adjustments |
|
| Proforma |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net sales |
| $ | 2,937,442 |
| $ | 874,290 |
|
|
| $ | 3,811,732 |
|
| $ | 11,218,799 |
| $ | 892,270 |
| $ | 9,420,927 |
| $ | - |
| $ | 21,531,996 |
| ||||||||
Cost of sales |
| $ | 1,619,208 |
| $ | 245,628 |
|
|
| $ | 1,864,836 |
|
| $ | 5,501,316 |
| $ | 137,088 |
| $ | 8,208,282 |
| $ | - |
| $ | 13,746,686 |
| ||||||||
Operating expenses |
| $ | 2,078,320 |
| $ | 553,965 |
| $ | 103,250 |
| $ | 2,735,535 |
|
| $ | 8,194,881 |
| $ | 383,476 |
| $ | 635,608 |
| $ | 834,219 |
| $ | 10,048,184 |
| |||||||
Net income (loss) |
| $ | (809,073 | ) |
| $ | 74,696 |
| (103,250 | ) |
| $ | (837,627 | ) | ||||||||||||||||||||||
Net income (loss) from continuing operations |
| $ | (2,745,520 | ) |
| $ | - |
| $ | 578,037 |
| $ | (834,219 | ) |
| $ | (2,629,996 | ) | ||||||||||||||||||
Basic income (loss) per common share |
| $ | (0.08 | ) |
| $ | 0.75 |
|
|
| $ | (0.08 | ) |
| $ | (0.16 | ) |
| $ | - |
| $ | 0.46 |
| $ |
|
| $ | (0.15 | ) | ||||||
Weighted average shares outstanding |
| 10,384,439 |
| 100,000 |
|
|
| 10,484,439 |
|
| 16,713,345 |
|
|
| 1,247,403 |
|
|
| 17,960,748 |
|
The Company estimated theLuckyTail annual amortization expense at $413,000is $532,992 annually and $34,417$44,619 monthly, based on managements’ preliminarythe allocation of the purchase price. For the one and a half months ended September 30, 2022, the proforma adjustment included $66,624, one and a half months of amortization expense.
The E-Core annual amortization expense is $1,615,500 annually and $134,625 monthly, based on the allocation of the purchase price. For the three months ended September 30, 2021,2022, the proforma adjustment included $34,417, one month of amortization expense. For the three months ended September 30, 2020, the proforma adjustment includes $103,250, three months$403,875 of amortization expense.
The Company’s consolidated financial statements for the three months ended September 30, 2021 include the actual resultsExternal legal, accounting and consulting services directly related to completed acquisitions, due diligence, and review of VitaMedica for the period August 1, 2021 to September 30, 2021. Revenue and net income for VitaMedicapossible target acquisitions are included in the statementgeneral and administrative expenses on the Company’s condensed consolidated statements of operations for the two months ended September 30, 2021 was $881,573 and $119,137, respectively. This includes amortization of intangible assets of $68,834.operations.
Note 3. Inventory
Inventory consisted of the following:
|
| September 30, 2021 |
|
| June 30, 2021 |
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||||
Raw materials |
| $ | 1,908,979 |
| $ | 1,680,471 |
|
| $ | 1,511,123 |
| $ | - |
| ||
Finished goods |
|
| 1,182,765 |
|
|
| 414,481 |
|
|
| 12,275,139 |
|
|
| 11,557,128 |
|
|
| $ | 3,091,744 |
|
| $ | 2,094,952 |
|
| $ | 13,786,262 |
|
| $ | 11,557,128 |
|
The Company writes off theperiodically reviews its inventory and makes adjustments to net realizable value, of inventory deemed excessive or obsolete. as appropriate.
During the three months ended September 30, 20212023 and 2022, the Company wrote off $50,000 of inventory valued at $54,521 and during the three months ended September 30, 2020, the Company did not deem that anno inventory write-off was considered necessary.write off, respectively.
15 |
Table of Contents |
Note 4. Property and Equipment
Property and equipment consist of the following:
|
| September 30, 2021 |
|
| June 30, 2021 |
| ||
Furniture and fixtures |
| $ | 20,173 |
|
| $ | 20,173 |
|
Computer equipment |
|
| 63,912 |
|
|
| 62,430 |
|
Manufacturing equipment |
|
| 1,867,509 |
|
|
| 1,867,509 |
|
Leasehold improvements |
|
| 920,929 |
|
|
| 764,225 |
|
Vehicles |
|
| 98,859 |
|
|
| 98,859 |
|
Property and equipment, gross |
|
| 2,971,382 |
|
|
| 2,813,196 |
|
Less accumulated depreciation |
|
| (631,343 | ) |
|
| (515,990 | ) |
|
|
| 2,340,039 |
|
|
| 2,297,206 |
|
Deposits on equipment |
|
| 553,146 |
|
|
| 583,194 |
|
Property and equipment, net |
| $ | 2,893,185 |
|
| $ | 2,832,400 |
|
During the three months ended September 30, 2020, the Company sold manufacturing equipment with a carrying value of $70,292 for cash proceeds of $64,000 which resulting in a loss on the disposal of $6,292.
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Furniture and fixtures |
| $ | 212,322 |
|
| $ | 172,663 |
|
Computer equipment |
|
| 157,634 |
|
|
| 156,283 |
|
Internal use software |
|
| 634,789 |
|
|
| 608,949 |
|
Manufacturing equipment |
|
| 3,505,272 |
|
|
| 3,325,525 |
|
Leasehold improvements |
|
| 75,010 |
|
|
| - |
|
Building |
|
| 5,072,381 |
|
|
| 4,923,462 |
|
Vehicles |
|
| 295,329 |
|
|
| 261,362 |
|
Property and equipment, gross |
|
| 9,952,738 |
|
|
| 9,455,848 |
|
Less accumulated depreciation |
|
| (2,207,865 | ) |
|
| (1,921,780 | ) |
|
| $ | 7,744,873 |
|
| $ | 7,526,463 |
|
Depreciation expense for the three months ended September 30, 20212023 and 20202022 was $115,353$286,084 and $70,027,$194,497, respectively.
Note 5. Goodwill and Intangible Assets
GoodwillIntangible assets as of September 30, 2023:
|
| Estimated Life |
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
Customer relationships |
| 4 years |
| $ | 8,243,897 |
|
| $ | 2,005,602 |
|
| $ | 6,238,295 |
|
Trade name |
| 5 years |
|
| 2,574,041 |
|
|
| 1,077,197 |
|
|
| 1,496,844 |
|
Non-compete agreements |
| Term of agreement |
|
| 143,000 |
|
|
| 143,000 |
|
|
| - |
|
Online sales channels |
| 2 years |
|
| 1,800,000 |
|
|
| 1,350,000 |
|
|
| 450,000 |
|
Vender relationships |
| 5 years |
|
| 6,000,000 |
|
|
| 1,800,000 |
|
|
| 4,200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 18,760,938 |
|
| $ | 6,375,799 |
|
| $ | 12,385,139 |
|
The following table sets forth activity in goodwill from June 30, 2020, through September 30, 2021. See Note 2 for details of acquisitions that occurred during
For the three months ended September 30, 2021,2023 and 2022, the year endedCompany amortized approximately $1,186,821 and $729,909, respectively.
