UPEXI, INC. 10-K

Item 7A. 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. 31 Table of Contents Item 8. Consolidated financial statements and Supplementary Data. UPEXI INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2024 AND 2023 Page Report of Independent Registered Public Accounting Firm PCAOB ID 1808 F-1 Consolidated financial statements Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders’ (Deficit) Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated financial statements F-6 32 Table of Contents Board of Directors and Shareholders Upexi, Inc. Report of Independent Registered Public Accounting Firm Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Upexi, Inc. (the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. GBQ Partners LLC We have served as the Company’s auditor since 2024. Columbus, Ohio December 16, 2024 F-1 Table of Contents UPEXI, INC. CONSOLIDATED BALANCE SHEETS June 30, June 30, 2024 2023 ASSETS Current assets Cash $ 661,415 $ 4,492,292 Accounts receivable, net 606,885 1,125,394 Inventory, net 1,431,556 4,804,299 Due from Bloomios - 845,443 Due from VitaMedica transition 212,358 - Prepaid expenses and other receivables 502,188 1,112,280 Assets available for sale - Interactive offers current - 89,989 Assets available for sale - Building 4,005,516 4,611,248 Assets available for sale - VitaMedica current - 2,599,934 Assets available for sale - E-core current - 10,332,105 Purchase price receivable - VitaMedica 2,000,000 - Purchase price receivable - E-core 2,000,000 - Total current assets 11,419,918 30,012,984 Property and equipment, net 2,356,556 2,831,375 Intangible assets, net 239,871 6,924,982 Goodwill 848,854 2,886,309 Deferred tax asset 5,948,858 5,604,056 Other assets 278,435 76,728 Discontinued assets available for sale - Interactive offers - 936,054 Discontinued assets available for sale - VitaMedica - 2,051,214 Discontinued assets available for sale - E-core - 12,067,333 Right-of-use asset, net 2,418,596 410,453 Total other assets 12,091,170 33,788,504 Total assets $ 23,511,088 $ 63,801,488 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 481,647 $ 1,028,611 Accrued compensation 1,098,856 533,842 Deferred revenue 235,255 - Accrued liabilities 736,407 2,439,794 Accrued interest 476,018 655,187 Acquisition payable 413,152 152,500 Related party advances, net 100,000 - Current portion of note payable - 338,474 Current portion of convertible notes payable - 1,254,167 Current portion of acquisition note payable - E-core - 5,656,620 Current portion of related party note payable - 1,429,356 Current portion of Cygnet subsidiary notes payable 5,447,565 795,778 Note payable on building for sale 2,634,538 2,841,566 Discontinued liabilities - Interactive offers - 792,408 Discontinued liabilities - VitaMedica - 617,174 Discontinued liabilities - E-core - 3,401,983 Current portion of operating lease payable 1,031,714 454,127 Total current liabilities 12,655,152 22,391,587 Operating lease payable, net of current portion 1,732,606 - Related party note payable 500,000 - Note payable 557,429 173,812 Convertible notes payable 1,550,000 895,833 Acquisition note payable - E-core - 7,605,085 Notes payable - Cygnet subsidiary - 4,898,548 Total long-term liabilities 4,340,035 13,573,278 Commitments and contingencies Stockholders' equity Preferred stock, $ 0.001 par value, 500,000 shares authorized, and 25,000 and 25,000 shares issued and outstanding, respectively 25 25 Common stock, $ 0.001 par value, 5,000,000 shares authorized, and 1,010,843 and 1,045,429 shares issued and outstanding, respectively 1,045 1,011 Additional paid in capital 53,374,444 51,541,909 Accumulated deficit ( 46,859,613 ) ( 23,201,175 ) Total stockholders' equity attributable to Upexi, Inc. 6,515,901 28,341,770 Non-controlling interest in subsidiary ( 505,147 ) Total stockholders' equity 6,515,901 27,836,623 Total liabilities and stockholders' equity $ 23,511,088 $ 63,801,488 The accompanying notes are an integral part of these consolidated financial statements. F-2 Table of Contents UPEXI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended June 30, 2024 2023 Revenue Revenue $ 26,000,652 $ 36,441,695 Cost of Revenue 13,176,073 15,421,715 Gross profit 12,824,579 21,019,980 Operating expenses Sales and marketing 5,989,727 6,067,392 Distribution costs 8,611,702 9,465,149 General and administrative expenses 6,771,937 6,875,575 Share-based compensation 1,169,843 3,664,538 Amortization of acquired intangible assets 2,410,431 2,568,502 Depreciation 1,268,355 913,246 Impairment of long-lived asset - building 336,434 - Loss on the sale / abandonment of assets in relocation 569,195 - Impairment of intangible assets and goodwill 7,869,425 3,746,301 Lease impairment, Delray Beach facility 289,969 - 35,287,018 33,300,703 Loss from operations ( 22,462,439 ) ( 12,280,723 ) Other income (expense), net Change in derivative liability - 1,770 Other ( 16,443 ) 38,344 Interest (expense) income, net ( 3,124,723 ) ( 4,716,274 ) Other income (expense), net ( 3,141,166 ) ( 4,676,160 ) Loss on operations before income tax ( 25,603,605 ) ( 16,956,883 ) Income tax benefit 332,101 3,049,293 332,101 3,049,293 Net income (loss) from continuing operations ( 25,271,504 ) ( 13,907,590 ) Gain (loss) from the sale of: Infusionz and select assets - ( 2,212,542 ) Interactive Offers 237,670 - VitaMedica 1,948,538 - E-core ( 1,737,326 ) - 448,882 ( 2,212,542 ) Income (loss) on discontinued operations Infuisionz 71,976 ( 338,418 ) Interactive offers ( 187,003 ) ( 1,729,636 ) VitaMedica 213,636 ( 382,449 ) E-core 1,065,575 1,080,379 Income (loss) income from discontinued operations 1,164,184 ( 1,370,124 ) Net loss attributable to non-controlling interest - 559,967 Net income (loss) attributable to Upexi, Inc. $ ( 23,658,438 ) $ ( 16,930,289 ) Basic income (loss) per share: Income (loss) per share from continuing operations $ ( 24.60 ) $ ( 15.56 ) (Loss) income per share from discontinued operations $ 1.13 $ ( 1.53 ) Total income (loss) per share attributable to Upexi shareholders $ ( 23.03 ) $ ( 18.94 ) Diluted income (loss) per share: Income (loss) per share from continuing operations $ ( 24.60 ) $ ( 15.56 ) (Loss) income per share from discontinued operations $ 1.13 $ ( 1.53 ) Total income (loss) per share attributable to Upexi shareholders $ ( 23.03 ) $ ( 18.94 ) Basic weighted average shares outstanding 1,027,232 893,943 Fully diluted weighted average shares outstanding 1,027,232 893,943 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents UPEXI, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Preferred Stock Preferred Stock Common Stock Common Stock Additional Paid Accumulated Non-controlling Total Stockholders' Shares* amount* Shares* amount * In Capital Deficit Interest Equity 2023 Balance, June 30, 2022 25,000 $ 25 835,712 $ 836 $ 35,001,949 $ ( 6,270,886 ) $ 54,820 $ 28,786,744 Amortization of common stock issuance for services - - - - 140,700 - - 140,700 Stock based compensation, amortization of stock options - - - - 3,664,538 - - 3,664,538 Issuance of common stock for acquisition of E-Core - - 62,370 62 5,999,938 - - 6,000,000 Issuance of common stock for interest on note payable - - 6,700 7 606,997 - - 607,004 Common stock issued for cash, net 106,061 106 6,127,787 6,127,893 Net loss - - - - - ( 16,930,289 ) ( 559,967 ) ( 17,490,256 ) Balance, June 30, 2023 25,000 $ 25 1,010,843 $ 1,011 $ 51,541,909 $ ( 23,201,175 ) $ ( 505,147 ) $ 27,836,623 2024 Stock based compensation, restricted stock grant - - 5,000 5 212,743 - - 212,748 Stock based compensation, amortization of stock options - - - - 957,095 - - 957,095 Issuance of stock and equity for purchase of Cygnet - - 4,505 4 162,722 505,147 667,873 Issuance of stock for conversion of debt - - 25,081 25 499,975 500,000 Net loss - - - - - ( 23,658,438 ) - ( 23,658,438 ) Balance, June 30, 2024 25,000 $ 25 1,045,429 $ 1,045 $ 53,374,444 $ ( 46,859,613 ) $ - $ 6,515,901 * Common stock has been restated to reflect the 1 for 20 reverse split The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents UPEXI, INC. CONSOLIDATED STATEMENTS OF CASH FLOW Year ended June 30, 2024 2023 Cash flows from operating activities Net loss from operations $ ( 23,658,438 ) $ ( 16,930,289 ) Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities: Depreciation and amortization 3,678,786 3,481,748 Non-cash loss on the sale of Infusionz and select assets, net - 2,212,542 Gain on the sale of VitaMedica and income from discontinued operations ( 1,948,538 ) - Loss on the sale of New England Technology 1,737,326 - Amortization of loan costs 115,787 62,408 Amortization of consideration discount 1,112,676 969,098 Impairment of goodwill and intangible assets 7,869,425 3,746,301 Inventory write-offs 1,812,319 118,990 Loss on impairment of building 336,434 - Loss on sale of assets related to relocation of facility 569,195 Gain on sale of interactive offers ( 237,670 ) - Change in deferred tax asset ( 344,802 ) ( 3,139,227 ) Noncontrolling interest - ( 559,967 ) Change in derivative - 1,770 Stock based compensation 1,169,843 3,664,538 Changes in assets and liabilities, net of acquired amounts Accounts receivable 675,709 ( 364,665 ) Inventory 