What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-16 compared with 2023-10-03 · 171 added, 171 removed, 86 unchanged (80% of the section changed)

9 unchanged sentences

For the year ended June 30, 2024, the consolidated financial statements of Upexi, Inc.

include the accounts of the Company and its wholly-owned subsidiaries;

Trunano Labs, Inc.;

a Nevada corporation, Steam Distribution, LLC, a California limited liability company;

MW Products Inc.

a Nevada corporation, One Hit Wonder, Inc., a California corporation;

One Hit Wonder Holdings, LLC a California corporation;

SWCH LLC, a Delaware limited liability company;

Cresco Management LLC, a California limited liability company;

VitaMedica d/b/a/ Grove Acquisition Subsidiary, Inc.

a Nevada corporation as of August 1, 2021;

and 55% Cygnet Online, LLC a Delaware limited liability corporation, as of April 1, 2022.

For the year ended June 30, 2023, the consolidated financial statements of Upexi, Inc.

include all of the subsidiary accounts included in the consolidated financial statements for the year ended June 30, 2022, and include the subsidiaries in which the Company holds a controlling financial interest as of June 30, 2023, which include E-Core Technology, Inc.

d/b/a New England Technology, Inc.

as of October 21, 2022.

include all of the subsidiary accounts included in the consolidated financial statements for the year ended June 30, 2023, and include the subsidiaries in which the Company holds a controlling financial interest as of June 30, 2024 and 2023.

Infusionz LLC, a Colorado limited liability company, along with select CBD asset;

and Interactive Offers, LLC a Delaware limited liability corporation have been classified as discontinued operations for the years ended June 30, 2023 and 2022, respectively and the assets and liabilities have been classified as current assets and liabilities of discontinued operations and assets held for sale on the balance sheets for June 30, 2023 and 2022.

Interactive Offers, LLC a Delaware limited liability corporation;

VitaMedica, a Nevada corporation;

and E-Core Technology, Inc.

d/b/a New England Technology, Inc.

have been classified as discontinued operations for the years ended June 30, 2024 and 2023, respectively and the assets and liabilities have been classified as current assets, and liabilities of discontinued operations and assets held for sale on the balance sheets for June 30, 2024 and 2023.

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

1 unchanged sentence

Cyclicality and Seasonality

Our business can be affected by seasonality, which historically has resulted in higher sales volume during our second quarter, which ends December 31.

Our business is typically unaffected by seasonality.

Operating Segments

The Company’s financial reporting is organized into two segments:

Branded Products and Recommerce.

Other sources of revenue and related costs are aggregated and viewed by management as immaterial or have similar economic characteristics, products, production, distribution processes and regulatory environment as the other product sales.

The Company’s financial reporting is organized into a single segment that includes production, sales and distribution of branded products, following the sale of E-Core, Technology Inc.

and its subsidiaries.

Results of Operations

1 unchanged sentence

The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended June 30, 2024, and 2023, which are included herein.

$ (10,441,043 )

Cost of revenue

$ (2,245,642 )

Sales and marketing expenses

2 unchanged sentences

Other operating expenses

Other (expense) income

$ (2,297,657 )

Other (expense)

$ (3,141,166 )

Net (loss) income attributable to non-controlling interest

$ (4,676,160 )

Loss attributable to non-controlling interest

Impairment of intangible assets and goodwill

Lease impairment

(Loss) on the sale of assets and businesses

Discontinued operations

5 unchanged sentences

$ (6,728,149 )

Revenues increased by $57,611,165 or 250% for the fiscal year ended June 30, 2023, compared with the fiscal year ended June 30, 2022.

$41,041,341 or 71% of the increase was related to the acquisitions of the LuckyTail brand and E-Core Technology, Inc.

(“2023 acquisitions”) during 2023 and $18,848,230 or 33% was related to the acquisitions of Cygnet Online, LLC and VitaMedica, Inc.

(“2022 acquisitions”) compared to the prior year period.

This was offset by a decline in other businesses of $2,278,475 or 4%.

Our primary brands of VitaMedica, LuckyTail and newly acquired Tytan Tiles all had significant growth year over year and management will continue to focus on these high margin and growth potential business in 2024 and beyond.

The recommerce businesses, E-Core Technology, Inc.

and Cygnet Online, LLC, continue to represent a significant portion of the overall revenue of the Company, although we did see lower than expected sales volume from our Amazon sales channels.