Intangible assets as of June 30, 2020.2023:
Goodwill as of June 30, 2020 |
| $ | 493,095 |
|
Acquisition of Infusionz |
|
| 1,920,718 |
|
Goodwill as of June 30, 2021 |
| $ | 2,413,813 |
|
Acquisition of VitaMedica |
|
| 1,271,780 |
|
Goodwill as of September 30, 2021 |
| $ | 3,685,593 |
|
|
| Estimated Life |
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
Customer relationships |
| 4 years |
| $ | 8,243,897 |
|
| $ | 1,937,595 |
|
| $ | 6,306,302 |
|
Trade name |
| 5 years |
|
| 2,574,041 |
|
|
| 489,341 |
|
|
| 2,084,700 |
|
Non-compete agreements |
| Term of agreement |
|
| 143,000 |
|
|
| 137,042 |
|
|
| 5,958 |
|
Online sales channels |
| 2 years |
|
| 1,800,000 |
|
|
| 1,125,000 |
|
|
| 675,000 |
|
Vender relationships |
| 5 years |
|
| 6,000,000 |
|
|
| 1,500,000 |
|
|
| 4,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 18,760,938 |
|
| $ | 5,188,978 |
|
| $ | 13,571,960 |
|
Table of Contents |
DuringThe following intangible assets were added during the three monthsyear ended June 30, 2021 and 20202023, from the Company did not record any impairment of goodwill.acquisitions noted below:
The acquisition of Infusionz LLC and VitaMedica provided the Company with additional expertise in both the CBD industry and the Health and Wellness industry, expanded the branded product offerings of the Company, additional manufacturing resources, additional distribution resources and improved gross margin through synergies recognized with the consolidation of the company’s manufacturing and distribution locations. These are the factors of the goodwill recognized in the acquisitions.
Intangible assets
Intangible assets as of September 30, 2021:
|
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Customer relationships |
| $ | 3,419,348 |
|
| $ | 1,029,346 |
|
| $ | 2,390,002 |
|
Trade name |
|
| 1,055,305 |
|
|
| 319,413 |
|
|
| 735,892 |
|
Employment contracts – non-compete |
|
| 126,593 |
|
|
| 52,037 |
|
|
| 74,556 |
|
Intellectual property |
|
| 20,000 |
|
|
| 1,667 |
|
|
| 18,333 |
|
|
| $ | 4,621,246 |
|
| $ | 1,402,463 |
|
| $ | 3,218,783 |
|
Intangible assets as of June 30, 2021:
|
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Customer relationships |
| $ | 2,075,347 |
|
| $ | 843,636 |
|
| $ | 1,231,711 |
|
Trade name |
|
| 845,305 |
|
|
| 270,147 |
|
|
| 575,158 |
|
Non-compete agreements |
|
| 76,592 |
|
|
| 38,295 |
|
|
| 38,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,997,244 |
|
| $ | 1,152,078 |
|
| $ | 1,845,166 |
|
For the three months ended September 30, 2021 and 2020, the Company amortized $250,383 and $209,872, respectively, related to the customer list and trade name intangible asset. The customer list is being amortized on a straight-line basis over 4 years. The trade names are being amortized on a straight-line basis over 5 years. The employee contracts – non compete are being amortized on a straight-line basis over 2 years.
Future amortization of intangible assets are as follows: |
|
|
| |
|
|
|
| |
June 30, 2022 |
| $ | 854,395 |
|
June 30, 2023 |
|
| 1,075,913 |
|
June 30, 2024 |
|
| 761,225 |
|
June 30, 2025 |
|
| 453,750 |
|
June 30, 2026 |
|
| 70,000 |
|
Thereafter |
|
| 3,500 |
|
|
| $ | 3,218,783 |
|
LuckyTail: |
|
|
| |
|
|
|
| |
Customer relationships |
| $ | 1,834,692 |
|
Trade name |
|
| 383,792 |
|
Intangible Assets from Purchase |
| $ | 2,218,484 |
|
|
|
|
|
|
E-Core: |
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 5,080,205 |
|
Trade name |
|
| 1,727,249 |
|
Intangible Assets from Purchase |
| $ | 6,807,454 |
|
Table of Contents |
The following intangible assets were added during the year ended June 30, 2022, from the acquisition of VitaMedica, Interactive and Cygnet.
Customer relationships |
| $ | 1,329,000 |
|
Trade name |
|
| 463,000 |
|
Non-compete agreements |
|
| 143,000 |
|
Online sales channels |
|
| 1,800,000 |
|
Vender relationships |
|
| 6,000,000 |
|
|
|
|
|
|
Intangible Assets from Purchase |
| $ | 9,735,000 |
|
Future amortization of intangible assets at September 30, 2023 are as follows:
June 30, 2024 |
| $ | 2,736,545 |
|
June 30, 2025 |
|
| 3,640,782 |
|
June 30, 2026 |
|
| 3,472,032 |
|
June 30, 2027 |
|
| 1,503,654 |
|
June 30, 2028 |
|
| 840,000 |
|
Thereafter |
|
| 210,000 |
|
|
| $ | 12,403,014 |
|
Note 6. Prepaid Expense and Other Current Assets
Prepaid and other current assets consist of the following:
|
| September 30, 2021 |
|
| June 30, 2021 |
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||||
Insurance |
| $ | 135,358 |
| $ | 100,307 |
|
| $ | 161,240 |
| $ | 187,949 |
| ||
Prepayment to vendors |
| 3,322 |
| 118,283 |
|
| 93,143 |
| 263,652 |
| ||||||
Deposits on services |
| 1,075 |
| 3,225 |
|
| 39,047 |
| 45,678 |
| ||||||
Prepaid monthly rent |
| 73,687 |
| 66,551 |
|
| 53,189 |
| 27,813 |
| ||||||
Subscriptions and services being amortized over the service period |
| 256,414 |
| 0 |
|
| 111,067 |
| - |
| ||||||
Prepaid sales tax |
|
|
| 70,021 |
| |||||||||||
Other deposits |
|
| 89,589 |
|
|
| 97,892 |
|
| 70,826 |
| 70,826 |
| |||
Stock issued for prepaid interest on convertible note payable |
| 350,676 |
| 465,595 |
| |||||||||||
Other prepaid expenses |
| 78,396 |
| 31,000 |
| |||||||||||
Other receivables |
| - |
| 144,765 |
| |||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Total |
| $ | 559,445 |
|
| $ | 386,258 |
|
| $ | 957,584 |
|
| $ | 1,307,299 |
|
18 |
Table of Contents |
Note 7. Operating Leases
The Company has operating leases for corporate offices, warehouses and office equipment that have remaining lease terms of 1 year to 3 years,5 years.
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the condensed consolidated balance sheet as of September 30, 2021:2023:
2022 |
| 118,528 |
| |||||
2023 |
| 119,980 |
| |||||
2024 |
| 100,336 |
|
| $ | 517,099 |
| |
2025 |
| 619,080 |
| |||||
2026 |
| 644,121 |
| |||||
2027 |
| 270,054 |
| |||||
2028 |
| 244,013 |
| |||||
Thereafter |
|
| 21,115 |
| ||||
Total undiscounted future minimum lease payments |
| 338,844 |
|
| 2,315,483 |
| ||
Less: Imputed interest |
|
| (18,282 | ) |
|
| (197,895 | ) |
Present value of operating lease obligation |
| 320,562 |
|
| $ | 2,117,588 |
|
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 20212023 are:
Weighted average remaining lease term |
|
|
| |
Weighted average incremental borrowing rate |
|
| 5.0 | % |
For the three months ended September 30, 2021,2023, the components of lease expense, included in general and administrative expenses and interest expense in the condensed consolidated statementsstatement of operations, income, are as follows:
Operating lease cost: |
|
|
| |
Operating lease cost |
| $ | 50,514 |
|
Amortization of ROU assets |
| $ | 46,561 |
|
Interest expense |
|
| 3,781 |
|
Total lease cost |
| $ | 100,856 |
|
During August, 2021, the Company assumed a lease for office equipment that commenced on December, 2020 and recorded a right of use asset and corresponding lease liability. Lease expense was $240 for the three months ended September 30, 2021.