2,651,252 ( 1,366,269 ) Prepaid expenses and other assets 106,610 287,797 Operating lease payable 302,050 4,238 Accounts payable and accrued liabilities ( 944,020 ) 389,458 Deferred revenue 101,305 - Net cash used in operating activities - Continuing Operations ( 4,894,751 ) ( 7,421,529 ) Net cash provided by operating activities - Discontinued Operations 4,793,374 7,624,206 Net cash (used in) provided by operating activities ( 101,377 ) 202,677 Cash flows from investing activities Acquisition of Lucky Tail - ( 3,528,239 ) Proceeds from the sale of VitaMedica, Inc. 2,100,000 - Proceeds from the sale of Interactive Offers, net of liabilities paid 203,025 - Acquisition of Cygnet Online LLC, net ( 539,348 ) ( 1,050,000 ) Proceeds from the sale of Infusionz and selected assets - 5,492,532 Acquisition of property and equipment ( 932,565 ) ( 937,564 ) Net cash provided by (used in) investing activities - Continuing Operations 831,112 ( 23,271 ) Net cash (used in) investing activities - Discontinued Operations ( 4,206,823 ) ( 2,551,587 ) Net cash used in investing activities ( 3,375,711 ) ( 2,574,858 ) Cash flows from financing activities Repayment of the senior convertible notes payable - ( 6,305,406 ) Proceeds from the issuance of stock - 6,127,893 Payment on acquisition notes payable ( 246,761 ) ( 751,152 ) Proceeds from related party advance 100,000 - Proceeds from convertible note payable - 2,650,000 Proceeds on note payable on building - 3,000,000 Repayment on note payable on building ( 207,028 ) ( 158,434 ) Proceeds on note payable, related party - 1,470,000 Net cash (used in) provided by financing activities - Continuing Operations ( 353,789 ) 6,032,901 Net cash used in financing activities - Discontinued Operations - ( 6,318,234 ) Net cash used in financing activities ( 353,789 ) ( 285,333 ) Net decrease in cash - Continuing Operations ( 4,417,428 ) ( 1,411,899 ) Net (decrease) increase in cash - Discontinued Operations 586,551 ( 1,245,615 ) Cash, beginning of period 4,492,292 7,149,806 Cash, end of period $ 661,415 $ 4,492,292 Supplemental Cash Flow Disclosures Interest paid $ 839,000 $ 2,278,292 Income tax paid $ - $ - Non-cash Investing and Financing Activities Non-cash proceeds in the sale of VitaMedica $ 1,900,000 $ - Issuance of common stock for acquisition of Cygnet $ 162,727 $ - Issuance of debt for acquisition of Cygnet $ 300,000 $ - Bloomios non-cash payment of receivables, net $ 845,443 $ - Issuance of stock for services $ - $ 140,700 Issuance of stock for interest expense $ - $ 607,004 Issuance of common stock for the repayment of convertible note payable $ 500,000 $ - Liabilities assumed from acquisition of E-Core $ - $ ( 7,712,168 ) Issuance of stock for acquisition of E-Core $ - $ 6,000,000 Assets available for sale $ - $ 1,026,043 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents Upexi, Inc. Notes to the Consolidated financial statements June 30, 2024 and 2023 As used in this annual report and unless otherwise indicated, the terms “we”, “us”, “our”, “Upexi”, and the “Company” mean Upexi, Inc., a Nevada corporation formed in 2018. The Company has eleven active subsidiaries, which include: ☐ HAVZ, LLC, d/b/a/ Steam Wholesale, a California limited liability company ☐ Gummy Labs, LLC, a Delaware limited liability company ☐ MW Products, Inc., a Nevada corporation ☐ Upexi Holding, LLC, a Delaware limited liability company o Upexi Pet Products, LLC, a Delaware limited liability company ☐ Upexi Enterprise, LLC, a Delaware limited liability company o Upexi Distribution LLC, a Delaware limited liability company o Upexi Distribution Management 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 ☐ Cygnet Online, LLC (“Cygnet”), a Delaware limited liability company (100% owned as of September 1, 2023) The following subsidiaries had no activity during the years ended June 30, 2024 and 2023: ☐ Upexi CP, LLC, a Delaware limited liability company ☐ Upexi CP / Canada Inc., a Canada corporation ☐ Prax Products, LLC, a Florida limited liability company ☐ Upexi Development and Marketing, LLC., a Delaware limited liability company ☐ Trunano Labs, Inc., a Nevada corporation The following subsidiaries were divested during the years ended June 30, 2024 and 2023: ☐ VitaMedica, Inc. a Nevada corporation ☐ E-Core Technology, Inc. a Florida corporation ☐ Infusionz LLC, a Colorado limited liability company ☐ Interactive Offers, LLC, a Delaware limited liability company In addition, the Company has six wholly owned subsidiaries that had no activity during the years ended June 30, 2024 and 2023. All of the entities were dissolved or cancelled as of June 30, 2024. · Steam Distribution, LLC, a California limited liability company · One Hit Wonder, Inc., a California corporation · One Hit Wonder Holdings, LLC, a California limited liability company · Vape Estate, Inc., a Nevada Corporation · SWCH, LLC, a Delaware limited liability company · Cresco Management, LLC, a California limited liability company F-6 Table of Contents Our products are distributed in the United States of America and internationally through multiple entities and managed through our locations in Florida. Upexi operates from our corporate location in Tampa, Florida, where direct to consumer, wholesale and Amazon sales are driven by on-site and remote teams for all brands. The Tampa location also supports all the other locations with accounting, corporate oversight, day-to-day finances, business development and operational management operating from this location. MW Products operates from our corporate headquarters and our Tampa, Florida warehouse, managing direct to consumer, wholesale and Amazon sales for multiple brands and develops new products through our research and development team in Henderson, Nevada and Odessa, Florida. Lucky Tail operates from our Tampa, Florida warehouse with sales and marketing driven by on-site and remote teams that operate the Amazon sales strategy and daily business operations. HAVZ, LLC, d/b/a/ Steam Wholesale operates manufacturing and/or distribution centers in Odessa, Florida, supporting our health and wellness products, including those products manufactured with hemp ingredients and our overall distribution operations. We have continued to manage these operations with corporate focus on larger opportunities that have warranted the majority of corporate focus and investments for the future. Upexi Distribution operates from our Tampa, Florida warehouse providing warehousing, distribution and other services in support of our product sales. Note 2. Significant Accounting Policies The significant accounting policies followed are: 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. Significant estimates underlying the Company’s reported financial position and results of operations include the allowance for doubtful accounts, useful lives of property and equipment, impairment of long-lived assets, inventory valuation, fair value of stock-based compensation and valuation allowance on deferred tax assets. Cash - The Company considers all highly liquid investment instruments with a maturity of three months or less to be cash equivalents. Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. Accounts Receivable - Amounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within a specified time from the invoice date. The trade terms vary based on the customer and typically range from prepaid to 45 days from the invoice date. Interest is not charged by the Company on past due accounts. The carrying amount of receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical experience, current conditions and as applicable, reasonable supportable forecasts. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. The net accounts receivable balances at June 30, 2024, 2023 and 2022 were $ 606,885 , 1,125,394 and $ 760,729 , respectively. Based on management’s review of accounts receivable, the valuation allowance was approximately $ 61,750 and $ 0 at June 30, 2024 and 2023, respectively. The Company had bad debt expenses of $ 24,500 and $ 4,750 for the years ended June 30, 2024 and 2023, respectively. F-7 Table of Contents Inventory - The Company reviews the inventory level of all products and raw materials quarterly. For most products that have been in the market for one year or more, we consider inventory levels of greater than one year’s sales to be excess or other items that show slower than projected sales. Due to limited market penetration for our products, we have decided to write down 50% of the cost against certain raw materials and finished products. Products that are no longer part of the current product offering are considered obsolete. The potential for re-sale of slow-moving and obsolete inventories is based upon our assumptions about future demand and market conditions. The recorded cost of obsolete inventories is then reduced to zero. The slow-moving and obsolete inventory is written off and recorded as charges to cost of goods sold. All adjustments for obsolete inventory establish a new cost basis for that inventory as we believe such reductions are permanent declines in the market price of our products. Generally, obsolete inventory is sold to companies that specialize in the liquidation, while we continue to market slow-moving inventories until they are sold or become obsolete. Inventory consists of raw materials and finished goods and is stated at the lower of cost or net realizable value, cost is determined by the weighted average moving cost inventory method. Net realizable value is determined, with appropriate consideration given to obsolescence, excessive levels, deterioration, and other factors. 