Management expects revenue to continue to increase in the 2024 fiscal year with a primary focus on growing our branded products.

Cost of revenue increased by $38,922,455 or 475% compared with the fiscal year ended June 30, 2022.

$31,144,149 or 80% of the increase was related to the 2023 acquisitions and $8,640,033 or 22% was related to the 2022 acquisitions.

The gross profit increased by $18,688,710.

The gross profit margin declined by 22% to 42% compared to 64% in the prior year.

The decline in gross profit margin was primarily related to the sales from the recommerce business versus the sales of our branded products.

Management expects the gross margin to improve as the branded products segment continues to grow as a percentage of the overall sales and as we continue to gain economies of scale in our purchasing of products.

Sales and marketing expenses increased by $5,259,135 or 103% compared with the same period last year.

$2,396,876 or 46% of the increase was related to the 2023 acquisitions and $1,373,733 or 26% was related to the 2022 acquisitions.

There was an increase of $1,488,526 or 28% related to the other business.

The increase in sales and marketing expenses was primarily related to the acquisitions and increased expenditures for brand and company awareness, however management has aligned the marketing expenditures with the expected growth strategy to decrease the overall percentage of sales and marketing costs to sales.

We anticipate our advertising expenses will continue to fluctuate in the following quarters as we fully implement our overall brand marketing strategy.

Distribution costs increased $10,155,581 or 459% compared with the same period last year.

$1,850,306 or 18% of the increase was related to the 2023 acquisitions and $7,306,309 or 72% of the increase was related to the 2022 acquisitions and the rest of the business.

There continue to be increases in transportation costs and third-party provider rates.

Management has implemented a strategy to change promotions, increase prices and adjust packaging to decrease the overall percentage of distribution costs to sales and is in process of consolidating its distribution centers, including closing the California facility as of July 1, 2023.

General and administrative expenses increased by $404,521 or 4% compared with the same period last year.

General and administrative expenses increased by $2,332,690 from 2023 acquisitions with the remainder of the business had a decrease in general and administrative expenses of $1,928,169.

Management has actively been reducing general and administrative costs by consolidation of administrative functions and capitalizing on the overall size of the Company.

Management will continue to implement strategies to decrease the percentage of general and administrative costs when compared to total sales.

Other operating expenses increased by $3,932,350 or 80% compared with the same period last year.

These expenses are primarily non-cash and increase based on the intangible assets created with acquisitions and the continued amortization of stock compensation.

$1,612,815 or 41% was related to the 2023 acquisitions amortization of acquired intangible assets and $1,616,188 or 41% of the increase was related to the 2022 acquisitions amortization of acquired intangible assets.

The remaining increase of $703,347 was related to increases in stock-based compensation and depreciation.

Other expenses increased by $11,020,570, which was primarily the loss recognized on the sale of Infusionz and select CBD assets, the reserves against amounts owed to the Company by the buyers of that business, the impairment of Interactive Offers intangible assets and an increase of interest expense from both acquisition debt and the termination of a $15,000,000 senior secured debt facility on October 1, 2022.

Management estimates based on the current and expected debt balances in fiscal year 2024 that interest expense will be less than $2,800,000 and cash paid for interest expense to be less than $1,400,000.

The Company had a net loss of $16,930,289 compared to a net loss of $2,100,850 in the prior year.

The decrease in the net losses primarily related to the above-mentioned changes, which was offset by the net loss attributable to non-controlling interest of our consolidated subsidiary.

Operating Segments

The Company’s financial reporting is organized into two segments:

Our Branded Product segment and our Recommerce segment.

Our Branded Product segment is focused on the development, growth and distribution of the branded products that we own.

Our Recommerce segment is focused on the purchase and sale of new and used products through channels such as Amazon and wholesale distributors.

Segment Information

The Company provides the following segments:

(a) branded product segment and (b) product distribution segment.

For the year ended June 30, 2023:

Branded Products

Loss from operations

$ (6,945,411 )

$ (7,552,007 )

Other (expense)

Revenues decreased by $10,441,043 or 29% for the fiscal year ended June 30, 2024, compared with the fiscal year ended June 30, 2023.