|
| Three Months Ended September 30, 2023 |
| |
Operating lease cost: |
|
|
| |
Operating lease cost |
| $ | 174,212 |
|
Amortization of ROU assets |
|
| 170,970 |
|
Interest expense |
|
| 26,347 |
|
Total lease cost |
| $ | 371,529 |
|
Note 8. Accrued Liabilities
Accrued liabilities consist of the following:
|
| September 30, 2021 |
|
| June 30, 2021 |
|
| September 30, 2023 |
|
| June 30, 2023 |
| ||||
Accrued expenses for loyalty program |
| $ | 43,061 |
| $ | 24,768 |
| |||||||||
Accrued interest |
| 9,863 |
| 9,817 |
|
| $ | 919,648 |
| $ | 655,187 |
| ||||
Accrued federal and state income tax |
| 178,135 |
| 120,776 |
| |||||||||||
Accrued vendor liabilities |
| 1,063,841 |
| 861,664 |
| |||||||||||
Accrued sales tax |
| 37,464 |
| 47,070 |
| |||||||||||
Accrued expenses from sale of manufacturing operations |
| 1,350,545 |
| 1,360,000 |
| |||||||||||
Other accrued liabilities |
|
| 45,313 |
|
|
| 140,660 |
|
|
| 512,924 |
|
|
| 441,641 |
|
|
| $ | 276,372 |
|
| $ | 296,021 |
|
| $ | 3,883,841 |
|
| $ | 3,365,562 |
|
19 |
Table of Contents |
Note 9. Convertible Promissory Notes and Notes Payable
Convertible promissory notes and notes payable outstanding as of September 30, 20212023 and June 30, 2023 are summarized below:
|
| Maturity Date |
| September 30, 2021 |
| |
6% $500,000 Note Payable |
| January 31, 2022 |
| $ | 500,000 |
|
6% $500,000 Note Payable, convertible to common shares at $5.00 per share |
| August 1, 2022 |
|
| 500,000 |
|
Total notes payable |
|
|
|
| 1,000,000 |
|
Less current portion of notes payable |
|
|
|
| 1,000,000 |
|
Notes payable, net of current portion |
|
|
| $ | 0 |
|
Future payments on notes payable are as follows: |
|
|
| |
|
|
|
| |
January 31, 2022 |
| $ | 500,000 |
|
August 1, 2022 |
|
| 500,000 |
|
|
| $ | 1,000,000 |
|
|
| Maturity |
| September 30, |
|
| June 30, |
| ||
|
| Date |
| 2023 |
|
| 2023 |
| ||
Convertible Notes: |
|
|
|
|
|
|
|
| ||
Promissory Note, 21- month term note, 18.11% interest payable with common stock and subordinate to the Convertible Notes |
| June 1, 2026 |
| $ | 2,150,000 |
|
| $ | 2,150,000 |
|
Less current portion of notes payable |
|
|
|
| - |
|
|
| 1,254,167 |
|
Notes payable, net of current portion |
|
|
| $ | 2,150,000 |
|
| $ | 895,833 |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Notes: |
|
|
|
|
|
|
|
|
|
|
Convertible Notes, 36-month term notes, 0% cash interest, collateralized with all the assets of the Company |
| October 31, 2025 |
|
| 3,500,000 |
|
|
| 3,500,000 |
|
Subordinated Promissory Notes, 24-month term notes, 4% cash interest, collateralized with all the assets of the Company |
| October 31, 2024 |
|
| 5,750,000 |
|
|
| 5,750,000 |
|
Subordinated Promissory Notes, 12-month term notes, 4% cash interest, collateralized with all the assets of the Company |
| October 31, 2023 |
|
| 5,750,000 |
|
|
| 5,750,000 |
|
Total |
|
|
| $ | 15,000,000 |
|
| $ | 15,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount on acquisition notes payable, current |
|
|
|
| (93,380 | ) |
|
| (93,380 | ) |
Acquisition notes payable, current |
|
|
|
| 5,750,000 |
|
|
| 5,750,000 |
|
Acquisition notes payable, current net |
|
|
| $ | 5,656,620 |
|
| $ | 5,656,620 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount on acquisition notes payable, long-term |
|
|
|
| (1,281,503 | ) |
|
| (1,644,915 | ) |
Acquisition notes payable, long-term |
|
|
|
| 9,250,000 |
|
|
| 9,250,000 |
|
Acquisition notes payable, long-term net |
|
|
| $ | 7,968,497 |
|
| $ | 7,605,085 |
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable: |
|
|
|
|
|
|
|
|
|
|
Mortgage Loan, 10-year term note, 4.8% interest, collateralized by land and warehouse building |
| September 26, 2032 |
| $ | 2,781,193 |
|
| $ | 2,841,566 |
|
Promissory Note, 21-month term note, 10% cash interest and subordinate to the Convertible Notes |
| November 22, 2024 |
|
| 560,000 |
|
|
| 560,000 |
|
SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company |
| October 6, 2021 |
|
| 3,728,970 |
|
|
| 3,910,767 |
|
Inventory consignment note, 60 monthly payments, with first payment due June 30, 2022, 3.5% interest rate and no security interest in the assets of the business |
| June 30, 2027 |
|
| 1,015,819 |
|
|
| 1,099,592 |
|
GF Note, 6 annual payments, with first payment due December 31, 2022, 3.5% interest rate and no security interest in the assets of the business |
| November 7, 2026 |
|
| 683,968 |
|
|
| 683,968 |
|
Total notes payable |
|
|
|
| 8,769,950 |
|
|
| 9,095,893 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount on notes payable, current |
|
|
|
| (15,620 | ) |
|
| (24,191 | ) |
Notes payable, current |
|
|
|
| 4,270,977 |
|
|
| 2,580,379 |
|
Notes payable, current net |
|
|
| $ | 4,255,357 |
|
| $ | 2,556,188 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount on notes payable, long-term |
|
|
|
| (23,522 | ) |
|
| (23,522 | ) |
Notes payable, long-term |
|
|
|
| 4,498,973 |
|
|
| 7,769,679 |
|
Notes payable, long-term, net |
|
|
| $ | 4,475,451 |
|
| $ | 7,746,157 |
|
|
|
|
|
|
|
|
|
|
|
|
Related Notes Payable: |
|
|
|
|
|
|
|
|
|
|
Marshall Loan, 2-year term note, 8.5% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes |
| June 28, 2024 |
|
| 1,500,000 |
|
|
| 1,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount on related party note payable, long term |
|
|
|
| (55,507 | ) |
|
| (70,644 | ) |
Notes payable, long term |
|
|
|
| 1,500,000 |
|
|
| 1,500,000 |
|
Notes payable, long term net |
|
|
| $ | 1,444,493 |
|
| $ | 1,429,356 |
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, acquisition notes payable, notes payable and related party note payable |
|
|
| $ | 25,950,418 |
|
| $ | 25,889,239 |
|
DuringFuture payments on notes payable are as follows:
For the threeyear ended June 30:
|
| Notes Payable |
|
| Convertible Notes |
|
| Acquisition Notes Payable |
|
| Related Party Note Payable |
|
| Total |
| |||||
2024 |
| $ | 4,270,977 |
|
| $ |
|
|
| $ | 5,750,000 |
|
| $ |
|
|
| $ | 10,020,977 |
|
2025 |
|
| 734,529 |
|
|
|
|
|
| 5,750,000 |
|
|
|
|
|
| 6,484,529 |
| ||
2026 |
|
| 1,306,040 |
|
|
| 2,150,000 |
|
|
| 3,500,000 |
|
|
| 1,500,000 |
|
|
| 8,456,040 |
|
2027 |
|
| 627,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 627,277 |
|
2028 |
|
| 313,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 313,045 |
|
Thereafter |
|
| 1,518,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,518,082 |
|
|
| $ | 8,769,950 |
|
| $ | 2,150,000 |
|
| $ | 15,000,000 |
|
|
| 1,500,000 |
|
| $ | 27,419,950 |
|
Note original discount |
|
| (39,142 | ) |
|
| - |
|
|
| (1,374,883 | ) |
|
| (55,507 | ) |
| (1,469,532 | ) | |
|
| $ | 8,730,808 |
|
| $ | 2,150,000 |
|
| $ | 13,625,117 |
|
| $ | 1,444,493 |
|
| $ | 25,950,418 |
|
Convertible Notes Payable:
In June 2022, the Company entered into a securities purchase agreement with two accredited investors pursuant to which the Company could receive up to $15,000,000 during the following twelve months of the agreement. The Company received $6,678,506 for Convertible Notes in the original principal amount of $7,500,000 (the “Convertible Notes”), representing the original purchase amount, less fees, costs and a $500,000 holdback by the investors. In addition to the Convertible Notes, the investors received Common Stock Purchase Warrants (the “Warrants”) to acquire an aggregate of 56,250 shares of common stock. The Warrants were exercisable for five years at an exercise price of $4.44 per share, provide customary anti-dilution protection, and an investor put right to require the Company to redeem the Warrants for a total of $250,000. There was a loss of $1,770 for the change in the derivative liability for the period ended September 30,March 31, 2023. On October 31, 2022, the Company entered into a letter agreement with the accredited investors in which all amounts owed were paid in full and the related convertible notes and all security interests were cancelled. Additionally, the Company terminated the related Form S-3 registration statement.