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. Property and Equipment - Property and equipment is recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 20 years. Leasehold improvements are amortized over the shorter of their estimated useful lives of 5 years or the related lease term. Gains and losses upon disposition are reflected in the Statements of Operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. The Company disposed of some equipment during 2024 and 2023 which resulted in gains and losses on the sales, shown in the accompanying Statements of Operations. Business Combinations - The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities assumed by the Company to the seller’s cash consideration and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as identifiable intangible assets and goodwill. Goodwill - The Company evaluates its goodwill for possible impairment, simplifying the test for goodwill impairment at least annually and when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill. The Company performed its annual test as of June 30, 2024 and 2023, respectively. It was determined by management that the goodwill related to Cygnet was completely impaired at June 30, 2024 based on the strategic decision to exit the recommerce business. An impairment of goodwill in the amount of $ 3,594,745 was recorded at June 30, 2024 eliminating all of the goodwill related to Cygnet. 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. F-8 Table of Contents The Company recognizes revenue from sales of our products, including sales to our distributors, at a point in time, generally upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where applicable, when the customer has accepted the products or upon expiration of the acceptance period. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon the distributors’ resale of the products. Shipping and handling fees billed to customers are included in revenue. Shipping and handling fees associated with inbound freight, are generally included in cost of revenue. Our business is subject to contingencies related to customer orders, including: Right of Return: A large portion of our revenue comes from the sale of consumable products, which are sold in high-volume and low quantities, and are generally maintained at stock levels of less than ninety days in our facility. Customer returns have historically represented a very small percentage of sales on an annual basis. Other product sales relate to some pet products, including small mechanical devices. Warranties: The Company does not accept sales returns from wholesale customers, as the products are pre-approved prior to production and shipment. E-Commerce product returns must be completed within 45 days of the date of purchase. The Company accrues an allowance for refunds, returned deposits and discounts given by customer services post shipment of the product based on historical experience and management’s estimate of future expenses, including replacement, freight charges and other fulfilment expenses. Conditions of Acceptance: Sales of our consumable products and pet products, generally do not have customer acceptance terms. 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: June 30, 2024 June 30, 2023 Deferred revenue $ 235,255 $ - The deferred revenue or also referred to as funded backlog was $ 235,255 , $ 0 and $ 0 at June 30,2024, June 30, 2023 and June 30, 2022, 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 to be recognized in the year ended June 30, 2024. F-9 Table of Contents Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. 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 building's pending sale, completed on July 8, 2024. The Company recognized a $ 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. Advertising - The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing team. The Company believes continual investment in advertising is critical to the development and sale of its branded products. Advertising costs of $ 3,353,361 and $ 4,271,469 were expensed as incurred during the years ended June 30, 2024 and 2023, respectively. Stock Based Compensation - The Company recognizes all share-based payments to employees, including grants of employee stock options and grants of restricted shares as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately. Non-employee Stock-based Payments - The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Accounting Standards Codification (ASC) 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Stock-based payments related to non-employees are accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Fair Value Measurements - The Company accounts for financial instruments in accordance with FASB ASC 820 “Fair Value Measurement and Disclosures” (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: · Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. · Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. · Level 3 - Inputs that are both significant to the fair value measurement and unobservable. F-10 Table of Contents The estimated fair value of certain financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, deferred revenue and debt are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. Leases - The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. Leases with an initial term of 12 months or less are not recorded within the accompanying consolidated balance sheets. GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option will result in an economic penalty. All the Company’s real estate leases are classified as operating leases. Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional two years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. Income Taxes - Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. A $ 6,100,000 valuation allowance was recorded at June 30, 2024 and no valuation allowance at June 30, 2023. The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. F-11 Table of Contents The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s consolidated financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There are no material uncertain tax positions at June 30, 2024 or June 30, 2023. On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate and the net operating loss incurred after December 31, 2017 can be carried forward indefinitely and the two year net operating loss carried back was eliminated (prohibited). 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. F-12 Table of Contents Earnings (loss) per Share - Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted income (loss) per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and upon the conversion of notes. For the year ended, the dilutive common shares are as follows: June 30, June 30, 2024 2023 Stock options 200,714 241,964 Warrants 52,530 11,015 Preferred stock 13,889 13,889 Convertible debt 15,500 57,883 Restricted stock grants 12,500 - Total potential dilutive weighted average shares outstanding 295,133 324,750 The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. During the year ended June 30, 2024 and 2023, the Company reported a net loss, so the potential effect is not reflected in the consolidated financial statements. Deferred Revenue - The Company records deposits as deferred revenue when a customer pays in advance of shipping the product. Once the product is shipped, the deposit is recorded as revenue and the related commissions are paid. All products were shipped related to deposits in deferred revenue, in less than one year. Convertible Debt and Securities - The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence. Non-controlling Interests in Consolidated financial statements - In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in consolidated financial statements”. This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. Reclassifications - Certain reclassifications have been made to the consolidated financial statements as of and for the year ended June 30, 2023 to conform to the presentation as of and for the year ended June 30, 2024. Recent Accounting Pronouncements – From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (“FASB”), or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting pronouncements, including the new provisions of ASC 326 (“Financial Instruments – Credit Losses”) pertaining to “current expected credit losses. ASC 326 was adopted for fiscal year 2024 and did not have a material effect to the accompanying consolidated financial statements. F-13 Table of Contents Note 3. Acquisitions Cygnet Online, LLC The Company acquired 55 % of Cygnet Online, LLC, on April 1, 2022. The purchase price was $ 5,515,756 , as amended. The following table summarizes the consideration transferred to acquire Cygnet and the amount of identified assets acquired, and liabilities assumed at the acquisition date. Fair value of consideration transferred: Cash $ 1,500,000 Convertible note payable, convertible at $6.00 per common share 1,050,000 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 March 31, 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 the reduction in the loan to the seller. The 55% purchase price allocation is final and is no longer subject to change. On September 1, 2023, the Company completed the acquisition of the remaining 45 % interest for structured cash payments equaling $ 800,000 , the forgiveness of advances of $ 89,416 and 4,505 shares of the Company’s common stock valued at $ 162,727 . As of June 30, 2024, the Company has not released the 4,505 shares or paid the remaining $ 300,000 owed related to this additional acquisition. The seller had access to one of the Company’s bank accounts and withdrew $ 39,348 and refused to return the funds. The Company recorded this as a reduction of the $300,000, although there is no right of offset in the purchase agreement. 