The product sales were down approximately $15,400,000 or 42% compared to the prior year, with the most significant decline being the sales of products through third party sales channels, such as Amazon, with the largest decline coming from the products where we do not own the brand.

The decline in sales was partially offset by approximately $5,000,000 in manufacturing sales.

Management has augmented the overall strategy of the Company to focus on product sales, including the development, production and distribution of branded products.

In addition, sales were affected by the manufacturing consolidation to Florida, which was completed by August 1, 2024, with manufacturing returning to full production.

Cost of revenue decreased by $2,245,642 or 15% compared with the fiscal year ended June 30, 2023.

The gross profit decreased by $8,195,401 or 39% compared with the prior year and gross margin declined by 8.36% to 49.32% compared to 57.68%.

The majority of the decline in gross profit was the $10,441,043 decrease in year over year sales, however the gross margin decline was primarily related to the $3,020,062 inventory write off and increase in the inventory reserves compared to only $92,378 expense in the year ended June 30, 2023.

This additional $2,927,684, non-cash expense recognized during the year ended June 30, 2024, reduced the gross margin by 11.26%.

The inventory write off was caused by both the strategic consolidation of operations to Florida and the change in overall strategy with the elimination of the recommerce strategy.

Management expects the gross margin to improve with the change in strategic focus and the completed consolidation of operations.

Sales and marketing expenses decreased by $77,665 or 1% compared with the same period last year.

The expenditures for both years was similar in total.

We anticipate our advertising expenses will remain consistent with an overall decrease in sales and marketing as a percentage of total sales as we have impended our overall brand marketing strategy and we will be able to increase sales significantly without large increases in the expenses.

Distribution costs decreased $853,447 or 9% compared with the same period last year.

The decrease was related to the decreased sales and the consolidation of facilities.

Management has implemented a strategy to change promotions, increase shipping prices and adjust packaging for whole sales verses direct to consumer shipments to lower the overall percentage of distribution costs to sales.

The consolidation strategy and other distribution cost reduction strategies are expected to be fully realized in the coming year.

General and administrative expenses decreased by $103,638 or 2% compared with the same period last year.

General and administrative expenses were similar to the prior year.

Since the consolidation to Florida and other changes in the business, management has actively been reducing general and administrative costs.

Management expects that general and administrative expenses will decline for the period July 1, 2024 to September 30, 2024, with the most significant declines being realized in periods ending after December 31, 2024.

Other operating expenses decreased by $2,297,657 or 32% compared with the same period last year.

These expenses are primarily non-cash expense for amortization of stock compensation, amortization of acquired intangible assets and depreciation.

The decrease in the amortization of stock compensation was $2,494,695 as older grants are fully amortized and there have only been limited grants in the past year.

This decline was offset by slightly higher depreciation expense during the year.

Other expense decreased by $1,534,994 or 33%, which related to the significant amount of interest expensed in the prior year when the Company entered into a letter of agreement to repay all amounts owed and terminate all security interests the lender held, including the Form S-3 registration statement.

The Company also had non-cash interest related to the amortization of the consideration discount of $1,112,676 and $969,098 for the years ended June 30, 2024, and June 30, 2023, respectively.

There was a loss of $559,967 attributable to non-controlling interest in 2023 compared to none in 2024 as the Company purchased the remaining non-controlling interest in the current year.

There was an impairment of intangible assets and goodwill of $7,869,425 in the year ended June 30, 2024.

$6,844,745 of the impairment was from the acquisition of Cygnet and related to the Company exiting the recommerce business.

The remaining $974,680 impairment was related to the LuckyTail acquisition and the significant decline in direct to consumer business as LuckyTail primarily sells through Amazon.

There was an impairment of intangible assets and goodwill of $3,746,301 in the year ended June 30, 2023, and related to the valuation of the Interactive Offers and the subsequent sale of the business.

The Company recognized an impairment $289,969 on the Delray Beach warehouse during 2024 as part of closing the warehouse and the Company exiting the recommerce business.

No such items for 2023.

The Company recognized a valuation allowance on its deferred tax asset of $6,100,000 during the year ended June 30, 2024.

This was done as management estimated the probable future usage of the Company’s net operating loss carry forward.

The loss on the sale of assets and businesses of $456,747 was related to a loss on the sale of E-Core of $1,737,326, the loss on the sale or abandonment of assets not necessary for operations at the new Florida facility and an impairment on the largo facility that was sold on July 8, 2024.