20 |
Table of Contents |
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000 together with the issuance of 134,000 restricted shares (the “PIK shares”) of the Company’s common stock at a price of $4.53 per share. The promissory note has a 21-month term and bears interest at 18.11% payable with the PIK shares. The promissory note provides for 12 monthly payments of principal beginning on December 22, 2023, and PIK interest of restricted shares on the Effective Date of the promissory note. The Company shall have the right at any time to convert all or any part of the outstanding and unpaid principal into fully paid and non-assessable shares of common stock, or any shares of capital stock or other securities, together with the PIK shares at a price per conversion share equal to $5.00.
Acquisition Notes Payable:
On August 1, 2021, the Company entered into a non-negotiable convertible promissory note related to the purchase of VitaMedica in the original principal amount of $500,000 (“VitaMedica Note”), convertible at $5.00 per share for a total of 100,000 shares of Company Common Stock. The Company repaid the note in full during August of 2022.
On April 15, 2022, the Company entered into a non-negotiable convertible promissory note in the original principal amount of $1,050,000, as adjusted, (“Cygnet Note”) which can be converted into common stock of the Company at a price of $6.00 per share and is payable in connectionfull, to the extent not previously converted, on April 15, 2023. The Company repaid the note in full plus all outstanding accrued interest during April 2023.
The Company and its wholly owned subsidiary, Upexi Enterprises, LLC entered into a securities purchase agreement with E-Core Technology, Inc. d/b/a New England Technology, Inc., a Florida corporation, and its three principals. The Company entered into a series of promissory notes with the acquisitionprincipal parties: (a) promissory notes in the total original principal amount of VitaMedica for $500,000$5,750,000 payable upon maturity with a term of 12 months at an interest rate of 4%, $600,000 of which shall be satisfied through the cancellation of an equal amount owed by one of the principals to the Company; (b) promissory notes in the total original principal amount of $5,750,000 payable upon maturity with a term of 24 months at an interest rate of 4%; and payable January 31,(c) promissory notes in the original principal amounts of $3,500,000 with a term of 36 months at an interest rate of 0%. The principals may convert the notes into shares of the Company’s restricted common stock at a conversion price equal to $4.81. If the principals do not exercise their conversion rights, the principal balance of the notes will be paid in 12 equal monthly payments commencing on the two-year anniversary of the issuance of the notes, subject to adjustments based on the Company’s EBITDA over the term of the notes.
Notes Payable:
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $1,500,000 (“Marshall Loan”). The promissory note has a 2-year term and bears cash interest at the rate of 6%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.
During the three months ended September 30, 2021, the CompanyOn October 19, 2022, Upexi, Inc. (the “Company”) and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a convertibleloan agreement, promissory note payableand 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 acquisitiontransaction. The principal is to be repaid to Professional Bank over a term of VitaMedica for $500,000, convertible intoten years. The proceeds of the Company’s common shares at $5.00 per common share.loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC in the amount of $2,780,200.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. The convertiblepromissory note has ana 21-month term and bears cash interest at the rate of 10% per annum. The promissory note provides for monthly payments of interest beginning on March 22, 2023 and 12 monthly payments of principal beginning on December 22, 2023.
21 |
Table of Contents |
Cygnet Online had certain loans outstanding prior to the acquisition, which continued to be outstanding post acquisition.
· | Cygnet Online, entered into a loan for $4,436,900 with the Small Business Administration. The promissory note has a scheduled payment commencing on November 6, 2021, consisting of principal and interest. The interest rate is adjustable of prime plus 2.5% and is currently at 10.25%. The balance of the principal and interest will be payable ten years from the date of the promissory note. | |
· | Cygnet Online, entered into a 60-month inventory consignment note with the first payment due June 30, 2022. The note bears interest at 3.5% per annum. | |
· | Cygnet Online, executed a promissory note in the amount of $850,000 payable in six annual installments of principal and interest, the final payment due December 1, 2027. The note bears interest at 3.5% per annum. |
Line of Credit:
The Company through its wholly owned subsidiary, New England Technology, Inc., maintains a $10,000,000 inventory and accounts receivable line of credit, interest rate of 6% per annum,prime minus ½% payable monthly. The outstanding balance at September 30, 2023 was $118,001 and $882,845 at June 30, 2023. The availability under the principal and interest are payable on the maturity dateline of August 1, 2022. The Company cannot prepay the note and the principal and accrued interest is convertiblecredit at the holder’s option with notice that shall not be less than fifteen days prior to maturity.September 30, 2023 was $6,220,013.
Note 10. Related Party Transactions
During the three months ended September 30, 2020, theThe Company repaid a note from one of the members of management. The loan was $12,000 and was due upon demand.
Effective October 1, 2021, the Company entered into an Equity Interest Purchase Agreement (the “I/O Agreement”) with Gyprock Holdings LLC, a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company (each an “I/O Seller” and collectively called “I/O Sellers”). The I/O Sellers own all the membership interests inpurchased Interactive Offers, LLC, a Delaware limited liability company (“Interactive”).in October 2021. The Company’s CEO and Chairman, Allan Marshall, is the controlling stockholder and the president of MFA Holdings Corp. MFA Holdings Corp. owns twenty percent, which owned 20% of the outstanding membership interests in Interactive.
The above related party transactions are not necessarily indicative ofDuring the amounts and terms that would have been incurred had comparable transactions beenyear ended June 30, 2022, the Company entered into a promissory note with independent parties.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.
Note 11. Equity Transactions
Convertible Preferred Stock
The Company’s Board of DirectorsCompany has authorized 1,000,000 shares of preferred stock with a par value of $0.001 and issued 500,000 shares of preferred stock. This preferred stock is convertible into a single share of common stock at a price of $0.05 per share of preferred stock with additional terms and conditions determined by the Board of Directors.
On February 2, 2021, the Company sold the 500,000 shares of Preferred Stock issued and outstanding to Allan Marshall, CEO for net proceeds of $50,000.CEO. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all matters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock.
Common Stock
During the three months endedSubsequent to September 31, 2020,30, 2022, the Company issued 222,2231,247,403 shares of common stock for the acquisition of Infusionz, theE-Core Technologies Inc. a Florida corporation, valued at $6,000,000.
The Company issued 134,000 shares of common stock for prepayment of interest on a note payable. The shares were valued at $340,000.$607,020 or $4.52 per common share and recorded as prepaid interest as the shares were issued at that time.
The Company agreed to sell 2,121,213 shares of common stock for a purchase price of approximately $7,000,000. After deducting the underwriter’s commissions, discounts, and offering expenses payable by the company, the Company expects to receive net proceeds of approximately $6,060,000. In addition, the Company issued 83,334warrants to purchase approximately 169,000 shares of the Company’s common stock valued at $127,500 for acquisition costs.a purchase price of $4.774 per common share.
During the three months endedIn September 30, 2021,of 2023, the Company issued 306,94590,909 shares of common stock for the acquisitionpurchase of Infusionz, the shares were valued at $1,764,876.
During the three months ended September 30, 2021, the Company issued 100,000 sharesremaining 45% of common stock for the acquisition of VitaMedica, the shares were valued at $482,000.