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. F-14 Table of Contents An impairment of $ 3,300,000 , related to the Cygnet vendor list, was recorded as the Company no longer purchases products from the majority of the original vendors Cygnet was using at the time purchased Cygnet. In addition, 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. LuckyTail On August 13, 2022, the Company acquired the pet product brand and the rights to the products of LuckyTail from GA Solutions, LLC. The following table summarizes the consideration transferred to acquire LuckyTail and the amount of identified assets acquired, and liabilities assumed at the acquisition date. Fair value of consideration transferred: Cash $ 2,000,000 Cash payment, 90 days after close 484,729 Cash payment, 180 days after close 469,924 Contingent consideration 112,685 Cash payment, working capital adjustment 460,901 $ 3,528,239 Recognized amounts of identifiable assets acquired, and liabilities assumed: Inventory $ 460,901 Trade name 383,792 Customer list 1,834,692 Total identifiable net assets $ 2,679,385 Goodwill $ 848,854 The business was acquired through an asset purchase agreement, that acquired all elements of a 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 attainment of certain sales thresholds in the first six months. The Company estimated the value of this at approximately $ 150,000 at the time of purchase. The sales calculated to a $ 112,685 payout and the purchase price was adjusted. The asset purchase agreement has standard provisions to adjust the purchase price based on the final working capital transferred to the Company. The purchase price was increased by $ 460,901 for the excess working capital that was transferred in the business and the final purchase price allocation was completed by an independent consulting firm and is no longer subject to change. The acquisition of LuckyTail provided the Company with a foothold in the pet care industry and a strong presence on Amazon and its eCommerce store, offering nutritional and grooming products domestically and internationally. The acquisition provided both top line growth and improved EBITDA for the Company. These are the factors of goodwill recognized in the acquisition. The purchase price allocation was performed by a third party and is no longer subject to change. The Company’s consolidated financial statements for the year ended June 30, 2023, include the actual results of LuckyTail from August 13, 2022 through June 30, 2023. The Company recorded interest on the consideration of $ 63,282 during the year ended June 30, 2023 and no interest was recorded for the year ended June 30, 2024. Management determined a $ 974,680 impairment was necessary based on the rapid decline of the direct-to-consumer during the year ended June 30, 2024. Revenue from acquisitions included in the consolidated financial statements. Net revenue included in the consolidated financial statements: June 30, 2024 2023 Cygnet 12,154,831 23,996,086 LuckyTail 3,098,552 4,489,384 $ 15,253,383 $ 28,485,470 F-15 Table of Contents Consolidated pro-forma unaudited consolidated financial statements. The following unaudited pro forma combined financial information is based on the historical consolidated financial statements of the Company and LuckyTail after giving effect to the Company’s acquisitions as if the acquisitions occurred on July 1, 2022. The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on July 1, 2022, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the year ended June 30, 2023, as if the acquisitions occurred on July 1, 2022. The results of operations for LuckyTail are included in the year ended June 30, 2024 and the results of operations for LuckyTail are included from August 13, 2022 to June 30, 2023. Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of LuckyTail at $44,620 per month. Pro Forma, Unaudited Proforma Year ended June 30, 2023 Upexi, Inc. LuckyTail Adjustments Proforma Net sales $ 36,441,695 $ 892,270 $ - $ 37,333,965 Cost of sales $ 15,421,715 $ 137,088 $ - $ 15,558,803 Operating expenses $ 29,554,402 $ 383,476 $ 66,930 $ 30,004,808 Net income (loss) from continuing operations $ ( 13,907,590 ) $ 371,706 $ ( 66,930 ) $ ( 13,602,814 ) Basic income (loss) per common share $ ( 15.56 ) $ - - $ ( 15.22 ) Weighted average shares outstanding 893,943 - - 893,943 The Company estimated the annual LuckyTail amortization expense at $ 535,428 annually and $ 44,620 monthly, based on the purchase price allocation. For the year ended June 30, 2023, the proforma adjustment included $ 66,930 of amortization expense for one and a half months. Acquisition-related costs are included in the general and administrative expenses on the Company’s condensed consolidated statements of operations. These costs are primarily external legal, accounting and consulting services directly related to completed acquisitions, due diligence, and review of possible target acquisitions. Note 4. Inventory Inventory consisted of the following: June 30, 2024 June 30, 2023 Raw materials $ 465,535 $ - Finished goods 966,021 4,804,299 $ 1,431,556 $ 4,804,299 The Company writes off the value of inventory deemed excessive or obsolete. During the years ended June 30, 2024 and 2023, the Company wrote off inventory valued at $ 1,812,319 and $ 118,990 , respectively. The Company had inventory reserves at June 30, 2024 and 2023 of $ 605,470 and $ 154,400 , respectively. F-16 Table of Contents Note 5. Property and Equipment Property and equipment consist of the following: June 30, 2024 June 30, 2023 Furniture and fixtures $ 127,050 $ 172,663 Computer equipment 112,397 156,283 Internal use software 570,645 608,949 Manufacturing equipment 1,927,974 3,325,525 Leasehold improvements 767,418 - Building 4,005,516 4,611,248 Vehicles 89,359 261,362 Property and equipment, gross 7,600,360 9,136,030 Less accumulated depreciation ( 1,268,288 ) ( 1,693,407 ) Less building classified as available for sale ( 4,005,516 ) ( 4,611,248 ) $ 2,356,556 $ 2,831,375 Depreciation expense for the years ended June 30, 2024 and 2023 was $ 1,268,355 and $ 913,246 , respectively. Note 6. Intangible Assets Intangible assets as of June 30, 2024: Estimated Life Cost Accumulated Amortization Net Book Value Customer relationships 4 years $ 1,834,692 $ 1,834,692 $ - Trade name 5 years 383,792 143,921 239,871 Online sales channels 2 years 1,800,000 1,800,000 - Vender relationships 5 years 6,000,000 6,000,000 - $ 10,018,484 $ 9,778,613 $ 239,871 For the years ended June 30, 2024 and 2023, the Company amortized approximately $ 2,410,400 , and $ 2,568,500 , respectively. For the year ended June 30, 2024 the Company impaired approximately $ 3,300,000 related to the vendor relationships of Cygnet and impaired approximately $ 974,700 related to the customer relationships of LuckyTail. Intangible assets as of June 30, 2023: Estimated Life Cost Accumulated Amortization Net Book Value Customer relationships 4 years $ 1,834,692 $ 401,339 $ 1,433,353 Trade name 5 years 383,792 67,163 316,629 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 $ 10,018,484 $ 4,237,814 $ 6,924,982 F-17 Table of Contents The following intangible assets were added during the year ended June 30, 2023, from the acquisitions noted below: LuckyTail: Customer relationships $ 1,834,692 Trade name 383,792 Intangible Assets from Purchase $ 2,218,484 Future amortization of intangible assets at June 30, 2024 are as follows: June 30, 2025 $ 76,758 June 30, 2026 76,758 June 30, 2027 76,758 June 30, 2028 9,596 $ 239,871 Note 7. Prepaid Expense and Other Current Assets Prepaid and other receivables consist of the following: June 30, 2024 June 30, 2023 Insurance $ 116,074 $ 187,949 Prepayment to vendors 203,556 138,653 Deposits on services 25,550 45,678 Prepaid monthly rent 60,041 27,813 Subscriptions and services being amortized over the service period 32,500 - Other deposits - 70,826 Stock issued for prepaid interest on convertible note payable 64,320 465,595 Other prepaid expenses - 31,000 Other receivables 