This loss was offset by a $1,948,538 gain on the sale of VitaMedica and a gain on the sale of Infusionz and CBD related assets, which was recorded as a $2,212,542 loss in the prior year.

The income and loss on discontinued operations was as follows:

Interactive Offers

$ (1,729,636 )

$ (1,370,124 )

Depreciation expense

Income tax benefit

Segment assets:

Additions to property, plant, and equipment

The Company had a net loss of $21,396,857 compared to a net loss of $16,930,289 in the prior year.

The increase in the net losses primarily related to the above-mentioned changes.

Liquidity and Capital Resources

5 unchanged sentences

Working capital

$ (1,235,234 )

Years Ended June 30,

Cash flows provided by operating activities – continuing operations

Cash flows used in investing activities – continuing operations

Cash flows (used in) operating activities – continuing operations

$ (4,894,751 )

Cash flows used in financing activities – continuing operations

Cash flows used by operating activities – discontinued operations

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

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

$ (7,421,529 )

Cash flows provided by (used in) investing activities – continuing operations

Cash flows (used in) provided by financing activities – continuing operations

Cash flows provided by operating activities – discontinued operations

Cash flows used by investing activities – discontinued operations

Cash flows used by financing activities – discontinued operations

Net decrease in cash during the period

2 unchanged sentences

On June 30, 2024, the Company had cash of $661,415 or a decrease of $3,830,877 from June 30, 2023.

The decrease in cash was primarily used for investing in the acquisition of new entities and the purchase of property and equipment.

The Company financed some of the investment through financing activities.

The net cash provided by operating activities was $517,697 and offset by cash used in discontinued operations of $315,021.

The loss of $16,284,292 was offset by the non-cash expenses of $5,153,695 depreciation and amortization, impairment of goodwill and identifiable intangible assets, $3,664,538 amortization of stock compensation, $2,212,542 of non-cash loses for the sale of Infusionz $969,098 amortization of consideration discount offset by $3,785,224 changes in deferred tax asset.

The losses were also offset by an increase in liabilities of $3,312,604 and a decrease of $1,905,234 in current assets.

Net cash used in investing activities for the years ended June 30, 2023, and 2022 was $2,574,858 and $10,903,318, respectively.

For the year ended June 30, 2023, cash of $7,129,826 was used for two new acquisitions and payment related to prior year acquisitions and $937,564 for the acquisition of property and equipment and improvements to the building purchased in 2022.

This was partially paid for with the $5,492,532, net cash received for the sale of Infusionz and select CBD assets.

For the year ended June 30, 2022, the use of cash was primarily related to the investment of $5,457,545 in three acquisitions, $4,515,735 for the purchase of a building in Clearwater Florida and the related remodel of the acquired building and $936,038 for the acquisition of equipment.

Net cash flows used in financing activities for the year ended June 30, 2023, was $285,333 compared to $3,699,744 provided in the year ended June 30, 2022.

The Company had net proceeds of $6,127,893 from the issuance of stock and $7,120,000 in proceeds from the issuance of notes payable, including $1,470,000 of proceeds from a related party note payable, $3,000,000 of proceeds related to a note payable with a security interest in our building in Clearwater and $2,650,000 of unsecured debt.

The decrease in cash was primarily the net loss from operations and the significant change in continuing operations with the recent sale of businesses and the change of the Company’s overall strategy.

The net cash used by continuing operating activities was $4,894,751 and offset by cash provided by discontinued operations of $4,793,374.

The loss of $23,658,438 was offset by the non-cash expenses of $3,948,084 depreciation and amortization, $7,869,425 impairment of goodwill and identifiable intangible assets, $1,112,676 amortization of stock compensation and $1,812,319 write of inventory.

The sale of business and the impairment recognized on the warehouse were minimal at a total of $112,448 used.

The change in deferred tax asset was $344,802 with a valuation reserve of $6,100,000.

The change in operating assets and liabilities provided cash of $2,907,978.

Cash provided by discontinued operating activities was $4,793,374 and primarily related to decreases in E-core’s inventory and accounts receivable.

Net cash provided by investing activities for the years ended June 30, 2024 and 2023 was $831,112 and use of $23,271, respectively.