During the three months ended September 30, 2021, the Company issued 7,000 shares of common stock as a finder’s fee, the shares were valued at $33,740.
During the three months ended September 30, 2021, the Company issued 35,000 shares of common stock for consulting services to be provided over 6 months.Cygnet Online, LLC. The shares were valued at $175,000.$162,727 or $1.79 per common share.
22 |
|
Table of Contents |
Note 12. Stock Based Compensation
The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares. The options are exercisable for a period of up to 10 years from the date of the grant.
The following table reflects the continuity of stock options for the three months ended September 30, 2021:2023:
A summary of stock option activity is as follows:
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregated |
| |||||
|
| Options |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| Outstanding |
|
| Price |
|
| Life (Years) |
|
| Value |
| ||||
Outstanding at June 30, 2021 |
|
| 2,088,333 |
|
| $ | 1.55 |
|
|
| 7.49 |
|
| $ | 9,689,865 |
|
Granted |
|
| 1,900,000 |
|
|
| 4.18 |
|
|
| 10 |
|
|
| - |
|
Options outstanding at September 30, 2021 |
|
| 3,988,333 |
|
| $ | 2.79 |
|
|
| 8.46 |
|
| $ | 9,125,950 |
|
Options exercisable at September 30, 2021 (vested) |
|
| 1,665,162 |
|
|
| 1.84 |
|
|
| 7.83 |
|
|
| 5,912,903 |
|
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregated |
| ||||
|
| Options |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| Outstanding |
|
| Price |
|
| Life (Years) |
|
| Value |
| ||||
Outstanding at June 30, 2023 |
|
| 4,839,278 |
|
| $ | 3.31 |
|
|
| 6.23 |
|
| $ | 1,342,280 |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| 378,000 |
|
| $ | 4.34 |
|
|
| 3.78 |
|
|
|
|
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Options outstanding at September 30, 2023 |
|
| 4,461,278 |
|
| $ | 3.17 |
|
|
| 6.30 |
|
|
| 372,856 |
|
Options exercisable at September 30, 2023 (vested) |
|
| 4,099,778 |
|
| $ | 3.03 |
|
|
| 6.49 |
|
| $ | 372,856 |
|
Stock-based compensation expense attributable to stock options was $593,098$421,887 and $93,193$927,326 for the three months ended September 30, 20212023, and 2020,2022, respectively. As of September 30, 2021,2023, there was $4,626,081$1,032,725 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was approximately 1 year.2 years.
The value of each grant is estimated at the grant date using the Black-Scholes option model with the following assumptions forThere were no stock options granted during the three months ended September 30, 2021:
|
| September 30, 2021 |
| |
Dividend rate |
|
| - |
|
Risk free interest rate |
|
| 0.69 | % |
Expected term |
|
| 5 |
|
Expected volatility |
|
| 69 | % |
Grant date stock price |
| $ | 4.18 |
|
The basis for the above assumptions are as follows: the dividend rate is based upon the Company’s history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Company’s historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated based upon historical trends in Charlotte’s Web Holdings, Inc. (CWBHF) stock prices for periods prior to the date the Company’s trading information was available. Management selected Charlotte’s Web Holdings, Inc. for it length of time as a publicly trading company and the similarities of the business and industry.2023.
Forfeitures are estimated at the timeThere were 4,648,624 shares available for issuance as of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at 0% for each of the three months ended September 30, 2021 and 2020, respectively.2023, under the 2019 Plan as amended.
23 |
Table of Contents |
Note 13. Income Taxes
The Company computed the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax income and adjusted for discrete tax items in the period. The Company’s income tax expensebenefit was $208,871 for the three ended September 30, 2021and no expense or benefit$472,367 and $708,201 for the three months ended September 30, 2020.2023 and September 30, 2022, respectively.
The income tax expense for the three months ended September 30, 2021,2023, was primarily attributable to federal and state income taxes and nondeductible expenses for an effective tax rate of approximately 29%25.83%. For the three months ended September 30, 2021,2023, the difference between the U.S. statutory rate and the Company’s effective tax rate is due to the full valuation allowance on the Company’s deferred tax assets.
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of June 30, 2023 and 2022, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company periodically evaluates the realizability of its net deferred tax assets based onconsidered all available evidence, both positive and negative.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 to fully realizeincome. The Company used $2,506,514 of the Company’s deferred tax asset.federal net operating loss carryover during the year ended June 30, 2022.
As of September 30, 2021,2023, there was approximately $2,010,197$3,097,791 of losses available to reduce federal taxable income in future years and can be carried forward indefinitely.
Note 14. Risks and Uncertainties
There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the scope of operation of Farm Bill-compliant hemp programs relative to the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the U.S. Drug Enforcement Administration, or DEA, and/or the FDA and the extent to which manufacturers of products containing Farm Bill-compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and perhaps even state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of our products in different markets.
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company has transition to a combination of work from home and social distancing operations and there has been minimal impact to our internal operations from the transition. The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues.
Note 15. Subsequent EventsSignificant Customers
On October 19, 2021 (Closing Date),The Company had significant customers during the Company entered into an Equity Interest Purchase Agreement (the “I/O Agreement”) with Gyprock Holdings LLC,three months ended September 30, 2023. A significant customer is defined as one that makes up ten percent or more of total revenues in a Delaware limited liability company, MFA Holdings Corp., a Florida corporation and Sherwood Ventures, LLC, a Texas limited liability company (each a “I/O Seller” and collectively called “I/O Sellers”). The I/O Sellers own all the membership interests in Interactive Offers, LLC, a Delaware limited liability company (“Interactive”). The Company’s CEO and Chairman, Allan Marshall, is the controlling stockholder and the president of MFA Holdings Corp. MFA Holdings Corp. owns twentyparticular period or ten percent of the outstanding membership interests in Interactive. Interactive provides programmatic advertising with its SAAS platform which allows for programmatic advertisement placement automatically on any partners’ sites from a simple dashboard.
Pursuant to the terms and conditionsaccounts receivable balance as of the I/O Agreement, the Company agreed to purchase all the outstanding membership interests of Interactive. as of October 1, 2021. The purchase price for the sale is $6,100,000, which consists of 666,667 shares of common stock of the Company and a cash payment of $2,100,000. Additionally, Sellers will be paid up to an additional cash payment of $600,000 in the form of an earnout payment based on certain revenue milestone in accordance with and subject to the terms and conditions of the Agreement. Sellers are prohibited from transferring, assigning, or selling any of the Shares for a period of twelve months from the Closing Date.
Effective October 1, 2021, the Company entered into a 3-year lease for a California warehouse.period. The Company recorded a right of use asset and corresponding lease liability of $295,305. The Company will use this leased facility for assembly and distribution of finished goods.had no significant customers during the three months ended September 30, 2022.
Table of Contents |
Net revenues for the three months ended September 30, 2023, include revenues from significant customers in the product segment as follows:
September 30, 2023 | ||||
Customer A | 12.56 | % |
Accounts receivable balances as of September 30, 2023, from significant customers are as follows:
September 30, | ||||
2023 | ||||
Customer A | 22.79 | % |
Note 16. Discontinued Operations – Sale of Infusionz to Bloomios
On October 28, 2022, the Company determined that the best course of action related to Infusionz, LLC and certain manufacturing business was to accept an offer to sell those operations.
The Company received from Bloomios, Inc.(OTCQB:BLMS), the purchaser (i) $5,500,000 paid at closing; (ii) a convertible secured subordinated promissory note in the original principal amount of $5,000,000; (iii) 85,000 shares of Series D convertible preferred stock, with a total stated value of $8,500,000; (iv) a senior secured convertible debenture with a subscription amount of $4,500,000, after original issue discount of $779,117; and (v) a common stock purchase warrant to purchase up to 2,853,910 shares of Bloomios’s common stock. The Company recorded the consideration received at the estimated value at the time of the transaction and as part of that estimate valued the additional warrants to purchase Bloomios shares of common stock at $8,500,000 and a valuation allowance of $8,500,000.