148 144,765 Total $ 502,188 $ 1,112,280 All prepaid expenses will be expensed during the following 12 months. Note 8. Operating Leases We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, and equipment. We determine if an arrangement is a lease, or contains a lease, at inception, and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Our lease terms may include one or more options to extend the lease terms, for periods from one year to 20 years , when it is reasonably certain that we will exercise that option. As of June 30, 2024, no option to extend the lease was recognized as right-of-use (“ROU”) assets and lease liabilities. We have lease agreements with lease and non-lease components, and non-lease components are accounted for separately and not included in our ROU assets and corresponding liabilities. We have elected not to present short-term leases on the Consolidated Balance Sheets as these leases have a lease term of 12 months or less at lease inception. F-18 Table of Contents During November 2019, the Company entered into a lease for a Nevada facility that commenced on November 13, 2019, and recorded a right of use asset and corresponding lease liability. The Company uses this leased facility for office, manufacturing, and warehouse space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. Lease expenses for the year ended June 30, 2023 was approximately $ 723,000 and are included discontinued operations. The operating lease expired during the year ended June 30, 2023 and the Company continued to occupy the facility and pays rent on a month-to-month basis. During the year ended June 30, 2024 the Company used the facility for ongoing operations and recognized approximately $ 670,200 of expense during the year. The Company moved out of the facility in July 2024. During May 2021, the Company entered into a lease for an additional Nevada facility that commenced on May 1, 2021, and recorded a right of use asset and corresponding lease liability. The Company uses this leased facility for additional warehouse space. The minimum lease payments were $ 95,548 and $ 111,796 for the years ended June 30, 2024 and 2023, respectively. The lease expense, including all additional lease expenses was approximately $ 106,100 and $ 134,700 , respectively. The Company moved out of the facility April of 2024 when the lease term ended. During November 2018, the Company entered into a lease for equipment that commenced on November 1, 2018, and recorded a right of use asset and corresponding lease liability. Lease expenses were $ 7,640 and $ 6,744 for the years ended June 30, 2024 and June 30, 2023, respectively. On April 1, 2022, the Company acquired Cygnet which had entered into a lease for a Florida facility that commenced on October 8, 2021, and Cygnet had recorded a right of use asset and corresponding lease liability. The lease expires on October 8, 2026 . The Company uses this leased facility for warehouse and office space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases and accounted for as non-lease components and not part of the ROU. Lease expenses were $ 43,180 and $ 102,228 for the years ended June 30, 2024 and 2023, respectively. The Company abandoned the facility in October of 2023 and recognized a lease impairment of $ 289,969 . On March 15, 2023, the Company entered into a lease for approximately 20,400 square feet of warehouse and office space, located in Tampa, Florida, to be used as the Company’s distribution center . The initial term of the lease is thirty-eight months and was not completed when the lease was signed. The Company moved into the facility in July 2023 and started operations. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases and accounted for as non-lease components and not part of the ROU. During the year ended June 30, 2024, the Company recognized approximately $ 374,500 of expense and approximately $ 27,800 for the year ended June 30, 2023. On July 25, 2023, the Company entered into a lease for approximately 5,700 square feet of office space, located in Tampa, Florida, to be used as the Company’s corporate headquarters . The initial term of the lease is sixty-one months. During the year ended June 30, 2024, the Company recognized approximately $ 140,658 of expense and no expense for the year ended June 30, 2023. On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC, which is owned by our CEO, Allan Marshall. The lease is for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $20,060 per month. The initial term of the lease is five years . The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases and accounted for as non-lease components and not part of the ROU. The Company spent $ 611,768 in leasehold improvements to prepare the facility for product manufacturing, which will be amortized over the five year lease term. At June 30, 2024 there was $ 100,004 accrued for the deposit, three months rent, and three months estimated expenses, that was paid in July 2024 and is now kept current. Product manufacturing was at full capacity and fully moved from the Nevada facility as of August 1, 2024. During the year ended June 30, 2024 the Company recognized approximately $ 79,950 of expense. Operating leases are included in operating ROU assets, current and non-current operating lease liabilities, and finance leases are included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the Consolidated Balance Sheets. As of June 30, 2024, our finance leases are not material. F-19 Table of Contents 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 consolidated balance sheet as of June 30, 2024: 2025 $ 1,031,714 2026 762,364 2027 504,795 2028 486,733 2029 221,715 Total undiscounted future minimum lease payments 3,007,321 Less: Imputed interest ( 243,001 ) 2,764,320 Less: current portion ( 1,031,714 ) Present value of operating lease obligation $ 1,732,606 The liability for the Cygnet lease is included in the undiscounted future minimum lease payments for 2025. The Company continues to work with the lessor to resolve the disputed lease payments. The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of June 30, 2024 are: Weighted average remaining lease term 47 Months Weighted average incremental borrowing rate 5.0 % The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of June 30, 2023 are: Weighted average remaining lease term 29 Months Weighted average incremental borrowing rate 5.0 % F-20 Table of Contents For the years ended June 30, 2024 and 2023, the components of lease expense, included general and administrative expenses and interest expense in the condensed consolidated statement of operations, are as follows: June 30, 2024 June 30, 2023 Finance lease expense: Amortization of ROU assets $ 669,260 $ 228,147 Interest expense 99,633 28,043 Operating lease cost 16,181 16,804 Short-term lease expense 670,173 772,929 Variable lease expense 169,309 29,113 Total lease cost $ 1,624,556 $ 1,075,036 Note 9. Accrued Liabilities and Acquisition Payable Accrued liabilities consist of the following: June 30, 2024 June 30, 2023 Accrued professional fees 312,500 666,495 Accrued sales tax 28,539 37,429 Accrued expenses from sale of manufacturing operations - 1,360,000 Other accrued liabilities 395,368 375,870 $ 736,407 $ 2,439,794 Acquisition Payable consists of the following: June 30, 2024 June 30, 2023 Payments related to the acquisition of Cygnet $ 413,152 $ 152,500 $ 413,152 $ 152,500 These payables are amounts estimated by management that are due to the sellers of the acquisition and include the original purchase price installment payments not represented with a debt, equity, or other instrument, estimates of excess or deficiencies in working capital and estimates of future earnout payments. F-21 Table of Contents Note 10. Convertible Promissory Notes and Notes Payable Convertible promissory notes and notes payable outstanding as of June 30, 2024 and 2023 are summarized below: Maturity June 30, June 30, Date 2024 2023 Convertible Notes: Promissory Note, 21- month term, as amended, 18.11% interest payable with common stock and subordinate to the Convertible Notes. This note was amended as of November 15, 2023, extending the note to June 1, 2026 and adjusted the interest rate to 12%, paid in cash monthly. June 1, 2026 $ 1,550,000 $ 2,150,000 Less current portion of notes payable - 1,254,167 Notes payable, net of current portion $ 1,550,000 $ 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 Subordinated Promissory Notes, 24-month term notes, 4% cash interest, collateralized with all the assets of the Company October 31, 2024 - 5,750,000 Subordinated Promissory Notes, 12-month term notes, 4% cash interest, collateralized with all the assets of the Company October 31, 2024 - 5,750,000 Total $ - $ 15,000,000 Acquisition notes payable - 5,750,000 Discount on acquisition notes payable, current - ( 93,380 ) Acquisition notes payable, current - 5,656,620 - 9,250,000 Discount on acquisition notes payable, long-term - ( 1,644,915 ) Acquisition notes payable, net of current and discount $ - $ 7,605,085 Notes payable, Cygnet subsidiary: SBA note payable, 30-year term note, 6% interest rate and collateralized with all