UPEXI, INC. current report, 31 October 2022

Full document

Upexi, Inc. Form 8-K Summary

Reporting date: October 31, 2022; filed November 3, 2022. The filing reports the completed acquisition of 100% of E-Core Technology, Inc., doing business as New England Technology, Inc., by Upexi Enterprise, LLC, a wholly owned subsidiary of Upexi, Inc.

Transaction and Consideration

  • Base purchase consideration was $24.1 million, subject to adjustment.
  • $3.1 million was payable within 30 days after closing. Of this amount, $900,000 otherwise payable to a seller was to be paid directly to the acquired company to reduce a $1.5 million promissory note owed by that seller.
  • Upexi issued 1,247,402 restricted common shares valued at $6.0 million.
  • Buyer-issued Notes 1 totaled $5.75 million, mature in 12 months, and bear interest at 4.0%. A $600,000 portion otherwise payable to a seller was satisfied by canceling an equal amount of that seller’s debt to the acquired company.
  • Buyer-issued Notes 2 totaled $5.75 million, mature in 24 months, and bear interest at 4.0%.
  • Buyer-issued Notes 3 totaled $3.5 million, mature in 36 months, and bear no interest. Sellers may convert all Notes 3, but not less than all, into restricted common stock at $4.81 per share on the second anniversary of issuance.

Financial Metrics, Liquidity, and Debt

  • The filing does not provide the acquired business’s revenue, profit, cash flow, margins, or balance-sheet liquidity.
  • The transaction creates $11.5 million of stated 4.0% seller-note principal, plus $3.5 million of zero-interest Notes 3, before any applicable adjustments or repayments.
  • If Notes 3 are not converted, principal is scheduled to be paid in 12 equal monthly installments beginning on the second anniversary of issuance, subject to performance-based reductions.
  • The transaction includes a two-way post-closing working-capital adjustment based on target working capital of $8.5 million as of closing.

Material Changes, Outlook, and Contingencies

  • The acquisition closed on October 31, 2022; no prior-period financial comparison is provided.
  • Notes 3 may be reduced based on shortfalls in Adjusted EBITDA against stated thresholds of $3.0 million during each of the first two post-closing 12-month periods and $2.0 million during the third period. Aggregate reductions may not exceed the full amount due under Notes 3.
  • If Adjusted EBITDA exceeds $8.0 million over the three years beginning at closing, previously applied Notes 3 reductions must be reversed and paid to the sellers as additional consideration.
  • The filing does not provide formal revenue or earnings guidance. Management commentary is limited in the supplied filing text; the November 2, 2022 press release is furnished as Exhibit 99.1.
  • The acquisition and related obligations may increase leverage, cash requirements, dilution risk, and exposure to acquired-business performance. The filing states that contractual representations and warranties should not be treated as independent factual or financial disclosures.

Investor Verification Items

  1. Verify the acquired company’s historical and pro forma revenue, profitability, cash flow, working capital, and Adjusted EBITDA.
  2. Confirm the final cash, stock, note, and working-capital-adjustment amounts after closing adjustments.
  3. Review the maturity schedule and funding requirements for the $11.5 million of 4.0% notes and $3.5 million of Notes 3.
  4. Assess potential dilution if sellers exercise the Notes 3 conversion right at $4.81 per share.
  5. Review the acquisition agreement and furnished press release for indemnities, closing conditions, integration matters, and other contingencies not detailed in the filing text.