The assets transferred were recorded at their respective book values, the accrued and incurred expenses estimated by management were recorded and the consideration received was recorded at managements estimated fair value based on the balance sheet on October 26, 2022, the effective closing date.
Tangible assets, inventory / working capital* |
| $ | (1,344,000 | ) |
Tangible assets, warehouse and manufacturing equipment, net of accumulated depreciation* |
|
| (679,327 | ) |
Goodwill |
|
| (2,413,814 | ) |
Intangible assets, net of accumulated amortization |
|
| (946,996 | ) |
Accrued and incurred expenses related to the transaction and additional working capital* |
|
| (2,051,500 | ) |
Consideration received, including cash, debt and equity, net |
|
| 15,000,000 |
|
Total gain recognized |
| $ | 7,564,363 |
|
*During the continuing transition period, all of the inventory or working capital has not been transferred to the buyer.
At closing, the Company provided working capital, in the form of inventory, in excess of the working capital agreement and during the transition period, there are certain expenses and purchases incurred that are to be netted against funds collected on behalf of the buyer. June 30, 2023, there was a receivable balance from the buyer of 845,443, net of a reserve of $931,613.
Advance for payroll |
| $ | 50,000 |
|
Operating expense |
|
| 652,891 |
|
Management fees |
|
| 685,600 |
|
Excess working capital |
|
| 388,565 |
|
Accrued Interest |
|
| 247,885 |
|
Subtotal due from Bloomios |
| $ | 2,024,941 |
|
Reserve |
|
| 1,179,498 |
|
Total due from Bloomios |
| $ | 845,443 |
|
25 |
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For several reasons, including but not limited to the non-payment per the terms of several agreements and the continuous delay in getting the business transitioned, the Company notified Bloomios of its termination of the transition agreement. Management accrued a reserve on the receivable balance of $1,179,498 leaving a receivable balance of $845,443 on June 30, 2023. Accrued interest and the gain from the original issue discount were reversed and the remaining balance was expensed to loss from discontinued operations.
During the three months ended, September 30, 2023 the Company recorded the following non-cash amounts against the receivable balance.
Inventory |
| $ | 1,090,828 |
|
Accounts receivable |
|
| 157,200 |
|
Accounts payable and accrued liabilities |
|
| (475,817 | ) |
Customer deposits |
|
| (133,950 | ) |
Fixed assets |
|
| 208,182 |
|
Net assets |
| $ | 845,443 |
|
|
|
|
|
|
Due from Bloomios |
| $ | - |
|
Note 16. Discontinued Operations – Sale of Interactive Offers
On August 31, 2023, the Company sold Interactive offers to Amplifyir Inc. The purchase price is $1,250,000 with a provision to adjust the final purchase price based on the business being transferred to Amplifyer Inc. with a net zero working capital. In addition, the Buyer is obligated to pay the Company two-and one-half percent (2.5%) of certain advertising revenues of Interactive for a two-year period post-closing. Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented.
Summary of discontinued operations:
|
| Three months ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Discontinued Operations |
|
|
|
|
|
| ||
Revenue |
| $ | 158,147 |
|
| $ | 955,762 |
|
Cost of sales |
| $ | 11,982 |
|
| $ | 730,306 |
|
Sales, general and administrative expenses |
| $ | 339,205 |
|
| $ | 663,778 |
|
Depreciation and amortization |
| $ | - |
|
| $ | 9,795 |
|
Income (loss) from discontinued operations |
| $ | (193,040 | ) |
| $ | (448,117 | ) |
Accounts receivable net of allowance for doubtful accounts |
| $ | - |
|
| $ | 35,482 |
|
Fixed assets, net of accumulated depreciation |
| $ | - |
|
| $ | 5,195 |
|
Total assets |
| $ | - |
|
| $ | 321,425 |
|
Total liabilities |
| $ | - |
|
| $ | 652,911 |
|
26 |
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Note 17. Subsequent Events
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer and a Director, in the original principal amount of $1,500,000. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter the amortization of the note over a 12 month period, starting in June of 2025. The principal currently outstanding is $1,500,000. In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 375,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. On November 15, 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12 month period, starting in June of 2025. The principal currently outstanding is $560,000. In addition to this, the Company issued the investor a warrant to purchase up to 125,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000. In November of 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12 month period, starting in June of 2025. The principal currently outstanding is $2,150,000. In addition to this, the Company issued the investor a warrant to purchase up to 500,000 shares of the Company’s common stock at a per share price of $1.10. The note has been classified as long-term in the financial statements.
On November 2, 2023, the Company paid $2,000,000 of the first acquisition note to the sellers of the E-Core business. $3,750,000 and accrued interest of $230,000 remain unpaid on this acquisition note. Per the transaction documents, the interest rate on the remaining balance is increased to 12% per annum on the outstanding balance until the debt is paid. Management expects to pay the remaining principal and interest on the note in monthly installments of $353,618 commencing in December 2023. This loan is classified as current in the financial statements and the other loans with the sellers are unaffected with the default on the first loan.
With the purchase of the remaining 45% of the Cygnet business, the Company was notified that it was in default and the Company would not qualify to refinance Cygent’s SBA loan. The SBA presented the Company with a demand notice of $3,835,975 for all principal and interest due under the SBA loan. The Company is working with the lender to resolve this default and is looking at various options. This loan is classified as current in the financial statements and the other loans to the sellers is unaffected with the default on the loan.
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Item 2. Management’s Discussion and Analysis of Financial Condition or Planand Results of OperationOperations
General Overview
As used in this current report and unless otherwise indicated, the terms “we”, “us” and “our” mean Grove,Upexi, Inc.
Grove,For the three months ended September 30, 2022 the condensed consolidated financial statements of Upexi, Inc. (the “Company”) is a Nevada Corporationinclude the accounts of the Company and has nine wholly owned subsidiaries,its wholly-owned subsidiaries; Trunano Labs, Inc., a Nevada corporation, Cresco Management, a California corporation, Steam Distribution, LLC, a California limited liability company; One Hit Wonder, Inc., a California corporation; Havz, LLC, d/b/a Steam Wholesale, a California limited liability company, Grove Acquisition Subsidiary, Inc, d/b/a VitaMedica a Nevada corporation, One Hit Wonder Holdings, LLC a California corporation, Infusionzcorporation; SWCH LLC, a ColoradoDelaware limited liability company; Cresco Management LLC, a California limited liability company, and VitaMedica a Nevada corporation, Cygnet Online, LLC a Delaware limited liability corporation and SWCH,Upexi Pet Products, LLC (“LuckyTail”), a Delaware corporation.limited liability corporation as of August 12, 2022.
We areFor the three months ended September 30, 2023, the condensed consolidated financial statements of Upexi, Inc. include all of the subsidiary accounts included in the business of developing, producing, marketing,condensed consolidated financial statements for the three months ended September 30, 2022 and selling raw materials, white label products and end consumer products containing the hemp plant extract, Cannabidiolinclude E-Core Technology, Inc. (“CBD”E-Core”) and health and wellness products not containing CBD. We sell to numerous consumer markets including the nutraceutical, beauty care, pet care and functional food sectors. We seek to take advantage of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers. CBD is derived from hemp stalk and seed..
In addition, we are an operator of an annual tradeshow in the United States related to the CBD industry. The trade show scheduled for November 2020 hasAll intercompany accounts and transactions have been postponed and the Company has not rescheduled this trade showeliminated as a result of the date of this report.consolidation.
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Operating Segments
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S.Company’s financial reporting is organized into two segments: Our Branded Product segment and international markets. Thereour Recommerce segment. Our Branded Product segment is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impactfocused on the U.S.development, growth and international economiesdistribution of the branded products that we own. Our Recommerce segment is focused on the purchase and sale of new and used products through channels such as such,Amazon and wholesale distributors. Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, products production, distribution processes and regulatory environment as the Company has transition to a combination of work from home and social distancing operations and there has been minimal impact to our internal operations from the transition. The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues.other product sales.