assets of the Company October 6, 2021 3,761,376 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 1,002,221 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 $ 5,447,565 $ 5,694,327 Notes payable, Cygnet subsidiary, current 5,447,565 795,778 Notes payable, Cygnet subsidiary, net of current $ - $ 4,898,549 Notes Payable on Building for sale: Mortgage Loan, 10-year term note, 4.8% interest, collateralized by land and warehouse building September 26, 2032 $ 2,634,538 $ 2,841,566 Note Payable: Promissory Note, 21-month term note, 10% cash interest and subordinate to the Convertible Notes. This note was amended as of November 15, 2023, extending the note to June 1, 2026 and adjusted the interest rate to 12%, paid in cash monthly. June 1, 2026 560,000 560,000 Notes payable, current - 362,667 Discount on notes payable, current - ( 24,193 ) Notes payable, current net of discount $ 2,634,538 $ 338,474 Notes payable, long-term 560,000 197,333 Discount on notes payable, long-term ( 2,571 ) ( 23,521 ) Notes payable, long-term, net $ 557,429 $ 173,812 Related Notes Payable: Marshall Loan, 2-year term note, 12% cash interest, 3.5% PIK interest and subordinate to the Convertible Notes. November of 2023 extended to June 1, 2026 and interest was adjusted to 12% cash interest, paid monthly June 1, 2026 $ 500,000 $ 1,500,000 Discount on related party note payable, current - ( 70,644 ) Notes payable, current, net of discount $ - $ 1,429,356 Discount on related party note payable, long term - - Notes payable, long term, net $ 500,000 $ - Total convertible notes payable, acquisition notes payable, notes payable and related party note payable $ 10,689,532 $ 25,889,239 F-22 Table of Contents Future payments on notes payable are as follows: For the year ended June 30: Note Payable Related Party Note Payable Convertible Notes Cygnet Subsidiary Notes Payable Total 2025 $ 2,634,538 $ - $ - $ 5,447,565 $ 8,082,103 2026 560,000 500,000 1,550,000 - 2,610,000 3,194,538 500,000 1,550,000 5,447,565 10,692,103 Note original discount ( 2,571 ) - - - ( 2,571 ) $ 3,191,967 $ 500,000 $ 1,550,000 $ 5,447,565 $ 10,689,532 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 $ 120.00 per share and is payable in full, to the extent not previously converted, on April 15, 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 2,813 shares of common stock. The Warrants are exercisable for five years at an exercise price of $ 88.80 per share, provide for customary anti-dilution protection, and an investor put right to require the Company to redeem the Warrants for a total of $ 250,000 . There was a 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 canceled. Additionally, the Company terminated the related Form S-3 registration statement. In June 2022, the Company executed a promissory note with Allan Marshall, the Company’s Chief Executive Officer, in the original principal amount of $ 1,500,000 (“Marshall Loan”). The promissory note has a 2-year term and bears cash interest at the rate of 8.5 % per annum with an additional PIK of 3.5 % per annum. The promissory note provides for monthly payments of principal, on an even line 36-month basis, plus cash interest, with a balloon payment of all outstanding principal, cash interest, and PIK interest at maturity. The Company received and deposited the principal amount on July 31, 2022. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter the amortization of the note over a 12 month period, starting in June of 2025 . The principal currently outstanding is $ 500,000 . In addition to this, the Company issued Mr. Marshall a warrant to purchase up to 18,750 shares of the Company’s common stock for five years at a per share price of $ 22.00 . The note has been classified as long-term in the consolidated financial statements. $ 1,000,000 of the promissory note was used by the investor in the purchase of VitaMedica. F-23 Table of Contents On October 19, 2022, Upexi, Inc. (the “Company”) and its indirect wholly owned subsidiary, Upexi 17129 Florida, LLC entered into a loan agreement, promissory note and related agreements with Professional Bank, a Florida state-chartered bank, providing for a mortgage on the Company’s principal office in N. Clearwater, Florida. The Company received $ 3,000,000 in connection with the transaction. The principal is to be repaid to Professional Bank over a term of ten years. The proceeds of the loan were utilized by the Company to pay down its loan facility with Acorn Capital, LLC in the amount of $ 2,780,200 . As of March 31, 2023, the Company was not in compliance with the debt service ratio. The Company received a forbearance agreement from the bank until June 30, 2024 to return to compliance of the debt service ratio of 1.25 to 1, until that time the Company will pay an interest rate of 10% instead of the contractual terms of 4.8% and has paid the original principal and adjusted interest through this report. The building was sold for $ 4,300,000 on July 8, 2024. On February 22, 2023, the Company executed a promissory note with an investor, in the original principal amount of $ 560,000 . On November 15, 2023, the Company executed an amendment to the promissory note with the investor, providing for the payment of interest only for 18 months at 12% per annum and thereafter the amortization of the note over a 12-month period, starting in June of 2025 . The principal currently outstanding is $ 560,000 . In addition to this, the Company issued the investor a warrant to purchase up to 6,250 shares of the Company’s common stock for five years at a per share price of $ 22.00 . The note has been classified as long-term in the consolidated 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 25,000 shares of the Company’s common stock at a per share price of $ 22.00 . In addition, $ 100,000 of the promissory note was used by the investor in the purchase of VitaMedica. The note has been classified as long-term in the consolidated financial statements. Note 11. Related Party Transactions In June 2024, Allan Marshall, the Company’s CEO advanced the Company $ 100,000 to enable the Company to purchase equipment needed for the new warehouse facility. This advance was paid in July 2024. No interest or other fees were paid related to this transaction. On April 1, 2024, the Company entered into a lease agreement with MFA 2510 Merchant LLC, which is owned by our CEO, Allan Marshall. The lease is for approximately 10,000 square feet of warehouse and office space, located in Odessa, Florida for $ 20,060 per month on a triple net basis. The initial term of the lease is five years. The Company spent $ 611,768 in leasehold improvements to prepare the facility for product manufacturing, which will be amortized over the five year lease term. At June 30, 2024 there was $ 100,004 accrued for the deposit, 3 months’ rent, and 3 months estimated expenses, this was paid in July 2024 and is now kept current. Product manufacturing was at full capacity and fully moved from the Nevada facility as of August 1, 2024. On June 13, 2024, the Company entered into a Stock Purchase Agreement (“SPA”) pursuant to which the Company sold one hundred percent (100%) of the issued and outstanding equity (the “Interests”) of its wholly owned subsidiary VitaMedica, Inc. to three investors (the “Buyers”). One of the minority interest buyers is Allan Marshall, the Company’s CEO. The purchase price for the stock was Six Million Dollars ($ 6,000,000 ), subject to certain customary post-closing adjustments. The proceeds of the transaction will be used for working capital, the reduction of debt and the reduction of other liabilities currently outstanding. In June 2022, the Company entered into a promissory note with a member of management. The loan was for $ 1,500,000 and has a two-year term with an interest rate of 8.5 % per annum with an additional PIK of 3.5 % per annum. On November 15, 2023, the Company executed an amendment to the promissory note with Mr. Marshall, providing for the payment of interest only for 18 months at an interest rate of 12% per annum and thereafter, the amortization of the note over a 12-month period, starting in June of 2025 . $ 1,000,000 of the principal was used as part of the VitaMedica purchase price. The principal outstanding and accrued interest at June 30, 2024 was $ 500,000 and $ 169,662 , respectively. The accrued interest was paid in July of 2024. In addition, the Company issued Mr. Marshall a warrant to purchase up to 18,750 shares of the Company’s common stock for five years at a per share price of $ 22.00 . The note has been classified as long-term in the consolidated financial statements. The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties. F-24 Table of Contents Note 12. Equity Transactions Convertible Preferred Stock The Company has 25,000 shares of Preferred Stock issued and outstanding to Allan Marshall, CEO. The preferred stock is convertible into the Company’s common stock at a ratio of 1.8 shares of preferred stock for a single share of the Company’s common stock at the holder’s option, has preferential liquidation rights and the preferred stock shall vote together with the common stock as a single class