For the year ended June 30, 2024, cash of $539,348 was used for the acquisition of the remaining 45% of Cygnet and $932,565 for the acquisition of property and equipment.

Cash was provided during the year ended June 30, 2024 of $2,100,000 and $203,025 from the sale of VitaMedica and Interactive offers, respectively.

In addition, the Company used $4,206,823 for discontinued investing activities related to the payments in the acquisition of E-core.

In the prior year, the net cash used was $23,271.

The proceeds from the sale of Infusionz and selected assets was $5,492,532 and offset by $3,528,239 and $1,050,000 for the purchase of LuckyTail and Cygnet, respectively.

$937,564 was used in the acquisition of property and equipment.

The $2,511,587 used in discontinued investing activities was $500,000 for the acquisition of VitaMedica and $2,051,587, net of cash acquired, for the acquisition of E-core.

Net cash flows used in financing activities for the year ended June 30, 2024 was $353,789 compared to $285,333 used during the year ended June 30, 2023.

During the year ended June 30, 2024 cash was used for the payment of debt related to the acquisition of Cygnet and the payment of the loan on the building.

This was offset during the year by a $100,000 advance to the Company by Allan Marshall, the CEO, which was repaid in July 2024.

During the year ended June 30, 2023, the Company had net proceeds of $6,127,893 from the issuance of stock and $7,120,000 in proceeds from the issuance of notes payable, including $1,470,000 of proceeds from a related party note payable, $3,000,000 of proceeds related to a note payable with a security interest in our building in Clearwater and $2,650,000 of unsecured debt.

The newly issued debt was primarily used to repay the senior convertible note payable and the line of credit.

On April 15, 2022, the Company entered into a non-negotiable convertible promissory note in the original principal amount of $1,050,000, as adjusted, (“Cygnet Note”) which can be converted into common stock of the Company at a price of $6.00 per share and is payable in full, to the extent not previously converted, on April 15, 2023.

This note was fully repaid in April of 2023.

In June 2022, the Company entered into a securities purchase agreement with two accredited investors pursuant to which the Company could receive up to $15,000,000 during the following twelve months of the agreement.

The Company received $6,678,506 for Convertible Notes in the original principal amount of $7,500,000 (the “Convertible Notes”), representing the original purchase amount, less fees, costs and a $500,000 holdback by the investors.

In addition to the Convertible Notes, the investors received Common Stock Purchase Warrants (the “Warrants”) to acquire an aggregate of 56,250 shares of common stock.

The Warrants are exercisable for five years at an exercise price of $4.44 per share, provide 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 $3,540 for the change in the derivative liability for the period ended December 31, 2022.

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.

On October 19, 2022, the Company and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement with Professional Bank, a Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N.

3 unchanged sentences

The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC, in the amount of $2,780,200, net of fees and other expenses.

The remainder of the loan facility with Acorn Capital, LLC was fully repaid in October of 2022 when the Company received proceeds from the sale of Infusionz, including $613,466 in accrued interest, $250,000 for settlement of a Put Option and $7,900 in miscellaneous fees for a total of $5,146,437 to the holders of the $15 million senior secured convertible notes entered into on June 28, 2022.

The payment terminates the agreement with the noteholders.

On October 31, 2022, the “Company, paid $4,275,071 in principal, $613,466 in accrued interest, $250,000 for settlement of a put option and $7,900 in miscellaneous fees for a total of $5,146,437 to the holders of the $15 million senior secured convertible notes entered into on June 28, 2022.

The payment terminated the agreement with the noteholders.

The Company also terminated the registration statement covering the senior secured 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 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.

Interest only has been paid related to this loan and $625,000 of principal payments were due at June 30, 2023 and are classified as current portion of notes payable in addition to the principal payments owed during fiscal year 2024.

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.

On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $560,000.

The promissory note has a 21-month term and bears cash interest at the rate of 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.

On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC.

The lease is for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month on a triple net basis.

The initial term is five years.

The estimated cost of this facility is a reduction of overall facility costs of approximately $240,000 in rent and approximately $138,000 per year in utilities, repairs and maintenance.

Management also expects to have additional savings in labor and administrative costs, which is expected to add additional cash flow for fiscal year 2025.

On May 28, 2024, the Company entered into an agreement to sell its Clearwater warehouse for a sale price of $4,300,000.