Our Growth StrategySegment Information
The Company provides the following segments: (a) branded product segment and (b) product distribution segment.
For the three months ended September 30, 2023:
|
| Branded Products |
|
| Recommerce |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 6,562,613 |
|
| $ | 20,785,029 |
|
| $ | 27,347,642 |
|
Loss from operations |
| $ | (1,334,082 | ) |
| $ | 191,928 |
|
| $ | (1,142,154 | ) |
Other (expense) |
| $ | (842,137 | ) |
| $ | (32,048 | ) |
| $ | (874,185 | ) |
Depreciation expense |
| $ | 286,084 |
|
| $ | - |
|
| $ | 286,084 |
|
Income tax (expense) benefit |
| $ | 511,525 |
|
| $ | (39,158 | ) |
| $ | 472,367 |
|
Segment assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment |
| $ | 504,495 |
|
| $ | - |
|
| $ | 504,495 |
|
Total assets |
| $ | 35,029,593 |
|
| $ | 29,743,782 |
|
| $ | 64,773,375 |
|
For the three months ended September 30, 2022:
|
| Branded Products |
|
| Recommerce |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 3,971,280 |
|
| $ | 7,247,519 |
|
| $ | 11,218,799 |
|
Loss from operations |
| $ | (1,965,497 | ) |
| $ | (411,901 | ) |
| $ | (2,377,398 | ) |
Other (expense) |
| $ | (427,278 | ) |
| $ | (4,430 | ) |
| $ | (431,708 | ) |
Depreciation expense |
| $ | 194,497 |
|
| $ | - |
|
| $ | 194,497 |
|
Income tax benefit |
| $ | 580,725 |
|
| $ | 127,476 |
|
| $ | 708,201 |
|
Segment assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment |
| $ | 218,280 |
|
| $ | - |
|
| $ | 218,280 |
|
Total assets |
| $ | 50,056,078 |
|
| $ | 13,796,989 |
|
| $ | 63,853,067 |
|
29 |
Table of Contents |
Results of Operations
The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three months ended September 30, 20212023 and 2020,2022, which are included herein.
Three Months Ended September 30, 20212023 Compared to Three Months Ended September 30, 20202022
|
| September 30, |
|
|
|
| September 30, |
|
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Revenue |
| $ | 8,449,754 |
| $ | 2,937,442 |
| $ | 5,512,312 |
|
| $ | 27,347,642 |
| $ | 11,218,799 |
| $ | 16,128,843 |
| ||||
Cost of revenue |
| 3,067,376 |
| 1,619,208 |
| 1,448,168 |
|
| 18,639,793 |
| 5,401,316 |
| 13,238,477 |
| ||||||||||
Operating expenses |
| 4,946,835 |
| 2,078,320 |
| 2,868,515 |
| |||||||||||||||||
Sales and marketing expenses |
| 2,848,667 |
| 1,727,469 |
| 1,121,198 |
| |||||||||||||||||
Distribution costs |
| 2,850,616 |
| 2,127,846 |
| 722,770 |
| |||||||||||||||||
General and administrative expenses |
| 2,255,928 |
| 2,127,846 |
| 128,082 |
| |||||||||||||||||
Other operating expenses |
| 1,894,792 |
| 1,851,732 |
| 43,060 |
| |||||||||||||||||
Other expenses (income) |
| (285,041 | ) |
| 48,987 |
| 334,028 |
|
| 874,185 |
| 431,708 |
| 442,477 |
| |||||||||
Net income (loss) |
| $ | 511,711 |
| $ | (809,073 | ) |
| $ | 1,320,784 |
| |||||||||||||
Net (loss) income from continuing operations |
| $ | (1,142,154 | ) |
| $ | (2,745,520 | ) |
| $ | 916,765 |
|
Revenues increased by $5,512,312$16,128,843 or 188%144% to $27,347,642 compared with revenue of $11,218,799 in the same period last year. $881,573The revenue growth was from VitaMedicaprimarily the result of the acquisition of E-Core and growth in our Brand sales and offset by a slowing of non-CBD healththe Recommerce Amazon sales channel. The Company’s strategy will continue to focus on the growth of our brands organically and wellness products, the Company’s direct to consumer business of new products increased by approximately $2,465,000 with the remaining increase related to increases in white label and private label CBD sales.through expansion into additional international markets.
Cost of revenue increased by $1,448,168$13,238,477 or 89% compared with the same period last year. $298,373 was the cost of revenue for the VitaMedica sales of non-CBD health and wellness products and the remaining increase was direction related to the increase in sales. The improved profit margin of 18.8% is from the non-CBD health and wellness products, the significant increase in direct to consumer sales and the Company’s investments in additional equipment to automate more of the overall packaging process.
Operating expenses increased by $2,868,515 or 138%245% compared with the same period last year. The cost of revenue increase was primarily related to the acquisition of VitaMedicaE-Core’s Recommerce business. Gross profit increased by $2,890,366 compared to the costsprior year. The combined Recommerce segment only increased $782,038 while the Brands increased gross profit by $463,894,over $2,100,000. Gross margin declined by approximately 20% to 32% as a result of significant increases in the lower margin sales of the Recommerce business segment.
Sales and marketing expenses increased by $1,121,198 or 65% compared with the same period last year. The increase in sales and marketing exclusiveexpenses was primarily related to the focus on the Brand segment revenue growth and strategic marketing to maximize the return on long-term recurring customer growth.
Distribution costs increased $722,770 or 34% compared with the same period last year. The increase in distribution costs was primarily related to the overall growth of VitaMedicarevenue, however management has implemented several consolidation, repackaging and pricing strategies to continue to reduce the overall distribution costs of our product sales. Management expects the implementation of its initial strategies to be completed by March of 2024.
General and administrative expenses increased by $773,377,$128,082 or 6% compared with the same period last year. Management continues to operate the Company efficiently to enable sales growth without significant increases in general and administrative costs.
Other operating expenses increased by $43,060 or 2% compared with the same period last year. The increase of $499,905 ofin other operating expenses was primarily related to the amortization of stock compensation, an increaseacquired intangible assets, offset by a decrease of $208,740the amortization of stock compensation and increases in compensation expense for additional resources to manage the growth in the business.stock-based compensation.
Table of Contents |
InDuring the three months ended September 30, 2021, there was a gain on2023, the extinguishmentCompany incurred interest expense of $874,185 compared to $453,829 in interest expense incurred during the SBA PPP loan of $300,995 and offset by $15,956three months ended September 30, 2022. The increase of interest expense.
The Company had net income of $511,711 and a net loss of $809,073expense for the three months ended September 30, 2021, and 2020, respectively. 2023, was primarily due to the $363,412 of imputed interest amortization related to acquisitions.
The increaseCompany had a net loss from continued operations of $1,828,755 for the three months ended September 30, 2023 compared to a loss of $2,745,520 for the three months ended September 30, 2022. The decrease in the net incomeloss from continuing operations is primarily related to the increase in gross profit.above-mentioned changes.