on all matters to which shareholders of the Company are entitled to vote at the rate of ten votes per share of preferred stock. Common Stock During the year ended June 30, 2023: The Company issued 62,370 shares of common stock for the acquisition of E-Core Technologies Inc., a Florida corporation, valued at $ 6,000,000 . The Company issued 6,700 shares of common stock for prepayment of interest on a note payable. The shares were valued at $ 607,020 or $90.60 per common share and recorded as prepaid interest as the shares were issued at that time. The Company agreed to sell 100,061 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 warrants to purchase approximately 8,450 shares of the Company’s common stock at a purchase price of $95.48 per common share. In September of 2023, the Company issued 4,505 shares of common stock for the purchase of the remaining 45% of Cygnet Online, LLC. The shares were valued at $ 162,727 or $ 36.12 per common share. These shares were held due to a dispute with the seller. On January 18, 2024, the Company issued 25,081 shares of common stock as repayment of $ 500,000 of the Company’s long-term debt. The shares were valued at $500,000 or 19.94 per common share. On March 18, 2024, the Company issued 5,000 shares of common stock as an incentive-restricted stock grant to certain employees. The shares were valued at $ 85,000 or $ 17 per common share. The Company effectuated a reverse stock split, at a rate of 20 to 1 , effective at 12:01 am ET, October 3, 2024. The total issued and outstanding shares of the Company’s common stock, post reverse stock split was 1,040,886 . The Depository Trust Company (“DTC”) has requested an additional 202,183 shares of the Company’s common stock to round up, pursuant to the terms of the reverse stock split, the holdings of DTC’s beneficial holders. These shares were issued on October 23, 2024 and on October 30, 2024 we were notified that the shares were returned to the Company’s transfer agent. Although the Company did receive the common stock back after issuance, the potential dilution remains a risk, and is the subject of a complaint filed by the Company in the United States District Court for the District of Nevada with the purpose of eliminating any said risk. The Reverse Stock Split did not modify the relative rights or preferences of the Common Stock. F-25 Table of Contents Note 13. Stock Based Compensation The Company has established a Company an incentive plan, 2019 Equity Incentive Plan (the “2019 Plan”). The plan grants incentives to select persons who can make, are making and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons and to encourage and reward such contributions by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant of options or restructured stock. The 2019 Plan is administered by the Compensation Committee or such other committee as is appointed by the Board of Directors pursuant to the 2019 Plan (the “Committee”). The Committee has full authority to administer and interpret the provisions of the 2019 Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an award made under the 2019 Plan. On February 8, 2021, the Shareholders consented, and the Board of Directors approved, the amendment of the 2019 Plan to increase the maximum number of Shares that may be issued thereunder by 138,889 Shares to 277,778 Shares. On May 24, 2022, the Shareholders consented, and the Board of Directors approved the amendment of the 2019 Plan to increase the maximum number of Shares that may be issued thereunder by 222,222 Shares to 500,000 Shares. 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 years ended June 30, 2024 and 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, 2022 213,994 $ 61.00 7.42 $ 4,919,182 Granted 52,150 92.60 10 - Forfeited ( 24,180 ) 30.60 - - Outstanding at June 30, 2023 241,964 $ 66.20 6.23 $ 1,342,280 Granted 23,900 26.59 5 - Forfeited ( 65,150 ) 79.56 - - Outstanding at June 30, 2024 200,714 $ 57.40 5.83 $ 0.00 Options exercisable at June 30, 2024 (vested) 196,972 58.20 5.85 $ 0.00 Options exercisable at June 30, 2023(vested) 217,490 62.40 6.41 $ 3,131,855 The average fair value of stock options granted was estimated to be 3.40 per share for the period ended June 30, 2024, and the closing stock price on June 30, 2024, was $ 7.20 per common share. The average fair value of stock options granted was estimated to be $ 92.60 per share for the period ended June 30, 2023, and the closing stock price on June 30, 2023, was approximately $ 45.00 per common share. Stock-based compensation expense attributable to stock options was approximately $ 1,169,803 and $ 3,664,500 for the years ended June 30, 2024 and 2023, respectively. As of June 30, 2024, there was approximately $ 265,200 unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 2 years. F-26 Table of Contents The value of each grant is estimated at the grant date using the Black-Scholes option model with the following assumptions for options granted during the years ended June 30, 2024 and 2023: June 30, 2024 June 30, 2023 Dividend rate - - Risk free interest rate 3.95 %- 4.53 % 2.70 %- 4.38 % Expected term 5 6.5 Expected volatility 58 %- 107 % 68 %- 117 % Grant date stock price $ 0.53 - 1.47 $ 1.62 – 5.30 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 the Company’s stock prices. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on historical experience of forfeitures, the Company estimated forfeitures at 0% for each of the years ended June 30, 2024 and 2023, respectively. There were 213,214 shares available for issuance as of November 11, 2024, under the 2019 Plan as amended. 14. Income Taxes The components of the provision for income taxes are as follows: 2024 2023 Current tax provision $ 12,700 $ 349,260 Deferred tax provision ( 344,801 ) ( 3,601,298 ) Provision for income taxes (benefit) $ ( 332,101 ) $ ( 3,049,293 ) The differences between income taxes calculated at the statutory US federal income tax rate and the Company’s provision for income taxes are as follows: 2024 2023 Income tax provision at statutory federal and state tax rate 21 % 21.00 % State taxes, net of federal benefit 0.27 % 5.04 % Nondeductible expense ( 0.05 )% ( 0.24 )% Tax return to provision 0.00 % ( 2.67 )% State tax rate change .07 % 1.81 % Other, net 5.53 % 0.90 % Valuation allowance ( 25.43 )% - % Provision for income taxes 1.38 % 25.83 % F-27 Table of Contents The net deferred income tax asset balance related to the following: 2024 2023 Net operating losses carry forward $ 4,405,547 $ 752,863 Right of use assets 98,987 - Inventory write off 981,758 - Impairment loss 3,159,477 1,015,997 Intangible assets 1,034,959 1,741,870 Stock Options 2,323,784 1,999,688 Allowance for doubtful accounts 16,797 56,112 Accrued compensation 27,540 19,323 Deferred revenue - 18,196 Other, net 7 7 Valuation allowances ( 6,100,000 ) - Deferred tax asset $ 5,948,858 $ 5,604,056 There were approximately $ 44,916,500 and $ 21,258,000 of losses available to reduce federal taxable income in future years and can be carried forward indefinitely as of June 30, 2024 and June 30, 2023, respectively. Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of June 30, 2024 and 2023, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. The Company determined that it is more likely than not that the Company will have future taxable income. The Company used $ 2,506,514 of the federal net operating loss carryover during the year ended June 30, 2022. During the years ended June 30, 2024 and June 30, 2023 the federal net operating loss increased significantly and management recorded a valuation reserve of $ 6,100,000 . We file federal and state income tax returns in jurisdictions with varying statutes of limitations. Income tax returns generally remain subject to examination by federal and most state tax authorities. We are not currently under examination in any federal or state jurisdiction. Note 15. 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. F-28 Table of Contents 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 was not moved from the Henderson, Nevada location to the buyers location in Daytona, Florida. 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. At June 30, 2023, there was a receivable balance from the buyer of 845,443 , net of a reserve of $ 1,179,498 . 