The sale of the building was completed on July 8, 2024 and provided $1,370,978 of working capital.

On June 13, 2024, the Company sold all of the issued and outstanding equity of VitaMedica, Inc.

to three investors.

One of the minority Interest Buyers is Allan Marshall, the Company’s Chief Executive Officers.

The purchase price for the stock was Six Million Dollars ($6,000,000), subject to certain customary post-closing adjustments.

The net cash provided from the sale was $2,100,000, reduced liabilities of $1,900,000 and will provide an additional $2,000,000 in cash flow next year.

On August 1, 2024, the Company sold all of outstanding stock of E-Core Technology, Inc., a Florida corporation (d/b/a New England Technology, Inc.) (“E-core”), to E-Core Holdings, LLC, a Florida limited liability company pursuant to the terms of an Agreement to Unwind Securities Purchase Agreement dated July 31, 2024 and effective June 30, 2024.

The principals of the Buyer are the three individuals from whom the Company acquired E-core in October 2022.

The purchase price in the transaction was $2,000,000 paid by the Buyer to the Company at closing and will be used for working capital.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.

Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand, cash flow from operations, proceeds from the sale of VitaMedica not yet received and additional short term debt financings, if necessary.

We estimate that we will have sufficient working capital to fund our operations over the twelve months following the date of the issuance of these condensed consolidated financial statements and meet all our debt obligations.

8 unchanged sentences

We have identified below the accounting policies, related to what we believe are most critical to our business operations and are discussed throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and expected financial results.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

7 unchanged sentences

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.

The Company performed its annual test as of June 30, 2023.

No impairment charge was identified in connection with the annual goodwill impairment test

Revenue Recognition - The Company analyzes its contracts and purchase orders to assess that revenue is properly recognized.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, whether for goods and services or licensing, the Company performs the following steps:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations based on estimated selling prices;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company acts as a principal in its revenue transactions as the Company is the primary obligor in the transactions.

Generally, the Company recognizes revenue for its products when ownership is transferred to the customer, provided no significant obligations remain and collection is probable.

Product Revenue - Most of the Company’s revenue contracts are from domestic sales and represent a single performance obligation related to the fulfillment of customer orders for the purchase of its products.

Net sales reflect the transaction prices for these contracts based on the Company’s selling list price, which is then reduced by estimated costs for trade promotional programs, consumer incentives, and allowances and discounts used to incentivize sales growth and build brand awareness.

The Company recognizes revenue at the point in time that control of the ordered product is transferred to the customer, which is upon shipment to the customer or other customer-designated delivery point.

Taxes collected from customers that are remitted to governmental agencies are accounted for on a net basis and not included as revenue.

The Company performed its annual test as of June 30, 2024 and 2023, respectively.

It was determined by management that the goodwill related to Cygnet was completely impaired at June 30, 2024 based on the strategic decision to exit the recommerce business.

An impairment of goodwill in the amount of $3,594,745 was recorded at June 30, 2024 eliminating all of the goodwill related to Cygnet.

It was determined by management that the goodwill related to Interactive Offers was completely impaired at June 30, 2023 based on the sale of the business at September 1, 2023.

An impairment of goodwill in the amount of $2,889,158 was recorded at June 30, 2023 eliminating all of the goodwill related to Interactive Offers.

Revenue Recognition - In accordance with ASC No.

606, Revenue from Contracts with Customers, the Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers.

In general, the Company generates revenue from product sales, either directly to customers or to distributors.

In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay.

The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order.

Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period.

For sales to distributors, payment is due on our standard commercial terms and is not contingent upon the distributors’ resale of the products.

Shipping and handling fees billed to customers are included in revenue.

Shipping and handling fees associated with inbound freight, are generally included in cost of revenue.

Our business is subject to contingencies related to customer orders, including:

Right of Return:

A large portion of our revenue comes from the sale of consumable products, which are sold in high-volume and low quantities, and are generally maintained at stock levels of less than ninety days in our facility.

Customer returns have historically represented a very small percentage of sales on an annual basis.

Other product sales relate to some pet products, including small mechanical devices.

The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment.

E-Commerce product returns must be completed within 45 days of the date of purchase.

The Company does not accrue for estimated sales returns as historical sales returns have been minimal.

The Company records deferred revenues when cash payments are received or due in advance of performance, including amounts which are refundable.