Liquidity and Capital Resources
Working Capital
|
| As of September 30, 2021 |
|
| As of June 30, 2021 |
|
| As of September 30, 2023 |
|
| As of June 30, 2023 |
| ||||
Current assets |
| $ | 17,789,134 |
| $ | 18,293,083 |
|
| $ | 24,917,576 |
| $ | 25,455,714 |
| ||
Current liabilities |
| $ | 4,249,903 |
|
| $ | 5,819,161 |
|
|
| 20,036,817 |
|
|
| 19,606,010 |
|
Working capital |
| $ | 13,539,231 |
| $ | 12,473,922 |
|
| $ | 4,880,759 |
|
| $ | 5,849,704 |
|
Cash Flows
|
| Three Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows provided by (used in) operating activities |
| $ | 817,357 |
|
| $ | (637,185 | ) |
Cash flows (used in) provided by investing activities |
|
| (2,166,869 | ) |
|
| 270,668 |
|
Cash flows (used in) financing activities |
|
| (150,000 | ) |
|
| (12,000 | ) |
Net decrease in cash during period |
| $ | (1,499,512 | ) |
| $ | (378,517 | ) |
|
| Three Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows used by operating activities – continuing operations |
| $ | (2,120,290 | ) |
| $ | (2,516,787 | ) |
Cash flows used by investing activities – continuing operations |
|
| (648,721 | ) |
|
| (2,647,930 | ) |
Cash flows (used in) provided by financing activities – continuing operations |
|
| (1,082,215 | ) |
|
| 1,317,814 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities – discontinued operations |
|
| (223,957 | ) |
|
| (4,240 | ) |
Cash flows used by investing activities – discontinued operations |
|
| - |
|
|
| - |
|
Cash flows provided (used by) financing activities – discontinued operations |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash during the period |
| $ | (4,075,183 | ) |
| $ | (3,851,143 | ) |
AtOn September 30, 2021,2023, the Company had cash of $13,034,699 or$417,108, a decrease of $1,499,512$4,492,291 from June 30, 2021. Cash increased from the net income during the quarter and non-cash transactions of $1,428,291 and offset by $610,934 in changes in assets and liabilities.2023.
Net cash (used in) providedfrom operating activities benefited from non-cash expenses of $2,273,341, which was used in operating for the growth of accounts receivable of $2,435,858 and inventory of $1,138,306 and payment of prepaid expenses and liabilities. The negative cash flow from operations was anticipated by management related to the sales in the first quarter to wholesale and distributors and our purchases of inventory in anticipation of sales growth in the second fiscal quarter. Management anticipates inventory and accounts receivable balances to normalize to historical levels and free up cash flow in January 2024.
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Net cash used in investing activities for the three months ended September 30, 2021,2023 was $648,721 and 2020 was ($2,166,869) and $270,668, respectively. For the period ended September 30, 2021, the use of cash was primarily duerelated to the $2,000,000 paid for$500,000 cash used to purchase the acquisitionremaining 45% ownership of VitaMedicaCygnet and $166,869 in equipment purchases. Inexpenses related to the prior year the cash provided by investing activities was from the net cash acquired in the purchase of Infusionz and the sale of fixed assets.consolidation project to eliminate redundant cost.
Net cash flows used by financing activities for the three months ended September 30, 2021,2023, was $150,000$1,080,215 compared to $12,000 incash provided of $1,317,814 during the three months ended September 30, 2020.2022. The use of cash in both periodsused by financing activities was the repayment of $764,844 on the line of credit and $317,917 repayment of notes payable.
Related to the acquisition of VitaMedica, the Company has agreed to $1,000,000 in debt obligations and are payable within the next 12 months.
On October 19, 2021,2022, the Company madeand its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a $2,100,000 cash paymentloan agreement with Professional Bank, A Florida state-chartered bank, providing for a mortgage on the acquisitionCompany’s principal office in N. Clearwater, Florida. The company received $3,000,000 in connection with the transaction. The principal is to be paid back to Professional Bank over a term of Interactive Offers and committedten years. The proceeds of the loan were utilized by the Company to an additional $600,000 cash paymentpay down its loan facility with Acorn Capital, LLC in the formamount of an earnout payment based on certain revenue milestones$2,780,200, net of fees and other expenses.
On October 31, 2022, Upexi, Inc., paid $4,275,071 in accordance withprincipal, $613,466 in accrued interest, $250,000 for settlement of a Put Option and subject$7,900 in miscellaneous fees for a total of $5,146,437 to the terms and conditionsholders of the I/O Agreement within$15 million senior secured convertible notes entered into on June 28, 2022. The payment terminates the nextagreement with the noteholders. The Company also intends to terminate the registration statement covering the senior secured debt.
In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $1,500,000. On November 15, 2023, the Company executed an amendment to the promissory note with Allan Marshall, the Company’s Chief Executive Officer, to pay interest only for 18 months at an interest rate of 12%, per annum and then amortize the note over a 12 months.month period, starting in June of 2025. The principal outstanding is $1,500,000. In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 375,000 shares of the Company’s common stock at a per share price of $1.05. The note has been classified as long-term in the financial statements.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000. On November 15, 2023, the Company executed an amendment to the promissory note with an investor to pay interest only for 18 months at cash interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal outstanding is $560,000. In addition to this, the Company issued the investor a warrant to purchase up to 125,000 shares of the Company’s common stock at a per share price of $1.05. The note has been classified as long-term in the financial statements.
On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $2,150,000. In November of 2023, the Company executed an amendment to the promissory note with an investor to pay interest only for 18 months at cash interest rate of 12%, per annum and then amortize the note over a 12 month period, starting in June of 2025. The principal outstanding is $2,150,000. In addition to this, the Company issued the investor a warrant to purchase up to 500,000 shares of the Company’s common stock at a per share price of $1.05. The note has been classified as long-term in the financial statements.
On May 12, 2023, the Company agreed to sell 2,121,213 shares of common for a purchase price of approximately $7,000,000. After deducting the underwriter’s commissions, discounts, and offering expenses payable by the company, the Company expects to receive net proceeds of approximately $6,060,000. In addition, the Company issued warrants to purchase approximately 169,000 shares of the Company’s common stock at a purchase price of $4.774 per common share.
The Company through its wholly owned subsidiary, New England Technology, Inc., maintains a $10,000,000 inventory and accounts receivable line of credit, interest rate of prime minus ½% payable monthly. The outstanding balance at September 30, 2023 was $118,001 and $882,845 at June 30, 2023. The availability under the line of credit at September 30, 2023 was $6,220,013.
We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all of our debt obligations.
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Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 20212023 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial and accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
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In performing the above-referenced assessment, our management identified the following material weaknesses:
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Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended September 30, 2021 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
| (i) | inadequate segregation of duties consistent with control objectives; and |
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| (ii) | lack of multiple levels of supervision and review. |
Remediation Plan
We believe the weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.
However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changesappointment 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 the 2021our 2024 fiscal year as resources allow:allow.
We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses. We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses. |
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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. |
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Because of theits 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 allconditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no evaluation of controlsmatter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide absoluteonly reasonable assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faultywith respect to financial statement preparation and that breakdowns can occur because of simple error or mistake. Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended September 30, 2021 are fairly stated, in all material respects, in accordance with U.S. GAAP.presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 12a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended September 30, 20212023, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designedThe Company has added significant qualified resources to ensure proper segregation of duties and operated, cannot provide absolute assurance that the objectivesproper review of the control system are met,financial reporting policies and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.procedures.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not involved in any pending legal proceeding or litigation, and, to the best of its knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of its properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2021, the Company issued 306,945 shares of common stock for the acquisition of Infusionz. The shares were valued at $1,764,876 or $5.75 per share, as this was the remaining acquisition liability for the Infusionz purchase.
During the three months ended September 30, 2021, the Company issued 100,000 shares of common stock for the acquisition of VitaMedica and 7,000 shares of common stock as a finder’s fee for the completion of the transaction. The shares were valued at $515,740 or $4.82 per share, as this was the closing price of the stock on August 4, 2021.
During the three months ended September 30, 2021, the Company issued 35,000 shares of common stock for a consulting agreement. The shares were valued at $175,000 or $5.00 per share, based on the price of the services to be rendered.
All of the securities issued by the Company as described above were issued pursuant to the exemption for transactions by an issuer not involved in any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and corresponding state securities laws. For more information regarding securities issued, see the Liquidity and Capital Resources section to our Unaudited Condensed Consolidated Financial Statements included herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Number |
| Description |
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101** |
| Interactive Data File |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
__________
* | Filed herewith. |
** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Dated: November |
| /s/ Allan Marshall |
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| Allan Marshall |
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| President, Chief Executive Officer, and Director |
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| (Principal Executive Officer) |
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Dated: November |
| /s/ Andrew J. Norstrud |
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| Andrew J. Norstrud |
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| Chief Financial Officer |
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| (Principal Financial Officer and Principal Accounting Officer) |
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