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 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 year ended June 30, 2023. For the year ended June 30, 2024, the Company had accrual for wind down expenses of employee compensation, travel expenses and others for the expected shutdown of the facility in Henderson, Nevada after the transition was completed to Bloomios. The final reconciliation of all these accrued expenses resulting in and over accrual of $ 71,976 and was recognized as income from discontinued operations for the year ended June 30, 2024. F-29 Table of Contents Summary of discontinued operations: Years ended June 30, 2024 2023 Discontinued Operations Revenue $ - $ 3,042,878 Cost of sales $ - $ 1,803,643 Sales, general and administrative expenses $ ( 71,976 ) $ 1,300,102 Depreciation and amortization $ $ 10,576 Income (loss) from discontinued operations, net of tax $ 71,976 $ ( 338,418 ) The investments originally recorded at the date of the sale were fully reserved as of June 30, 2023. Investments - Bloomios: Senior secured convertible debenture, net of unamortized original issue discount $ 5,218,209 Series D convertible preferred stock 8,500,000 Convertible Secured Subordinate Promissory Note 5,000,000 Reserve on Investments - Bloomios ( 18,718,209 ) Total Investments - Bloomios $ - Senior Secured convertible debenture: The Company received a senior secured convertible debenture of $ 4,500,000 , net of the original issue discount. The Debentures have a maturity date of October 26, 2024 , an interest rate of 10 % and are convertible into shares of Bloomios common stock. The debenture contains customary representations, warranties and indemnification provisions. The Debentures are secured by a senior security interest in all assets of the Company and its subsidiaries. In addition, the Company received a warrant to purchase shares of Bloomios common stock. The Company did not place any value on this warrant. Bloomios has agreed to use commercially reasonable efforts to complete a Qualified Offering within six months of October 26, 2022, to file a registration statement covering the resale of the warrant shares and the underlying shares convertible with the debenture. Series D convertible preferred stock We received 85,000 shares of Series D preferred stock. The preferred shares have a stated value per share of $100 and we are to receive dividends equal to 8.5% per year on a monthly basis, 30 days in arrears , for each month during which the Series D Preferred shares remain outstanding. The preferred stock shall not receive the declared dividends until the senior secured debentures are all repaid in full for all investors, including the debentures held by the Company. Convertible Secured Subordinate Promissory Note The note has an interest rate of eight and one-half percent ( 8.5 %) per annum and requires Bloomios to make a prepayment to the note in the amount equal to 40 % of the net proceeds received by Bloomios in connection with any offering of securities conducted in connection with an up listing. Interest is due monthly and the note is convertible, at the Company’s option, into shares of Bloomios common stock at a conversion price of $ 5.00 per share subject to adjustments. The full principal and interest is due on or before October 26, 2024. The note is secured by a subordinated security interest in all assets of Infusionz pursuant to a certain pledge and security agreement, dated as of October 26, 2022, which security interest shall rank junior to all liens and security interests granted by Bloomios to the senior secured convertible note, which the Company is a holder of a portion of this security. F-30 Table of Contents Note 17. 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: Years ended June 30, 2024 2023 Discontinued Operations Revenue $ 158,147 $ 1,442,279 Cost of sales $ 11,982 $ 446,332 Sales, general and administrative expenses $ 333,168 $ 2,118,480 Depreciation and amortization $ - $ 607,103 Loss from discontinued operations $ ( 187,003 ) $ ( 1,729,636 ) Accounts receivable net of allowance for doubtful accounts $ - $ 67,467 Fixed assets, net of accumulated depreciation $ - $ 2,835 Total assets $ - $ 1,026,043 Total liabilities $ - $ - Note 18. Discontinued Operations – Sale of VitaMedica On June 13, 2024, the Company sold VitaMedica, Inc. to three investors and had an effective day of June 1, 2024. One of the minority interest investors is Allan Marshall, the Company’s Chief Executive Officer. The purchase price for the stock was $ 6,000,000 , subject to certain customary post-closing adjustments. In addition, the Buyers are obligated to pay the Company for services provided according to the Transition Services Agreement. Accordingly, the results of the business were classified as discontinued operations in our statements of operations and excluded from both continuing operations and segment results for all periods presented. Discontinued operations of VitaMedica included in the consolidated financial statements ended June 30, 2024 are for the period from July 1, 2023 to May 31, 2024. Summary of discontinued operations: Years ended June 30, 2024 2023 Discontinued Operations Revenue $ 8,707,268 $ 7,610,949 Cost of sales $ 2,051,854 $ 1,362,036 Sales, general and administrative expenses $ 6,076,257 $ 5,891,301 Depreciation and amortization $ 425,263 $ 527,634 Other expenses $ ( 59,742 ) $ 212,427 Income (loss) from discontinued operations $ 213,636 $ ( 382,449 ) Accounts receivable net of allowance for doubtful accounts $ - $ 289,416 Fixed assets, net of accumulated depreciation $ - $ 83,840 Total assets $ - $ 4,875,757 Total liabilities $ - $ F-31 Table of Contents Fair value of consideration the Company was paid: Cash $ 2,100.000 Reduction of liabilities 1,900,000 Note payable 1,000,000 Working capital payment 1,000,000 $ 6,000,000 Recognized amounts of identifiable assets, liabilities and intangible assets transferred: Cash $ 37,267 Accounts receivable 416,374 Inventory 1,747,150 Prepaid expenses 518,280 Fixed assets 111,305 Other assets 184,800 Liabilities ( 512,926 ) Total identifiable assets 2,502,250 Total goodwill and intangible assets 1,549,212 Total assets transferred 4,051,462 Purchase price $ 6,000,000 Gain on sale of VitaMedica $ 1,948,538 Note 19. Discontinued Operations – Sale of E-Core E-Core, Technology Inc. and its subsidiaries On October 21, 2022, the Company acquired E-Core Technology, Inc. (“E-Core”) d/b/a New England Technology, Inc., a Florida corporation (“New England Technology”). The following table summarizes the consideration transferred to acquire E-Core and the amount of identified assets acquired, and liabilities assumed at the acquisition date. Fair value of consideration transferred: Cash $ 100,000 Cash payment, 120 days 3,000,000 Note payable 5,189,718 Note payable 2 4,684,029 Convertible note payable, convertible at $4.81 per common share 2,418,860 Common stock, 1,247,402 shares valued at $4.81 per common share, the calculated closing price on October 21, 2022 6,000,000 $ 21,039,765 Recognized amounts of identifiable assets acquired, and liabilities assumed: Cash $ 1,014,610 Accounts receivable 6,699,945 Inventory 7,750,011 Prepaid expenses 75,721 Trade name 1,727,249 Customer relationships 5,080,305 Accrued liabilities ( 192,051 ) Line of credit ( 7,201,079 ) Total identifiable net assets $ 14,635,673 Goodwill $ 6,404,092 F-32 Table of Contents The business was acquired through 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 three notes payable were discounted by $ 2,707,393 . The discount amortization for the year ended June 30, 2024 and June 30, 2023 was $ 1,112,676 and $ 969,098 , respectively. On August 1, 2024, the Company closed a sale transaction in which, effective as of June 30, 2024, it sold 100 % of the outstanding stock of its wholly owned subsidiary E-Core Technology, Inc., a Florida corporation (d/b/a New England Technology, Inc.) (“E-core”), to E-Core Holdings, LLC, a Florida limited liability company (the “Buyer”) pursuant to the terms of an Agreement to Unwind Securities Purchase Agreement dated July 31, 2024 (the “Agreement”). The principals of the Buyer are the three individuals from whom the Company acquired E-core in October 2022. The purchase price in the transaction was $ 2,000,000 paid by the Buyer to the Company at closing. In addition, in connection with the closing of the transaction (i) the Company was released as a guarantor from E-core’s commercial loan facility, and (ii) all subordinated promissory notes issued by the Company in connection with the Company’s initial acquisition of E-core were cancelled and any outstanding principal and interest thereunder was deemed paid in full. The Agreement contains standard representations and warranties, conditions to closing, and covenants, for a transaction of this nature. Summary of discontinued operations: Years ended June 30, 2024 2023 Discontinued Operations Revenue $ 8,707,268 $ 36,623,864 Cost of sales $ 2,051,854 $ 30,334,483 Sales, general and administrative expenses $ 6,076,257 $ 4,026,910 Depreciation and amortization $ 425,263 $ 1,144,313 Other expenses $ ( 59,742 ) $ 37,824 Income from discontinued operations $ 213,636 $ 1,080,379 Accounts receivable net of allowance for doubtful accounts $ - $ 5,796,903 Fixed assets, net of accumulated depreciation $ - $ - Total assets $ - $ 22,400,484 Total liabilities $ - $ 3,401,983 Fair value of consideration the Company was paid: Acquisition payable, paid August 5, 2024 $ 2,000.000 Assumption of debt and accrued interest 10,636,309 $ 12,636,309 Recognized amounts of identifiable assets, liabilities and intangible assets transferred: Cash $ 51,976 Accounts receivable 5,301,212 Inventory 1,870,687 Prepaid expenses 56,476 Fixed assets - Liabilities ( 3,428,549 ) Total identifiable assets 3,851,802 Total goodwill and intangible assets 10,521,833 Total assets transferred 14,373,635 Purchase price $ 12,636,309 Loss on sale of E-core $ 1,737,326 F-33 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.