Substantially all the deferred revenue as of June 30, 2022 was recognized as revenue in the year ended June 30, 2023.

Shipping and handling fees billed to customers are included in revenue.

Shipping and handling fees associated with freight are generally included in cost of revenue.

The Company accrues an allowance for refunds, returned deposits and discounts given by customer services post shipment of the product based on historical experience and management’s estimate of future expenses, including replacement, freight charges and other fulfilment expenses.

Conditions of Acceptance:

Sales of our consumable products and pet products, generally do not have customer acceptance terms.

Contract Assets

A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer.

ASC 606, Revenue from Contracts with Customers, distinguishes between a contract asset and a receivable based on whether receipt of the consideration is conditional on something other than the passage of time.

When the Company transfers control of goods or services to a customer before the customer pays consideration, the Company records either a contract asset or a receivable depending on the nature of the Company’s right to consideration for its performance.

The point at which a contract asset becomes an account receivable may be earlier than the point at which an invoice is issued.

The Company assesses a contract asset for impairment in accordance with ASC 310, Receivables.

The following table discloses the deferred revenue:

Deferred revenue

The deferred revenue or also referred to as funded backlog was $235,255 and $0 at June 30,2024 and June 30, 2023, respectively.

We expect to recognize approximately 100% of the deferred revenue as revenue in the year ended June 30, 2025.

There was no opening liability balance at June 30, 2023 or June 30, 2022 to be recognized in the years ended June 30, 2024 or June 30, 2023, respectively.

Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable.

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When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable.

The Company did not recognize impairment on its long-lived assets during the years ended June 30, 2023, or 2022.

Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on their fair values.

The Company recognized an impairment on its building of $336,434 during the year ended June 30, 2024, based on the fair market value of the buildings pending sale, completed on July 8, 2024.

The Company recognized $569,195 loss on the sale of assets that were either liquidated or abandoned in the move of its manufacturing facility from Nevada to Florida.

In addition, the Company recognized an impairment of intangible assets of $4,274,680 for the year ended June 30, 2024.

$974,680 of the impairment is related to LuckyTail’s rapid decline of direct-to-consumer sales and $3,300,000 of the impairment is related to the unamortized vendor list of Cygnet, as the Company no longer purchases products from the majority of the original vendors Cygnet was using when the Company purchased Cygnet.

The Company recognized an impairment on its long-lived assets during the year ended June 30, 2023, of $857,143 on the assets held for sale, related to Interactive Offers, leaving $716,944 of Interactive’s original intangible assets classified as assets available for sale.

Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense in the consolidated financial statements based on their fair values.

That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately.

Inventory - The Company reviews the inventory level of all products and raw materials quarterly.

For most products that have been in the market for one year or greater, we consider inventory levels of greater than one year’s sales to be excess or other items that show slower than projected sales.

For most products that have been in the market for one year or more, we consider inventory levels of greater than one year’s sales to be excess or other items that show slower than projected sales.

Due to limited market penetration for our products, we have decided to write down 50% of the cost against certain raw materials and finished products.

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All adjustments for obsolete inventory establish a new cost basis for that inventory as we believe such reductions are permanent declines in the market price of our products.

Generally, obsolete inventory is sold to companies that specialize in the liquidation, while we continue to market slow-moving inventories until they are sold or become obsolete.

Generally, obsolete inventory is sold to companies that specialize in liquidation, while we continue to market slow-moving inventories until they are sold or become obsolete.

As obsolete or slow-moving inventory is sold or disposed of, we write it off.

Non-GAAP Measures (unaudited)

Reconciliation of Non-GAAP Adjusted EBITDA to GAAP Net Income (Net Loss)

Year Ended June 30,

Net income (Net loss) GAAP

$ (16,930,289 )

$ (2,100,850 )

Interest expense, net

Depreciation and amortization

Stock compensation

Loss on the sale of Infusionz and select assets

Change in derivative liability

Loss (gain) on discontinued operations

Gain on SBA PPP loan forgiveness

(Loss) income attributable to non-controlling interest

Lease impairment, California facility

Gain on sale of asset

Impairment of Intangible assets

Non-GAAP adjusted EBITDA

$ (1,603,248 )

Use of Non-GAAP Financial Measures

The Company discloses and uses the above-mentioned non-GAAP financial measures internally as a supplement to GAAP financial information to evaluate its operating performance, for financial planning purposes, to establish operational goals, for compensation plans, to measure debt service capability, for capital expenditure planning and to determine working capital needs and believes that these are useful financial measures also used by investors.

Non-GAAP adjusted EBITDA is defined as GAAP net income or net loss before interest, taxes, depreciation and amortization (EBITDA) adjusted for the non-cash stock compensation and stock option expense, acquisition, integration & restructuring expenses, charges and gains or losses from extinguishment of debt and other non-cash items.

Non-GAAP EBITDA and non-GAAP adjusted EBITDA are not terms defined by GAAP and, as a result, the Company’s measure of non-GAAP EBITDA and non-GAAP adjusted EBITDA might not be comparable to similarly titled measures used by other companies.

Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flow that either excludes or includes amounts that are not normally included in the most directly comparable measure calculated and presented in accordance with GAAP.

The non-GAAP financial measures discussed above, however, should be considered in addition to, and not as a substitute for, or superior to net income or net loss as reported for GAAP on the Consolidated Statements of Operations, cash and cash flows on the Consolidated Statement of Cash Flows or other measures of financial performance prepared in accordance with GAAP, and as reflected on the Company’s financial statements prepared in accordance with GAAP.

These non-GAAP financial measures are not a substitute for or presented in lieu of financial measures provided by GAAP and all measures and disclosures of financial information pursuant to GAAP should be read to obtain a comprehensive and thorough understanding of the Company’s financial results.

The reconciliations of non-GAAP EBITDA and non-GAAP adjusted EBITDA to GAAP operating income (loss) and/or GAAP net income (net loss) referred to in the highlights or elsewhere are provided in the schedules that are a part of this document.

Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company”, the Company is not required to provide the information required by this Item.

Inventory consists of raw materials and finished goods and is stated at the lower of cost or net realizable value, cost is determined by the weighted average moving cost inventory method.

Net realizable value is determined, with appropriate consideration given to obsolescence, excessive levels, deterioration, and other factors.

On June 30, 2024, the Company had $465,535 of raw materials and $966,021 of finished goods inventory.

On June 30, 2023, the Company had no raw material inventory and $4,804,299 of finished goods inventory.

The Company had inventory reserves at June 30, 2024 and 2023 of $605,470 and $154,400, respectively.

Reverse Stock Split

On September 18, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-20 (the "Reverse Stock Split"), which became effective as of October 3, 2024 (the "Effective Date").

The Reverse Stock Split was approved by the board of directors in accordance with Nevada law.

The Reverse Stock Split did not have any impact on the par value of common stock.

On the Effective Date, every twenty shares of Common Stock issued and outstanding were automatically combined into one share of Common Stock, without any change in the par value per share.

As the per-share par value did not change, we reclassified $19,860 from Common Stock to Additional Paid-in-Capital on the Effective Date.

The exercise prices and the number of shares issuable upon exercise of outstanding stock options, equity awards and warrants, and the number of shares available for future issuance under the equity incentive plans were adjusted in accordance with their respective terms.

The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in our Common Stock.

We did not issue any fractional shares in connection with the Reverse Stock Split.

Instead, fractional shares were initially rounded up to the next largest whole number, resulting in the issuance of 8 shares on October 3, 2024 the Effective Date and an additional issuance of 38 shares on October 8, 2024.

On October 10, 2024, the transfer agent received additional requests to issue a total of 202,183 shares of common stock for round up of fractional shares.

These shares were issued on October 23, 2024 and on October 30, 2024 we were notified that the shares were returned to the Company’s transfer agent.

Although the Company did receive the common stock back after issuance, the potential dilution remains a risk, and is the subject of a complaint filed by the Company in the United States District Court for the District of Nevada with the purpose of eliminating any said risk.

The Reverse Stock Split did not modify the relative rights or preferences of the Common Stock.

Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split.

On October 17, 2024, Company received written notice (the “Compliance Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that it has regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires that companies listed on the Nasdaq Stock Market maintain a minimum bid price of $1.00 per share.

Nasdaq notified the Company in the Compliance Notice that, from October 3, 2024 to October 16, 2024, the closing bid price of the Company’s common stock had been $1.00 per share or greater and, accordingly, the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2) and that the matter was now closed.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis